Jay Gallegos
Managing Director
Globeleq Mesoamerica Energy
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Insight

Regional Experience for Mexican Wind Project

Wed, 02/19/2014 - 11:17

The Global Wind Energy Council reports that, in 2012, only 1.2% of the world’s installed wind power capacity was located in Latin America or the Caribbean. This figure contrasts with this region’s great potential for wind energy generation and growing energy demand.cHowever, a few countries are spearheading the development of the wind industry across the continent. Among these, Brazil stood out as the source of 71.6% of the region’s total output of wind energy in 2012. There is also an unlikely laureate in this list: Costa Rica, which has an installed capacity of 147MW of wind power as of 2012, making it the third-highest producing country in Latin America and the Caribbean. This production level puts Costa Rica only 20MW behind Argentina, and well ahead of much bigger economies such as Chile, Mexico, Venezuela and Colombia.

Costa Rica is in fact the cradle of Latin America’s first wind project. Almost 20 years ago, Jay Gallegos led this project and built up a successful company as a result. Now, he is CEO of Globeleq Mesoamerica Energy, a division of Globeleq, an experienced developer of energy solutions with projects in the emerging markets of Africa and the Americas. “A key consideration in choosing Costa Rica as the location for Latin America’s first wind farm was the fact that the windy season in Central America is opposite to the rainy season,” Gallegos explains. “These countries can generate much of their energy needs from hydropower during the rainy season, and use wind in the periods of little to no rain.”

Additionally, Gallegos identified an immediate need for alternatives to oil in this region. “Central America has no commercially viable oil resources, or at least none that are currently being exploited. The resulting import dependency leads to huge currency drains. In some developing countries, up to 10% of GDP is destined to the payment of hydrocarbon imports. Although Costa Rica was not the country in the region which could benefit the most from wind power, it was the region’s most stable investment destination at the time,” he states. Globeleq is now an important energy generator for various Latin American countries. Besides having a deep penetration in the Costa Rican market, the company currently produces 7% of total energy consumption in both Nicaragua and Honduras. “We are on track to become the source of 10% of energy consumption in these two countries with expansion projects,” Gallegos mentions. “Moreover, when we finish construction of our current projects in Costa Rica, we will have 343MW of installed capacity in the region.”

“Central America’s energy market totals about 11GW. There are only a finite number of wind projects that can be developed and their progress has been slow,” Gallegos admits. At the same time, many other Latin American countries have considerable untapped potential for wind power generation. In 2010, Globeleq decided to acquire a majority share in Mesoamerica Energy as a platform to enter new markets within Latin America. Mexico is now one of the major focus areas for Globeleq Mesoamerica Energy. “We have a mandate to increase our presence in Mexico,” Gallegos says. “We have identified almost 1GW of opportunities and we are trying to choose projects where we can add value. We want to invest as much as US$500 million of equity in Mexico over the next seven or eight years,” he asserts.

In Mexico, the company wishes to step in to help projects that have already achieved certain development milestones, taking them through EPC contract negotiations, financing, construction and operations. “Mexico has a lot of projects at the development stage, as many companies have set up meteorological towers to measure the wind resource, signed land agreements, and have advanced in the permitting processes. But many development companies may not have the resources and expertise to take their project through to commercial operation,” Gallegos points out. “We like to get involved at this point as our forte is the negotiation of construction contracts, the procurement of the equipment, upgrading environmental impact studies, designing the social support program, managing construction, and ultimately handling the operations.” Gallegos also perceives attractive conditions and levels of access to credit for investments in Mexico. “Banks here have a far greater capacity to fund projects than in Central America. One drawback is local currency volatility, and that is something we need to take into account in our commitments to EPC contractors, off-takers and equity shareholders. We are working on creative mechanisms to finance projects to consolidate investment,” he mentions.

Ultimately, Globeleq intends to help wind power projects that already have or are just about to complete environmental studies, where land rights have been secured, and where enough wind measurements have been made to push through to commercial operation. “We believe this is the moment at which we can supply something many projects lack: the capital and experience to bring these projects to completion,” Gallegos affirms.