Latin Finance - July/August 2011 - 36

mexico renewables

Tilting at Windmills
by Rebecca Conan

ith installed operational capacity of only 530 megawatts (MW) and ambitions to build another 1,700MW by next year, Mexico’s nascent wind sector could represent a potential windfall for investors. Investment in 2010 alone came in around $1.8 billion, and Mexico’s Secretary of Energy estimates another $5.5 billion will be required to reach its 2012 targets. However, investors and developers complain of a lack of support from the government, despite its lofty goals to build out the sector. The government’s much-trumpeted Energy Transition Fund, established in 2009, promised to provide incentives to develop renewable energy projects. The fund also pledged to fund research and development into renewable technology. Neither has happened. The fund instead directs its budget (5 million pesos to date) to small-scale energy efficiency projects such as the switch to energy-saving light bulbs. Until now, the wind market in Mexico has focused predominantly on Oaxaca, due to the region’s wind resources and the Federal Electricity Commission (CFE)’s transmission infrastructure. However, transmission capacity in the state will be fully occupied by existing wind farm projects within two years unless the CFE builds further infrastructure. “Within 10 years Mexico can be the world leader in wind power,” says Miguel Angel Alonso, director general of Spanish wind developer Acciona Energia Mexico, which has $1.25 billion invested in Mexican wind projects. Despite Alonso’s optimism, the market remains in its infancy. Mexico has a total operational capacity of only 530MW, expected to rise to 2,000MW by 2012, against Brazil’s 931MW or the US’s 40,180MW. Mexico’s

Mexico’s wind energy market is potentially lucrative. But a lack of government commitment and insufficient transmission capacity could stall its development.

Mexico could become the world leader in wind energy Secretary of Energy estimates the country has the capacity to build 71,000MW of wind energy generation. Infrastructure Partners (GSIP) is looking. “As an infrastructure fund we are looking for relatively stable cash-yielding investments,” Marc Ricks, VP of GSIP tells LatinFinance. “We are not early-stage development capital. We have had terrific experience investing in Mexico and our funds are some of the largest foreign direct investors into this country.” GSIP has not yet invested in Mexican wind, but Ricks says this is due to timing and commitments to other Mexican infrastructure projects. For large investors, the Mexican wind energy sector can be problematic, says Ricks. “A lot of the opportunities are on the small side for us. We generally prefer to invest amounts of roughly $100-$150 million to $400 million per opportunity

Government Support

In mature wind markets, fiscal incentives make project development costs viable. But tax incentives for wind energy projects do not exist in Mexico. Eduardo Andrade, director of Spanish developer Iberdrola, complains “there is neither a mechanism nor a commitment from the government to develop the market.” The government prefers to concentrate on creating “regulation and policy to consolidate the market,” adds Julio Valle Perena, director of renewable energy for the energy secretariat. Yet even a cautious fund such as Goldman Sachs

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July/August 2011

Latin Finance - July/August 2011

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