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  • Energy Sector Management Assistance Program

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    Energy Sector Management Assistance Program 1818 H Street, NW Washington, DC 20433 USA Tel: 1.202.458.2321 Fax: 1.202.522.3018 Internet: www.esmap.org Email: [email protected]

    Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico

    Formal Report 338/09

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    wb350881 Typewritten Text 52127

  • Energy Sector Management Assistance Program (ESMAP)

    Purpose

    The Energy Sector Management Assistance Program is a global technical assistance partnership administered

    by the World Bank and sponsored by bilateral official donors since 1983. ESMAP's mission is to promote the

    role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its

    work applies to low-income, emerging, and transition economies and contributes to the achievement of

    internationally agreed development goals. ESMAP interventions are knowledge products including free

    technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination,

    trainings, workshops and seminars, conferences and roundtables, and publications.

    ESMAP's work focuses on four key thematic programs: energy security, renewable energy, energy-poverty,

    and market efficiency and governance.

    Governance and Operations

    ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the World

    Bank, other donors, and development experts from regions that benefit from ESMAP assistance. The ESMAP

    CG is chaired by a World Bank Vice President and advised by a Technical Advisory Group (TAG) of independent

    energy experts that reviews the Program's strategic agenda, work plan, and achievements. ESMAP relies on

    a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and

    development community at large, to conduct its activities.

    Funding

    ESMAP is a knowledge partnership supported by the World Bank and official donors from Australia, Austria,

    Denmark, France, Germany, Iceland, the Netherlands, Norway, Sweden, the United Kingdom, and the

    U.N. Foundation. ESMAP has also enjoyed the support of private donors as well as in-kind support from a

    number of partners in the energy and development community.

    Further Information

    For further information, a copy of the ESMAP annual report, or copies of project reports, please visit the ESMAP

    Web site, www.esmap.org. ESMAP can also be reached by email at [email protected] or by mail at:

    ESMAP

    c/o Energy, Transport and Water Department

    The World Bank Group

    1818 H Street, NW

    Washington, D.C. 20433, USA

    Tel.: 202-458-2321; Fax: 202-522-3018

  • Energy Sector Management Assistance Program

    Formal Report 338/09

    Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico

  • Copyright © 2009 The International Bank for Reconstruction and Development/THE WORLD BANK GROUP 1818 H Street, NW Washington, DC 20433, USA

    All rights reserved Manufactured in the United States of America First printing June 2009

    ESMAP Reports are published to communicate the results of ESMAP's work to the development community with the least possible delay. Some sources cited in this paper may be informal documents that are not readily available.

    The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The Boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries.

    The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee.

  • Units of Measure ................................................................................................................ vii

    Abbreviations and Acronyms ............................................................................................... ix

    Preface ............................................................................................................................... xi

    Acknowledgments ............................................................................................................. xiii

    Executive Summary ............................................................................................................ xv

    Introduction ........................................................................................................................ 1

    1. Structure, Benefits and Ownership of Special Purpose Entities .......................................... 3

    2. Energy Sector Overview in Mexico ................................................................................. 13

    Projected Energy Supply and Demand Outlook in Mexico .......................................... 13

    Electricity Market Demand and Supply ...................................................................... 14

    Legal and Regulatory Environment ........................................................................... 16

    General Regulatory Framework ........................................................................... 16

    Energy Efficiency Regulatory Framework ............................................................... 16

    Electricity Tariff-setting Policies ............................................................................. 17

    3. Market Potential for Energy Efficiency Investments .......................................................... 19

    Comparative Electricity Prices ................................................................................... 19

    Comparative Costs of Capital .................................................................................. 22

    Policy and Institutional Context ................................................................................. 23

    National Energy Efficiency Commission................................................................ 23

    National Program for Budget Austerity ................................................................. 24

    Trust for Electrical Energy Efficiency ...................................................................... 24

    Japan Bank for International Cooperation/NAFIN ................................................ 25

    Current ESCOs’ Activity in Mexico ............................................................................ 26

    4. Current Financial Conditions, Availability of Financing and Barriers to

    Implementation of Energy Efficiency Projects ............................................................. 29

    Market Barriers ........................................................................................................ 29

    Commercial Lending................................................................................................ 30

    Equity Investment Environment in Mexico .................................................................. 32

    Utility Programs ....................................................................................................... 33

    Supplier Credit ........................................................................................................ 35

    Contents

    iii

  • 5. Innovative Financial Structures – Pilot Projects ................................................................ 37

    Public Sector SPE Pilot Project ................................................................................... 37

    Private Sector SPE Pilot Project .................................................................................. 39

    Project requirements ..............................