Description: 

A project for increasing power production from geothermal sources and reducing both the dependency on fossil fuels and GHG emissions in Mexico.

Background:

Mexico has a significant GHG footprint as the second largest CO2 emitter in Latin America. Most of the emission (approximately 60 percent) comes from the energy sector. The General Law of Climate Change, enacted in 2012, aims to reduce 30 percent of GHG emissions by 2020, comparing to the business-as-usual scenario, and to achieve at least 35 percent of power generation from clean energy by 2024. Currently, approximately 80 percent of Mexico’s electricity still comes from fossil fuels. Urgent transformation of the power generation matrix is needed.

Mexico has great and almost untapped clean energy sources, with a potential GHG emissions abatement that is estimated by 2020 in 59,64 MtCO2e, 23 percent of the identified theoretical reduction potential. Geothermal energy provides low carbon base-load capacity and represents one of the most effective electricity generation alternatives among clean energy sources.

This project will encourage private investment in geothermal energy through financial and risk transfer mechanisms to reduce investment costs, mobilize private capital for projects and ensure a sustainable growth in the long term.

Objectives and outputs:

The program will support private, or privately-led PPPs, geothermal projects developers, and will seek to build with CFE and SENER a PPP business model that may maximize return on the public sector accumulated assets (i.e. know how, studies, land permits) and scale up private sector opportunities.

Nacional Financiera S.N.C. (NAFIN), a national development bank controlled by the GoM, will be responsible for the supervision, technical and administrative coordination of the program and necessary reporting duties to the IDB. NAFIN has extensive experience with IDB, including previous successful CTF implementation. Technical assistance from an independent third party will be hired to provide expertise and advice on the validation of project eligibility, as well as to conduct the required studies and verify success and failures on drillings.

Development of geothermal electricity in Mexico is estimated to have the greatest emissions abatement potential (393 MtCO2e). Geothermal generation also has high load factors and contribute base-load capacity, with potential to substitute fossil-fuels based generation.

The program will foster and finance about 300 MW of additional geothermal capacity, producing electricity by 2024. The emission savings will be around 1.1 MtCO2 per year, based on the average emissions factor for electricity in Mexico (0.5 kgCO2/kWh) and a load factor for geothermal plants of 84 percent. The CTF resources would contribute to reduce emissions of at least 33 MtCO2 in 30 years of the geothermal plants operation.

The program aims to trigger geothermal energy investment in Mexico, providing multiple financial instruments, and combining support from the GoM and private developers’ incentives for the first time. This shall help project developers overcome financial barriers, create security for investors and generate knowledge for financial institutions. A track record for private intervention will be established to unlock the Mexico’s great geothermal potential. Additionally, being structured as a comprehensive intervention, it will provide a learning process and a model for additional projects in other areas.

The program also has a multiplier effect, as it is designed to optimize available funding in terms of leverage and sustainability. The programmed investment of $120.1 million (from CTF, IDB and GoM) is expected to leverage $725 million from third party sources.

This project summary is drawn from draft project proposals [such as the PAD, PID, SAR, and country investment plan] and may not contain the most up-to-date information.

Project Details:

Project Document | Independent Review | Proposed Decision
Approved on April 15, 2014 (Approved Decision

Approved amount(s): 
USD 31.5 million (grant funding)
USD 2.8 million (loan funding)

DPSP
USD 20.0 million (contingent recovery grant funding)