Capitalizing on an Integrated North American Energy MarketMon, 02/25/2019 - 14:16
After showcasing a record implementation pace, Mexico’s new energy model has yet to demonstrate its capacity to solve what Benjamín Torres, Partner at Baker McKenzie, considers a ticking time bomb. “Energy consumption continues to grow at a faster pace than the consolidation of Mexico’s energy model, with natural gas imports representing close to 70 percent of that consumption.”
While matching power generation with consumption growth is sizable and complex, so are the areas of opportunity available to address it. International law firm Baker Mckenzie, for example, plays an active role in numerous energy infrastructure investments arising from the Energy Reform by helping to provide certainty to the companies operating in the sector. “As early as the project’s blueprint, we advise our clients on the best course of action for projects that are key to the country’s economic development by contributing to satisfy and better understand the increasing demand for power generation in a cost-effective manner. Our advisory services have led to long-term electricity auction winners,” Torres says, adding that the firm is also involved in refining the market’s legal framework. Legal certainty is another key variable of the equation. “We are working hand in hand with regulatory authorities and other key industry players to identify alternatives to improve and strengthen the industry’s regulatory framework and provide greater certainty and healthy competition among parties.”
Torres underlines that there is broad investment appetite among the industry’s stakeholders, with diverse sources of interest. “Many off-takers are undergoing a gradual transition away from the traditional basic supply consumption scheme to other options, including CFE Suministro Calificado, other qualified suppliers, isolated supply projects and distributed generation,” he says.
The trilateral USMCA deal has stoked investors’ appetite, since it includes a revamped energy chapter, setting the stage for the country to consolidate a thriving North American energy market. In 1994, Mexico’s oil and gas and electricity industries were solely in the hands of the state, handled by PEMEX and CFE, respectively. Now, cross-border schemes are open for business. “There is a heightened interest for cross-border power generation, transmission and distribution projects, but the required business model companies should implement remains a gray area from a regulatory standpoint,” Torres says. “First, Mexico needs to expand its transmission and distribution infrastructure to absorb electricity flows on a bilateral scale. Then, transmission and distribution channels need to respond to the market needs rather than a public policy logic, as transmission and distribution projects still fall exclusively to the federal government.”
The advances of power generation projects over transmission and distribution go well beyond a more developed regulatory framework and greater private participation. “Not only is a power generation project’s regulation clear-cut, PRODESEN 2017-2032’s figures stipulate investments of a total MX$2 trillion between 2018 and 2032 in generation, transmission and distribution projects. The last two represent 9 and 7 percent of that total, respectively. Meanwhile, the two transmission megaprojects of Baja California and Oaxaca-Centro still lack tender winners,” Torres says.
As Vice President of the Energy Committee of the American Chamber of Commerce, Torres is focusing on securing the continuity of the country’s energy model in the midst of a political transition. “We are looking to communicate to the general public the beneficial fruits of the Energy Reform, highlighting its critical necessities to reach consolidation. As the political transition is absorbed at a macro level, we will be increasingly in a position to build up a forecast capacity and inform the chamber’s partners in an opportune manner,” he says.
Baker McKenzie remains confident about the future, Torres adds. “As an industry-diversified firm, we oversee all types of energy projects compared to boutique firms. There is no project or technology we have not been exposed to. We have advised long-term electricity auction participants in a strategic way, and turned them into winners by accompanying them in the execution of their bids. Companies whose core business is not renewable energy, such as Fortius, have also come to us for advisory services," Torres says.