FUERZA EÓLICA DE SAN MATÍAS” WIND ENERGY PROJECT … · “FUERZA EÓLICA DE SAN MATÍAS’’...

DRAFT BOARD DOCUMENT BD 2016-##

CERTIFICATION AND FINANCING PROPOSAL

“FUERZA EÓLICA DE SAN MATÍAS” WIND ENERGY PROJECT IN

ENSENADA, BAJA CALIFORNIA

Published: July 11, 2016

DRAFT BOARD DOCUMENT BD 2016-## CERTIFICATION AND FINANCING PROPOSAL “FUERZA EÓLICA DE SAN MATÍAS’’ BAJA CALIFORNIA

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“FUERZA EÓLICA DE SAN MATÍAS” WIND ENERGY PROJECT IN ENSENADA, BAJA CALIFORNIA

INDEX

EXECUTIVE SUMMARY 2

1. ELIGIBILITY 3

2. CERTIFICATION CRITERIA

2.1 Technical Criteria

2.1.1. Project Description 3

2.1.2. Technical Feasibility 10

2.1.3. Land Acquisition and Right-of-Way Requirements 12

2.1.4. Management and Operations 12

2.2 Environmental Criteria

2.2.1. Compliance with Applicable Environmental Laws and Regulations 13

2.2.2. Environmental Effects / Impacts 15

2.3 Financial Criteria 18

3. PUBLIC ACCESS TO INFORMATION

3.1 Public Consultation 19

3.2 Outreach Activities 19

DRAFT BOARD DOCUMENT BD 2016-## CERTIFICATION AND FINANCING PROPOSAL

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EXECUTIVE SUMMARY

“FUERZA EÓLICA DE SAN MATÍAS”

WIND ENERGY PROJECT IN ENSENADA, BAJA CALIFORNIA

Project: The project consists of the design, construction and operation of a 30MW wind energy farm, located in the municipality of Ensenada, Baja California (the “Project”). The energy generated will be purchased by private off-takers pursuant to long‐term power purchase agreements (PPA) executed with the special-purpose company created to carry out the Project.

Project Objective:

The Project will increase installed capacity of renewable energy resources, which will reduce the demand for traditional fossil fuel-based energy production and contribute to the displacement of greenhouse gas emissions and other pollutants from power generation by fossil fuels.

Expected Project Outcomes:

The estimated environmental and human health outcomes resulting from the installation of new renewable energy generation with 30MW capacity at the point of interconnection are:

a) Generation of approximately 100 gigawatts-hour (GWh) of electricity during the first year of operation;1 and

b) An expected displacement of approximately 50,287 metric tons/year of carbon dioxide, 181.6 metric tons/year of sulfur dioxide and 133.7 metric tons/year of nitrogen oxides.2

Sponsor: The private-sector Sponsor is a joint venture between CEMEX Energía, a division of Cemex, S.A.B. de C.V., and Pattern Energy Group LP (Pattern Development).

Borrower: Fuerza Eólica de San Matías, S. de R.L. de C.V.

Loan Amount: Up to US$50 million.

1 Information provided by the Sponsor.

2 CO2, SO2 and NOx calculations reflect the potential emissions displaced as a result of reducing future demands on

fossil fuel-based electricity through the use of wind energy generation equivalent to 100 GWh. Emission factors from a natural gas based energy generation facility located near the Project site were used for these calculations.

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“FUERZA EÓLICA DE SAN MATÍAS” WIND ENERGY PROJECT IN ENSENADA, BAJA CALIFORNIA

1. ELIGIBILITY Project Type

The Project falls into the category of clean and efficient energy. Project Location

The Project is located in the municipality of Ensenada, Baja California, approximately 153 km (95 miles) south of the U.S.-Mexico border. Project Sponsor and Legal Authority

The private-sector Sponsor is a joint venture between CEMEX Energía and Pattern Development, (the “Sponsor"), which will use a special purpose vehicle, Fuerza Eólica de San Matías, S. de R.L. de C.V. (“FESM” or the “Project Company") to implement the Project. FESM is a Mexican-based company established in 2004. Its contact representative is Pablo Federico Gottfried Blackmore. The Project is being developed under a self-supply scheme (“autoabastecimiento”), pursuant to the, now, abrogated Ley del Servicio Público de Energía Eléctrica. While the new energy law (the “Ley de la Industria Eéctrica”), does not permit the development of new projects under the prior self-supply scheme pursued, the new law includes grandfathering provisions that are applicable to the Project as further described below.

2. CERTIFICATION CRITERIA

2.1 TECHNICAL CRITERIA 2.1.1. Project Description Geographic Location

The Project site is located in the municipality of Ensenada, Baja California in Mexico, approximately 129 kilometers (80 miles) southeast of Ensenada’s urban area, near the municipality limits adjacent to the Mexicali Municipality near the federal highway 3 (Ensenada-Mexicali) at the following coordinates: Latitude: 31.295367°N and Longitude: 115.426010°W.


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The Project will be developed in a site with a total area of approximately 240 hectares (593 acres) including an environmental buffer zone. Figure 1 below shows the approximate geographic location of the Project.3

Figure 1

PROJECT MAP

General Community Profile

The Project is expected to benefit communities in the state of Baja California near the Project site, such as San Felipe and Ensenada located in the Mexicali and Ensenada municipalities respectively which belong to the Baja California Zone of the National Electric System (Sistema Eléctrico Nacional or SEN).4 Project benefits include the generation of electricity equivalent to the annual consumption of 13,783 households.5 The construction of the Project will also benefit local communities by generating employment opportunities and additional taxes. According to the Mexican 2010 census, the population of Baja California was 3,155,070, which represents 2.9% of the total population of Mexico. Between the years 2000 and 2010, Baja California grew at an annual rate of 2.3%, above to the national rate (1.4%).6 According to the

3 The polygons represent the site location for the construction of the approximately 30 MW wind energy facility to be

implemented by the Project Sponsor. 4 Based on the National Electric System Development Program 2015-2029 (PRODESEN) elaborated by SENER.

5 Estimation based on 2,015 kWh of electricity consumption per capita in 2014 from Mexico’s Energy Information

(http://sie.energia.gob.mx/) and 3.6 persons per household in the state of Baja California as indicated by INEGI (http://www3.inegi.org.mx/sistemas/mexicocifras/default.aspx?e=2). 6 Source: INEGI, 2010 general population and housing census (http://www3.inegi.org.mx/).

DRAFT BOARD DOCUMENT BD 2016-## CERTIFICATION AND FINANCING PROPOSAL “FUERZA EÓLICA DE SAN MATÍAS’’ WIND ENERGY BAJA CALIFORNIA

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most current economic information from INEGI, the state of Baja California contributed 2.8% to the gross domestic product (GDP) of Mexico in 2014. According to the Mexican 2010 census, the population of Ensenada Municipality was 466,814 which represent 14.8% of the Baja California population. The main activities in Ensenada contributing to the state total gross production are: manufacturing (57.6%), commerce (15.9%), private services – non financial (17.4%), other sectors (9.1%).7

Local Energy Profile

In 2014, the legal framework of Mexico’s National Electric System underwent a major reform aimed at facilitating investments to consolidate the diversification efforts, improve infrastructure and meet the growing demand for electricity. Under the new Electricity Industry Law, the federal government retains control of planning activities and the transmission and distribution infrastructure through the National Center of Energy Control (CENACE) a federal decentralized agency created by the government to operate the National Power System (SEN), that will now operate an electric grid with more than 546,615 miles (879,692 Km) of transmission and distribution lines previously operated by CFE8 who becomes a state-owned productive enterprise. The Energy Regulatory Commission (CRE) which was created to regulate activities related to the participation of private investment in the power and natural gas sector continues being responsible for issuing permits to private entities for power generation and the transportation of natural gas. The new Law contains provisions to grandfather project applications submitted to CRE under the now abrogated law (Ley del Servicio Público de Energía Eléctrica) for the schemes of self-supply, co-generation, independent generator, small generator, imports and exports also applicable to renewable energy projects. According to these provisions, the interested parties can establish a grandfathered 20-year interconnection contract by complying with the following conditions:

a) When the interested entity had requested or obtained a permit for a generation project and had paid the corresponding fees.

b) The interested party had notified the CRE the intention to continue with the project within the 60 days following the date that the Law was enacted.

c) The interested entity provides evidence to the CRE no later than December 31, 2016, that financing for the complete project has been secured, that acquisition of main equipment has been committed and at least 30% of the total required investment has been expended.

In order to promote the use of renewable energy, the Mexican federal government enacted two laws in the past four years. In 2015, Mexico enacted the Energetic Transition Law to regulate the sustainable use of energy and the obligations of clean energy, as well as the reduction of pollutant emissions from the electricity industry preserving the competitiveness of the productive sectors.

7 Source: INEGI, Economic Census 2014 (http://www.inegi.org.mx).

8 Source: SENER, Power Sector Outlook 2015-2029



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In 2012, the General Law of Climate Change was enacted and modified in 2015. Both laws specify, among other provisions, that Ministry of Energy (SENER), in coordination with CFE and CRE, must be responsible for increasing the use of clean technologies in power generation to at least 35% by 2024. Historically CFE has undertaken efforts to increase the use of non‐fossil fuel technologies in power generation. In 1994, CFE began operating its first wind farm with a capacity of 1.6 MW in La Venta, Oaxaca, and in January 2007, the La Venta II wind farm with a capacity of 83 MW initiated operations in the same area. During the period of 2012‐2027, CFE considered increasing the use of renewable energy by 2,892 MW, including wind, solar and hydroelectric resources. Additionally, the private sector supports renewable energy development through wind energy projects, such as Ventika (252 MW) in Nuevo León and El Porvenir (54 MW) in Tamaulipas. Mexico’s energy portfolio includes thermoelectric, geothermal, hydroelectric, coal-fired, solar photovoltaic, wind, turbogas, internal combustion and nuclear power plants. According to the Power Sector Outlook, in 2014, the total installed capacity for electricity generation was 65,452 MW which represents an increase of 2.1% when compared to the previous year (64,131 MW). During 2014, total electricity generation accounted for 301,462 GWh and it’s expected to be increased by 56.1% by 2029 for a total of 470,432 GWh according to SENER. Power generation for public service during the past 10 years reported an increase of 27% totaling 258,255.8 GWh. Figure 2 shows the participation of each technology to the power generation in Mexico.

Figure 2

ENERGY GENERATION FOR PUBLIC SERVICE BY TECHNOLOGY

Source: SENER, Power Sector Outlook 2015-2029

Hydroelectric, 14.6%

Thermoelectric, 12.8%

Combined Cycle, 51.0%

Coal, 12.9%

Turbogas and Internal Combustion,

1.7%

Geothermal, 2.3%

Wind, 0.8% Solar, 0.1%

Nuclear, 3.7%


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For the purpose of planning the Mexican power grid is divided into nine control zones, seven of which are interconnected and form the National Interconnected System (SIN). The remaining two zones are independent supply networks serving the areas of Baja California and Baja California Sur. The Project will be located in zone 8, which includes the state of Baja California. According to SENER, the generation capacity of Baja California was 2,451.4 MW in 2012, Figure 3 shows the technologies used for electricity generation in the state.9

Figure 3 BAJA CALIFORNIA PORTFOLIO OF ENERGY TECHNOLOGIES, 2012

(MW)

Source: SENER.

A detailed description of the technologies used to generate electricity in the state of Baja California for public service is presented in the following table.

Table 1 POWER GENERATED IN BAJA CALIFORNIA, 2012

Technology GWh % Energy

Generation

Combined cycle 7,198.6 51.5%

Turbogas 135.1 12.2%

Geothermal 3,982.1 23.3%

Conventional thermoelectric 677.2 13.1%

TOTAL 11,993.0 100.00%

9 Source: SENER. http://egob2.energia.gob.mx/portal/Informacion_Energetica/inicioAdm.html



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As a result of this Project, wind and solar energy will account for nearly 1% of gross power generation in Baja California. Project Scope and Design

The scope of the Project is to design, build and operate a wind farm with a capacity of up to 30 MW10 at the point of interconnection. The Project will be developed on Ejido Tribu Quilihuas land, municipality of Ensenada occupying a site of approximately 10 hectares (30 acres) within an environmental buffer zone of 240 hectares (593 acres). Figure 4 shows the indicative Project layout.

Figure 4 PROJECT SITE

The Project components include the installation of wind turbines and an interconnection substation. The energy generated by each wind turbine will be conveyed to the 34.5/115 kV collection substation through underground lines. The Project will be interconnected directly to the existing CFE 115 kV transmission line through the interconnection substation. Since this a grandfathered project, the Sponsor must secure funding, commit the acquisition of main equipment and invest at least 30% of the total project cost by December 31, 2016. Construction of the Project is scheduled to start in February 2017, and the Commercial

10

Source: CRE permit.

x Meteorological towers ● Wind Turbine location


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Operation Date (COD) is anticipated to occur no later than September 2017.11 Table 2 presents the status of key tasks for the implementation of the Project.

Table 2 PROJECT MILESTONES

Key Milestones Status (Include Date)

Land lease agreements for the Project Completed (November, 2013)

CRE authorizations for energy generation (Self supply scheme)

Completed (March 2014)

CFE feasibility grid interconnection study Completed

CENACE interconnection agreement Pending

SEMARNAT environmental authorizations (MIA resolution) Completed (July 2011)

SEMARNAT environmental authorizations update for increased capacity and start of construction

Completed (March 2016)

SEMARNAT forest land use change authorization Completed (October 2012)

SEMARNAT forest land use change authorization update (increased capacity)

In process

Archeological clearance by INAH Completed (August 2014)

Authorization to install wind turbine issued by the Ministry of Communications and Transportation (SCT)

Completed (April 2016)

Right of way from the Mexican Ministry of Communication and Transportation (SCT)

In process

Engineering, procurement, and construction (EPC/BOP) agreement

In process

Power purchase agreements In process

Independent engineering final report Pending

Commercial operation date Expected (September 2017)

NADB's procurement policies require that private-sector borrowers use appropriate procurement methods to ensure a sound selection of goods, works and services at fair market prices and that their capital investments are made in a cost-effective manner. As part of its due-diligence process, NADB will review compliance with this policy.

11

Information provided by the Sponsor.



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2.1.2. Technical Feasibility

Selected Technology

The Sponsor is currently evaluating four different wind turbine suppliers to select the equipment best suited according to the characteristics of the Project site in order to obtain the best performance (long‐term energy output) based on the following factors:

Ability to accomplish technical specifications

Supplier’s qualifications, credentials and certificates

Price of the turbine

Supplier’s guarantees The main components of the Project are:

Wind Turbines. Installation of wind turbines mounted on steel or concrete towers for a

total installed capacity of up to 30 MW at the point of interconnection. Wind turbine transformers will step up the voltage of generated power required for transmission through an insulated underground power lines to the Project’s interconnection substation. As noted, four wind turbine suppliers are being evaluated in order select the turbine best-suited for the Project site.

Foundations. They will be dimensioned to withstand the stresses produced by forces

acting on the towers. Foundations also include piping for ground, medium voltage and optic fiber cables.

Power Substation. One substation will be constructed to collect the 34 kV energy

produced by the turbines through underground lines. The collecting substation will step up the energy to 115 kV, which will be delivered directly to the existing overhead CFE transmission line.

Monitoring and Control System. Through the SCADA system the operation of each turbine, as well as the Project as a whole, can be controlled and monitored from a central computer or a remote PC. In case of problems, the SCADA system will alert the operations staff. The control system will always be in operation to ensure that the machines are running in an efficient and safe manner.

Roads. A grid of roads will be constructed for the Project, which will be used as an

access to wind turbines and interconnection substation. The roads will allow the transportation of the components, machinery, equipment and materials required for the wind turbine installation and interconnection substation construction. The roads will be unpaved and designed for low volume traffic.

Operation and Maintenance Facilities. An Operation and Maintenance facility will be constructed for the Project. The facility will be used for the O&M activities and also as a storage building along the construction and operation phase.


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Wind Resource Assessment

The Project is located in the state of Baja California, where mid-level wind power density has been reported. According to the Mexican Power Research Institute (IIE), wind resources in the state range from 501 to 600 W/m2 (see Figure 5).12

Figure 5 WIND RESOURCE IN MEXICO

Source: Mexican Power Research Institute.

In order to assess the wind resources available, in 2004 a wind evaluation was conducted in the Project area with the installation of two 50 meters monitoring masts. These two monitoring masts were replaced during July – August 2010 with newer towers and equipment. An additional monitoring 80 m mast was installed in 2012 and a final 60 m mast was installed in 2015. The instrumentation and the equipment of the monitoring masts were calibrated to provide basic information, which included geographic coordinates, elevation, period of record, and heights. The data collected was vetted by a specialized engineering firm to estimate the wind resource and energy production potential of the Project.13

12

Source: Mexican Electrical Research Institute, Instituto de Investigaciones Eléctricas (IIE), www.iie.org.mx/. 13

Source: Information provided by the Sponsor.

http://www.iie.org.mx/



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2.1.3 Land Acquisition and Right-of-way Requirements

The Project will be developed on 10 hectares (30 acres) within an environmental buffer zone of of ejido land (communal land) of 240 hectares (593 acres), which the Sponsor has secured through leasing agreements signed in November 2013 and includes rights of way. Documentation related to these agreements has been provided by the Sponsor. The Project site is surrounded by ejido land and has been used for livestock in minor scale. The Project required a Land Use Change authorization from the Ministry of Environment and Natural Resources (SEMARNAT), who issued the approval on October 11, 2012. Due to changes in available capacity on the transmission line and newer technology, the Project sponsor changed the turbines model and array, thus requiring an update to the land use authorization. The Sponsor filed an amendment which is currently under review by SEMARNAT and the approval is expected to be obtained by the third quarter of 2016. State and Municipal permits for construction will be obtained prior to initiating construction. Loan disbursement will require the appropriate completion of the permits based on the advancement of specific construction tasks. 2.1.4. Management and Operations As previously mentioned, the Sponsor is a joint venture between CEMEX Energía and Pattern Development, which was created to develop a pipeline of renewable energy projects in Mexico. CEMEX Energía, a division of Cemex, S.A.B. de C.V., a publicly traded company founded in 1906, the largest cement company in Mexico and one of the top cement companies in the world, seeks to develop a portfolio of power projects in Mexico with the aim to supply between 3% to 5% of Mexico´s electricity needs over the next 5 years.14 Pattern Energy Group LP (Pattern Development) is a United States-based renewable energy company leader in developing renewable energy and transmission assets. With a long history in wind energy, Pattern Development’s team has developed, financed and placed into operation more than 3,500 MW of wind power projects, as well as a growing pipeline with over 5,900 MW of wind power and multiple transmission projects in the United States, Canada and Latin America. In addition, Pattern is pursuing opportunities in Japan and Mexico as part of its growth strategy. Pattern Development is the largest shareholder of Pattern Energy Group Inc. (Pattern Energy), an independent power company that is listed on the NASDAQ (Ticker: PEGI) and Toronto Stock Exchange (Ticker: PEG). Pattern Energy owns and operates sixteen renewable energy projects in the United States, Canada and Chile that use proven, best-in-class technology with a total owned capacity of 2,282 MW.

14

Source: CEMEX


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Pattern Energy serves as the long-term owner and operator of all the energy infrastructure projects in its portfolio and is structured to offer investors attractive dividends over a long-term horizon while at the same time offering a strong growth platform. Eighty-nine percent of the electricity to be generated by Pattern Energy projects is sold under power purchase agreements, which have a weighted average remaining contract life of approximately 14 years. Pattern Energy reported revenues of $329.8 million and assets of $3.8 billion dollars as of December 31, 2015.15 Operation and maintenance tasks relating to the Project will be performed to optimize energy production, reduce repair costs, and extend the life of the equipment. The Project Sponsor will negotiate an Operation and Maintenance service contract with equipment suppliers. Day to day operations activities typically center on safety, equipment reliability, long-term service and maintenance, regular inspections, staff training, equipment improvements, monitoring and site management. The expected life of the Project is 30 years.

2.2 ENVIRONMENTAL CRITERIA 2.2.1. Compliance with Applicable Environmental Laws and Regulations Applicable laws and regulations According to the Environmental Impact Assessments (MIA) Resolution issued by SEMARNAT on July 2011, the Project must comply with the following laws:

General Law of Ecological Balance and Environmental Protection (LGEEPA), which establishes the environmental regulatory framework, expands the strategic vision, and conveys specific powers and duties to the states and municipalities, so that the environmental problems of each can be addressed directly. In accordance with Articles 28 and 30 of this law, the Project Sponsor developed a MIA that includes mitigation measures to preserve and protect the environment.

Federal Standard NOM-041-SEMARNAT-2006, which establishes the maximum permissible levels of pollutants emitted by vehicles using gasoline as fuel.

Federal Standard NOM-044-SEMARNAT-2006, which establishes the maximum permissible levels of hydrocarbons, nitrogen oxides, carbon monoxide and particulate emissions and the opacity of fumes emitted by vehicles using diesel as fuel.

Federal Standard NOM-045-SEMARNAT-2006, which establishes the maximum permissible levels of opacity, test procedures, and technical characteristics of measuring equipment.

Federal Standard NOM-052-SEMARNAT-2005, which establishes the characteristics, identification procedures and classification of hazardous solid waste.

15

Source: Pattern Energy 2015 Annual Report



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Federal Standard NOM-059-SEMARNAT-2010, which identifies and lists endangered species or clusters of wildlife in Mexico and establishes the criteria for inclusion, exclusion or change in risk status for different species, based on a method for assessing the risk of extinction.

Federal Standard NOM-080-SEMARNAT-1994, which establishes the maximum permissible noise, levels of exhaust systems of motor vehicles, motorcycles and three-wheel motor vehicles, as well as noise measuring methods.

NOM-081-SEMARNAT-1994, which establishes the maximum levels of noise from stationary sources and noise measuring methods.

Environmental Studies and Compliance Activities

In accordance with the environmental impact regulations established under the LGEEPA, the Sponsor prepared and submitted a MIA on October 29, 2010, for the construction of a wind farm in Ensenada, Baja California. The MIA identified, described and evaluated the potential environmental impacts associated with the Project, as well as the proposed mitigation measures in order to avoid or minimize any negative effects or impacts. According to the MIA, the Project will not have an impact over any protected area and will not be located within any area classified as important for bird conservation (AICAS) nor bird immigration routes. It also identified the presence of 69 species, including reptiles, mammals and birds, some of them considered as protected species under the Mexican norm NOM-059-SEMARNAT-2010. On July 14, 2011, SEMARNAT issued the MIA Resolution No. SGPA/DGIRA/DG/4343.11 authorizing the construction of a 20 MW wind farm and associated infrastructure. The MIA Resolution concluded that, although the Project would have an impact on the wildlife, the impact could be minimized by implementing a set of mitigation measures proposed by the Sponsor. It also established follow-up conditions for the Project. On March 16, 2016, the Sponsor obtained SEMARNAT authorization to modify the Project Scope to 30 MW and start date. Additional information about the mitigation measures and conditions included in the MIA Resolution are described in Section 2.2.2. Additionally, the Sponsor obtained from the National Institute of Anthropology and History (INAH) an archaeological clearance letter on August 5, 2014. No archaeological elements were found in the area of the Project Pending Environmental Tasks and Authorizations

The following documentation is pending to obtain:

SEMARNAT Forest Land Use Change Authorization Update. All environmental authorizations will have to be secured prior to loan disbursement.

Compliance Documentation

The Sponsor has obtained the following federal environmental and cultural clearances required for the Project:


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MIA Resolution No. SGPA/DGIRA/DG/4343.11 issued by SEMARNAT

MIA Resolution Modification S.G.P.A./DGIRA/DG/01755 issued by SEMARNAT

No objection Resolution No. 401.F(4).19.2014 CA/070 from INAH.

2.2.2. Environmental Effects / Impacts There is a need for affordable and environmentally-friendly alternatives to conventional fossil-fuel‐derived energy resources. Renewable energy projects create an opportunity to generate electricity without the atmospheric emissions generated by fossil-fuel‐based plants. Wind is a renewable energy source, which means that it can be used continuously without depleting natural resources. Wind is a clean form of renewable energy and is currently used in many developed and developing nations to meet their demand for electricity. Wind energy does not produce waste byproducts that require disposal, nor gas emissions that contribute to air pollution. It does not consume or pollute water. The Project does not anticipate the use of water for cooling the turbines during normal operations. The Project provides an opportunity to displace greenhouse gases (GHG) and other pollutants produced by traditional hydrocarbon-based energy generation, while providing local residents with a safe and reliable energy alternative. Existing Conditions and Project Impact – Environment

Historically, Mexico has depended to a great extent on fossil fuels for the generation of energy. This conventional method of energy development can affect the natural environment due to harmful emissions related to the generation process, including GHG and other pollutants, such as sulfur dioxide (SO2) and nitrogen oxides (NOx). The Project will help reduce the demand for electricity generated by fossil fuel-based power plants, and since wind-based power generation implies zero fuel costs and emissions, it will displace related harmful emissions. The anticipated environmental outcomes from the installation of 30 MW of new renewable energy generation capacity (or approximately 100 GWh) are the displacement of 50,287 metric tons/year of carbon dioxide, 181.6 metric ton/year of sulfur dioxide, and 133.7 metric tons/year of nitrogen oxides.16 Mitigation of Risks

Some environmental impacts are anticipated from the implementation of the Project. The Sponsor has proposed mitigation measures that are intended to reduce, mitigate and control the environmental effects resulting from project development activities. To ensure that mitigation measures are implemented properly and in a timely manner, the Sponsor will develop and implement an environmental compliance plan and periodic report, as described in the MIA resolution conditions. The following mitigation measures have been proposed:

16

CO2, SO2 and NOx figures are based on emissions that would be generated by the same amount of electricity by a natural gas powered generation plant located near the Project site.



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General o Mark off specific work areas in order to avoid additional impacts to adjacent zones. o Rehabilitate temporary work areas to facilitate natural colonization of plants.

Air quality

o Cover construction materials and waste transported by heavy vehicles. o Water access roads to reduce dust generation.

Water resources

o Try to avoid modification to the hydrology of the site. o Implement a drainage system to prevent flooding. o Use a septic tank for wastewater discharges

Noise

o Conduct a noise level monitoring in accordance to the NOM-081-SEMARNAT-1994. o The maximum noise levels of the wind turbines will not exceed the limits

established in the NOM-081-SEMARNAT-1994. o To minimize the noise emissions, all vehicles are required to comply with

appropriate maintenance and tuning activities.

Soil and Solid Waste

o Oils, fuels, and other pollutants will not be placed directly on the ground during any stage of Project development or operation.

o Procedures for the separation, storage, collection and use or disposal of different types of waste generated in the different stages of the Project, will be implemented.

o Solid waste will be handled in accordance with the General Law for Comprehensive Waste Management and Prevention and its regulations.

Flora

o Carry out ground-disturbing works only in the designated Project areas In order to avoid removal of additional flora.

o Activities to identify rescue and relocate native flora, protected by the legal framework.

o Conduct a Reforestation Program to implement native plant nurseries to recover three times the affected areas and create a buffer zone.

Fauna o Implement a Birds and Bats monitoring program including a pre and post

construction surveys to analyze fly patterns, collision and If necessary the application of additional mitigation measures.

o In order to protect the fauna of the project site, the Sponsor will developed and implement a Fauna Rescue Program in order to minimize the numbers of animals


JULY 11, 2016 17

affected during the construction works. The program will include proposed mitigation measures.

o The lighting of the wind turbines and other structures (substation and buildings) will be the minimal to reduce potential attracting species during the night.

o The night lighting will consist of flashing lights (red or white) according to the Federal Aviation Administration (FAA).

Natural Resource Conservation

The Project will support natural resource conservation by reducing the demand on fossil fuels for energy production and associated improvements to air quality. The Project is anticipated to produce approximately 100 GWh of zero‐carbon electricity in the first year of operation, equivalent to the annual energy consumption of approximately 13,783 households. Mitigation activities will be implemented to minimize impacts on flora and fauna. The Project will not be installed in areas with archeological, cultural or sensitive natural resources. No Action Alternative

The “no action” alternative to the development of renewable energy sources would result in greater demand for conventional fossil-fuel-based energy production, further depleting natural resources for the purpose of meeting an ever-growing demand for energy, as well as a lost opportunity to generate emission-free energy, such as that derived from wind sources. Additionally, the Project will help meet the goals established under the Energetic Transition Law for the clean energy production and emission reductions in accordance with emissions regulations, while satisfying increased demand for electricity. Should the Project not be implemented, the mix of renewables in Mexico will be delayed. Existing Conditions and Project Impact – Health Epidemiological research has shown that both chronic and acute exposure to harmful emissions associated with fossil-fuel-based energy production can lead to serious respiratory problems. It is estimated that, at the very least, prolonged exposure to excessive levels of pollutants can deteriorate the respiratory capacity of human beings and greatly contribute to the increased incidence of cardiopulmonary diseases, such as asthma, heart ailments and lung cancer. By using clean, renewable resources instead of conventional fossil-fuel sources in power generation, the Project will positively impact the region by reducing pollutants and thus help to contain the severity of respiratory problems and other diseases aggravated or caused by air pollution. In addition, the reduction of GHG emissions is expected to mitigate climate effects that create more vulnerable conditions for human health. Transboundary Effects No negative transboundary impacts are anticipated as a result of the development of the wind energy project; on the contrary, a beneficial effect is anticipated on air quality due to the decreased demand on fossil-fuel-fired power plants in the region. Furthermore, the Project will



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aid in addressing the larger environmental concerns related to greenhouse gases and global warming targeted by international agendas. Other Local Benefits

The Project will promote the social and economic development of the municipality of Ensenada in the state of Baja California. During construction, the Project is expected to generate approximately 50 direct jobs, while approximately 5 permanent jobs are expected to be created during operation. Employment of construction personnel will provide a temporary beneficial impact on local businesses and the regional economy through increased expenditure of wages for goods and services.

2.3. FINANCIAL CRITERIA The Project Sponsor has requested a loan from the North American Development Bank (NADB) to complete the financing of the Project. The proposed payment mechanism is consistent with the project structures normally used in the renewable energy industry. The source of payment will be the revenue generated by the Project from the sale of electricity to one or more private off-takers. NADB will have no recourse beyond the Project Company. The revenue from the sale of electricity generated by the Project is estimated to be sufficient to: a) cover scheduled O&M expenses, b) fund any debt service reserve, c) pay the debt service on the senior loans, and d) comply with debt service coverage requirements. In addition, NADB’s initial analysis verified that Fuerza Eólica de San Matías, S. de R.L. de C.V. has the legal authority to contract financing and pledge its revenue for the payment of financial obligations. Moreover, it has the legal and financial capacity to operate and maintain the Project given the experience of its development team. Moreover, Fuerza Eólica de San Matías, S. de R.L. de C.V. will outsource the O&M services to a firm with ample experience and expertise in the industry. NADB will verify that the projected O&M costs and contract warranties are in accordance with industry standards. Considering the Project’s characteristics and based on the financial and risk analyses performed, the proposed Project is considered to be financially feasible and presents an acceptable level of risk. Therefore, NADB proposes providing a market-rate loan for up to $50 million dollars to the Fuerza Eólica de San Matías, S. de R.L. de C.V. for the construction of the Project.


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3. PUBLIC ACCESS TO INFORMATION

3.1. PUBLIC CONSULTATION BECC released the draft project certification and financing proposal for a 30-day public comment period beginning July 11, 2016. The following documentation is available upon request:

Environmental Impact Assessment (MIA) Wind Farm San Matias, October 2010

MIA Resolution issued on July 14, 2011, S.G.P.A./DGIRA.DG.4343.11, project ID 02BC2010E0010, and modification S.G.P.A./DGIRA/DG/01755 issued March 16, 2016.

Forest Land Use Change Permit issued on October 11, 2012, number DFBC/SGPA/UARRN/DSFS/3320/12, expired. Project has filed for a new ETJ for new project layout and expects favorable resolution in Q3 2016.

Release Resolutions No.401.F(4).19.2014 CA/070, from the Mexican National Institute of Anthropology and History, Instituto Nacional de Antropología e Historia (INAH).

3.2. OUTREACH ACTIVITIES As a part of the outreach activities for the Project and in accordance with the environmental regulations and clearance process, SEMARNAT published in its website, the “Gaceta Ecologica”, the Project related information from October 28 to November 3, 2010. In addition SEMARNAT provided the MIA document for public consultation in accordance with Article 35 of LGEEPA law. The Sponsor also has a long term relationship with Ejido Tribu Quilihuas (ETQ), and has invested in outreach and community development programs, school equipment donations, legal assistance for the Ejido in matters related to the Agrarian Registry and CONAFOR, and medical visits for the indigenous community. The Sponsor has held several meetings over the years with ejido land owners and in November 2013 the leasing agreement for constructing and operating the Project was renewed. The parties agreed upon new conditions for the lease of the Project site and the construction area. Also the exclusivity rights were modified to become a preference right for the development of potential wind projects within the ejido. Based on a publication by Mexico’s Government Secretary (SEGOB) in 2012, the new lease contract conditions were agreed between the borrower, and members of the ETQ. Considering the potential opposition to the new lease contract terms, the social outreach office of the Ministry of Energy led the effort to install an inter-institutional work group with the participation of the Commission For Dialogue with Indigenous Communities (CDPIM), the Agrarian Attorney General’s office (Procuraduría Agraria – PA), and other Mexican federal agencies in order to analyze concerns regarding the Quiliwa community. In June 2014, as a result of the activities of the work group, FESM and ETQ executed an addendum to the lease agreement, following the recommendations of the Mexican federal



20 JULY 11, 2016

agencies. This amendment mainly clarifies the wording for the preference right for further developments in the ejido. BECC conducted a media search to identify potential public opinion about the Project. References to the Project were found on several Internet sites, such as El Economista, Jornada BC and El Financiero. Examples of these articles can be found at the following links:

Eleconomista.com.mx (January 25, 2015) – “Proyectan tres parques de energía eólica en BC” (Three wind energy projects are expected in BC), http://eleconomista.com.mx/estados/2015/01/25/proyectan-tres-parques-energia-eolica-bc

Jornadabc.mx (August 25, 2015) – “Industria eólica, el despojo a indígenas” (Wind industry, dispossession of indigenous), http://www.jornadabc.mx/tijuana/23-08-2015/industria-eolica-el-despojo-indigenas

Elfinanciero.com.mx (February 19, 2014) – “BC contará con parque eólico” (BC will count with a wind farm), http://www.elfinanciero.com.mx/empresas/bc-contara-con-parque-eolico.html

As part of the media search, an article identified discussions on impacts of wind generation projects on indigenous lands and makes reference of the proposed Project among others in the context of the use lands and compensations. In this case, the Project Sponsor has completed formal agreements with the ejido for use of the land and compensation in accordance with the lease agreement. The Project Sponsor has followed all public consultation requirements in order to comply with the applicable environmental clearance and permitting processes. In addition it has collaborated with relevant agencies that address the rights of ejido and indigenous communities.

http://eleconomista.com.mx/estados/2015/01/25/proyectan-tres-parques-energia-eolica-bc

http://eleconomista.com.mx/estados/2015/01/25/proyectan-tres-parques-energia-eolica-bc

http://www.jornadabc.mx/tijuana/23-08-2015/industria-eolica-el-despojo-indigenas

http://www.jornadabc.mx/tijuana/23-08-2015/industria-eolica-el-despojo-indigenas

http://www.elfinanciero.com.mx/empresas/bc-contara-con-parque-eolico.html

http://www.elfinanciero.com.mx/empresas/bc-contara-con-parque-eolico.html

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