The Multilateral Investment Guarantee Agency of the World Bank (MIGA) has issued a guarantee aimed at enhancing Mexico's hydropower capacity. The guarantee was provided to JPMorgan Chase Bank, N.A. and the Hongkong and Shanghai Banking Corporation Limited (HSBC) to mitigate the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NHFO-SOE). This guarantee is in connection with Comisión Federal de Electricidad (CFE), Mexico's state-owned integrated electric utility, and is associated with a loan provided to Fideicomiso de Energías Limpias Número 10670 (FIEL), for which CFE acts as the guarantor.
This guarantee, amounting to $536 million for a duration of 15 years, is the first time MIGA has extended support to cover the obligations of a State-Owned Enterprise, CFE, acting as a guarantor in relation to the loan payment obligations of another entity.
MIGA's guarantee is pivotal in backing the repowering and substantial upgrade works on seven aging hydroelectric plants owned and operated by CFE across Mexico. These upgrades are projected to augment capacity by an estimated 113MW and generate nearly 1500GWh of electricity annually. Importantly, these improvements will extend the life of these assets without necessitating alterations to the existing reservoirs and dam infrastructure. This initiative aligns with Mexico's commitment to reduce its carbon footprint, diminish reliance on natural gas imports, and escalate renewable energy production.
In November 2022, at the COP27 meetings, the Mexican government pledged to achieve 35% clean energy generation by 2024, primarily through CFE initiatives. These efforts encompass investments in the hydroelectric sector, energy efficiency enhancements, transitioning to electric vehicles, and support for both existing geothermal installations and new solar photovoltaic projects. The guarantee provided by MIGA contributes significantly to realizing this ambitious objective.
Hiroshi Matano, MIGA's Executive Vice President, expressed the organization's enthusiasm for supporting Mexico's hydropower sector, emphasizing its role in bolstering renewable energy generation and reducing the nation's carbon footprint. He stated: "MIGA's guarantee is enabling CFE to secure long-term U.S. dollar-denominated financing at a more attractive price, facilitating investments in renewable energy infrastructure."
Comisión Federal de Electricidad (CFE), as Mexico's vertically integrated electric utility, holds a central position within the nation's energy sector. It serves 99% of the Mexican population, generates a significant portion of the country's electricity, and exclusively provides energy transmission and distribution services. With an anticipated annual increase in electricity demand of 2.5% between 2023 and 2037, CFE has laid out an investment program aimed at expanding generation capacity while maintaining and upgrading existing power sector infrastructure. A pivotal element of this initiative is the rehabilitation and modernization of electricity generation components within existing hydroelectric power plants.
Manuel Bartlett, CEO of Comisión Federal de Electricidad, highlighted the impact of the MIGA guarantee on CFE's efforts: "By contracting long-term financing in favorable conditions through the MIGA guarantee, CFE will be able to extend the useful life of its hydroelectric plants and increase its renewable generation capacity. With this, CFE will contribute significantly to reduce greenhouse gas emissions and to accelerate Mexico's energy transition. At the same time, CFE, as a socially responsible company, will contribute to improving the welfare of Mexican society, guaranteeing the supply of electricity in timely, safe, reliable, efficient, and sustainable conditions."
Given Mexico's substantial reliance on fossil fuels for electricity generation, this project plays a crucial role in advancing the country's sustainability agenda. While solar photovoltaic and wind energy sources are gaining prominence, hydropower remains Mexico's most significant source of renewable energy. In 2022, the country's 12.6GW of installed hydropower capacity, primarily owned and operated by CFE, accounted for approximately 10.5% of the nation's electricity production.
John Meakin, Global Head of Export & Agency Finance at J.P. Morgan, celebrated the collaboration between J.P. Morgan, CFE, and MIGA in achieving this milestone, remarking: "J.P. Morgan is delighted to have worked closely with CFE and MIGA in closing MIGA's first-ever financing for a power utility company in Latin America under the Non-Honoring of a State-Owned Enterprise's Financial Obligation program, and the first time ever that MIGA is providing coverage for an SOE as a guarantor. The financing will support CFE rehabilitating and modernizing seven existing hydropower plants, contributing to lower cost of energy in Mexico by extending the plants' useful life and improving efficiency."
Sam Lippitt, HSBC's Head of Export and Asset Finance for the Americas, added: "This project is an important step for Mexico's transition to sustainable energy, and the team at HSBC is very excited to have supported CFE in their transition journey. Mexico is a core geography for the bank in our Latin American franchise, and we are pleased to work with MIGA to deliver best-in-class financing solutions to clients in the region."