Eurus Wind Farm in Mexico’s Oaxaca state reached financial close in June 2009, representing the largest financing package for a wind energy project in Latin America.

The refinancing of the 250MW wind farm involved a combination of senior and junior tranches from a group of bilateral, multilateral and commercial banks across five jurisdictions.

The wind farm is the largest in Latin America and Acciona’s largest wind project worldwide. Construction was completed on the farm in November 2009 at a total cost of US$600 million.

Background

Eurus was developed and constructed by Acciona Energia Mexico, a wholly owned subsidiary of Spain’s Acciona Energia.

The project was designed under Mexico’s self supply framework; power is not supplied to the grid, but to a limited group of offtakers.

A 20-year power purchase agreement was signed with cement manufacturer Cemex for all of the wind farm’s electricity. Eurus currently supplies Cemex with 25 per cent of its energy needs in Mexico.  

The project consists of 167 1.5MW turbines and a 230kV transmission line running to the Juchitán substation. The project was granted an initial environmental licence from the Mexican authorities in 2006.

The projects location is said to lend itself particularly well to wind farms, situated as it is on the Isthmus of Tehuantepec which lies between the Gulf of Mexico and the Pacific ocean.

Financing

The International Finance Corporation (IFC) and the Inter-American Development Bank (IDB) as co-arrangers led a dynamic group of banks to raise a total debt facility of US$375 million with a 15 year tenor.

Acciona contributed some 94 per cent of the equity. A requirement under Mexican self supply scheme regulation stipulates that the offtakers must contribute some equity to the project, so Cemex contributed a small percentage of equity in order to meet this requirement.

The bulk of the debt - US$313 million – was provided by multilateral, bilateral, and Mexican development finance institutions, while the remaining US$62 million came from commercial banks.

Commitments were split between senior and junior debt facilities as follows:

• IFC - US$71 million (US$35.5m senior debt, US$35.5m junior debt)
• IDB - US$45 million senior debt
• CAF - US$20 million senior debt
• DEG - US$32 million senior debt
• Proparco - US$35 million senior debt
• ICO (Instituto Credito Official) - US$35 million senior debt
• Nafin (Nacional Financiera) - US$22.5 million senior debt
• Bancomext (Banco Nacional de Comercio Exterior, S.N.C)- US$22.5 million senior debt
• BBVA Bancomer - US$27 million senior debt (split beween IFC and IDB B Loans)
• Banco Espirito Santo - US$35 million senior debt (split beween IFC and IDB B Loans)
• Clean Technology Fund (CTF) - US$30 million junior debt

Legal advisors on the deal included Clifford Chance, Ritch Muller and Morrison & Foerster. Garrad Hassan provided technical advice to the lenders.

Challenges and Strengths

According to Clifford Chance Partner Fabricio Longhin the project was faced with two central challenges not uncommon to Mexico.

The self supply nature of the project posed certain tests. Investor security needed to be installed in the power purchase agreement between Acciona and Cemex. The final 20-year PPA signed says that Cemex are responsible for 100 per cent of payment obligations for all of the power produced by Eurus but they do have to option to sell on power to third party offtakers, meaning Acciona have secured a consistent buyer of its power.

The second challenge that the project had to work through was around land rights. The land that Eurus wind farm sits on is an ‘ejido’ – a special type of communal property under Mexican law. To rent or buy this land, negotiations must be held with a cooperative or community of owners which poses certain challenges in securing the right to use the land for extended periods of time. Acciona and the local registries had to work closely to sign land lease agreements in time.

The IDB said of the project: “The project will have a number of important benefits in helping to facilitate Mexico’s transition to a low carbon economy, especially given the Government of Mexico’s pledge to aggressively reduce its greenhouse gas emissions by 50 per cent by 2020.

"As one of the first private wind power projects in the country, the project will provide an important demonstration effect. Moreover, the project furthers the offtaker’s corporate goal of using renewable energy and provides a good opportunity for the IDB to leverage its resources to mobilise funds from other development finance institutions and commercial banks.”

The refinancing of the Eurus wind project has been deemed a success and the model used will be implemented as a framework for other future projects in Mexico. The transaction is to be used by Acciona as a template for developing its Oaxaca II, Oaxaca III and Oaxaca IV wind projects. According to Longhin who is currently advising on the Macquarie fund deal: “The current project that Maquarie is doing, confirms a trend.”