CFE - Hydropower Rehabilitation Program
On June 30, 2023, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, issued a US$536 million guarantee covering principal and interest on a loan from JPMorgan Chase Bank, N.A. of the United States and The Hong Kong and Shanghai Banking Corporation Limited of Hong Kong SAR, China, to the Fideicomiso de Energías Limpias Número 10670 (the Loan). The Fideicomiso de Energías Limpias was created by CFE in August 2021 as a financing vehicle for capital expenditures related to its renewable energy investment program.
MIGA’s guarantee provides cover over the 15-year period of the Loan, including a 5-year grace period, against the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NHFO-SOE) in connection to the guarantee that Comisión Federal de Electricidad (CFE) in Mexico is providing under the Loan. MIGA’s NH-SOE guarantee provides CFE with access to long-term dollar financing at favorable terms, and it constitutes the first guarantee issued by MIGA to cover the obligations of a State-Owned Enterprise acting as guarantor.
CFE, Mexico’s state-owned electric utility, plays a central role in the country’s energy sector providing transmission, distribution and commercialization services to 99.2% of Mexico’s population and generating approximately 74% of the country’s electricity as of the first quarter of 2023.
In this context, the Loan and MIGA’s NHFO-SOE instrument support the rehabilitation and modernization of seven existing hydropower plants owned and operated by CFE (the Project). The upgrades (all within the powerhouses), depending on the plant, include replacement of turbines, generators, transformers, electromechanical equipment, and ancillary systems which are expected to increase the hydroelectric energy generation capacity of the plants by 113 MW in total, producing approximately 1,426 GWh of additional electricity per year, as well as extend each asset’s useful life by several decades while improving reliability and reducing maintenance costs.
The Project contributes towards the achievement of the objectives and goals established in CFE’s Business Plan 2023-2027 to strengthen the operational and financial capacity of the company, get a market share of 54% in the generation of electricity in Mexico, as well as to accelerate the energy transition of the country and to contribute to achieving the commitments established by the Mexican State to reduce greenhouse gas emissions. The Project also addresses CFE’s social responsibility ambitions of being able to supply electricity on a timely, safe, reliable, efficient, and sustainable basis.
Although solar PV and wind play an increasingly important role in Mexico’s energy matrix and Nationally Determined Contribution (NDC) commitments, hydropower remains Mexico’s largest source of renewable energy. The country’s 12.6 GW of installed hydropower capacity, which is primarily owned and operated by the CFE, generated approximately 8.6% of the country’s electricity in the second quarter of 2023. The Government of Mexico (GoM) has pledged to increase investment in hydroelectricity generation as part of efforts to reduce Mexico's carbon footprint, reduce the amount of natural gas imports, and maintain and increase renewable energy production in the country’s energy matrix.
The Project is a category B under MIGA’s Policy on Environmental and Social Sustainability. Click here for the project’s Environmental and Social Review Summary.
The Project entails capital investments to upgrade seven existing hydropower plants owned and operated by CFE. By virtue of these major works, the Project is expected to significantly extend the useful life of the plants, thereby ensuring the continued generation of clean electricity, and adopt the latest available technologies to achieve efficiency gains, which add to the plants’ generation capacity.
With demand for electricity in Mexico projected to rise 2.8% per annum on average for the period 2022-2036, CFE has developed an investment program that is geared towards expanding generation capacity, as well as maintaining and improving its current power sector infrastructure. These timely investments will increase efficiency, capacity, and significantly extend the useful life of these plants without altering reservoirs, river flow, or dam wall infrastructure.
The Project is aligned with the WBG Country Partnership Framework 2020-2025 for Mexico, in enabling sustainable infrastructure and supporting the GoM in reaching its climate change goals, as well as with MIGA’s FY21-23 Strategic Business Outlook under its strategic direction of demonstrating leadership on the global issue of climate change.