Improving Energy for Agricultural Competitiveness in Mexico

Challenge

In 2009, the solar market in Mexico was nascent and renewable energy and energy efficiency technologies were out of the reach for even medium-sized or large farms. Energy, an expensive input into agricultural production and transformation, hindered the growth of small- and medium-sized businesses. In addition, agriculture was a significant source of greenhouse gas (GHG) emissions, representing 7 percent of Mexico’s total emissions, mostly due to the use of inorganic fertilizers and anaerobic decomposition of organic materials. Together the government of Mexico and the World Bank sought a way to bolster the growing solar market, make sustainable technologies more accessible to farmers, and lower agricultural GHG emissions. The strategy selected was to promote competitiveness and environmental sustainability of agriculture through energy efficiency use of renewable energy and biomass technologies.  

Approach

The Bank and the government of Mexico agreed to work through FIRCO, a decentralized agency of the Ministry of Agriculture (Secretaria de Agricultura, Ganaderia, Desarrollo Rural, Pesca y Alimentacion, or SAGARPA at the time). The project provided matching grants through subprojects to agribusinesses on a demand-driven basis. FIRCO had offices throughout the country and was able to hold promotional events and provide targeted technical assistance for the development of proposals and implementation of subprojects. Open calls for proposals helped to identify interested small- and medium-sized agribusinesses, and FIRCO helped beneficiaries do energy diagnostics and prepare business plans for integrating new technologies into current operations.  In its early years, the project was supported by a provision allowing private power producers (PPPs) to inject energy into the national grid and receive energy credits. In the project’s later years, agribusinesses benefited from the 2015 Law of Energy Transitions, which allowed PPPs to sell excess energy into the grid. Thus, through the instillation of energy efficient and renewable energy technologies, agribusinesses saved money on inputs and made money on energy sales. 

The project’s list of supported technologies included solar panels, solar thermal, biodigesters, turbines, and energy efficiency appliances (for example, efficient milk chillers). Although the project was largely demand-driven, FIRCO was also conscious of meeting goals for reducing GHG emissions, and in the early years it emphasized use of biodigesters, which eliminated two major contributors of GHG emissions: biodigesters contained the anaerobic digestion of manure, thus reducing methane GHG emissions, and their output (slurry) was organic fertilizer, eliminating the need for synthetic fertilizers. 

Results

Through a continually refined model, strong buy-in from the government, and demonstrated demand from farmers, the FIRCO project achieved several key results, contributing to Mexico’s overall development. These include: 

• 1,842 small- and medium-sized agribusinesses adopted 2,286 different renewable or energy efficient technologies. 

• Carbon dioxide (CO2) GHG emissions were reduced by 6.02 million tons, and 382.14 million kilowatt hours (KWh) of energy were saved over the course of the project. 

• In turn, the project produced 221,624 megawatts of biomass energy through use of biodigester technologies. A further benefit of these technologies was the processing of manure and slaughterhouse waste, which improved overall farm conditions and produced of biofertilizers, an additional income source for farmers. 

• Agribusiness competitiveness improved due to savings accrued from reduced use of fossil fuels and from use of motor generators to produce electricity, excesses of which could be sold to the grid. 

• The 2015 Law of Energy Transitions allowed Private Power Producers (PPPs) (including agribusinesses) to selling their excess energy production into the grid and the 739 recipients of project-supported solar photovoltaic (PV) systems and the 419 recipients of project-supported biodigesters experienced these benefits.   

• A solar market developed. Prior to the project, Mexico’s solar market was nascent, with the 2007 Mexican National Climate Change Strategy identifying huge potential for solar market growth. Through the project’s demonstration effects and beneficiary demand, the domestic market for energy efficient and renewable energy technologies accelerated, aided by global decreases in the prices of solar panels. 

• The project-built capacity within SAGARPA and FIRCO for monitoring, reporting, and verification (MRV) of CO2e equivalent in the field. The government can now measure emissions reductions, emissions avoided, fossil-fuel displacement, and critical related variables by subsector and by technology used. 

Bank Group Contribution

The World Bank supported the original FIRCO project through an International Bank for Reconstruction and Development (IBRD) loan of US$50 million and a Global Environment Facility (GEF) grant of US$10.5 million. In November 2012 an Additional Financing was approved for US$50 million to scale up the investment component of the project, with emphasis on promoting the project’s most successful technologies: biodigesters, solar heating, and solar PV.  

Partners

The government of Mexico and the Germany Development Agency (GIZ) have a strong history of collaboration on the use of solar technology in agriculture. During the implementation period of the project, GIZ contributed a solar market development study and regularly provided technical assistance to the government on different available solar technologies. In addition, the Food and Agriculture Organization of the United Nations provided invaluable technical support for implementing the project, including development of the baseline and final evaluation tools. 

Beneficiaries 

Beneficiaries of the project were small- and medium-sized agribusinesses working within Mexico’s agricultural production value chains, mainly fruits, vegetables, and dairy, beef, or pork livestock. The impact of these technologies can be shown through their impact on beneficiaries.  

For example, in Neutla, Comonfort Mexico, Juana Zarate Zarate makes her living from the production of different types of cow’s milk cheeses.  Before the support from the project, she consumed 7,832 kgs of liquid propane gas (LPG) annually, with a cost of US$53,101 pesos annually (roughly the equivalent of US$2,760).  The project helped Juana to install a solar thermal system to substitute the need for LPG in the cheese pasteurization process.  The system has the benefit of eliminating GHG emissions from the use of LPG and saving Juana money.  Juana said: “the change generated by this project has been valuable.  It has brought us the satisfaction of being able to change the way in which we work by transforming our business to be environmentally friendly and creating jobs for people in the community all the while using the new system that displaces 6,297 kgs of LPG a year and saves us $42,694 pesos per year (roughly US$2,215 per year).” 

Moving Forward 

Following closure of the FIRCO project, Mexico’s government continued to promote the use of renewable energy and energy efficiency technologies through ongoing provision of matching grants under the “natural fibers” program within the Ministry of Agriculture. In the private sector, many former FIRCO project beneficiaries continue to invest in additional technologies using their own resources. Finally, the solar industry bolstered by the project continues to thrive.