By Siân Green

Mexico is emerging as a key market for international power developers. InterGen now has three key projects in the country including La Rosita and Bajio. It is IPPs such as these which will help Mexico meet its growing power needs.

In February 2002, the 610 MW Bajio combined cycle power plant started commercial operation near the municipality of San Luis de la Paz in Mexico. The project is one of the first major generation projects in the country selling merchant capacity, and represents the many existing and planned independent power projects (IPPs) that will help Mexico meet rapidly growing electricity demand.


La Rosita is a 1065 MW plant which sells part of its capacity into the southern California market
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Electricity demand in Mexico is expected to grow at some 5.5 per cent per annum over the next few years while natural gas demand – driven by the power sector – will grow at an annual rate of eight per cent. The government therefore wants to see 24 GW of power generating capacity added to the grid by 2010 to ensure sustainable economic growth and development.

The Mexican government has said that $20 billion of investment is required to expand and modernize the country’s power generation and transmission sectors, $17 billion of which is expected to come from the private sector. In line with this, 27 new power plant projects will be opened for bidding between 2002 and 2006, representing around 16 500 MW of new capacity. Another 17 power plants are scheduled for completion by 2006.

Mexico’s electricity sector has been open to private participation since 1992, providing opportunities for international power developers such as InterGen to build, own and operate power plants. InterGen’s Samalayuca II project, completed in 1999, was the first major private power project in Mexico and set standards for other projects to follow.


Mexico is looking to IPP projects to meet growing power needs
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InterGen has since developed two more projects in Mexico: Bajio, and La Rosita, which is expected to come on-line in 2003. Both projects sell part of their capacity on a merchant basis, while the majority of their capacity is sold to Mexican utility CFE under long-term sales contracts.

Power blocks

La Rosita is a 1065 MW combined cycle natural gas fired power plant located near the city of Mexicali just 10 km south of the USA-Mexico border. The project is around 60 per cent complete and will come on line in early 2003, according to InterGen vice president of asset management and development Vimal Chauhan.

La Rosita holds two power blocks. The first is a 750 MW unit consisting of three Siemens-Westinghouse W501F combustion turbines, three Alstom steam turbines and three Doosan heat recovery steam generators. The second power block is a 315 MW single train combined cycle unit with one GE 7FA gas turbine, one Foster Wheeler HRSG and one steam turbine.

“La Rosita I is about 70 per cent done, and La Rosita II is 50 per cent complete,” says Chauhan, who is also project manager of La Rosita. “Both are scheduled to come on line in the first half of 2003.”

InterGen won the contract to develop La Rosita as a 750 MW plant in June 2000. In response to growing energy needs in the border region, it was decided to expand the project by a further 315 MW. La Rosita is being constructed by Bechtel under a turnkey engineering, procurement and construction contract.

Fuel to La Rosita will be supplied via a new 203 km cross border natural gas pipeline being constructed by a consortium of Sempra and PG&E. The project includes the development of a sewage treatment facility in Mexicali to purify local sewage water for use as cooling water in the plant.


The Bajio plant was partly funded by the Inter-American Development Bank and the US EXIM Bank
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According to InterGen, the project will have a positive economic impact on the border region through the creation of 60 permanent, full-time jobs.

While La Rosita is 100 per cent owned by InterGen, the Bajio project is owned by Energía Azteca, a 50:50 joint venture between InterGen and American Electric Power (AEP). The project was constructed by Bechtel Power and includes a gas pipeline connecting the plant with a Pemex gas pipeline, and a $4 million wastewater treatment facility providing recycled cooling water for the plant as well as irrigation water for farmers.

Energía Azteca won the contract for the project in 1999 after an open bidding process tendered by CFE. The plant, located in the state of Guanajuato, is helping to meet the increasing need for electric power in Mexico’s central and northern regions.

The 600 MW plant consists of a single power block featuring three GE combustion turbines, one GE steam turbine and three HRSGs. Construction started in 1999.

Financing fundamentals

Financing independent power projects can be a challenging business but both La Rosita and Bajio were able to build on the success of Samalayuca II. InterGen and its partners arranged more than $638 million in financing for Samalayuca, including $422 million in non-recourse loans from four commercial banks, $75 million in construction loans and ten-year term financing.

Although both La Rosita and Bajio are partly merchant, much of their capacity is sold to CFE under long-term power purchase agreements (PPAs). This, says, Chauhan, has facilitated the Mexican IPP market. “Financing has been fairly accessible, although I would not say easy because of the way the IPP market is these days,” he commented. “The market is tight, but the CFE PPA is a fairly well structured document, and banks have been quite comfortable using that as security for financing … the CFE contract is about as good as it gets.”

La Rosita is being developed at a cost of $748 million, including $232 million of equity. In April 2002, InterGen announced that it had successfully arranged $563 million of non-recourse commercial bank senior debt financing for the project through three lead banks: BNP Paribas, Citibank Salomon Smith Barney and Export Development Canada (EDC). ANZ Investment Bank, Bancomext, KBC and Societe Generale committed to the facilities as arrangers, while Credit Lyonnais, Dexia, Fortis, Hypo und Vereinsbank and Nord LB committed as co-arrangers.

The Bajio facility was funded by the Inter-American Development Bank and the US Export-Import Bank. A consortium of commercial banks including BNP Paribas, Deutsche Bank, Citibank and Dresdner Bank provided financing.

The merchant way

The majority of both plants’ output is contracted under long-term sales contracts to CFE. In the case of La Rosita I, 500 MW of unit one will be sold to CFE under a 25-year PPA, with the remaining 250 MW sold to Shell subsidiary Coral Energy under a 15-year PPA. Rosita II is entirely merchant and will sell power into the southern California market on a daily basis.

“The merchant capacity will be sold in the daily market, where there is a 16-hour peak block and an eight-hour off-peak block,” said Chauhan. However, InterGen is mindful of the risks of selling power on a merchant basis, and would be keen to sell the power under a PPA instead. “We certainly would be looking to hedge and find an attractive opportunity,” says Chauhan. “Any power generator would do that.”

Power from La Rosita II can also be sold into the northern Baja California power grid, which although synchronized with the southern Californian grid, is isolated from the rest of Mexico.

Bajio, on the other hand, sells power into the central Mexican grid. Some 500 MW of the plant’s 610 MW capacity is sold to CFE under a 25-year PPA. The remaining 110 MW is merchant capacity, the majority of which is currently being sold to CFE under a short-term emergency contract, while 15 MW is sold to industrial companies.

“The balance of 110 MW was originally intended to be sold to industrial companies, but CFE needed emergency power. So it’s a short-term contract – around three years.”

According to Chauhan, since starting commercial operation earlier this year, Bajio has been dispatched at baseload by CFE and the plant has attained an availability of just under 97 per cent.

The merchant plants must be operated in a way that captures value in the market, but this does not present too many challenges for InterGen, says Chauhan. “Operating them is not significantly different [to other IPPs],” said Chauhan. “You do have more start and stops because you are constantly trying to capture different products in the market, for example the 16-hour peak product. So there is more cycling, but otherwise there are few fundamental differences.

“La Rosita I cycles less than La Rosita II, but that is about the only difference.”

“The CFE PPA is a fairly well structured document, and banks have been quite comfortable using that as security for financing”