The First Reserve Energy Infrastructure Fund (FREIF I) and Renovalia Energy have expanded their Renovalia Reserve joint venture with the addition of two wind power plants in Southern Mexico.
The investments diversify the Renovalia Reserve portfolio beyond Europe into North America and nearly double the power capacity of the wind farm assets worldwide. Financial details of the transaction were not disclosed.
“Adding wind power plants in Mexico to Renovalia Reserve’s portfolio is a natural extension of the company’s strategy,” says John Barry, managing director of First Reserve and member of the board of directors of Renovalia Reserve. “Growth in electricity demand is expected to continue to trend upward based on the pace of population and industrial and manufacturing growth, and the legal and regulatory framework signals stability and predictability of renewable energy policies for the region. These conditions provide a fertile environment against which we can apply our growth equity capital and strong operational model to provide predictable EBITDA and cash flow over the long term, with the principal short term variability being wind resource.”
The first 90 Megawatt (MW) farm in Mexico has been operational since June 2012. The second 137.5 MW farm is under construction and expected to be fully operational in early 2014. The 228 MW of the combined farms will be enough to power between 287,000 and 359,000 Mexican households annually.
The 90MW operation in Mexico has long-term financing already in place and similar financing is anticipated for the second wind farm. Revenues from the farms are from long-term, inflation-linked Power Purchase Agreements (PPAs) with strong counterparties – Grupo Bimbo and a world-leading retailer – and no reliance on government subsidies. The agreement periods cover a 15 to 18 year period with five to 10 year additional extensions at the option of the off-takers.
“Renovalia has been present in Mexico since 2007 through its affiliate Demex. The development of 228MWs of Mexican wind assets reflects the successful implementation of our international asset diversification strategy in countries with superior growth in GDP and energy consumption, outstanding wind resource, and solid legal and political frameworks, such as Mexico. We are very impressed by the commitment shown by the Mexican Authorities in promoting the development of clean and competitive renewable energy,” says Jaime Galobart, chief executive of Renovalia Energy and Director of Renovalia Reserve. “We are delighted to continue sharing our expansion plans with such a solid partner as First Reserve.”
The two wind power plants are located in Oaxaca, Mexico, a region with historically robust wind resource with average annual wind speeds of around 10 m/s (meters per second). The US Department of Energy rates this region of Oaxaca in the highest quality category worldwide in terms of wind energy resource.
Experts predict that Mexico will need 45 GW of new electricity capacity within the next 15 years to meet future demand. In addition, the development of wind power is critical to meet government renewable targets. Mexico recently passed a carbon law which mandates 35 percent of energy to come from renewable sources by 2024.
The Renovalia Reserve joint venture was formed in 2011 to own and operate a portfolio of wind farms in Europe and North America. In addition to the two wind farms in Mexico announced today, Renovalia Reserve owns and operates six onshore wind farm projects in Spain (244MW) and an additional farm (15MW) in Hungary. With the addition of the two assets in Mexico, Renovalia Reserve will have a total of 487MW of wind power capacity worldwide.
