National Development Banks: Mexico

Overview

Nacional Financiera SNC (Nafin), one of Mexico’s development banks, has emerged as a clear leader in growing Mexico’s renewable energy sector.

Following capacity building activities from multilateral development organizations, including the World Bank’s Climate Investment Funds (CIF), Nafin was invited to participate as a co-lender in financing the 250MW Eurus wind farm in Oaxaca in 2009-2010. This wind farm produces on average 989GWh of clean electricity per year. Eurus was one of the first private wind farms in the country and the largest project in Latin America at the time of installation; therefore, an important project to demonstrate feasibility and profitability of wind energy in Mexico.

Impact

The success of the collaboration led Nafin to become a key player in Mexico’s renewable energy sector and start channeling investment from multilateral development banks to several projects, including concessional finance from the CIF. Since Eurus, Nafin alone has allocated over $475 million to the sector, from 2010-2018, helping finance more than 2.4GW of wind and solar projects combined. By channeling concessional finance from CIF, Nafin also helped mitigate project-specific risks in an incipient sector and lower the cost of capital. These factors combined made projects more attractive for new market entrants and in driving new investors to the country.

It is important to note, however, that an abrupt government change with the victory of the leftist Andres Manuel Lopez Obrador in 2018 has reduced clean energy opportunities in Mexico and shifted the focus from government agencies, including development banks, away from renewable energy. Between 2017 and 2018, development finance deployment for new renewable projects declined significantly, especially in wind.  Still, in 2021, wind and solar in Mexico amounted to 16.7GW, accounting for 17% of the country’s capacity mix.

Opportunity

National commercial and development banks, for example, can offer in-depth knowledge of local clean energy sectors that foreign investors may lack, particularly as they have unique connections to local communities. Domestic financiers can also serve as intermediaries between international sources of capital and local projects or communities. Countries with domestic financial institutions active in clean energy have benefitted from higher investment flows. That said, there is plenty of room for improvement, as not all local funders are aware of the opportunities renewables can offer. Others may have the knowledge but have limited capital to deploy for green initiatives.

Mexico’s case demonstrates the importance of local finance institutions to accelerate deployment of utility-scale projects in nascent markets by attracting additional investment partners, decreasing the cost of capital, and decreasing risk. Emerging markets can utilize foreign and domestic development bank resources to increase investments in renewable energy capacity.

Source

BloombergNEF and Bloomberg Philanthropies report: Scaling-Up Renewable Energy in Africa

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