THE WINDS OF (ENERGY) CHANGE ARE BLOWING IN NORTHEAST

UNCLAS SECTION 01 OF 02 MATAMOROS 000172

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EEB/EPSC
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA
DOE FOR INTERNATIONAL AFFAIRS
NSC FOR RACHEL WALSH
DOI FOR RENEE ORR AND KEVIN KUNKEL
EPA FOR LISA ALMODOVAR

E.O. 12958: N/A
TAGS: ECON ENRG SENV MX
SUBJECT: THE WINDS OF (ENERGY) CHANGE ARE BLOWING IN NORTHEAST
MEXICO

MATAMOROS 00000172 001.2 OF 002



1. (SBU) Summary: The state of Tamaulipas in northeast Mexico
has several wind energy projects under development with the
Border Environment Cooperation Commission (BECC). The inaugural
project, Los Vergeles, will be the first wind energy project in
Mexico to supply public sector energy needs, with 161 megawatts
of installed capacity. Forty-three municipalities within the
state of Tamaulipas are committed to the project, which is
scheduled to break ground in November 2009. The head of the
Tamaulipas Environmental Agency for Sustainable Development has
stated in local media that Los Vergeles has been certified by
BECC for NADBANK funding. While BECC sources confirm the
project is currently in the development phase, they say it has
not yet been approved for NADBANK funding. Tamaulipas Governor
Hernandez Flores is determined to be the first Mexican governor
whose state has municipalities powered in part by wind energy
and is exerting heavy political pressure to have the project
generating electricity before the end of his term in a year and
a half. End Summary.

--------------
First of a kind in Mexico
--------------


2. (U) Under Mexican law, the generation, transmission,
distribution, and marketing of electric power for public service
purposes is exclusively reserved to the Federal Government and
specifically to the vertically integrated state owned monopoly,
the Federal Electricity Commission (CFE). However, since 1992
private participation has been allowed for self-supply,
cogeneration, and direct sales to CFE. These exceptions permit
municipalities and others to form self-supply collectives. For
the first time in Mexico, municipalities have formed a
collective that will benefit from wind energy.


3. (U) According to Salvador Trevino Garza, head of the
Tamaulipas Environmental Agency for Sustainable Development, Los
Vergeles will be the largest capacity wind-power installation in
Mexico and the first to supply energy to the public sector.
(Note: In total, the Isthmus of Tehuantepec in Oaxaca has more
installed capacity, but the area is broken down into a series of
individual installations. End note) Los Vergeles will have 70
Siemens wind turbines on 1800 hectares, with a generative
capacity of 2.3 megawatts (MW) per turbine for a total installed
capacity of 161MW. Generators will be purchased from Denmark,
blades from the U.S., and bases from Chihuahua, Mexico. Trevino
Garza favorably compares the project to other wind energy sites
in Mexico including a private 90MW installation in Oaxaca
(CEMEX),and a 10MW project in Baja California. Trevino Garza
has stated the project is scheduled to break ground in November
2009 and be completed by November 2010. (Note: Post had not
seen an announcement for a groundbreaking ceremony at Los
Vergeles as of November 13. End note)



4. (U) Renewable Energy Systems Americas (RES),of Austin,
Texas, will oversee construction and administer provisioning of
CFE's distribution line. After construction RES will be
responsible for the operation of the plant for two years.
Tamaulipas officials have the option to renew the contract after
the initial two-year term. At RES's request, CFE has completed
a preliminary study of the technical needs to provision
interconnectivity of Los Vergeles with the Matamoros grid.

--------------
Energy and environmental savings are forecast
--------------


5. (U) The project is designed to generate 475,000 gigawatts
(GW)/year. According to Trevino Garza, the largest nine cities
in Tamaulipas currently consume 442,000GW hours/year at an
average cost of approximately 0.13 USD per KWh. Energy from Los
Vergeles is forecast to cost approximately 0.126 USD per KWh.
It is unknown what the managing company, Renewable Energy
Systems Americas, will charge per KWh.


6. (U) Electricity generation in Tamaulipas currently produces

MATAMOROS 00000172 002.2 OF 002


170,000 tons of greenhouse gases annually. Trevino Garza
estimates that Los Vergeles will generate 300,000 carbon credits
annually, based on a projected capacity of 161MW. He hopes
these carbon credits will generate income in the future.

--------------
Funding and BECC certification still pending
--------------


7. (SBU) According to Trevino Garza, the total cost of Los
Vergeles will be 318 million U.S. dollars (USD). NADBANK
funding will be approximately 84 million USD. BECC`s Director
of Planning and Technical Assistance, Mario Vasquez noted the
size of the commercial funding package is a challenge.
According to Vasquez, Trevino Garza is working with Mexican
wind-energy developer Grupo Soluciones en Energias Renovables
(GSEER) to put together commercial funding from approximately
five different banks. Commercial financial sources may include:
Ecobanca (154 million USD),and Fondo Macquire (80 million USD).
The details are not yet finalized. Vasquez notes NADBANK is
missing the project's financial analysis from Tamaulipas, due to
difficulties in creating the commercial financing package in a
tight credit market.


8. (SBU) In local media Trevino Garza has stated that Los
Vergeles has been certified by BECC to be funded by NADBANK.
BECC confirms the project is currently in the development phase
but says it is not yet approved for NADBANK funding as Trevino
Garza has claimed. BECC sources believe that Trevino Garza is
under intense pressure from Tamaulipas Governor Hernandez Flores
to get Los Vergeles operational before Hernandez Flores leaves
office in a year and a half. As a result, Trevino Garza brought
GSEER into the project to put together commercial funding and
provide a bridge loan in order to break ground in November 2009
before BECC certification. BECC expects to certify the project
in the first quarter of 2010. GSEER has placed a 270 million
USD order for the delivery and installation of 70 wind turbines
with Siemens Energy, and plans to recover the investment after
the project is certified by BECC and funded by NADBANK and
commercial funding.


9. (SBU) Our BECC contact also shared with EconOff that several
items required for BECC to certify Los Vergeles have not been
received. In order to proceed with the technical assessment,
BECC needs an environmental assessment study from Tamaulipas,
approvals from the Mexican Secretary of Environment and Natural
Resources (SEMARNAT),and agreements from CFE and the Mexican
Regulatory Energy Commission (CRE). In order to meet the
Governor's accelerated time table, project technical
specifications may change, as an opportunity to buy up recently
cancelled European orders from Siemens could cut the normal 24
month project lead time to 8 months. BECC states the chance of
the project being 100 percent completed in a year and a half is
slim, but some turbines could be up and running in that time.
BARKIN