Zuma Energía, a Mexican renewable energy group, has secured $600m in project financing to build the country’s largest wind farm that will generate enough power for 1m homes.
Zuma, which is 80 per cent owned by Actis, a UK-based emerging market-focused private equity company and 20 per cent by Mesoamerica Investments, a Latin American focused investor, was set up in 2014 as Mexico was opening up its energy sector to private investment, and has three projects in the country with a total portfolio of 800 MW.
Although Mexico’s oil and gas sector has garnered most of the attention since the reform, there has been significant investment in electricity and renewables in particular, and Zuma says the successful closure of the project financing for its Reynosa wind farm proves investors can make money in the sector.
“This is crucial for the country. It demonstrates that the reforms that have been enacted are bankable and that you can attract investment,” said Adrián Katzew, Zuma chief executive.
Zuma won contracts for the Reynosa farm and two solar projects at Mexico’s second renewable enegy auction a year ago, in which it was the biggest winner. It is the first company to close financing on a project won in that round, Mr Katzew said.
“We like Mexico. Obviously, it’s a growth market,” said Barry Lynch, director and head of operations in the energy business at Actis. He highlighted available and sufficiently large sites, competitive prices, a strong local management team and a business that is friendly to US dollar investors. “Mexico can be very aggressive [in renewables], with large scale projects that we are confident we can finance and mobilise fast,” Mr Lynch said.
In addition to the $600m in project finance raised largely from Mexican development banks, as well as Santander and EKF, the Danish export credit agency, Actis and Mesoamerica have put in $125m, Mr Katzew said. According to PwC, Mexico’s renewable energy sector will be attract of $70bn in foreign investments between 2015 and 2029, Actis noted.
The Reynosa farm in the northeastern state of Tamaulipas will have total capacity of 424MW and be one of the largest – Mr Katzew says he believes the largest – in Latin America. It will supply enough electricity to the Mexican national grid to power about 1m homes and mitigate 739,000 tonnes of carbon dioxide emissions annually.
While Mexico’s oil and gas auctions have attracted big name and big budget players, who are investing in the billions, the rewards will take far longer to appear. By contrast, the Reynosa plant will be up and running by the end of next year. Zuma hopes to wrap up the financing on the two solar power plants in the next few weeks.
But the most tangible result of the reform in the electricity sector has been in prices: in the last auction in which Zuma won the contracts, the mean price was $33 per MW/h compared with an average for Mexico last year of $47, Mr Katzew said.
In addition to Reynosa wind farm and the two solar power projects, Zuma also owns a wind farm in the southestern state of Oaxaca.
Mexico’s burgeoning renewables sector should attract increasing investment not only in power projects but allos for the manufacture of turbines and other equipment for the sector, Mr Lynch said.
“You naturally see a significan increase in the supply chain once industry is happy that auctions are happening on a regular basis. Mexico has strong manufacturing capacity. There’s no reason it can’t be a manufacturing hub, he added.
