Germany is supporting Mexico in expanding renewable energies and raising energy efficiency with three loans amounting to a total of roughly EUR 220 million. The conditions for climate-friendly energy in Mexico are good, but there is still a lack of suitable financial incentives. The three loans are designed to bridge this gap.

The contracts were signed by representatives of two Mexican development banks and KfW in Berlin on 11 April during a two-day state visit of President Enrique Peña Nieto to Germany.

So far, Mexico has focused mainly on hydropower alongside the fossil fuels of crude oil and natural gas. All other alternative forms of energy account for just three percent of electricity production. This is set to change, especially since the country has good prerequisites. The north-east of Mexico is ideal for the construction of wind farms with the strong and regular winds. The volcanic areas at the heart of the country open up opportunities for developing geothermal energy. And the north-west, the region lying in the "equatorial sun belt", is perfect for solar energy, which Mexico has made little use of so far.

Huge potential for solar energy

There are just two solar power plants supplying electricity in Mexico at present. The reason for the minimal use of solar energy is that project developers deem the financial risk still to be too high. To add new installations quickly, the state-run development bank Bancomext (Banco Nacional de Comercia Exterior) is receiving a KfW loan of EUR 80 million on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) which will be used to disburse soft loans to project developers. This sum can be used to create model power plants to show that solar energy in Mexico is technically possible and economically viable, says Stephan Opitz, member of the Management Committee at KfW Development Bank, describing the objective.

By providing an additional loan of EUR 50 million to the equally state-run development bank Sociedad Hipotecaria Federal, KfW is extending Mexico’s public eco-house programme "EcoCasa" on behalf of the BMZ. It has been under way since 2013, has won a number of international awards and has resulted in a total of nearly 12,000 "green" housing units for low and middle-income households. Due to its resounding success – demand exceeded expectations – the programme has now been rolled over. This means, in turn, that thousands of energy-efficient houses and flats will be built with energy consumption at least 20 % below the national average.

Ambitious climate protection

A third contract with Bancomext, worth EUR 90 million, to promote alternative energies supplements the funding to create an overall credit package of roughly EUR 220 million. Through the two development banks, KfW is supporting Mexico in achieving its ambitious climate protection goals, because this oil-producing country has undertaken to halve its emissions by the middle of the century. It currently numbers among the dozen countries with the highest emissions of carbon dioxide worldwide.

Apart from solar energy and issues of greater energy efficiency, KfW is also involved in wind energy and the energetic use of landfill gas. To this end, private project developers receive access to soft loans at Mexican development banks.

"Mexico’s potential in this field is not even close to being exhausted," explains Stephan Opitz. "With our commitment, we are supporting the country on its way to achieving an energy turnaround."