16 th Annual Mexican Energy New Perspectives on Energy Policy and Gas Supply for Economic Growth

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16th Annual

Mexican EnergyNew Perspectives on Energy Policy and Gas Supply for Economic Growth

November 13-14,2012By: Ernesto Hanhausen, Emerging Energy & Environment

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EMERGING ENERGY & ENVIRONMENT

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Content

• Who we are and what we do?

• Brief Renewables Situation and Potential in Mexico

• Regulatory Highlights and Enablers

• Natural Gas and Renewables

• Challenges/Opportunities to develop Renewables in Mexico

EMERGING ENERGY & ENVIRONMENT

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WHO WE ARE

EMERGING ENERGY & ENVIRONMENT

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WHO WE ARE

• Fund Management Company that manages two specialized and regional Private Equity Funds.

• Region: Latin America mainly Mexico, Peru and Brazil

• Focused on Renewable Energy and Energy Efficiency infrastructure

EMERGING ENERGY & ENVIRONMENT

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WHO WE ARE: FUNDS UNDER MANAGEMENT

• Emerging Energy Latin America Fund II, L.P.

Primarily Renewable Energy and Energy Efficiency Infrastructure.

Recent first closing

• CleanTech Fund, L.P.

Primarily energy efficiency, renewable energy, clean technologies, sustainable transportation

Totally invested. Now divesting:- 3 Mini hydros- Efficient CNG- Efficient Corn processing (Bioethanol)- Hybrid Vehicles- Biogas

EMERGING ENERGY & ENVIRONMENT

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EELAF II, L.P. PIPELINE OVERVIEW

Current Fund II active pipeline: Over 35 deals representing over US$2.7 billion of investment potential. Over US$2.2 billion of the pipeline represents wind, solar, and small hydro renewable energy

infrastructure.

BIOMASS, 8%

SMALL HYDRO,

26%

BIOGAS, 3%

WIND, 32%

COGEN, 5%

CT INFRA, 8%

RECYCLING; 3%

SOLAR, 14% Uruguay; 4%

Brazil; 21%

Chile; 9%

Mexico; 43%

Peru; 11%

Central Amer-ica; 13%

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MEXICO RENEWABLES POTENTIAL

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MEXICO RENEWABLES POTENTIAL

Wind• We have Only 1260 MW installed capacity up to

date. • The country's estimated potential exceeds

71,000 MW. • In 22 of the 31 Mexican states, wind plants can

be installed with plant factors of above 30%. • Estimated investments needed are $5.5 billion

dollars. Source: Electrical Research Insitute (IIE) and SENER

Mini Hydros (< 30MW)• Current installed capacity is approximately

400 MW. • Estimated potential is 3,250 MW, • Only 12% of potential capacity is being

utilized.

Source: CFE and CRE

392

3,250

Current Mini-Hydro genera-tion (MW)Potential Mini-Hydro genera-tion (MW)

EMERGING ENERGY & ENVIRONMENT

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Geothermal Power

• Mexico is ranked fourth in the world with 958 MW. • To our knowledge there is no detailed analysis of

what the potential of geothermal power could be, but estimates are around 20,000 MW.

Source: CFE and CRE

Current geo-thermal genera-tionPotential geo-thermal genera-tion

MEXICO RENEWABLES POTENTIAL

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Solar Power• 90% of Mexican territory has daily irradiance ranging between 5 and 6 KW/h per square meter. • Mexico: one of the areas with the highest levels of solar radiation in the world. • Estimated total existing capacity is only < 20 MW, (approx $125.5 MM inv.).• Considerable reduction of CAPEX in the last few years.

MEXICO RENEWABLES POTENTIAL

EMERGING ENERGY & ENVIRONMENT

12Sources: GTZ (2009) "Nichos de Mercado Para Sistemas Fotovoltáicos en Conexión a la Red Eléctrica en México," June 2009; International Energy Agency Photovoltaic Power Systems Programme (2006), "Compared assessment of selected environmental indicators of photovoltaic electricity in OECD cities," April 2006.

• PV installed in many cities across Northern and Central Mexico has an "energy payback time" (EPBT) of less than two years. EPBT represents the time required for these PV systems to produce the amount of energy needed to manufacture all the PV components.

• The EPBT is based on a figure of 2,525 kWh, the electrical energy required to manufacture 1 kW of a complete PV system (including PV panels, wiring and electronic-connection devices).

• This 2,525 kWh figure was used by the International Energy Agency in a 2006 report titled "Compared assessment of selected environmental indicators of photovoltaic electricity in OECD cities”.

• Assuming a net system efficiency of 15%, a square of 25 km in Chihuahua or in the Sonora desert would be sufficient to supply all of Mexico's electricity (based on information provided by Energy Department and GTZ in 2009)

• They say Mexico has a “Huge” Potential Market: Mexico's photovoltaic and solar thermal market potential is 45 GW, which is approximately 75% of Mexico's 2008 total electricity generation capacity (59.5 GW in 2008).

• Solar thermal and PV electricity will account for up to 5% of the country's energy supply by 2030.

• Mexico's best solar thermal resources are in the states of Baja California, Sonora and Chihuahua.

• They estimate that there are considerably greater solar thermal resources in the country than wind resources.

MEXICO RENEWABLES POTENTIAL (Article on Solar Potential)

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MEXICO RENEWABLES POTENTIAL

City,State/Country KWH - year/KW –installed

Energy Pay-Back time (years)

Hermosillo, Sonora 1,818 1.4

Cd.Obregon, Sonora 1,818 1.4

Chihuahua, Chihuahua 1,787 1.4Durango, Durango 1,727 1.5

La Paz, BCS 1,727 1.5Mexico – average 1,515 1.7

Sevilla, Spain 1,460 1.7Madrid, Spain 1,394 1.8

Barcelona, Spain 1,193 2.1Munich, Germany 960 2.6Berlin, Germany 839 3.0

Solar power capacity

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COGENERATION

• World Bank Study: Low Carbon Development for Mexico says: "Cogeneration could provide about 12.5 percent of new capacity under a low-carbon scenario, at costs that are substantially lower than the current marginal costs of power generation in Mexico.“

• Our internal survey estimates an approx potential capacity of 3,500-5,000 MW

MEXICO RENEWABLES POTENTIAL

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REGULATORY HIGHLIGHTS

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2008 – LAFTRE (Law for the use of renewable energy sources and the energy transition financing)

2009 – Regulatory framework regarding LAFTRE completed

CRE (Energy Regulatory Commission) is now fully empowered to:• Develop, define and prepare all methodologies, contracts and agreements regarding private

investment in renewable energy, cogeneration and natural gas.• Suggest, recommend, object, request revisions and modifications to CENACE (National Electric

Power Control Center).• Issues the rules for the interconnection to the national grid.

SENER (Ministry of Energy – Secretaría de Energía) has the mandate to:• Monitor and carry out the National mapping of renewable energy sources and installed capacities• Develop and issue methodologies to evaluate associated costs related to pollution, human health

problems and opportunities of NON renewable energies.

2010 – Efficient Cogeneration is granted with same rights as Renewable Energy• Although efficient cogeneration was included in law in 2009, its definition and regulatory

framework was issued by CRE at the end of 2010 .

MEXICO’s Regulatory Highlights

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2010 – Interconnection Contract

Main enablers:

1. Energy “Banking”: at no expense and for one year period.

2. Wheeling Charge: fixed at US$0.002 – US$0.01 per kWh depending on tensions utilized.

MEXICO’s Regulatory Highlights

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RENEWABLES and NATURAL GAS

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Natural Gas Supply

Of course we badly need gas! But to achieve supply, still for quite some time, Mexicans will continue facing:

• Extremely long, slow, highly complicated and uncertain bidding processes (Ramones pipeline Cancelled!).

• Centralized decision making.• Political issues at Municipal, State and Federal Government levels.• Change of government in process.• Indefinite delays in the construction of transportation infrastructure.• Huge investments, maybe too complicated technical issues, time and

several “agreements to agree” that are required to implement a gas supply project.

• When available, gas will continue sourcing CFE plants and Future IPPs.• The fact that the additional and total needed supply just won’t be

there at least in the next 4-5 years.

Renewables and Gas

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20EMERGING ENERGY & ENVIRONMENT

Renewables and Gas

Año 1993

Año 1994

Año 1995

Año 1996

Año 1997

Año 1998

Año 1999

Año 2000

Año 2001

Año 2002

Año 2003

Año 2004

Año 2005

Año 2006

Año 2007

Año 2008

Año 2009

Año 2010

Año 2011

Año 20120

1000

2000

3000

4000

5000

6000

7000

8000

9000

IndustriaCFEIPPsPEP-PGPBProducción Gas Natural

Natural Gas demand and production

CFE & Pemex

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Renewables:

• Are based on the self-consumption law.• No bidding processes required.• Technical talent, expertise and financial support is what

is needed.• Obviously there are serious challenges as well, but their

solution depends on talent, expertise and funding.• Current difficulties in meeting gas supply needs.

represents a unique opportunity to develop renewables.

EMERGING ENERGY & ENVIRONMENT

Renewables vs. Gas

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Renewables vs. Gas

Highest Solar Potential

Highest Mini Hydro and Wind Potential

8000 BCF

12000 BCF

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CHALLENGES & OPPORTUNITIES

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• Renewables certainly represent challenges:Environmental, social, technical, financial, land

ownership related and local authorities issues.,• Regulations are in place …finally.• Good and knowledgable partners/ developers are highly

important• Scarse local talent – Scarse foreign talent• Transmission capacity• Permitting

• .EMERGING ENERGY & ENVIRONMENT

Challenges and Opportunities in Renewables