RENEWABLE ENERGIES BUSINESS INTELLIGENCE UNIT

RENEWABLE ENERGIES BUSINESS INTELLIGENCE UNIT

Research and analysis: Wendy Lozano Cardona Design and layout: Gibran Quiroga 2013, ProMéxico Camino a Santa Teresa No.1679 Col. Jardines del Pedregal Del. Álvaro Obregón, 01900, México D.F. First edition (not for sale) Mexico City, August 2013 No part of this publication, including the cover design, may be reproduced, stored or transmitted in any fashion or by any media without express written consent from ProMéxico. ProMéxico is not responsible for any errors or inaccuracies in the information contained herein resulting from updates after the publication date.

Contents 1. Presentation... 2 1.1 Objective... 2 1.2 Key Indicators 2012... 3 1.3 Key Indicators of RE in Mexico 2012... 4 2. Description of the Industry... 6 3. Global Outlook... 8 3.1 Installed Capacity... 8 3.2 Generation... 8 3.3 Consumption... 9 3.4 Jobs... 9 3.5 Geographic Segmentation by Installed Capacity and Electricity Generation... 9 3.6 Trends... 10 3.6.1 Costs by Technology Type... 10 3.6.2 Public Policies as a Driving Mechanism of the RE Industry... 10 3.6.3 Research and Development... 10 3.7 Global Companies... 11 3.8 Certifications & Standards... 12 3.8.1 Certifications... 12 3.8.2 Safety Standards to Access Major Markets... 12 4.The Industry in Mexico... 14 4.1 Installed Capacity... 14 4.1.1 Installed Capacity Expected by 2026 from Renewable Sources... 14 4.2 RE Electricity Generation Stations... 14 4.3 Main Companies in Mexico... 15 4.4 Wind Energy... 16 4.4.1 Open Season... 16 4.4.2 Wind Energy Companies in Mexico... 17 4.5 Solar Energy... 17 4.5.1 Solar Photovoltaic... 17 4.5.1.1 Photovoltaic Energy Companies in Mexico... 17 4.5.2 Solar Thermal... 17 4.5.3 Water Heaters... 18 4.6 Geothermal Energy... 18 4.7 Hydroelectric Stations... 18 4.8 Biomass Energy... 18 4.9 Foreign Direct Investment (FDI)... 18 4.10 Chambers & Associations... 19 5. Investment Promotion Instruments... 21 6. Legal Framework... 24 6.1 Categories for Electric Energy Generation... 24 6.2 State Regulations... 24 6.3 Federal Programs... 25 6.3.1 Funds... 25 6.3.2 Fiscal Incentives... 25 6.3.3 Financing... 25 6.3.4 Programs... 25 6.4 Other Investor Services... 25 6.5 Mexican Standards... 25 6.5.1 Electricity-Related Standards... 25 6.5.3 Standards Related to the Wind Sector... 26 6.5.4 Standards Related to The Geothermal Sector... 26 6.5.5 Standards and Accreditations Related to the Biomass Sector... 27 6.5.6 Standard Projects... 27 6.6 Rules of Origin... 27 Glossary... 30 Abbreviations... 31

Graphs, tables, Diagrams & Figures Index Tables Table 1. Installed Capacity for Electricity Generation 2012...8 Table 2. Installed Capacity for Electricity Generation 2011-2035 (Gw)...8 Table 3. Share of Renewable Sources by Type of Use...8 Table 4. Share of Renewable Sources In Energy Generation...8 Table 5. Regional Consumption of Electricity From Renewable Sources...9 Table 6. Primary RE Demand by Region (TWh)...9 Table 7. Direct and Indirect Jobs in the RE Sector Worldwide, by Industry, 2012...9 Table 8. Countries with Highest Installed Capacity in RE 2012...9 Table 9. Technology Costs for RE Generation...10 Table 10. Public Policies to Boost RE 2012...10 Table 11. Main Companies with Investment in RE Research and Development...11 Table 12. Main RE Electricity Generation Companies 2012...11 Table 13. Main Manufacturers of Wind Equipment (Turbines) 2012...11 Table 14. Main Manufacturers of Photovoltaic Module 2012...11 Table 15. Installed Capacity in Operation and Under Construction for RE Generation...14 Table 16. Additional Installed capacity for Electricity Generation 2012-2026 (Mw)...14 Table 17. Additional Capacity of the Public Sector 2012-2026 (Mw)...14 Table 18. RE Electricity Generation Stations 2012 (Mw)...15 Table 19. Wind Stations for Electricity Generation 2012...16 Table 20. Applications Received During the Second Invitation to Reserve Transmission Capacity...16 Table 21. Supply Chain in Wind Energy...17 Table 22. Solar Photovoltaic Plants for Electricity Generation...17 Table 23. Photovoltaic Module Manufacturers 2012...17 Table 24. Geothermal Stations for Electricity Generation...18 Table 25. Hydro Stations for Electricity Generation...18 Table 26. Foreign Direct Investment in the RE Industry in Mexico...19 Table 27. Renewable Resource Potential in Mexico...21 Table 28. Companies that Intend to Invest in the Americas...21 Table 29. Recent RE Projects in the Americas...21 Table 30. State Laws Related to RE...24 Graphs Graph 1. Main Countries With Installed Capacity by Energy Type 2011...10 Diagrams Diagram 1. Electricity Generation by Technology Type...6 Diagram 2. Biomass Stations for Electricity Generation...18 Diagram 3. RE Regulations...24 Figures Figure 1. Projects in Operation and in Construction for RE Electricity Generation 2012...14 Figure 2. Main RE Companies with Presence in Mexico...15 Figure 3. Potential Areas for the Development of Wind Energy Projects...16 Figure 4. Map of the Attraction Index of the Solar Photovoltaic Industry in the World...17

I Presentation

1. Presentation 1.1 Objective The purpose of this document is to provide an overview of the national and international renewable energies (RE) industry as a tool to facilitate the identification of business opportunities for the sector in Mexico. The document includes a global reference framework with information related to installed capacity, generation, consumption, investment, and industry trends, among other topics. It also provides an overview of the national industry, focused on the market, chambers and associations, programs and regulatory framework. The document includes information intended to identify the tools that will project Mexico as a great destination for foreign investment, and its potential for RE resources. 2

1.2 Key Indicators 2012 Global installed capacity 1,471 Gigawatts (GW) Percentage of global installed capacity for electricity generation with RE 26% AAGR* 2012-2025 4.2% Percentage of global electricity generation with RE 21.7% Installed Capacity (GW) and Investment in Billion USD Canada 11.4 GW [4.2 Billion USD] United States 132.8 GW [34.2 Billion USD] Spain Installed Capacity [Investment in RE] Germany 70.9 GW [19.8 Billion USD] United Kingdom 15.3 GW [8.8 Billion USD] France 13.9 GW [4.6 Billion USD] 34.2 GW [2.9 Billion USD] Italy 31.2 GW [14.1 Billion USD] Brazil 16.1 GW [5.3 billion USD] Russia 1 GW India 28.3 GW [6.4 Billion USD] South Africa [5.7 Billion USD] Japan 26.9 GW China [16 Billion 152.3 GW USD] [64.7 Billion USD] RE investmts by sector (MMD 2012) Growth 2011-2012 -11% Solar 88.7 / 51.7-10% Wind Power 35.0 / 45.3 20% Hydro** 0.3 / 7.5-34% Biomass 3.9 / 4.7-44% Geothermal 0.6 / 1.4-40% Biofuel 3.8 / 1.2 13% Tidal Power 0.3 / 0.01 Developed Countries Developing Countries *AAGR: Average Annual Growth Rate **Hydro with less than 50 MW of installed capacity 3

1.3 Key Indicators of RE in Mexico 2012 Installed capacity in Mexico* 14,501 MW Megawatts (MW) AAGR 2012-2025 6.5% Recreated PMS Main Companies in Mexico FDI Announcements 1,442 million USD Main Investor Countries [United States] [Spain] [Denmark] [France] Goal to increase the share of clean technologies in total generation to in 2024 35% Mexico is one of the major countries in the world for installed capacity of geothermal energy Mexico is part of the sunbelt with solar radiation above 5kWh/m 2 per day Wind power potential 40,000 MW Biggest producer in Latin America of photovoltaic modules with more than 312 MW of production capacity Hydro potential RE based power stations Geothermal potential 53,000 MW 40,000 MW 253 Process Suppliers [Foundry] [Assembly] [Machining] [Thermal Surface treatments] [Pressure Injection] [Plastic Injection] [Extrusion, aluminum injection, rolling, welding, boiler-making and surface treatments, among others] [Die-cutting and Stamping] 4

II DESCRIPTION OF THE INDUSTRY 5

2. Description of the Industry The RE sector comprises all forms of energy that are continuously replenished. These include: solar, wind, water, biomass and heat from the Earth s core. Depending on the kind of source used, RE are classified as follows: Geothermal: energy from the earth s core in the form of heat. It flows through the fissures in rocks and approaches the surface where its accumulation depends on the geological conditions at the site. Diagram 1. Electricity Generation by Technology Type Eolic: wind energy transformed into electric or mechanical energy. Hydro: electricity generation from the energy produced by water running over a natural or artificial decline between two points. Solar: the energy from the sun s radiation is divided, according to the technology used, into: Photovoltaic: the conversion of solar radiation into electricity through panels, cells, conductors or photovoltaic modules, made primarily from silicon and formed by semiconductor devices. Biomass: the energy obtained from animal and vegetable waste. As energy, the biomass can be used in two ways: by burning to produce heat or by converting it into solid, liquid or gaseous fuel. High Concentration Solar: parabolic panels which concentrate solar radiation to convert it into electric energy. Thermal: the use of solar radiation for the capture and storage of heat through solar thermal collectors. 6

III GLOBAL OUTLOOK 7

3. Global Outlook 3.1 Installed Capacity In 2012, the total installed capacity for electric energy generation with RE 1 1,471 GW, of which 67% was provided by hydro energy stations and 19% by wind farms. Electricity from RE represented approximately a quarter of the total global electric energy (5,640 GW). Some of the driving factors of the industry, especially regarding wind and solar energy, have been: technological progress, the reduction in cost of technologies, and government promotion of sustainable development, among others. Table 1. Installed Capacity for Electricity Generation 2012 Energy Installed Capacity (GW) Source: Renewables Global Status Report, REN 21 2013 (RGSR, 2013) 1 Growth 2011-2012 Hydro 990.0 3.1% Eolic 283.0 18.9% Biomass 83.0 12.2% Solar photovoltaic 100.0 40.8% Geothermal 11.7 2.6% Concentrated Solar Power (CSP) 2.5 56.3% Tidal 0.5 0.0% Total 1470.7 8.4% By 2035, the installed capacity for producing electricity from renewable resources is expected to reach 3,437 GW, which will represent 40% of the electricity system worldwide. Hydro and wind energy will be the primary sources of electricity generation. Table 2. Installed Capacity for Electricity Generation 2011-2035 (Gw) AAGR Energy 2011 2012 2015 2020 2025 2030 2035 2012-2035 Hydro 970 990 1,119 1,271 1,410 1,520 1,602 61.8% Wind 238 283 358 535 703 862 1,035 27.3% Solar Photovoltaic 70 100 57 110 197 294 406 24.6% Biomass 72 83 75 98 134 184 244 34.0% Concentrated Solar Power (CSP) 2 3 10 17 30 52 91 2.7% Geothermal 11 12 16 21 27 34 42 27.9% Tidal Power 0 1 0 1 2 6 17 2.9% Total Global RE 1,363 1,471 1,635 2,053 2,503 2,952 3,437 42.8% Total Global Installed Capacity For Electricity Generation 5,360 5,640 5,952 6,581 7,186 7,867 8,613 65.5% Source: RGSR, 2013 / World Energy Outlook 2010, IEA (WEO, 2010) 3.2 Generation From 2010 to 2035, the percentage of share of RE in the global energy sector is expected to increase significantly. In 2010, 20% of world energy generation came from renewable sources and by 2035 share is expected to reach 48%. Table 3. Share of Renewable Sources by Type of Use Electricity (TWh) 2010 2020 2035 Electric Generation 4,206 7,443 15,293 Bioenergy 331 750 2,033 Hydro 3,431 4,658 6,263 Wind Power 342 1,442 4,281 Geothermal 68 150 449 Solar PV 32 376 1,371 CSP 2 51 815 Tidal Power 1 6 82 Share of total generation 20% 28% 48% Heat Demand (Mtoe) 337 461 715 Industry 207 263 345 Buildings and agriculture 131 198 370 Share of total generation 10% 13% 19% Biofuels (mboe/d) 1.3 2.8 8.2 Transportation 1.3 2.8 6.8 Aviation - - 0.8 Other - - 0.6 Total participation in transport 2% 5% 14% Source: World Energy Outlook 2012, IEA, (WEO, 2012) Brazil, China and Russia are some of the country that generate more energy from renewable sources. Brazil alone generated 75 % of its power from RE; the share worldwide is expected to grow from 20% in 2010 to 31% in 2035. Table 4. Share of Renewable Sources In Energy Generation Power generation (TWh) Country 2010 2035 Brazil 85 79 China 18 27 Russia 16 21 India 14 25 United States 10 23 Japan 10 27 World 20 31 Source: WEO, 2012 1. All abbreviations can be consulted in section 9. Index of Abbreviations 8

3.3 Consumption The consumption of electricity generated by renewable sources worldwide grew by 8% from 2009 to 2010. In this last year, it reached a total of 4,154 TWh, la 22% share in total consumption of electric energy worldwide. The leading regions of RE consumption are Asia, North America and Europe. Table 5. Regional Consumption of Electricity From Renewable Sources Region Consumption 2010 TWh Growth 2009-2010 Share Asia Pacific 1,254 15% 30% North America 841 1% 20% Europe 948 12% 23% Central and South 736 2% 18% America Rest of the World 375 4% 9% Total 4,154 8% 100% Source: US, Energy Information Administration (U.S. EIA) (*) Includes hydraulic energy The International Energy Agency (IEA) forecasts that the demand for RE will grow significantly. The European Union 2 and China are expected to demand 26% of RE by 2035, while the United States will cover 13% of the total for that year, driven by policies and incentives for the use of electricity from clean technologies and the production of biofuels. The United States will increase its demand significantly due to the increased use of RE for the generation of electricity and the production of biofuels. Table 6. Primary RE Demand by Region (TWh) 3 1990 2010 2035 2010-2035 (AAGR) OECD 3,222 5,152 16,201 4.7% America 1,779 2,314 7,978 5.1% United States 1,163 1,524 6,071 5.7% Europe 1,140 2,419 6,199 3.8% Asia-Oceania 302 419 2,012 6.5% Japan 174 209 1,035 6.6% NON-OECD 9,851 14,433 29,075 2.8% Europe-Eurasia 465 547 1,919 5.2% Russia 302 256 1,175 6.3% Asia 5,780 7,862 16,422 3.0% China 2,454 3,303 7,315 3.2% India 1,628 2,117 3,896 2.5% Middle East 23 23 791 15.1% Africa 2,279 3,943 5,815 1.6% Latin America 1,303 2,059 4,129 2.8% Brazil 768 1,361 2,675 2.7% WORLD 13,072 19,585 45,648 3.4% European Union 861 2,140 4,466 3.0% 3.4 Jobs Currently, an estimated of 5.7 million people are employed in the RE sector directly or indirectly, of which over 64% are concentrated in 5 countries, led by China and the United States. In 2012, the biomass and solar PV sectors generated 65% of total employment worldwide. Country Solar PV Solar Heating / Cooling Wind Power Thousand Jobs Biomass Geothermal Minihidraulic Concentrated Solar Power China 380 300 800 267 -- -- -- 1,747 European Union Total 454 312 32 270 51 24 36 1,179 Brazil 804 -- -- 29 -- -- -- 833 United States 369 90 12 81 35 8 17 612 India 178 112 41 48 -- 12 0 391 Germany Table 7. Direct and Indirect Jobs in The RE Sector Worldwide, by industry, 2012 130 88 11 118 14 7 2 370 Spain 44 12 1 28 0 2 34 121 World 2,398 1,360 892 753 180 109 53 5,745 Source: RGSR, 2013 IRENA, Renewable Energy and Jobs, 2013. 3.5 Geographic Segmentation by Installed Capacity and Electricity Generation En 2012,, the countries with highest installed capacity in RE were China, with 22%, followed by the United States with 11% and Brazil with 7%. These countries are the main generators of electricity from renewable sources. Table 8. Countries with Highest Installed Capacity in RE 2012 Country Installed Capacity GW Generation TWh** China 319 797 United States 164 520 Germany 76 127 Spain 48 87 Italy 47 86 India 67 162 Brazil 100 459 BRIC'S 530 1,588 European Union-27 330 696 Total 1,470 2,405 Source: RGSR, 2012/US, EIA (*) Includes hydroelectric (**) Data as of 2011 Source: WEO, 2012 2. The EU has established 2020 as the year to reach the 20-20 goal which consists of reducing greenhouse gas emissions (GGE) by 20% and increasing consumption of RE by the same amount. 3. The data consider a new policies scenario, which takes into account international and national commitments through goals to reduce GGE and fossil fuel subsidies by 2020. 9

Likewise, the energy generation from renewable sources in 2012 was also leaded by the same countries. India Spain Others 6.5% Graph 1. Main Countries With Installed Capacity by Energy Type 2011 24% 8.1% Germany Wind Power Others 48.1% Hydro PV Solar Source: RGSR 2013/ Bloomberg New Energy Finance (BNEF) 3.6 Trends 3.6.1 Costs by Technology Type Geothermal Biomass The RE sector is expected to continue growing in the future, especially the solar and wind equipment sector. RE generation technologies will continue to decrease in production costs due to accelerated technological progress and the growth of green equipment manufacturing. Table 9. Technology Costs for RE Generation 4 Energy Type Cost 2010-2020 Cost 2021-2035 (US$2009 per MWh) (US$2009 per MWh) Min. Max. Ave. Min. Max. Ave. Learning Rate Biomass 119 148 131 112 142 126 5% Onshore wind 63 126 85 57 88 65 7% Offshore wind 78 141 101 59 94 74 9% Geothermal 31 83 52 31 85 46 5% Large-scale Solar PV Solar PV buildings 11% Concentrated Solar Power China 26.4% 21% United States China 23.1% 8.5% Brazil 7.9% United 7.8% States 4.6% Canada Russia Others 29.1% 7.0% China 7.4% 16.2% 8.1% Japan Italy United States Others 29% 7.0% Mexico 16.1% 7.7% 11.6% Italy Germany Indonesia 32.2% Others 53.2% United States 28.6% United States 16.1% 12.0% 195 527 280 99 271 157 17% 273 681 406 132 356 217 17% 153 320 207 107 225 156 10% Philippines United Kingdom Brazil 7.0% China 6.9% 4.7% Germany The Ministry of Energy estimates that the cost of RE technologies will decrease in accordance with the learning curve. A learning rate of 5% implies that the expected cost of investment of a technology falls 5% for each duplication of accumulated installed capacity. The technology with the highest rate of learning is photovoltaic energy at 17%. China will continue to attract a large part of global production of wind turbines and photovoltaic equipment due to the size of its market, government investments in the sector and the competitive advantages in the manufacturing industry. China has a strong production base of semiconductors and has become one of the European Union s major suppliers of photovoltaic equipment. 3.6.2 Public Policies as a Driving Mechanism of The RE Industry The international movement to reduce greenhouse gas emissions and increase the use of RE has resulted in a wide range of public policies and agreements seeking that objective. At least 109 countries introduced some kind of public policy to promote the generation of RE in 2012, of which two thirds were emerging and developing countries. Regulatory Policies Table 10. Public Policies to Boost RE 2012 Tax Incentives Public Financing Public Policies # of Countries Feed-in tariff (guaranteed fixed price received by the owner for electricity 68 generation Standard RE portfolio 22 Net metering (compensation of the cost of electricity used with the 31 energy contributed Minimal % use of biofuels 51 Minimal % heat generation with RE 18 Tradable RE certificates 21 Capital subsidy or bonus 57 Tax credits for investment or production 37 Tax reductions on sales, energy, reduction of CO2 emissions, VAT, 84 among others Payment for energy production 19 Public investment, loans or donations 65 Public bid 44 Note: Of the countries considered, some only have municipal or state policies. Source: RGSR, 2012 3.6.3 Research and Development As a result of the impetus given to the industry, there has been a significant increase in investment for research and development efforts to reduce costs, primarily in the development of solar photovoltaic and wind energy Source: Renewable Energies Outlook, 2011-2025, SENER, (PER 2011-2025, SENER) with data from the WEO, 2010. 4. The data consider a new policies scenario, which takes into account international and national commitments through goals to reduce GGE and fossil fuel subsidies by 2020. 10

Table 11. Main Companies with Investment in RE Research and Development Company Country Investment 2011 (MD) Growth 2010-2011 Vestas Wind Systems Denmark 506 10% First Solar United States 140 48% SMA Solar Technology Germany 129 41% Nordex Germany 75 83% LM Wind Power Denmark 63 43% Centrotherm Photovoltaics Germany 61 12% Renewable Energy Norway 48 0% Q-Cells Germany 43 24% Source: Economics of Industrial Research & Innovation (IRI) 3.7 Global Companies The major manufacturing companies, developers and owners of plants producing RE electricity and biofuels are mainly located in the United States, China, Spain and Germany, among countries. The following ten companies are the leading generators of RE electricity worldwide. Table 12. Main RE Electricity Generation Companies 2012 Company Country sales (USD MD) # employees # Proyects ** E. ON Germany $174,560 72,083 41 Enel Italy $109,290 73,702 97 Electricité de France France $96,110 151,804 47 Tokyo Electric Power Company Japan $65,010 52,046 17 Iberdrola Spain $45,200 31,338 90 China Huaneng Group China $42,900* 142,370 -- China Guodian Corporation China Datang Corporation China $34,020* 110,000 -- China $29,600* 90,000 -- Vattenfall Sweden $25,700 32,794 18 Energías de Portugal SA (EDP) American Electric Power Company Portugal $21,590 29 24 US $14,960 18,513 -- Alpiq Holding Switzerland $14,850 11,000 4 Edison Italy $14,740 3,764 9 Nextera Energy US $14,260 4,700 3 CLP Holdings Limited Hong Kong $13,530 6,581 -- Abengoa Spain $10,290 24,605 40 Acciona Spain $9,270 31,857 41 Source: RGSR, 2013 /Hoovers. (*) Data to 2011. (**) Number of proyects finished or in development from June 2003 to 2013 In 2012, close to 80% of global wind production equipment (turbines) was concentrated in ten companies. China is the industry s most important country with at least 30% of production. Company GE Wind (GE Energy) Table 13. Main Manufacturers of Wind Equipment (Turbines) 2012 Country Global Production share Sales (MD) Jobs US 15.5% $44,000 1,700 Vestas Denmark 14% $10,000 22,721 Siemens Wind Power (Siemens Energy) Germany 9.5% $28,000 98,000 Enercon Germany 8.2% $610 2,550 Suzlon Group (Suzlon Energy) India 7.4% $4,050 13,000 Gamesa Spain 6.1% $2,155 1,650 Goldwind China 6% $726 3,500 United Power China 4.7% $716 4,000 Sinovel China 3.2% $636 2,027 Mingyang China 2.7% -- -- Other 22.7% -- -- Source: RGSR, 2013 and Hoovers, 2013 The manufacture of solar photovoltaic modules represented total sales of more than 35 GW in 2012, of which close to 31% was produced by ten Chinese companies. Table 14. Main Manufacturers of Photovoltaic Module 2012 Company Yingli Green Energy Country Source: RGSR, 2013 and Hoovers, 2013 Global Production share Sales (MD) Jobs China 6.70% $2,000 -- First Solar US 5.30% $3,370 5,600 Trina Solar China 4.70% $1,300 11,670 Suntech Power China 4.70% $3,150 17,693 Canadian Solar Canada 4.60% $1,290 7,020 Sharp Japan 3.00% $29,850 56,756 JA Solar China 2.80% $1,060 9,784 Jinko Solar China 2.60% $759 7,111 SunPower US 2.60% $2,420 5,020 Hareon Solar China 2.50% $577 3,000 Hanwha-Solar One Kyocera (International, Inc) China 2.50% -- -- Japan 2.50% $238 4,299 ReneSola China 2.10% $960 8,436 REC Norway 2% $1,280 2,346 Tianwei New Energy Other 49% China 2% $185 2,000 11

3.8 Certifications & Standards 3.8.1 Certifications ISO9001 Certification: Quality Management System. Application: projection, production and sale of solar cells and panels, sale of remaining components of the system (BOS, Balance of System) and sale, assembly, installation and assistance of photovoltaic systems. ISO 14001 Certification: Environmental Management. Application: generation, distribution and marketing of electric energy, transport, distribution and marketing of gas, operation and maintenance of combined cycle thermo-electric stations and marketing of other products and services related to energy supply and consumption. 3.8.2 Safety Standards to Access Major Markets In order to access markets like the United States, the European Union, Canada and Brazil, electricity generation and distribution equipment must meet the safety standards established by different laboratories. For the United States and Canada certification from the Underwriters Laboratories Inc. or CSA International is required. Europe requires certification from the Deutsches Institut für Normung (DIN). It is estimated that by 2050, the percentage of electricity generation from renewable sources will reach 57% worldwide. 5. CSA: Canadian Standards Association 12

Iv The Industry in Mexico 13

4.The Industry in Mexico 6 4.1 Installed Capacity In 2012, installed capacity for the generation of electric energy from renewable sources was 14,501 MW 7, of which 86% is for public service and 14% for concessionaires Table 15. Installed Capacity in Operation and Under Construction for RE Generation Type of Energy Installed Capacity in Operation (MW) Authorized Capacity under Construction (MW) Wind 1,289 2,460 Geothermal 823 0 Hydro 11,707 289 Solar 37* 156 Biomass 645 100 Total 14,501 3,006 Source: Federal Electricity Commission (CFE) / Energy Regulatory Commission (CRE) * Includes small and medium-scale photovoltaic projects, primarily in rural and residential electrification applications. 4.1.1 Installed Capacity Expected by 2026 From Renewable Sources Table 17. Additional Capacity of the Public Sector 2012-2026 (Mw) Type of Energy Finished Projects, in Construction or Tender Future Tender Total Hydro 750 3,881 4,631 Geothermal 104 254 357 Wind 1,115 2,408 3,523 Solar 20 0 20 Total 1,989 6,543 8,531 Source: Electricity Sector Works and Investment Program 2012-2026, CFE (POISE 2012-2026 CFE) 4.2 RE Electricity Generation Stations The country has 253 stations in operation and under construction for the generation of electric energy from renewable sources. RE projects are present in 90% of the states with Oaxaca (wind) and Veracruz (biomass) having the highest number of projects. Figure 1. Projects in Operation and in Construction for RE Electricity Generation 2012 It is estimated that by 2026, the total installed capacity for electricity generation from renewable sources will have surpassed 30,000 MW 8. An increase of 20,544 MW (2012-2026) is expected in the existing installed capacity, led by wind and hydro energy with a share of 59% and 28%, respectively. This forecast includes public service, self-supply and distributed generation Table 16. Additional Installed capacity for Electricity Generation 2012-2026 (Mw) Type of Energy Public Service Self-Supply Distributed Generation Total Share Eolic 3,219 8,352 461 12,032 59% Hydro 4,771 701 139 5,611 27% Solar Photovoltaic 6 752 1,170 1,928 9% Solar thermal 14 0 16 30 0% Aguascalientes Morelos Eólica Wind Power Solar Geotérmica Geothermal Hidráulica Hydro Bioenergía Biomass Geothermal 151 0 25 176 1% Biomass 0 422 345 767 4% Total 8,161 10,227 2,156 20,544 100% Source: PER 2012-2026/ Ministry of Energy (SENER) To satisfy the total demand for electric energy to 2026, the CFE estimates an increase of 44,532 MW 9 in the National Electric System (SEN). The public sector plans to install 8,531 MW in RE, representing 19.2% of the national electric grid. Source: CRE / CFE / Electronic media (EM). Mexico has a capacity of 5,951 MW, taking into account stations in operation and under construction. Close to 75% of the capacity is concentrated in the states of Oaxaca, Baja California, Tamaulipas and Veracruz. It should be noted that by law, private participation in hydropower projects is only permitted in those with an installed capacity of up to 30 MW. 6. Data taken as of December 2012. 7. Installed capacity of stations in operation. 8. To calculate the total capacity in 2026, 20,544 MW is added to the installed capacity for 2011. 9. Includes all kinds of conventional and alternative energy sources. 14

Recreated PMS Table 18. RE Electricity Generation Stations 2012 (Mw) State Biomass Wind Power Geothermal Hydro <30 MW Solar* Total Oaxaca 33 2,499 39 2,571 Baja California 258 645 24 5 932 Tamaulipas 13 437 450 Veracruz 270 40 124 434 Nuevo León San Luis Potosí 28 274 302 81 200 1 282 Michoacán 15 192 4 210 Jalisco 61 58 30 149 Chiapas 25 39 60 124 Puebla 15 52 39 106 Other 205 2 10 118 156 492 Total 745 3,749 898 467 192 6,052 Source: CRE / CFE / ME *Excluding hydropower stations higher than 30 MW. Figures are rounded. 4.3 Main Companies in Mexico Transnational equipment suppliers and project developers consider Mexico to be an attractive destination to invest in the RE sector. Furthermore, Mexican companies have diversified their business towards the sector with small-scale projects, equipment manufacturing and marketing. The energy division of this Spanish company engages in the manufacture of turbines, project development, engineering, construction, operation and maintenance of installations and the sale of energy. From 2007 to 2011, Acciona has installed four wind farms in Oaxaca, totaling 556 MW of capacity and an investment approaching 1,200 million USD. Danish company which develops, manufactures, sells and maintains wind equipment. It is the primary supplier of turbines in the world. In Mexico it has supplied this technology to several wind farms with around 500 MW installed capacity. A French company involved in the generation and distribution of electric energy. In Mexico it developed the La Mata-La Ventosa project with a capacity of 67.5 MW installed capacity in Oaxaca. Danish company which develops, manufactures, sells and maintains wind equipment. It is the primary supplier of turbines in the world. In Mexico it has supplied this technology to several wind farms with around 500 MW installed capacity. Spanish company engaged in the design, manufacture, distribution and installation of energy solutions. It is one of the main international turbine manufacturers in the world and sector leader in the manufacture, sale and installation of wind turbines. It is currently developing a 314.35 MW, multi-stage project in Oaxaca in partnership with CISA. Figure 2. Main RE Companies with Presence in Mexico Source: Mexican Association of Wind Energy (AMDEE) / BNEF / ME 15

A subsidiary of the Panasonic Corporation, Sanyo has products and services for the energy sector, electronics and ecology, among others. In the energy division the company assembles solar modules in the state of Nuevo León, with a production capacity of 75 MW a year. 4.4 WIND ENERGY The installed capacity of wind energy in operation reached 1,289 MW in 2012, of which only 7% is operated by the CFE, while the remainder is operated by concessionaires under self-supply schemes, small producers and independent producers. Table 19. Wind Stations for Electricity Generation 2012 Station/Concessionaire Oaxaca I,II,III and IV La Venta I,II and III Guerrero Negro Current Status Installed Capacity (MW) Location Type of Service In operation 408.0 Oaxaca Public In operation 187.5 Oaxaca Public In operation 1.0 Yuumil llk In operation 1.5 - In operation 691.1 Total in Operation - Under construction and about to start operations 1,289.0 2,460.0 Total 3,749.0 Baja California Sur Quintana Roo Baja California, Chiapas y Oaxaca Baja California, Nuevo León, Oaxaca, San Luis Potosí, Tamaulipas y Veracruz. Public Public Private Privado Source: Federal Electricity Commission, CFE. / Energy Regulatory Commission, CRE, 2012 Mexico has 40,268 MW 10 of wind energy potential, representing more than the installed capacity of the entire SEN. However, currently only 3.2% of that capacity is being utilized. The regions with most wind energy capacity are: The Isthmus of Tehuantepec (Oaxaca) where most of the country s wind farms are located, with 1,248 MW in operation. The state also has eight projects under construction totaling 1,251 MW. Due to the excellent wind conditions, this area is one of the most privileged in Mexico and the world. 11 La Rumorosa (Baja California) thas a wind potential of more than 5,000 MW. There are currently four projects in operation and under construction totaling an installed capacity of 258 MW. In the North and Central Regions, Nuevo León has 274 MW which are expected to start operations in 2014 at the latest. San Luis Potosí has a wind station under construction for a total capacity of 200 MW. Another area with wind potential is the Yucatán Peninsula which has excellent wind currents on the coast of Quintana Roo and the island of Cozumel. Figure 3. Potential Areas for the Development of Wind Energy Projects Source: AMDEE 4.4.1 Open Season 1 Isthmus of Tehuantepec 2 State of Baja California 3 Coast of the Gulf of Mexico 4 Coast of the Yucatán Peninsula 5 North and central Mexico First Invitation: In 2006, the Energy Regulatory Commission (CRE) launched the first invitation for the Open Season to Reserve Electric Power Transmission and Transformation Capacity to be developed in the state of Oaxaca, with the purpose of changing or expanding the SEN s infrastructure through wind projects. As a result, more than 2,600 MW were reserved of which 2,000 MW are private projects and the rest are owned by the CFE. Second Invitation: In 2011, the CRE launched the second invitation for the Open Season in the states of Oaxaca, Puebla, Tamaulipas and Baja California for wind and hydroelectric projects. The process is expected to end in 2013. The Open Season project in the state of Puebla ended in November 2012 with the development of two hydroelectric projects for a total capacity of 78.6 MW. Table 20. Applications Received During The Second Invitation To Reserve Transmission Capacity State Number of applications Capacity to reserve Oaxaca 36 7,609 Tamaulipas 40 7,063 Puebla 23 940 Baja California 29 6,398 Total 128 22,010 Fuete: CRE. Coast of the Gulf of Mexico currently has projects in operation and under construction amounting to 477 MW in the states of Tamaulipas and Veracruz. 10. Considerando factores de producción entre 20 y 25%. Prospectiva de Energías Renovables 2011-2025, SENER. 11. Oaxaca cuenta con una velocidad media anual de viento de 9-11 m/s, lo que permite factores de producción muy rentables que varían de 42 a 50%. 16

4.4.2 WIND ENERGY COMPANIES IN MEXICO Some of the main wind park developers in Mexico are Iberdrola, Acciona, EDF, Renovalia, Eyra, GSEER, Mcquaire (Preneal), Enel, Next Energy de México, Geomex and Sempra Energy. The following are leading wind equipment manufacturers: Acciona, Vestas, Gamesa and Siemens. TABLE 21. SUPPLY CHAIN IN WIND ENERGY Towers Blades Generators Others Table 22. SOLAR PHOTOVOLTAIC PLANTS FOR ELECTRICITY GENERATION Station/Concessionaire Interconnection agreements (small and medium scale) Photovoltaic project (self-supply) Santa Rosalía pilot photovoltaic project Current status Installed capacity (MW) Location Type of service Operating 32.0 - Private Operating 3.8 Aguascalientes Private Operating 1.0 Total in operation 36.8 Photovoltaic projects (self-supply and small generator) Photovoltaic project Cerro Prieto photovoltaic pilot project Under construction Under construction Under construction Baja California Sur Public 136.2 Aguascalientes Private 0.5 Durango Private 5.0 Total 178.5 Baja California Public Source: CFE/CRE/SENER/electronic media Source: AMDEE/United States Agency for International Development (USAID)/ Make Consulting/BNEF 4.5 SOLAR ENERGY Mexico is among the top five most attractive countries in the world for investing in solar photovoltaic energy projects, surpassed only by China and Singapore. 12 This is because the country is part of the sunbelt 13 with radiation above 5 kwh per square meter per day. Furthermore, Mexico has the largest manufacturing base of photovoltaic modules in Latin America. FIGURE 4. MAP OF THE ATTRACTION INDEX OF THE SOLAR PHOTOVOLTAIC INDUSTRY IN THE WORLD Source: European Photovoltaic Industry Association (EPIA) 4.5.1 Solar Photovoltaic Mexico has a total installed capacity of 36.8 MW in solar photovoltaic projects, mainly in rural and industrial electricity supply applications. Several projects are under construction that will have a total installed capacity of 141.66 MW. 4.5.1.1 Photovoltaic Energy Companies in Mexico Mexico has an annual capacity to produce more than 312 MW from photovoltaic modules (surpassing Brazil, Chile and Argentina). Some of the leading photovoltaic energy developers are Abengoa, Abener, DelSol Systems, Microm and Iberdrola. Table 23. Photovoltaic Module Manufacturers 2012 Company Annual production capacity (MW) Location Jabil 45.0 Chihuahua, Chihuahua Kyocera 150.0 Tijuana, Baja California Sanyo 75.0 Monterrey, Nuevo León ERDM Solar 30.0 San Andres Tuxtla, Veracruz Solartec 12.5 Irapuato, Guanajuato Total 312.5 Source: BNEF, Updated on February 2013. 4.5.2 Solar Thermal Currently, Mexico has no installed high-concentration solar thermal technology. However, the 171 CC Agua Prieta II project is expected to begin operating in 2013 in Sonora. The development will have two stations: a 463 MW combined cycle and a parabolic trough solar thermal with 14 MW capacity. The project was granted to Abengoa Solar through public bid 12. The investment attraction index considers the following factors: potential market, politics and business environment, financial stability and renewable energy policies. The attraction index by country considers the size of the electricity market, projected growth in electricity consumption by 2030, competitive photovoltaic technology costs, energy distribution/transmission losses, penetration of intermittent sources for electricity generation and electricity grid coverage. 13. The countries located in latitude +- 35 from the Equator are known as the sunbelt because they have the highest levels of solar radiation on the planet during the year. The main countries, of the 148 found in the sunbelt, are China, India, South Africa, Brazil and Mexico. 17

4.5.3 Water Heaters In 2011, according to the latest report from the National Energy Balance, the installation of water heaters increased by 19% compared to the previous year, reaching 1,978,200 m 2. The goal established by the federal government for 2012 was 1,800,000 m 2. In Mexico, this technology is mainly used to heat water for pools, hotels, sports clubs, houses, hospitals and industries. 4.6 Geothermal Energy Mexico ranked fourth globally in geothermal energy generation in 2012. Baja California is the state with the largest share in the sector, with the Cerro Prieto station, which accounts for close to 75% of total installed capacity in the country. In the state of Michoacán, the French Alstom established the Geothermal and Renewable Energy Cluster; together with the main players of the public sector, companies and universities, one of the goals of this project is to contribute to improving the environment, and economic, social and technology development in the region. In addition, Alstom has a geothermal turbine manufacturing plant in Morelia to supply the local and foreign markets. Table 24. Geothermal Stations for Electricity Generation Station Current status Installed capacity (MW) Location Station Table 25. Hydro Stations for Electricity Generation Current status Installed capacity (MW) Various Operating 11,555 Various Operating 152 Total 11,707 4.8 Biomass Energy Location Chiapas, Chihuahua, Coahuila, Guerrero, Hidalgo, Jalisco, México, Michoacán, Morelos, Nayarit, Tamaulipas, Oaxaca, Puebla, San Luis Potosí, Sinaloa, Sonora, Veracruz. Durango, Guanajuato, Guerrero, Jalisco, Michoacán, Puebla, Veracruz. Type of service Público Privado In 2012, more than 62 operating co-generation and self-supply electricity projects were registered. Bioenergy has an operating installed capacity of 645 MW, of which 598 MW are from bagasse and the rest from biogas. DIAGRAM 2. Biomass Stations for Electricity Generation Public service Cerro Prieto (I,II,II,IV) Operating 570 Baja California Los Azufres Operating 192 Michoacán Los Humeros Operating 52 Puebla Tres Vírgenes Operating 10 Baja California Sur Total 824 Source: CFE *The Cerro Prieto stations have some inactive units. 4.7 Hydroelectric Stations Hydro generation capacity is managed by both the public sector (CFE) and the private sector. In 2012, the CFE recorded an installed capacity in operation of 11,555 MW, distributed in 72 stations, including stations of 30 MW or less. The private sector has 17 stations distributed in seven states and with a total capacity of 152 MW. Source: CFE /CRE 4.9 Foreign Direct Investment (FDI) In the 2003 to 2012 period, Mexico received approximately 7,343 billion USD in FDI in the RE industry, mainly in the states of Oaxaca and Baja California. The main investor countries are Spain, the United States, Denmark, France, Russia and Israel. 14. BNEF / Unlocking the sunbelt potential of photovoltaics, EPIA 18

Table 26. Foreign Direct Investment in the RE Industry in Mexico Año Número de Proyectos Millones de dólares* Empleos generados 2012 4 1,442 306 2011 5 1,853 880 2010 4 947 226 2009 4 1,024 343 2008 3 912 177 2007 1 104 1,367 2006 1 311 95 2003 1 750 102 Total 23 7,343 3,496 Mexican Bioenergy Network (Red Mexicana de Bioenergía or REMBIO) www.rembio.org.mx It is an organization that supports the sustainable and efficient use of biomass for energy purposes in Mexico, contributes with promotion alternatives for the efficient use of bioenergetics, supports research, technology development, training and education of human capital and design public policies due support bioenergy. Source: FDI Markets (FDI) (*) Data estimated based on investment announcements 4.10 Chambers & Associations National Chamber of Electric Manufacturing (CANAME) www.caname.org.mx The National Chamber of Electric Manufacturing is a business representation organization for electric manufacturing and installations. It represents and defends the general interests of the electricity industry. Its mission is to facilitate and contribute to the growth and healthy development of its affiliated companies. Mexican Association of Renewable Energies Suppliers (AMPER) www.amper.org.mx AMPER is a non-profit Mexican civil partnership that promotes the use of RE in Mexico and is involved in the creation of quality standards to regulate the use and application of equipment that depends on them for their operation. National Association of Solar Energy (ANES) www.anes.org ANES provides a forum in which to discuss ideas, compare or exchange results and, in general, disseminate and promote the use of solar energy and the utilization of the phenomena it produces indirectly, and to have a solid impact on the organizations that shape the country s energy policy with technical and scientific arguments. Mexican Association of Wind Energy (AMDEE) www.amdee.org Promotes the generation and development of wind energy in Mexico through the construction, installation, operation and maintenance of large-scale wind parks, and drives the development of the domestic industry related to the manufacture, transportation and supply of parts for this sector. Mexican Geothermal Association (AGM) www.geotermia.org.mx Disseminates and promotes research, development and utilization of geothermal energy in Mexico and abroad, acts as a forum for analysis and discussion that enables the exchange of knowledge and experience of its members. The mexican association of wind energy has set a goal of 12 gw of installed capacity in wind energy by 2020. 19

V INVESTMENT PROMOTION INSTRUMENTS 20

5. Investment Promotion Instruments Mexico has an excellent geographic location and extensive renewable resource potential, making it an attractive destination for foreign investment. Mexico uses only 3.2% 15 and 2.1% of its potential capacity of wind and geothermal energy, respectively. Therefore, there are important investment opportunities to make better use of renewable resources. Table 27. Renewable Resource Potential in Mexico Type of energy Potential (MW) Wind 40,268 Geothermal 40,000 Hydro 53,000 Solar 24,300 Biomass 83,500-119,498 Source: SENER/ Electrical Research Institute (IIE) * Estimated potential by 2030 EThe development of the RE sector, specifically green equipment manufacturing, could use the vast experience and industrial platform of the electricity generation and distribution equipment sector. This sector has a wide supply chain, distribution chains and support programs. These factors, added to low industrial costs and highly skilled workforce, can be used to reorient production towards equipment that uses RE and to enable the development of the manufacturing industry. To stimulate private participation in electricity generation from renewable sources, several institutions, such as the CRE, the CFE and SENER, grant the following incentives: Energy Bank: it enables producers to accumulate excess energy under the self-supply scheme, to be used in the future or sold to the CFE. Preferential Rate for Energy Transmission: a service charge for RE transmission or efficient co-generation of $0.14 pesos/kwh, instead of %0.30-$0.40 pesos/kwh, which is the transmission rate charged for traditionally sourced energy. Net Metering: se aplica a proyectos de pequeña escala (hasta 10kWp 16 para hogares y 30 kwp para empresas). Consiste en compensar el costo de la electricidad utilizada con la energía aportada a la red nacional. Compensations To Pay RE Producers: establishes the maximum and minimum prices that the supplier (CFE) could use to grant electricity generation contracts under small producer and independent producer schemes, as well as the remuneration it will pay the winning companies. This will give the process more transparency and offer certainty and a reasonable profit to those interested in generating electricity from renewable sources. Some of the leading companies in the sector have shown interest in expanding their investment destinations; Latin America is one of the main targets. Between 2012 and early 2013, several projects were completed in the Americas, mainly in countries such as Brazil, Chile, Mexico and Argentina. Table 28. Companies That Intend To Invest In The Americas Date Source: FDI Company Country of origin April 2013 Wah Seong Malaysia January 2013 December 2012 September 2012 August 2012 Conergy Ebioss Energy ESA Renewables Hunt Oil Company Germany Spain US US Destination Africa, Asia Pacific, Latin America and the Caribbean Africa, Asia Pacific, Latin America and the Caribbean Latin America, the Caribbean, North America and Europe Latin America and the Caribbean Mexico Table 29. Recent RE Projects in the Americas Date Company Project March 2013 March 2013 March 2013 February 2013 January 2013 January 2014 January 2015 January 2016 January 2017 January 2018 Source: FDI Electricity de France EDF Grupotec Foxconn Gestamp group Iberdrola Akuo Energy Atlantic Wind & Solar Iberdrola SunEdison Algae Tec Construction of a 150 MW solar park in California Construction of a 27 MW solar photovoltaic park in Baja California Sur Construction of a 400 MW solar park Construction of a biomass plant in the Ucayali region Construction of a 48 MW wind park in New Hampshire Construction of a 50.5 MW wind station in the department of Florida Construction of two photovoltaic projects in the province of Esmeraldas Construction of a 189MW wind station to generate electricity in California Construction of a 100MW photovoltaic plant in the Atacama desert Construction of a biomass plant Country of origin France Spain Taiwan Spain Spain France Canada Spain US Australia Destination US Mexico Mexico Peru US Uruguay Ecuador US Chile Brazil 15. This percentage only considers projects operating in 2012. 16. Peak kw. 21

These projects are an opportunity for Mexico, which can consolidate as one of the main poles of attraction for the RE sector, enabling it to gain an advantage over other countries in the region. Therefore, it is necessary to promote the country s competitive advantages, such as its potential for renewable resources, infrastructure, geographic location, incentives for the industry, platform of the electricity generation and distribution equipment, etc. Mexico is among the top five most attractive countries in the world for investing in solar photovoltaic energy projects. 22

VI Legal Framework 23

6. Legal Framework In order to promote investment in RE, Mexico has worked to create and amend laws that help boost their use and reduce energy dependency on fossil fuels. The National Energy Strategy establishes a goal of 35% 17 capacity for electricity generation using clean technologies by 2024. The Law on the Utilization of RE and Financing of Energy Transition (LAERFTE) establishes specific regulations for electricity generation from alternative sources of energy. Likewise, the Special Program for the Utilization of RE establishes actions and attainable goals in installed capacity and electricity generation in the country, following the objectives established in the National Development Plan, the National Energy Plan and the National Infrastructure Plan. 1992 1993 Diagram 3. RE Regulations Reform to the Law of the Public Electric Energy Service (LSPEE) Publication of the LSPEE regulations Independent Power Producction: generation of electricity in stations with capacity above 30 MW, for sale to the Federal Electricity Commission (CFE). Small Production: individuals and entities that sell all the energy generated to the CFE (the capacity of the project must not exceed 30 MW); self-supply of rural communities that lack electricity services (projects must not exceed 1 MW), and export (projects must not exceed 30 MW). Import and Export: the export of electricity is viable through co-generation, independent production and small production projects. If concessionaries want to use or sell electricity within the country, they must obtain a permit from the CRE based on the relevant category. Import refers to the acquisition of electricity generated abroad. 6.2 State Regulations To date, nine states in Mexico have laws on RE. They encourage the utilization and use of RE even though they are not specialized in the matter. More and more states are expected to include public policies that help attain energy sustainability goals. 1995 Passing of the Law of the Energy Regulatory Commission (CRE) Table 30. State Laws Related to RE 2006 2007 2008 2009 Source: CRE Interconnection agreement for renewable energy sources (capacity credit) Interconnection agreement for small-scale solar energy source Law for the Utilization of Renewable Energies and the Financing of Energy Transition (LAERFTE) LAERFTE regulations 6.1 CATEGORIES FOR ELECTRIC ENERGY GENERATION In December 1992, the Law of the Public Electric Energy Service was amended to enable private participation in electricity generation, including the following categories: Self-Supply: generation of electricity for self-consumption by individuals and entities. Co-Generation: : utilization of thermal energy not used in processes (steam), to generate electricity directly or indirectly. State Chiapas Oaxaca Sonora Durango Coahuila Morelos Quintana Roo Nuevo León Baja California Laws Environmental Law for the State of Chiapas, Organic Law of the Institute of Alternative and Renewable Energies and Biofuels of the State of Chiapas Coordination Law Law for Energy Promotion Law for the Promotion, Use and Utilization of Renewable Energy Sources of the State of Durango and its Municipalities Law for the Rational Use of Energy in Coahuila Law for Sustainable Economic Development of the Free and Sovereign State of Morelos Law on Economic Development and Competitiveness for the State of Quintana Roo Law for the Sustainable Integral Rural Development of the State of Nuevo León Law of Renewable Energies Source: PER 2012-2026, SENER, with data from the National Commission for the Efficient Use of Electric Energy (CONUEE) and state government websites. Electricity produced under this category must be used to meet the energy needs of individuals and entities related to co-generation. 17. Renewable energies, large hydroelectric stations and nuclear energy. 24

6.3 Federal Programs 6.3.1 Funds Fund for Energy Transition and the Sustainable Utilization of Energy: : its goal is to boost the country s energy sector through projects, programs and actions to promote the development of RE and energy efficiency to reduce the increase of greenhouse gas emissions (GGE). SENER-CONACYT SECTORAL ENERGY SUSTAINABILI- TY FUND: supports applied scientific research and technology development to promote RE sources and energy efficiency. 6.3.2 Fiscal Incentives Zero Tariff: exempts from paying general import or export tax any anti-pollution equipment and its parts: machinery, equipment, instruments, materials, animals, plants and other items for technology research and development. Accelerated Depreciation Of Fixed Assets: allows the depreciation of 100% of investments in equipment and machinery for energy generation from renewable sources. 6.3.3 Financing Nacional Financiera S.N.C. (NAFIN): finances the development of RE projects with resources from international organizations, capital issue and debt placement for projects that are under construction or already in operation. Banco Nacional de Obras y Servicios, S.N.C. (BA- NOBRAS): development bank that works with the public and private sector by financing local government infrastructure and public services projects, supporting their financial and institutional strengthening and promoting private investment and financing. Banco Nacional de Comercio Exterior (BANCOMEXT): has external funding for long-term sustainable projects that include RE generation, environmental protection and improvement and clean development mechanisms. Shared Risk Trust (FIRCO): finances the installation of RE and energy efficiency technologies used in rural agri-businesses. Trust for Saving Electric Energy (FIDE): financing for electricity generation and co-generation projects of up to 500 KW, to acquire and install equipment and systems using RE sources. 6.3.4 Programs Integral Energy Services (SIE) for Small Rural Communities in Mexico: rural electrification program aimed at providing electricity services to communities that are isolated from the SEN, with renewable sources. The program s goal is to benefit 50,000 houses (approximately 250,000 people) in an execution period of five years. The first stage is being developed in the states of Chiapas, Guerrero, Oaxaca and Veracruz. Program for the Promotion of Solar Water Heaters in Mexico 2007-2012 (PROCALSOL): program that supports energy savings in water heating in residential, commercial, industrial and agricultural sectors. Program for the Promotion of Photovoltaic Systems in Mexico (PROSOLAR): program intended to drive solar photovoltaic technology in the short and medium term and guarantee quality market growth. It works through four lines of action: 1) appropriate regulations and standards, 2) financing, 3) training and 4) information and dissemination. 6.4 Other Investor Services One of the services that enables companies to establish in less time is the shelter service. With this program, a Mexican operator establishes a Mexican maquila company, provides industrial space, operators, production technicians and engineers and administrative staff to carry out the activities of a maquila business. The scheme s advantage is that companies start operations without having to worry about customs, legal and/or administrative procedures that delay the opening process. The services include: Staff management Licenses and permits Accounting and fiscal services Customs procedures Operation and maintenance services Transportation and logistics services, among others 6.5 Mexican Standards 6.5.1 Electricity-Related Standards NOM-002-SEDE-1999: safety and energy efficiency requirements for distribution transformers. NOM-001-SEDE-2005: electric installations and their use. NOM-113-SEMARNAT-1998: environmental protection specifications for the planning, design, construction, operation and maintenance of power or distribution electricity substations to be located in urban, suburban, rural, agricultural, industrial, urban equipment or tourist services areas. NOM-114-SEMARNAT-1998: environmental protection specifications for the planning, design, construction, operation and maintenance of electricity transmission and subtransmission and distribution lines to be located in urban, suburban, rural, agricultural, industrial, urban equipment or tourist services areas. 25

6.5.2 Standards Related to the Solar Sector NMX-ES-002-NORMEX-2007: solar energy definitions and terminology. NMX-I-007/2-41-NYCE-2007 y NMX-I-007/2-42-NYCE-2007: guide for solar radiation tests for electronic equipment and components environmental and durability testing methods. Solar Thermal Energy: NMX-ES-001-NORMEX-2005: thermal performance and functionality of solar collectors for water heating (testing and labeling methods). This standard is intended to reduce the consumption of fossil fuels and pollutant emissions by using solar radiation to heat water for domestic use. It establishes testing methods to find out the thermal performance and functionality of solar collectors that use water as working fluid. Application: solar collectors that supply liquid hot water in Mexican territory. NMX-ES-003-NORMEX-2008: establishes the minimum requirements for installing solar thermal systems for water heating. NMX-ES-004-NORMEX-2010: thermal evaluation of solar water heating systems (testing method). NADF-008-AMBT-2006: technical specifications for the utilization of solar energy in water heating in new establishments in Mexico City. It establishes the minimum quality requirements, technical specifications for installation, operation and maintenance of water heating through solar energy. Application: new establishments and those under renovation, which use hot water for their activities, in Mexico City. NOM-003-ENER-2011: limits, testing method and labeling of the thermal efficiency of water heaters for household and commercial use. Construction Requirements for Photovoltaic Modules: NMX-J-618/1-ANCE-2010: general requirements for the construction of photovoltaic modules. NMX-J-618/3-ANCE-2011: requirements for thin film photovoltaic modules, design qualification. NMX-J-618/4-ANCE-2011: requirements for crystalline silicon photovoltaic modules, design qualification. NMX-J-618/5-ANCE-2011: corrosion testing method using saline fog in photovoltaic modules. NMX-J-618/6-ANCE-2011: UV testing method for photovoltaic modules. Measurement Requirements for Photovoltaic Modules: NMX-J-643/1-ANCE-2011: current and tension measurement in photovoltaic devices. NMX-J-643/2-ANCE-2011: requirements for reference solar devices, used to determine electric performance of solar cells, modules and arrangements under natural and simulated sunlight. NMX-J-643/3-ANCE-2011: measurement principles for on-shore solar photovoltaic devices with reference data for spectral radiation. NMX-J-643/5-ANCE-2011: determination of equivalent temperature of the photovoltaic device cell using the open circuit tension method. NMX-J-643/7-ANCE-2011: calculation of correction of the spectral imbalance in photovoltaic device measurements. NMX-J-643/9-ANCE-2011: requirements for modulation of the solar simulator. NMX-J-643/10-ANCE-2011: linear measurement methods for photovoltaic devices. NMX-J-643/12-ANCE-2011: terms, definitions and symbols. Performance and Efficiency of Photovoltaic Modules: NMX-J-655/1-ANCE-2012: measurement of irradiance, temperature and energy performance in photovoltaic modules. NMX-J-655/2-ANCE-2012: procedures for efficiency measurement. NMX-J-655/3-ANCE-2012: performance and operation of battery charge controllers for photovoltaic systems. 6.5.3 Standards Related to the Wind Sector NOM-081-SEMARNAT-1994: establishes the maximum allowable limits for noise emission by fixed sources and their measurement method. 6.5.4 Standards Related To The Geothermal Sector NOM-004-CNA-1996: requirements for the protection of aquifers during maintenance and rehabilitation of water extraction wells and well closure in general. NOM-053-SEMARNAT-1993: establishes the procedure to perform extraction tests to determine the elements that constitute hazardous waste due to environmental toxicity. NOM-059-SEMARNAT-2001: environmental protection for native Mexican species of wild flora and fauna. 26

NOM-052-SEMARNAT-2005: establishes the characteristics, identification, classification and lists of hazardous waste. NOM-150-SEMARNAT-2006: establishes technical specifications for environmental protection that must be followed in construction and preliminary evaluation of geothermal wells for exploration, located in agricultural, livestock and uncultivated land, outside natural protected areas and forest lands. 6.5.5 Standards and Accreditations Related to the Biomass Sector 083-SEMARNAT-2003: environmental protection specifications for site selection, design, construction, operation, monitoring, closure and complementary works of a final disposal and special handling site for municipal solid waste (MSW). Application: public and private entities in charge of final disposal and special handling of urban solid waste. 6.5.6 Standard Projects PROY-NMX-ES-002-NORMEX-2006: solar energy-definitions and terminology. This Mexican standard intends to homogenize the language used in solar energy and its applications, to avoid confusion in concepts and names used in the practice. It establishes the words, definitions and symbols of the language used in research that unifies the scientific and technical areas. PROY-NMX-J-657/1-ANCE-2011: guide for rural electrification through hybrid and RE systems. PROY-NMX-J-618/2-ANCE-2011: testing requirements to evaluate the safety of photovoltaic modules. PROY-NOM-151-SEMARNAT-2005: establishes technical specifications for environmental protection during construction, operation and abandonment of wind electricity facilities in agricultural, livestock and uncultivated areas. Application: environments related to solar energy and its applications within Mexico. 6.6 Rules of Origin Many countries have signed free trade agreements to penetrate certain markets with preferential tariffs. Mexico has signed 12 agreements with 44 countries. The North American Free Trade Agreement (NAFTA) establishes that for the agreement to be valid, products must comply with the rules of origin. For the electricity generation and distribution equipment sector, it establishes that products must contain 60% of regional content value (RCV) if the transaction method is used, or 50% of RCV if the net cost method is used. 27

VII Conclusions 28

7. Conclusions While the RE sector in Mexico is young, it has grown favorably in recent years, mainly in wind energy and, more recently, solar energy. Several companies in the sector, both national and international, have developed projects in the country, making Mexico one of the main investment destinations in Latin America. As for the boost the sector has received, several efforts have been and continue to be made to promote its growth. The industry s development in Mexico has been furthered by adapting the regulatory framework, creating funds aimed at developing programs related to energy efficiency and RE, and supporting the research and development of new technologies in the sector, open season processes, funding for the development of this type of project and establishing short and long term goals. However, the country s extensive potential must be leveraged as well as its export platform to the United States and wide network of trade agreements, which would translate into better industry performance through more incentives for foreign investment to develop new projects that include completing the sector s supply chain. Finally, the Mexican market is large and attractive, not only due to its huge potential in wind, sun, geothermal, hydro and biomass resources, but for the opportunity to manufacture equipment for the sector, using the country s vast experience in the electricity generation and distribution equipment industry. In 2012, the country s installed capacity in RE for electricity generation was 14,501MW, but according to estimates, it will increase more than twofold by 2026, at a 6.5% AAGR. 29

Glossary BAGASSE: fiber obtained from the extraction of cane juice in sugar mills and used as a source of energy. Biodiesel: fuel produced through the transesterification of fatty acids (oil). Bioenergy: the amount of energy obtained from electricity, diesel or gas produced from biomass. Biofuels: fuels derived from biomass (organic material from animals or plants) such as ethylic alcohol or ethanol, methanol, biodiesel, diesel manufactured under the Fischer-Tropsch chemical process and gaseous fuels such as hydrogen and methane. Biogas: methane gas produced when certain bacteria decompose organic material. Biomass: any recent organic material derived from animals and plants as a result of photosynthesis. Capacity factor: the value used to express the level of capacity of a power station. It is calculated as the output of the station divided into the maximum energy that such station can deliver, if it had operated at full capacity during a given period, typically, one year. Clean technologies: RE power systems (wind, geothermal, hydroelectric under 30 MW, biomass and solar), the large hydroelectric stations, carbonelectric and combined cycles, with the capacity for the capture and sequestration of carbon dioxide (CO 2 ) and nuclear energy. Cogeneration: simultaneous production of electrical energy and water vapor. Combined cycle: a thermal power station that uses two types of fuel. Developers (of energy projects): economic entities that carry out various activities for the development of power stations; these activities include planning activities, technical and financial viability studies, and construction activities, and the operation and maintenance of such stations. Distributed generation: generation premises located in the site where the power is to be consumed, and designed to partially or totally cover the needs of the end user. Export: the generation of electrical power for export, through cogeneration projects, independent production and small-scale production. Feed-in tariff: the tariff designed to promote the introduction of RE and cogeneration, through which the owner receives a guaranteed fixed price for the power generated and supplied to the network by the electricity companies. Generation license: concession granted by the CRE to private parties for the generation of power from conventional and renewable sources. Gigawatt (GW): unit of power equal to 1X10 9 watts. Import: acquisition of power from generating plants established abroad through agreements executed directly between the power supplier and the consumer. Independent power producer: the holder of a license for the generation of power destined exclusively for sale to the consumer. Installed capacity: the sum of the nominal generation capacity of the generators in operation (in watts). Joule: unit of energy that measures the amount of work necessary to produce one watt of power for one second. Kilowatt (kw): unit of power equal to one 1X10 3 watts. Kilowatt hour (kwh): a kilowatt per hour (unit of consumption of power for one hour). Licensees: the holder of a concession for the generation, export or import of electricity. Manufacturing companies: companies that transform raw materials into finished products. Megawatt (MW): unit of power equal to one 1X10 6 watts. Net metering: the production of electricity by the clients themselves, but being interconnected with the grid in order to dump the surplus power quickly and consume from the system when their demand exceeds their production capacity. Users are subjected then to a Net Metering system (consumed energy energy dumped to the network) that is balanced in fixed invoicing periods. Open season: time-bound process through which the amplification or modification of the transmission infrastructure of SEN is programmed, with the purpose of reserving its capacity. Petajoules (PJ): unit of energy equal to one 1X10 15 joule. Power generation: the transformation of some kind of energy into power. Power sector: the group of participants, both public and private, that participate in the processes of generation, transmission and distribution of power. Power station: premises where the transformation of a primary energy source into electricity is carried out. Primary energy: the simultaneous production of electrical energy and water vapor. Private service: the supply of electricity by the generation of power by individuals and entities holders of licenses granted by the CRE. 30

Abbreviations Production capacity: the maximum level of activity reached with a given production structure. Public bid: the administrative process for the acquisition of supplies, rendering of services or development of works carried out by the public sector bodies. Public service: power supply by the generation of power by CFE, the former LyFC, PIE, self-sufficiency surpluses and cogeneration, and the import of power carried out by CFE. Rural electrification: to bring electrical power to rural areas, generally far from distribution grids. Self-supply: a category of electricity generation used to satisfy the needs of individuals and entities. Small producer: category of power generator that destines the power generated in stations with a capacity over 30 MW for sale to the export supplier. If the projects assign the capacity for sale to the supplier, they must be included in the Works and Investment Program of the Electricity Sector of the CFE. Sugar cane bagasse: fibrous matter that remains after extracting the juice from sugarcane, and used as energy. Terawatt (TW): unit of power equal to one 1X10 12 watts. Watt (W): unit of power of the International System of Units, equal to one joule per second. Wind turbine: devices that convert wind energy into electricity. AAGR: average annual growth rate AGM: Mexican Geothermal Association (Asociación Geotérmica Mexicana) AMDEE: Mexican Wind Energy Association (Asociación Mexicana de Energía Eólica) AMPER: Mexican Association of Renewable Energy Suppliers of (Asociación Mexicana de Proveedores de Energías Renovables) ANES: National Solar Energy Association (Asociación Nacional de Energía Solar) BNEF: Bloomberg New Energy Finance CANAME: National Chamber of Power Manufacturers (Cámara Nacional de Manufacturas Eléctricas) CFE: Federal Electricity Commission (Comisión Federal de Electricidad) CONUEE: National Commission for the Efficient Use of Electricity (Comisión Nacional para el Uso Eficiente de la Energía) CRE: Power Regulatory Commission (Comisión Reguladora de Energía) IRI: Economics of Industrial Research & Innovation EPIA: European Photovoltaic Industry Association IIE: Electric Research Institute (Instituto de Investigaciones Eléctricas) LyFC: Central Light & Power (Luz y Fuerza del Centro) PER 2011-2025: Prospective renewable energy, 2011-2025 SE- NER (Prospectiva de Energías Renovables 2011-2025, SENER) NAFIN : National Financial (Nacional Financiera) POISE 2011-2025: Works and Investment Program of the Electrical Sector 2011-2025 (Programa de Obras e Inversiones del Sector Eléctrico 2011-2025) REMBIO: Mexican Bioenergy Network (Red Mexicana de Bioenergía) RGSR, 2012: Renewables 2012, Global Status Report, REN21 SEN: National Electricity System (Sistema Eléctrico Nacional) SENER: Ministry of Energy (Secretaría de Energía) CAGR: Compound annual growth rate US EIA: U.S. Energy Information Administration USAID: United States Agency for International Development WEO, 2010: World Energy Outlook 2010, International Energy Agency Research and analysis: Wendy Lozano Cardona Design and layout: Gibran Quiroga 2013, ProMéxico Camino a Santa Teresa No.1679 Col. Jardines del Pedregal Del. Álvaro Obregón, 01900, México D.F. First edition (not for sale) Mexico City, August 2013 No part of this publication, including the cover design, may be reproduced, stored or transmitted in any fashion or by any media without express written consent from ProMéxico. ProMéxico is not responsible for any errors or inaccuracies in the information contained herein resulting from updates after the publication date. 31