Disruptive Combination of Legal Services and Project FundingWed, 02/21/2018 - 19:25
Q: How does your FlexEnergy fund stand out from other similar initiatives?
EP: After the implementation of the Energy Reform we identified that companies were no longer looking solely for technical legal advisers to deal with red tape. Now, clients are eager to benefit directly from the new opportunities this market offers and, for those purposes, you need first to identify them and figure out how to implement them. With our deep understanding of public policy and regulation in the Mexican energy sector, our networking experience and capabilities, SMPS Legal helps such companies understand the new potential business opportunities that the reform has laid out for all the players in the Mexican energy sector. We are in the market of adding value to our clients and the fund will be able to invest in the whole value chain: generation, transformation, transmission and distribution, naturally leaning toward renewable energy.
EP: The complementary structure of the team behind this strategy, composed of SMPS Legal’s financial and legal know-how and Galo Energy’s technical expertise in renewable energy, understands the needs of sponsors, off-takers, the network, the infrastructure, regulations and policies encompassing all the different aspects of the market.
SL: We invest in the projects through equity, forming a direct alignment incentive-wise with the sponsors of the project, with the actual stake and stockholders, to create a double-value angle. We are also eliminating all traditional management fees, which is a breakthrough in the investment industry. That is a unique way to do business, creating a perfect symbiosis between the different incentives of the project. We have no doubt this new tool will provide a tremendous boost to the industry. Ironically, we adopted a very cautious and conservative line of doing business while
innovating. This attracted a very specific type of client — the multibillion-dollar international energy company — because they are cautious, strategic, slow-paced and riskaverse, but very aggressive once they come in.
Q: You mentioned a second phase in the Energy Reform?
SL: Based on our cumulative experience gained from our consulting branch, we can see that structurally, the type of projects that are coming online are those that were born within the pre-reform regulation since it is better understood than the new framework. The new power market is highly complex, creating a steep learning curve. How the playing field will evolve and what you need to understand to actually get new projects online is beginning to take a toll. That is what we call the second phase of the reform, a highly technical learning process that has characterized all deregulation processes around the globe. We estimate that this learning phase for all market participants will take three to five years. It is important to note that in the middle of all this we will have a presidential election. We are ready for it, we know it will be hard but we have taken the necessary steps and adjustments to see it through. Once this technical learning stage is over, we will have a solid market with exponential growth capacity.
Q: How do you evaluate the feasibility and success rate of a company’s renewable energy project?
EP: From a legal vendor perspective we do not discriminate among clients based on our expectation of their profitability. We focus on the added value we can provide. Our clients see us more like a partner than a cost, making their learning curve as easy as possible. From the fund’s perspective, we have a committee of experts in project valuation that looks at the numbers and scrutinizes every technical aspect, measuring its attractiveness. This evaluation process is rather straightforward because energy generation in Mexico at the moment has already attained a considerable percentage of success, either developing solar parks or wind farms. You have on one side the appeal of the green energy component, and on the other the need that the industry has for them.
SMPS is a law firm specialized in the energy sector, including oil and gas, mining, electricity, water and renewables in Latin America, with experience in acquisitions, joint ventures, strategic alliances and foreign investment