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IDB to finance historic expansion of wind power in Mexico

The Inter-American Development Bank approved $101 million in partial financing for two wind power projects totaling 318 MW in the state of Oaxaca, Mexico, that will help establish a critical mass of renewable energy in the country, provide clean energy to private companies, and generate jobs and payments to low-income rural communities.

The projects are part of Mexico’s strategy to diversify its energy matrix while reducing greenhouse gas emissions. This strategy, spelled out in legislation approved in November 2008, includes a Special Program to Exploit Renewable Energy and Special Climate Change Program that will contribute to the country’s aspirational goal, proposed by President Felipe Calderón, of reducing emissions by 50% of their year 2000 levels by 2050.

The IDB Board approved a $50 million loans for the 250.5 MW Eurus wind farm currently under development by Acciona Energía México (AEM), a wholly owned subsidiary of Spain’s Acciona Energía, S.A. This is by far the largest wind power project ever built in Latin America and the Caribbean.

Mexico’s Cemex, a global producer of cement and concrete, is an equity partner in the Eurus project and will purchase all its electricity under a 20-year self-supply power purchase agreement. Cemex expects Eurus and other self-supply projects to meet a significant percentage of the energy needs of its Mexico operations.

The IDB will also facilitate an additional loan of up to $30 million from the Clean Technology Fund of the Climate Investment Fund (CIF) for the Eurus project, whose total cost will be close to $600 million. Additional long-term financing is expected to be approved for the project by other multilateral lenders, development finance institutions and commercial banks.

The IDB separately approved up to 280 million Mexican pesos (approximately $21 million) for a 67.5 MW wind farm currently under development by Eléctrica del Valle de México, S. de R.L. de C.V., (EVM) an affiliate of EDF Energies Nouvelles S.A. of France. Four subsidiaries of Wal-Mart de México, one of the country´s largest retail chains, will purchase electricity from this project under 15-year self-supply power purchase agreements, as part of Wal-Mart’s goal of using 100 percent renewable power in its Mexico operations.

The IDB loan, combined with credits expected from multilateral and bilateral lenders, could cover as much as $103 million of the EVM project’s $190 million total cost.

“These projects are the fruit of Mexico’s pioneering strategy to support regulatory and financial conditions in which renewable power can improve energy security while reducing greenhouse gas emissions,” said IDB President Luis Alberto Moreno. “They also show that even in a financial crisis, creative partnerships between governments, private companies and development finance institutions can lead to pathbreaking investments that simultaneously advance human development and low-carbon economic growth.” 

Both projects have included certified emission reduction credits in their plans. The Eurus project will benefit from the sale of carbon credits for a total of 600,000 tons of avoided CO2 emissions per year. The EVM project is currently in the process of obtaining credits for up to 168,000 tons of avoided C02 emissions per year.

The land on which the turbines of both projects are located has been leased from local ejidos, a traditional Mexican system of communal land ownership that is widespread in the country’s rural areas. These projects will generate jobs and a steady flow of income from leases for these communities.

Both projects will take advantage of strong winds in the state Oaxaca, which is considered to have some of the planet’s best wind power potential. Mexico plans to develop at least 2500 MW of wind power capacity in this state. Permits to develop some 2000 MW (including the ones partly financed by the IDB) have already been issued to private developers.

The Mexican government estimates that a total of around $5 billion will be invested to build these new wind farms by 2012, and that they will meet approximately 4 percent of the country´s electricity demand. Some 10,000 jobs will be generated directly and indirectly during the construction of these facilities, and around 374 permanent jobs will be created for operation and maintenance.

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