Making Renewable Energy Finance WorkBy Andrea Villar | Wed, 03/11/2020 - 12:39
Renewable energy is finding its way in the Mexican industry, but projects in Mexico require long-term financing to be successful while the industry needs to face several challenges to take advantage of the country's potential, CEO of Zuma Energía Adrian Katzew told the Mexico Energy Forum 2020 audience on Wednesday at Mexico City’s Sheraton Maria Isabel hotel.
"Development banking plays a vital role in financing energy projects because those are projects that have to be financed for the long term. Commercial banking has been limited in this regard. Mexico should be open to long-term contracts as we see in Brazil. These contracts contribute to investment certainty and encourage new projects,” Katzew pointed out.
Another major challenge facing electricity markets is losing money on projects and how to recover it. "Markets are designed around price or cost. Cost-based models do not have a price differential and this affects long-term projects. An example to follow is Brazil, which has developed long-term contracts that provide certainty to the investment and motivates companies to develop new projects."
In Katzew's view, the optimal development of renewable energy in Mexico depends on three key issues: transmission infrastructure, commercialization schemes and long-term system planning.
In September 2018, Zuma Energía inaugurated the largest wind farm in Mexico and one of the largest in Latin America, which has the capacity to produce 424MW to supply power to 900,000 residents. The project, located in the Charco Escondido ejido of Reynosa, Tamaulipas, has an area of 8,000ha with 123 turbines that provide clean energy, thus avoiding emissions to the atmosphere of 739,000 tons of CO2 per year.
Despite all the challenges that the industry faces in Mexico, having the necessary elements and with the right support, a clean and renewable future is not so far away, Katzew said. He highlighted the financing of Zuma Energía’s project, which totaled US$600 million and was achieved through development and commercial banks. “The Mexico-Reynosa wind farm was the first auction project to be financed. There was always dialogue with the private sector and there was always feedback from the financial sector and that needs to be done with every single project,” he added.
This project is part of the second long-term electricity auction organized by the Ministry of Energy (Sener) and the National Center for Energy Control (Cenace) held in September 2016, in which Zuma Energía was the winner of a portfolio totaling 725MW in renewable energy, 424MW of which is delivered by the Reynosa wind farm.