Bright Future After Short-Term Struggle

Q: How is Baker McKenzie working to consolidate itself in the Mexican power sector?

A: We are involved in all types of projects and all are challenging. With our large number of specialists, all with different backgrounds and academic training, we have been able to participate in auctions, power trading, importation and the development of power plants, both renewable and conventional. Many of our clients, whether they are power generators or off-takers, have asked us for help in terms of interconnection. We are proud to help our manufacturing clients become off-takers because those are the clients that need the most help, given that they do not belong to the power sector. We also represent many companies in the natural gas sector, particularly for the development of pipelines and storage facilities.

Q: What are the major challenges for Mexico’s energy market in the short and long terms?

A: During the last three years, we have seen an impressive evolution of the different regulatory bodies and entities. Authorities have enacted a variety of provisions from different levels. It is a big challenge for every party to understand the regulations from all the different perspectives. 

For government energy agencies, it has also been a challenge to adapt to the new way of doing business. Even for the regulatory authorities it is sometimes challenging to recognize that there are various interpretations because that means they have to create regulations that provide a proper interpretation of the law to produce certainty for investors. 

Companies need to be patient because they need to realize that implementation of new regulations always requires a learning curve and that no one will have all the answers. It will take a few years to settle the regulatory framework and to create a smooth transition from our prior model. 

Around 95 percent of the regulatory framework is complete. We need to develop specific regulations to address all the issues that are not yet specified under the law. In general terms, the perspective of the Mexican regulatory framework continues to represent a major challenge for every player involved.

Q: What are the biggest challenges that the projects resulting from Mexico’s power auctions are facing?

A: Not every EPC local contractor participating in the industry has enough capacity or experience. Although this short-term scenario may sound pessimistic, it is not going to be a failure. There will be a need for more EPC contractors because, although many have already arrived, the number of companies in the market does not correspond to the number of projects that will be implemented.

Q: How would you rate the design of Mexico’s energy auctions?

A: Mexico needs to establish certainty regarding the Basic Supply Tariff and the facilitation of electricity trade between the US and Mexico by crafting specific and clear laws for this particular process, which will be vital. We must also remember the need to develop the transmission lines that will facilitate the electricity exchange. Medium-term auctions are also required. 

Today, there is a high dependency on renewable energies. Mexico is targeting a 35 percent share for renewables in its energy portfolio but once that goal is achieved, natural gas should provide the remaining power generation. Cogeneration is falling behind, even though it has the greatest production potential in Mexico. We need to see more incentives for cogeneration, or perhaps a more suitable framework to facilitate the investment in such technology. Ensuring this will increase our manufacturing capacity. Reduction or mitigation of energy consumption is likewise as important as power generation.

Baker McKenzie  is an international law firm. Founded in 1949, it offers advisory services to many of the most dynamic and successful organizations worldwide through more than 11,000 professionals located in over 75 offices in more than 45 countries.