Draft document, IFC – Mexico Wind Power Project Clean Technology Fund Mexico Private Sector Wind Development Project CTF Financing US$ 15M The Mexico Private Sector Wind Development Project is a component of the Mexico Country Investment Plan and its Renewable Energy Program. The Mexico Investment Plan (IP) was endorsed by the Trust Fund Committee of the Clean Technology Fund (CTF) in January of 2009. Mexico’s wind sector development is supported jointly by IFC and the private sector arm of the Inter- American Development Bank (IADB). Together, through a programmatic approach, they are supporting both public- and private- sector interventions to enhance Mexico’s wind power sector. By removing regulatory and institutional barriers and providing incentives for developers and financiers of renewable energy, IFC and IADB are able to fast-track the implementation of Mexico’s wind power projects. The Government of Mexico seeks to significantly reduce GHG emissions by 2050 by accelerating the growth rate of the wind power sector. Project Objectives: > Structure a long-term project finance package that enhances the viability and long-term sustainability of the project. > Offset the relative high cost of obtaining long-term financing on commercial terms under current financial market conditions. > Attract potential commercial bank financing to the project. > Provide valuable information on incentives required to catalyze renewable energy development, thus helping to design a new regulatory framework. In this way, CTF funding offsets and mitigates some of the risks of the Mexico wind power project for commercial lenders. Transformation: Mexico is one of the most promising yet untapped areas for wind energy development in Latin America. Its wind energy potential is conservatively estimated at more than 40 GW. Development is slow primarily due to a lack of adequate financial incentives for private developers and investors as well as barriers stemming from the regulatory framework. This project will transform Mexico’s nascent wind power sector. It will scale-up existing wind power projects in various stages of development and demonstrate how wind turbine technology is technically viable, commercially available, and produces zero emissions from electricity generation. Some of its major transformations include: Draft document, IFC – Mexico Wind Power Project > An estimated 0.9 mt CO2 will be offset by the project between 2010 and 2014. This significant reduction of emissions will have an immediate and ongoing impact on GHG levels, thereby transforming Mexico’s carbon footprint for the better. > CTF resources will trigger the transformation of the financial market for wind power through a combination of risk mitigation and incentives. An enabling environment will be created that lowers the costs of doing business and promotes the re-engagement with and, new entry into, the wind power sector by private developers and private commercial banks. > Private sector wind projects are expected to help Mexico access the CDM carbon market at scale, thereby having a demonstration effect for renewable energy projects. > Valuable information will be gained from the initial pilot projects and used to design the Energy Transition Fund to help scale-up renewable energy projects. Feedback from the pilot projects will also help design the new regulatory framework of the Renewable Energy Law. > A demonstration effect will signal the global wind power industry that the Mexican wind power market is viable and ready for scale-up. It will encourage replication of the project on a national scale and perhaps throughout Latin America and the Caribbean. Mexico can then position itself as a global leader in the industry. The overall transformation of Mexico’s wind power sector is primarily attributable to the programmatic approach and interventions put forth in the Investment Plan’s Renewable Energy Program. Development Impact Mexico’s demand for electricity has been growing at a pace faster than the country’s GDP for several years. This trend is likely to continue into the foreseeable future and will affect residential, commercial and industrial consumers as well as the environment. If left un-checked, a 230% increase in CO2 emissions is expected between 2008 and 2013 and coal will account for 37% of electricity generation. By steering away from this business-as-usually scenario, Mexico is changing the path of its carbon emission level as well as its economic development. The scaling-up of Mexico’s wind-power sector is promoting sustainable economic development, with particular impact in the Isthmus of Tehuantepec in the State of Oaxaca, one of Mexico’s poorest regions and the location of the initial pilot project. Projected impact: Oaxaca landowners will receive an important monthly income; about 150 local new jobs will be created during project construction while post-construction operations will create about ten permanent full-time positions; project construction of roads and other infrastructure will provide long-term benefits to the local community; Port of Salina Cruz will see an increase in shipping volume and activity, thereby substantially boosting its economic activity during the project’s development. Draft document, IFC – Mexico Wind Power Project Overall, the project will stimulate the generation of new jobs, increase Mexico’s export opportunities and enhance the country’s competitiveness within a global low carbon economy. Co-benefits may include: improvement of air and water quality leading to overall health improvements for local residents; enhancement of local ecosystems due to a reduction of deforestation; stabilization of energy prices by reducing dependency on fossil fuels; increasing energy security by diversifying energy sources – moving away from a reliance on fossil fuels. Implementation Potential Mexico’s capacity to successfully transition to renewable energy, especially wind power production, is enhanced by a number of recent laws related to targets and policies for renewable energy. The CTF Project also builds on Mexico’s existing knowledge and projects that aim to stimulate and sustain long- term renewable energy development such as the Proyecto de Energias Renovables a Gran Escala (PERGE), the GEF’s Action Plan for Removing Barriers to the Full-Scale Implementation of Wind Power in Mexico, and Carbon Finance projects. Furthermore, the CTF project site has a high GHG mitigation potential - over 8,000 mw of wind potential and many areas having wind speeds in the 8-12 m/s range. The CTF Project is expected to mobilize US$60 million from IFC and IADB plus up to US$60 million from other sources, including commercial banks, bilateral financiers, and/or export credit agency financing. Additionally, it will help the Government of Mexico define strong new regulations under the Renewable Energy Law which took effect in November of 2008. Sustainability: The Government of Mexico is committed to a long-term progressive climate change policy. Sustainable outcomes of its wind power projects are essential for the attainment of its 2050 goal of significantly increasing wind power generation and reducing the level of GHG emissions. Measurements of sustainability include: > The project will promote sustainability through demonstration – a proven track-record of the technical and financial viability of private sector wind projects, and thereby accelerating the development of the sector. > Moving forward, the new enabling environment of lower risk and improved financial options will make wind projects in Mexico more attractive based on their own merit. > The project’s upstream regulatory interventions led by the IADB will create an attractive regulatory framework having the potential to further scale-up and accelerate private sector participation in wind power and other renewable energy sources. > Once the wind market reaches a critical mass of over 500 MW installed and operational, it is expected that wind development will grow at a faster rate, without the need for further CTF support.