Emiliano Detta
Sustainable Energy Expert
KFW
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View from the Top

Investing in the Future

Wed, 02/21/2018 - 16:57

Q: How has KfW showed its commitment to the development of the Mexican energy sector?

A: KfW consists of four branches: the German Domestic Bank, the Development Bank, IPEX and DEG, the last three having an international presence. The KfW Development Bank offers loans to national development banks and has been active in Mexico through loans to Bancomext, NAFIN, the Federal Mortgage Society (SHF) and NadBank. Our participation in the financing market is, therefore, as a second or third-level bank, where funds go through more than one institution before reaching the end user.

With sustainable energy we have three operational areas for our financing. The first is for utility-scale renewables, in which developers receive financing through the funds we offer to local development banks that work within the project finance modality. The second is the Ecocasa program, where we finance the inclusion of energy efficiency in homes through SHF via two routes. First, by financing developers or housing complexes through bridge loans or project finance schemes, and second, with credit lines to local financial entities so they finance these developers. The third area incentivizes the inclusion of energy efficiency on SMEs through small loans offered by FIDE, in which FIDE is financed by NAFIN gets the funds from us. In this third operation we work as a third-level bank, since the money goes through two institutions before reaching the final user. We are expecting a significant increase in the financing of sustainable energy projects, as our pipeline for all the projects approved since 2014 and to be approved up until 2019 is around US$1.2 billion. 

Q: Which energy projects does KfW find the most attractive for investment in Mexico?

A: Through Bancomext and NAFIN, KfW has financed eight wind utility-scale projects in Mexico. With Bancomext we have multiple credit lines that total US$300 million approved. With these funds we expect to finance four to six more wind and solar projects.

KfW does not discriminate projects based on their development state but most tend to be in the construction stage, which is the phase at which local development banks can start working with us on due diligence for the loan to be approved. Our due diligence is not only focused on legal and economic factors, which are supported by the sovereign warranty we are offered by the state. Instead, our biggest concern is related to the technical, environmental and social elements of a project because we want to make sure that KfW’s name is associated with viable projects that provide benefits to the countries in which we work. To ensure the technical, environmental and social viability of the projects, we are supported by our team of Frankfurt-based experts. This team not only supports our internal decisions but it can also offer support to local development banks, helping them to better understand the technical, social and environmental impact of our due diligence. This ensures close contact with the developers from the very beginning of the financing element. Our commitment to them continues beyond the project’s completion, with follow-up reports every three to six months. 

Q: Why have German companies been absent in the longterm tenders in Mexico?

A: German companies tend to be much more conservative than others. Their business model has always been focused on secured investments and high-quality products and services. The fact that there is no large international German developer, could explain why the country’s presence in the tenders has been null. There are some German companies present in Mexico that provide highly sophisticated products and services, such as reinsurance and sophisticated electricity market or energy management services. However, we will see a stronger German company presence when the market starts demanding high-end sophisticated technologies, such as biomass, storage or energy management.