Financing Renewable Energy Projects in Mexico

August 22, 2018

The primary law enacted to promote renewables was the 2008 Law on Renewable Energy Utilization and Energy Transition Financing (LAERFTE). This law was later updated with the Energy Transition Law (LTE) in 2015. Both aimed to promote the use of renewable energies and create instruments to finance their adoption.

Regulatory Environment Provides a Tailwind for Renewable Energy

The LTE established mechanisms to achieve the renewable energy goals set in the recent energy reform: a 24% share of of renewable energy and efficient cogeneration by 2018, growing to 35% by 2024. As a finance mechanism, LAERFTE created the Fund for the Energy Transition and Sustainable Use of Energy (FOTEASE), maintained and reinforced by LTE. Most FOTEASE resources come from public federal funds, the government has also captured private resources to develop eligible projects.

FOTAESE has approximately MXN 8,325 million (USD 440 million) with roughly 70% allocated to energy efficiency projects and 12% to renewable energy/energy efficiency combined projects. The balance is largely allocated to renewable energy projects (12%), research (3%), and education (2%).

Most of the FOTEASE resources allocated to energy efficiency projects are deployed in the residential sector. These include projects such as incandescent bulbs replacement and the updating of obsolete appliances. FOTEASE resources for renewable energy are granted mainly to wind and photovoltaic rooftop projects in remote and low-income areas.

We expect the allocation to research under the FOTEASE program to significantly advance the mapping and resource data available. Mexico has detailed information on sun radiation, wind speeds and biomass. Access to these large data sets will help to decrease the risks surrounding potential renewable energy projects.

Who Benefits From These Programs?

The loans and fiscal incentives are important instruments for the adoption of renewable technologies. For the residential sector, the Development Bank of Mexico has a budget of MXN 1000 million (USD 52.8 million) to finance users installing photovoltaic cells and solar thermal water systems.

Above all, the industrial sector is benefitting. For example, the wood sector has been granted with FOTEASE resources to develop biomass self-generation plants fueled by wasted wood. Renewable energy developers can claim rebates for up to 100% of depreciation on renewable equipment in one fiscal period. We expect this benefit to drive the adoption of large-scale renewable penetration across various industries, particularly in manufacturing.

Larger renewable energy projects can also benefit from attractive financing. Developers can benefit from the IDB ME-L1172 program, aimed to finance Gas and Clean Energy Projects. It channels resources for up to USD 200 million in direct and contingent loans to cover market risks. We typically recommend this financing for projects in unexploited and remote areas. With this program, we expect almost 400MW of clean energy projects to come online.

Our Outlook Remains Positive

We expect the financing and loan programs to drive renewable energy penetration in Mexico. To achieve strong returns, companies must monitor prices and technological developments to direct resources to the most undervalued sectors, without distorting the market.

Financing has played a crucial role and in some way, this is reflected in the success of the auctions, and via the growing adoption of solar and wind technology. We expect the positive financing trends to continue, supporting solid returns for renewable energy investors. Please contact us to discuss renewable energy financing structures or to learn more about the regulatory environment in Mexico.






Also in Mexico Energy Insights

Enectiva has an easy-to-use interface. Lower Operating Expenses With Energy Monitoring and IoT
Lower Operating Expenses With Energy Monitoring and IoT

December 25, 2020

Mexico Energy Partners helps companies to improve energy efficiency, but that needs to be followed up with continuous monitoring and management. Proper monitoring is the key to ensuring that management's plans are successfully implemented so that energy expenses remain low. We recommend the Enectiva IoT platform for energy monitoring and management.

View full article →

Identifying Risks in Energy Contracts
Identifying Risks in Energy Contracts

November 30, 2020

The number of energy options available to businesses and consumers expanded dramatically over the last several decades, but those new options also created new risks. Energy contract provisions can limit those risks, but market participants must know where to look.

View full article →

Opportunities in Natural Gas Storage - Mexico Energy Insights
Opportunities in Natural Gas Storage

October 14, 2020

End users and industrial businesses are sometimes challenged by the lack of pipeline infrastructure that shuts them out of natural gas supplies in Mexico. This is an area for potential growth as either Mexican or foreign investors can seek out opportunities to build out this needed infrastructure.

View full article →

DEPLOY THE HMT-1 AND HMT-1Z1 TO SAFELY CONNECT YOUR GLOBAL WORKFORCE

RealWear Mexico HMT-1 in Mexico

Learn more about Connected Work and Remote Work possibilities and the benefits of Mission Critical Support in Industrial Manufacturing.