IFC, Acciona close on $600m Mexican wind farm

The private investment arm of the World Bank, the International Finance Corporation, has arranged $375 million of senior debt for a massive wind farm in Mexico, helping bring to financial close a first-of-its kind project both in terms of investment size and power generation capacity.

“This is the biggest wind farm to date in Latin America and one of the biggest non-hydro renewable projects in emerging markets today,” Bernard Sheahan, the International Finance Corporation’s (IFC) director for infrastructure, said in an interview.

The IFC invested $71 million of its balance sheet capital as senior debt the project, known as Eurus Wind. “It’s the biggest IFC investment in wind to date,” Sheahan said. Another $62 million of senior debt came from commercial banks, BBVA Bancomer and Banco Espirito Santo.

The remaining $242 million of senior debt came from a group of multilateral, bilateral and Mexican development institutions, according to a press release. About $225 million of equity was invested in the project, a majority contributed by Acciona Energia, a Spanish renewable energy developer.

“They’re putting this money in a place where there is no preferential feed-in tariff from the government of Mexico,” Sheahan said, referring to a type of subsidy many European governments provide for renewable energy providers. The absence of such a tariff, as well as political uncertainty surrounding environmental and land-use issues, made the project a riskier proposition from a regulatory standpoint.

As a result, Acciona, which had originally sought commercial financing for the project, turned to multilateral and development support for Eurus. But Sheahan thinks it is only a matter of time before institutions like the IFC will no longer be needed to fill the gap left by commercial lenders.

“Once the regulatory framework in Mexico fully settles down, then I think you’ll see literally billions in commercial capital coming in,” he predicted.

“What makes it possible is that the wind resource is so good,” he added, referring to the Oaxaca region of Mexico where Eurus is located. Oaxaca, the isthmus of Mexico that juts out into the Gulf of Mexico, is a naturally windy location because of the sea currents that surround it. Sheahan predicts it could support up to 10,000 megawatts of wind generation capacity.

Aside from Mexico, the IFC is also focusing on developing wind power generation in emerging economies in Eastern and Southern Europe, Sheahan said.

All together, he predicts that the IFC will have funded about $1.5 billion of infrastructure projects globally during its current financial year, which ends at the end of June.