Promoting Green Infrastructure in Border RegionWed, 02/24/2016 - 14:19
Q: What role has the North American Development Bank (NADB) played in promoting environmental projects and investments?
A: The bank was created as part of some subordinate agreements between Mexico and the US during the NAFTA negotiations. Both governments knew that NAFTA would generate demand for environmental infrastructure along the border because of the population growth rate and the economic growth of the border states, which in the last ten years has been above the national average both for Mexico and the US. The NADB was meant to be a tool to help the governments of these states work with the private sector and local public entities in developing and financing environmental infrastructure. In some way, the NADB was the first green bank created. Over the past 20 years we have played an important role in three ways. We have helped develop and finance several projects that help preserve, protect, and enhance the environment in the border region. Through our technical assistance program, we have also helped in developing and strengthening the capacities of private and public entities related to the environment. Lastly, we have also managed a non-reimbursable resource initiative that has contributed to the development of a significant number of water projects along the border.
Q: Which sector is the most important in your portfolio?
A: We work in renewables, clean energy, water and solid waste management, and improving air quality, which encompasses urban mobility and other similar projects. However, through our numbers, the two important segments that stand out are the water sector and the renewable and clean energy sector. Water continues to be a top priority for us, but both in Mexico and the US this area normally receives a significant amount of non-reimbursable resources, so it is not easy to make related projects bankable. The renewables segment has grown slightly faster in the past ten years due to the fact that in Mexico, the renewables market is still relatively small and in the early stages of development. The enactment of the Energy Reform has somewhat halted the expansion of renewable energy projects because the players have been waiting for certain regulations and rules to be issued. There is an obvious transition from the old self-supply scheme, which was the way most projects were previously developed, into a new electricity market. A significant number of players are experiencing more difficulties in obtaining long-term PPAs. The model is predicted to change for these qualified users, who will be increasingly inclined to seek shorter-term contracts. Renewable projects will begin to gather pace once certain elements are clarified, and it makes sense for us to be present in the development of the market during its early stages.
Q: How does the NADB mitigate risks when financing water treatment and renewable energy projects?
A: The bank takes a conservative approach to risk, whether market, credit, or operational risk. There are four elements to our approach. Firstly, our business model involves a competent and professional team on the project development side, which works alongside a team with strong technical capacities. The bank also gets support from external top tier consultants, which brings me to the second element. We rely on prestigious law firms to evaluate the contracts, on technical firms to examine the wind projection or irradiation projections, and on relevant teams for the insurance requirements for these types of projects. Thirdly, we believe PPAs are crucial, thus we devote a lot of time to examining the PPA and making sure it is appropriate for us, the sponsor, and all other parties involved. Finally, we put emphasis on the quality of the off-taker.
Q. How is the NADB fostering green practices in Mexico?
A: We wish to help develop and finance infrastructure that helps preserve, protect, and enhance the environment of the border region. In terms of best practices, we have the Utility Management Institute (UMI), where we train officials from public water utilities from Mexico and the US in best practices in the water management sector. We have been doing that for quite some time now and it has been a successful initiative. We are also constantly funding studies through our technical assistance programs aimed at fostering best practices. For example, we are now working on the green infrastructure sector, which is intended to help develop and foster best practices in cities regarding basic urban infrastructure, such as sidewalks. Through our technical assistance division and UMI, we are promoting best practices as part of our daily operations.