World Bank considers US$70mn loan for renewables projects

The World Bank is considering a US$70mn loan to Mexico as part of a US$273mn program led by Mexico's energy department (Sener) to develop renewable energy projects in the country through 2010, according to the World Bank's initial project information document (PID). The bank is expected to complete a study of the project on October 15 and give final approval for the loan by February 15, 2004, the document said. "The development objective of the proposed project is to assist Mexico in stimulating and accelerating the commercialization of renewable energy applications and markets, particularly at the grid-connected level," the document said. The aim is to reduce greenhouse gas and other emissions "while responding to the increasing energy demand and energy diversification imperatives necessary for sustainable economic growth," the document continued. Sener's renewable energy program would include financing from the government's own resources (US$7.5mn), the global environment facility (US$25mn), local banks (US$65mn), bilateral agencies (US$25mn) and foreign private commercial sources (US$150mn). The program would be carried out in two phases. Phase 1 would be 30-36 months, while phase 2 "will be a function of the success of activities in phase 1," and is expected to last five years. The World Bank would contribute US$25mn to phase 1 and US$45mn to phase 2. Sener will be the executing agency for the project, and Mexican development bank Banobras will be the in charge of managing the project's financial mechanism and providing technical assistance to renewable energy generators. The World Bank estimates that Mexico's renewable energy capacity will grow by 3,752MW over the period 2001-2010, reaching a total of 14,487MW. Excluding hydro and geothermal projects, the growth is only expected to be about 438MW. According to the bank, state power company CFE has a constitutionally based mandate to acquire only least-cost electric power resources, which tend to be combined cycle gas turbines, although the volatility of gas prices means that buying least-cost generation sources now does not necessarily equate to least-cost generation in the future. As a result, the "widespread adoption of renewables would not displace major quantities of natural gas but complement them, while diminishing risks. However, the lack of a full enabling legal and policy framework for renewable energy has resulted in a low level of entrepreneurial and financial experience for renewable energy projects," the document said. Sener's renewable energy project is designed to diversify Mexico's energy resources and strengthen projects already under development, including various wind power projects in Oaxaca state, the document continued.