Mexico – NAMA for Sugar Mills

Mexico has opened its electricity market to private producers only two years ago and is currently gathering first experiences with private power producers. At the same time Mexico has introduced a system of ‘renewable energy certificates’ (CEL) obligations on GHG emitting power generators. While many of Mexico's 51 sugar mills are excellently positioned to participate in this new market, grid connection is a main barrier. In contrast to solar power, for instance, the location of the sugar mills pre-determine the location of co-generation facilities, and their distance to the grid connection points in many cases makes the entire investment unviable. Currently, despite significant excess bagasse resources that are burnt as waste, only a few sugar mills produce power for the grid. The NSP, through financial engineering targeted at eliminating the financial grid connection barrier, will raise the 17 identified potentially viable co-generation investments to 43, while significantly increasing the overall investment probability.

The NSP will help establish a non-profit Grid Operating Facility (GOF) as a special purpose vehicle into which the NSP injects an equity grant of USD 15 million in parallel to a similar national (potentially also international) contribution, creating an equity base upon which loans are raised to finance grid connection investments. These are made financially viable by combining non-profit grid operation, extended loan maturity for grid investment and grouping of adjacent mills on shared connections. As costs are recovered through transmission fees further grid connections are established, gradually expanding coverage to 43 relevant (viable) sugar mill co-generation investments.

Sugarcane is delivered by trucks to the mill and washed before entering the mill on the right hand side. Sugar mill in El Higo, Veracruz, Mexico. Copyrights: Hannes Kraft Sugarcane is delivered by trucks to the mill and washed before entering the mill on the right hand side. Sugar mill in El Higo, Veracruz, Mexico. Copyrights: Hannes Kraft The sugar cane passes through 8 mills with the sugar juice being squeezed out in the first ones and the rest sugar being extracted with water in the latter ones. Sugar mill in El Higo, Veracruz, Mexico. Copyrights: Hannes Kraft The sugar cane passes through 8 mills with the sugar juice being squeezed out in the first ones and the rest sugar being extracted with water in the latter ones. Sugar mill in El Higo, Veracruz, Mexico. Copyrights: Hannes Kraft

The new Mexican energy law implicitly allows such ‘communalizing’ of grid connection which delivers economy-of-scale, evens out individual grid connection costs and relieves mill owners from significant, and in their view risky and unfamiliar, capital investment in grid connection in addition to substantial capital requirement for co-generation facilities.

Financial leveraging and mitigation potential: In supporting the GOF establishment the NSP aims to overcome several major financial barriers, facilitates initial private investment of USD 740 million which reduce up to 710.000 t CO2e annually. The NAMA is embedded in Mexico's national development, climate change, rural development and energy policies. It is established as an action line in Mexico's Special Program for Climate Change for its GHG mitigation potential and potential reduction of black carbon emissions, which are to be halved by 2030 according to Mexico's NDC.

Facts
Partner ministriesMinistry of Energy; Ministry for the Environment and Natural Resources
(co-)applicantDanish Energy Agency (DEA) / UNEP DTU Partnership
StatusDetailed Preparation Phase

More Projects