In 2010 Walmart de México y Centroamérica decided to buy the power generated by the Electrica del Valle de México’s (EVM) wind farm, saving energy costs as well as meeting sustainability goals.
Becoming the wind farm’s off-taker accomplished a number of important objectives. EVM guaranteed electricity at rates below that charged by Mexico’s state-controlled utility, shaving costs for the famously thrifty retailer. In addition, the project allowed Walmart de México to get closer to some of its sustainability goals. The wind farm would supply electricity to 348 Walmart de México facilities in central Mexico, providing 18% of the electricity Walmart de México consumed in Mexico in 2010.
The success of the EVM wind farm had ignited Manuel Gómez Peña’s thinking about further renewable energy projects. Gómez, Walmart de México’s Director of Sustainability, was considering ways the project financing structure might be further adapted to allow Walmart de México to participate in and benefit from other projects. Gómez was also considering the mix of renewable energy sources. In addition to wind, solar and mini-hydroelectric projects were possibilities that Walmart de México could consider.
Any project that Walmart de México undertook had to work in concert with Mexico’s electricity grid and rate-making structure. Gómez also had to take into account Walmart de México’s capabilities and focus. While the company had made sustainability a priority, corporate officials were loathe to take on projects that took them too far from the company’s central activity of retailing. The company’s investment group analyzed sustainability projects on the same basis as any other project, concentrating on return on investment.
Gómez believed that the situation called for creative thinking. How could the company leverage its sterling credit rating to get renewable energy projects off the ground? For the EVM wind farm, Walmart de México's equity investment was minimal, just sufficient to meet the requirements for Mexico's self-supply tariff. Should the company take a larger equity position in further energy projects, rather than simply serving as an off-taker? What technologies should Walmart de México employ to achieve its renewable energy goals? Should the company hold a portfolio of projects or just concentrate on one technology? How could Walmart de México expand the program outside of Mexico to the other central American countries in which it operated? Was there a way to include suppliers into a renewable program?
This case, in part, has been made possible by the financial support of The Jane Mendillo YC '80, MBA '84 and Ralph Earle MBA '84 Fund.
Additional support for the case has been made from The Brad Huang '90 Fund for Innovation in Case Studies.
This case study is the first in a series of case studies on Business and Sustainability in Latin America to be developed by the Yale School of Management and Tecnológico de Monterrey in Mexico City. Initial development of this series was funded by Arthur H. Kern YC '68 through a donation to the Yale Center for Business and the Environment.