Mexico to develop exploration risk mitigation program for IPP projects

Mexico to develop exploration risk mitigation program for IPP projects Cerro Prieto plant (source: flickr/ Gobierno de Baja California, creative commons)
Alexander Richter 5 Jun 2014

Mexico's Ministry of Energy, the Mexican Development Bank and the Inter-American Development Bank are developing a risk mitigation program for private geothermal energy projects with the help of MunichRE. The program will be a revolving fund set-up with around $120 million, expected to guarantee up to 300 MW in development.

The Ministry of Energy of Mexico, Nacional Financiera (NAFIN) and the Inter- American Development Bank (IDB) will jointly support the development of a risk mitigation program for private geothermal energy projects in the country, in which the company Munich RE will be involved in the development of an insurance mechanism.

The risk mitigation and financing program will apply innovative geothermal financing schemes – such as guarantee and insurance mechanisms – to reduce the risks associated with the exploration of geothermal energy, one of the main obstacles to the development of this clean energy source in Mexico and in the rest of Latin America. The proposed geothermal secondary law in the context of the Mexican energy reform would further support the successful development of the program reducing the risk perception of investors and setting the rules for exploration and exploitation of this clean energy source more clearly.

As a result, the program is expected to generate 300 MW of clean energy in a period of six years and thereby reduce emissions of greenhouse gases in the country.

Mexico is the fourth largest producer of geothermal energy in the world with an effective installed capacity of 850 MW. However, this will be the first private sector project in geothermal power generation in the country’s history, as so far the entire production has been in charge of the Federal Electricity Commission (CFE).

The financial scheme of the program is a revolving fund to ensure sustainability beyond the six-year project duration. In addition to insurance mechanisms in development, the project will include the possibility of granting guarantees and loans convertible into non-refundable financial support , depending on the different stages of project development.

The loan is for a total of $85.8 million and the non-reimbursable resources add up to $34.3 million. The project is funded with $54.3 million from the Clean Technology Fund (CTF), $54.3 million of IDB resources, channeled through NAFIN, and $11.5 million of Mexico’s Energy Secretariat (SENER).”

Source: IADB