IADB in Step with Mexico's Energy AgendaWed, 02/22/2017 - 09:49
Mexico’s national energy plans have helped shape the IADB’s priorities in the country, turning its focus to clean and energy-efficient technologies with the potential to reduce GHG emissions. “The IADB follows the country’s agenda to decide on which sectors it should focus. We aim to have an integral portfolio supporting the country’s development goals. We are highly respectful of the national agenda,” says Ariel Yépez, Energy Division Chief at the bank. “The implementation of the Energy Reform has shifted the bank’s focus to the energy sector, not because it is more attractive to us but because it is key for the Mexican government.”
The IADB has set the ambitious goal of doubling climate finance to 30 percent of approvals by 2020, an average of US$4 billion annually destined for mitigation and adaptation initiatives in Latin America and the Caribbean, according to a joint 2016 report published by the bank and six other multilateral institutions. IADB has granted around US$94.9 million in loans directly to the Mexican energy sector and over US$311 million indirectly through financial markets. This complements the 50 energy operations the bank has in over 20 countries of Latin America and the Caribbean, altogether valued at over US$4 billion, according to its website.
The bank’s sectorial framework for the Mexican energy industry is currently based on three pillars: universal access to electricity and clean cooking fuels, renewable energies and energy efficiency. “In all cases, the bank supports Mexico’s energy development by providing direct loans to the government to implement energy projects or initiatives through public institutions or third parties, or by financing local development banks that are supporting the country’s energy agenda,” says Yépez.
“Mexico’s scale calls for large investments. In our electricity access and clean cooking fuels agenda the investment required to implement a social policy program is not lower than US$300 million. In the case of renewable energy projects, the investment required is dependent on the project’s characteristics. In Latin America and the Caribbean, we have placed investments ranging from US$5 million to almost US$1 billion for the rehabilitation of hydro generators we are currently financing in Venezuela.”
Yépez says the core of the bank’s energy division in Latin America is the support given for renewable energy development, with a strong focus on PV solar, wind and geothermal power plants. “There is great potential to develop these technologies in Mexico and we are already seeing important advances in the diversification of the country’s energy matrix through the adoption of new energy sources.”
“The liberalization of the energy market has opened new windows of opportunity to invest in energy projects in the private sector and it has also boosted the bank’s interest in investing in renewable technologies. The Energy Transition Law is one of the Reform’s policy tools that is driving renewable energy growth in Mexico, also providing incentives to multilateral banks such as the IADB to invest,” he adds.
IADB is no stranger to financing renewable energies in Mexico. In 2011, the bank approved a US$70 million loan to local development bank NAFINSA, coming from the Clean Technology Fund it administers. The financial resources were intended to be used over a 20-year period to co-finance the construction of renewable energy projects, support the projects’ life financing and fund contingency lines in these kinds of projects. The multilateral institution was also involved in the creation of a program to mitigate the risks associated with the exploration phase of geothermal energy sources, one of the main barriers to developing the country’s high geothermal potential. The bank provided US$54.3 million of the US$120.1 million required for the program in 2014, expected to support the construction of 300MW in geothermal energy capacity during a six-year period. The Washington, DC-based institution has also provided direct financing to project developers willing to build renewable and cogeneration power plants in Mexico. Its support was particularly crucial in the early stages of wind development in the southern state of Oaxaca by making long-term financing schemes available in the country. The bank continues to be key in mobilizing resources for the construction of clean power plants in Mexico.
IADB has also collaborated closely with NAFINSA regarding energy-efficiency programs. “Supporting the adoption of clean-energy technologies in the industry is one of our flagship projects in Mexico. We provide financing to NAFINSA, which in turn provides loans to SMEs willing to implement modern and efficient technologies in their facilities,” Yépez says.
Another important contribution in the energy-efficiency arena was the US$125 million mobilized by the bank in
2015 for financing projects using green bonds issued in the local capital markets. The program looks to eliminate Transport the financial barrier faced by Mexican energy-services companies (ESCOs) to develop energy-efficient projects up to 5MW, mostly used to optimize energy consumption in Mexican industrial plants. Financial viability and the potential impact on the country’s development agenda are two of the crucial factors the bank considers before investing in a particular project. In addition, the project’s sustainability and its positive impact on local communities have also become decisive factors closely monitored by the bank’s officials.
“We have implemented tools to ensure that all the projects financed by the bank are sustainable from an integral perspective, including environmental, social and economic aspects. The added value of having a development bank involved in the project financing process is precisely the attention given to its positive impact at local and national levels. We are careful to support only projects that have more positive than negative impacts on the selected location, ensuring that companies fairly compensate affected local communities,” he says.
The bank also recognizes the private sector’s interest in investing in Mexico’s energy sector. “We see great interest from international companies to invest in power generation, not only for selling energy to CFE but to grab opportunities with private off-takers,” Yépez says.
For 2017, Yépez says the bank will continue to support the Mexican government’s energy agenda. “We want to have a comprehensive strategy of initiatives and programs that could be implemented to reduce Mexico’s energy intensity. We are also in talks with private companies in the electricity and natural gas sectors to see what the best ways are to support private-driven projects with the highest potential to contribute to Mexico’s development agenda.”