1. 1 16 th Annual Mexican Energy New Perspectives on Energy Policy and Gas Supply for Economic Growth November 13-14,2012 By: Ernesto Hanhausen, Emerging Energy & Environment

2. 2 EMERGING ENERGY & ENVIRONMENT

3. 3 Content Who we are and what we do? Brief Renewables Situation and Potential in Mexico Regulatory Highlights and Enablers Natural Gas and Renewables Challenges/Opportunities to develop Renewables in Mexico EMERGING ENERGY & ENVIRONMENT

4. 4 WHO WE ARE EMERGING ENERGY & ENVIRONMENT

5. 5 WHO WE ARE Fund Management Company that manages two specialized and regional Private Equity Funds. Region: Latin America mainly Mexico, Peru and Brazil Focused on Renewable Energy and Energy Efficiency infrastructure EMERGING ENERGY & ENVIRONMENT

6. 6 WHO WE ARE: FUNDS UNDER MANAGEMENT Emerging Energy Latin America Fund II, L.P. Primarily Renewable Energy and Energy Efficiency Infrastructure. Recent first closing CleanTech Fund, L.P. Primarily energy efficiency, renewable energy, clean technologies, sustainable transportation Totally invested. Now divesting: - 3 Mini hydros - Efficient CNG - Efficient Corn processing (Bioethanol) - Hybrid Vehicles - Biogas EMERGING ENERGY & ENVIRONMENT

7. 7 EELAF II, L.P. PIPELINE OVERVIEW Current Fund II active pipeline:  Over 35 deals representing over US$2.7 billion of investment potential.  Over US$2.2 billion of the pipeline represents wind, solar, and small hydro renewable energy infrastructure. EMERGING ENERGY & ENVIRONMENT

8. 8 MEXICO RENEWABLES POTENTIAL EMERGING ENERGY & ENVIRONMENT

9. 9 MEXICO RENEWABLES POTENTIAL Wind We have Only 1260 MW installed capacity up to date. The country's estimated potential exceeds 71,000 MW. In 22 of the 31 Mexican states, wind plants can be installed with plant factors of above 30%. Estimated investments needed are $5.5 billion dollars. Source: Electrical Research Insitute (IIE) and SENER Mini Hydros (< 30MW) Current installed capacity is approximately 400 MW. Estimated potential is 3,250 MW, Only 12% of potential capacity is being utilized. Source: CFE and CRE EMERGING ENERGY & ENVIRONMENT

10. 10 EMERGING ENERGY & ENVIRONMENT Geothermal Power Mexico is ranked fourth in the world with 958 MW. To our knowledge there is no detailed analysis of what the potential of geothermal power could be, but estimates are around 20,000 MW. Source: CFE and CRE MEXICO RENEWABLES POTENTIAL

11. 11 Solar Power 90% of Mexican territory has daily irradiance ranging between 5 and 6 KW/h per square meter. Mexico: one of the areas with the highest levels of solar radiation in the world. Estimated total existing capacity is only < 20 MW, (approx $125.5 MM inv.). Considerable reduction of CAPEX in the last few years. MEXICO RENEWABLES POTENTIAL EMERGING ENERGY & ENVIRONMENT

12. 12 Sources: GTZ (2009) "Nichos de Mercado Para Sistemas Fotovoltáicos en Conexión a la Red Eléctrica en México," June 2009; International Energy Agency Photovoltaic Power Systems Programme (2006), "Compared assessment of selected environmental indicators of photovoltaic electricity in OECD cities," April 2006. PV installed in many cities across Northern and Central Mexico has an "energy payback time" (EPBT) of less than two years. EPBT represents the time required for these PV systems to produce the amount of energy needed to manufacture all the PV components. The EPBT is based on a figure of 2,525 kWh, the electrical energy required to manufacture 1 kW of a complete PV system (including PV panels, wiring and electronic-connection devices). This 2,525 kWh figure was used by the International Energy Agency in a 2006 report titled "Compared assessment of selected environmental indicators of photovoltaic electricity in OECD cities”. Assuming a net system efficiency of 15%, a square of 25 km in Chihuahua or in the Sonora desert would be sufficient to supply all of Mexico's electricity (based on information provided by Energy Department and GTZ in 2009) They say Mexico has a “ Huge” Potential Market : Mexico's photovoltaic and solar thermal market potential is 45 GW, which is approximately 75% of Mexico's 2008 total electricity generation capacity (59.5 GW in 2008). Solar thermal and PV electricity will account for up to 5% of the country's energy supply by 2030. Mexico's best solar thermal resources are in the states of Baja California, Sonora and Chihuahua. They estimate that there are considerably greater solar thermal resources in the country than wind resources. MEXICO RENEWABLES POTENTIAL (Article on Solar Potential)

13. 13 MEXICO RENEWABLES POTENTIAL City,State/Country KWH - year/KW –installed Energy Pay-Back time (years) Hermosillo, Sonora 1,8181.4 Cd.Obregon, Sonora 1,8181.4 Chihuahua, Chihuahua 1,7871.4 Durango, Durango 1,7271.5 La Paz, BCS 1,7271.5 Mexico – average 1,5151.7 Sevilla, Spain 1,4601.7 Madrid, Spain 1,3941.8 Barcelona, Spain 1,1932.1 Munich, Germany 9602.6 Berlin, Germany 8393.0 Solar power capacity EMERGING ENERGY & ENVIRONMENT

14. 14 COGENERATION World Bank Study: Low Carbon Development for Mexico says: "Cogeneration could provide about 12.5 percent of new capacity under a low-carbon scenario, at costs that are substantially lower than the current marginal costs of power generation in Mexico.“ Our internal survey estimates an approx potential capacity of 3,500-5,000 MW MEXICO RENEWABLES POTENTIAL EMERGING ENERGY & ENVIRONMENT

15. 15 REGULATORY HIGHLIGHTS EMERGING ENERGY & ENVIRONMENT

16. 16 2008 – LAFTRE (Law for the use of renewable energy sources and the energy transition financing) 2009 – Regulatory framework regarding LAFTRE completed CRE (Energy Regulatory Commission) is now fully empowered to: Develop, define and prepare all methodologies, contracts and agreements regarding private investment in renewable energy, cogeneration and natural gas. Suggest, recommend, object, request revisions and modifications to CENACE (National Electric Power Control Center). Issues the rules for the interconnection to the national grid. SENER (Ministry of Energy – Secretaría de Energía) has the mandate to: Monitor and carry out the National mapping of renewable energy sources and installed capacities Develop and issue methodologies to evaluate associated costs related to pollution, human health problems and opportunities of NON renewable energies. 2010 – Efficient Cogeneration is granted with same rights as Renewable Energy Although efficient cogeneration was included in law in 2009, its definition and regulatory framework was issued by CRE at the end of 2010. MEXICO’s Regulatory Highlights EMERGING ENERGY & ENVIRONMENT

17. 17 2010 – Interconnection Contract Main enablers: 1.Energy “Banking”:at no expense and for one year period. 2.Wheeling Charge:fixed at US$0.002 – US$0.01 per kWh depending on tensions utilized. MEXICO’s Regulatory Highlights EMERGING ENERGY & ENVIRONMENT

18. 18 RENEWABLES and NATURAL GAS EMERGING ENERGY & ENVIRONMENT

19. 19 Natural Gas Supply Of course we badly need gas! But to achieve supply, still for quite some time, Mexicans will continue facing: Extremely long, slow, highly complicated and uncertain bidding processes (Ramones pipeline  Cancelled!). Centralized decision making. Political issues at Municipal, State and Federal Government levels. Change of government in process. Indefinite delays in the construction of transportation infrastructure. Huge investments, maybe too complicated technical issues, time and several “agreements to agree” that are required to implement a gas supply project. When available, gas will continue sourcing CFE plants and Future IPPs. The fact that the additional and total needed supply just won’t be there at least in the next 4-5 years. Renewables and Gas EMERGING ENERGY & ENVIRONMENT

20. 20 EMERGING ENERGY & ENVIRONMENT Renewables and Gas Natural Gas demand and production CFE & Pemex

21. 21 Renewables: Are based on the self-consumption law. No bidding processes required. Technical talent, expertise and financial support is what is needed. Obviously there are serious challenges as well, but their solution depends on talent, expertise and funding. Current difficulties in meeting gas supply needs. represents a unique opportunity to develop renewables. EMERGING ENERGY & ENVIRONMENT Renewables vs. Gas

22. 22 EMERGING ENERGY & ENVIRONMENT Renewables vs. Gas Highest Solar Potential Highest Mini Hydro and Wind Potential 8000 BCF 12000 BCF

23. 23 CHALLENGES & OPPORTUNITIES EMERGING ENERGY & ENVIRONMENT

24. 24 Renewables certainly represent challenges: Environmental, social, technical, financial, land ownership related and local authorities issues., Regulations are in place …finally. Good and knowledgable partners/ developers are highly important Scarse local talent – Scarse foreign talent Transmission capacity Permitting. EMERGING ENERGY & ENVIRONMENT Challenges and Opportunities in Renewables