Energy Independence Is Achieved Through All Power Sources

Q: What role does Mexico play within Kilpatrick’s international business strategy?

A: Kilpatrick's operation in Mexico is mostly through cross-border efforts between the US and Mexican companies. We provide legal consultancy and advisory for the energy, chemicals and infrastructure industries. Kilpatrick does not have a central office in Mexico; all tasks are run through our offices in the US. Right now, our operations in Mexico are limited. In the electricity sector, we are working with a geothermal power production project in California. These projects aim to move electricity into Mexico’s large industrial parks close to the US border. The consolidation of this project also includes building and expanding the transmission line into Mexico.

Q: How does Kilpatrick’s experience in the energy, chemicals and infrastructure industries give it a competitive advantage over its competitors?

A: Kilpatrick’s energy practice is broader than power production and project financing: the firm interconnects these sectors with the chemicals and infrastructure environments. Our strong points lie in fuels, both liquid and gases, and in renewable electricity generation. Regarding electricity, we predominantly work in renewable energy and storage solutions of all types, including electric vehicle (EV) chargers. We are participating in many project financing processes for giga-battery factories. These are large EV battery factories that can also include the production of stand-alone storage products, which are quickly developing in Europe and the US.

Kilpatrick represents around 75 percent of international sustainable aviation fuel developers. We have been involved in various closings regarding sustainable fuel facilities. Kilpatrick also represents 50 percent of new developments for renewable diesel. We are among the Top 3 law firms worldwide for renewable natural gas and a recognized leader regarding hydrogen fuels. The company’s position is also recognized in the project finance environment, particularly in the US, through partnerships with governments and other creative schemes to assure investment in energy projects.

Q: What are Kilpatrick’s priorities when helping clients with their energy projects?

A: Although law firms can engage in multiple stages of an energy project, Kilpatrick often gets involved in the earliest stages. As a result, it can assist the client through the entire life cycle of an energy project. We do a lot of intellectual property work to settle licenses and patents. The firm is also involved in private placement and project financing, often at the same time, to develop technology, for example for energy and chemicals. When companies come out of the lab with a new product, they need to build a pilot project, then scale it up to a demonstration unit and then move forward with a commercial facility. At this point, the lenders will come into play. This scaling also applies to the innovation process for electricity and storage. Throughout this scale-up process, Kilpatrick helps with regulatory requirements like permitting.

Regarding project financing, several stages require legal advisory. Private funding and government grants will help pay for the pilot projects and the demonstration units before scaling up. The project financing, as such, begins with the first commercial scaling up. After that, companies would require a combination of debt and equity in their project funding capital stack.

Q: How will renewable energy growth, especially solar and wind, behave in the coming years in North America?

A: The capital cost of solar and wind has decreased remarkably over the years. Similar to what is happening in other industries, renewables are facing increasing costs due to supply chain shortages, COVID-19 and inflation. Rising interest rates are also inhibiting investment in new energy projects, as debt has become more expensive. However, the historic trend has been one of plummeting costs. We expect this trend to return in the short term. Offshore wind has become a focus of the Biden administration, which has recently announced investments for offshore wind in the US Gulf of Mexico. We expect the US Department of Energy to pursue its 30GW target of offshore wind capacity. Aside from utility-scale developments, solar remains strongly competitive in different capacities, as Distributed Generation (DG) can contribute to the energy transition for residential and commercial and industrial (C&I) environments.

Mexico has recently changed its regulatory framework for energy, eliminating auctions to keep electricity costs low. With the new Electricity Industry Law (LIE), CFE is now able to buy more expensive energy from fossil fuels instead of prioritizing the cheapest energy, which was coming from renewable sources. Climate conditions in North America are worsening, as fires in the Western US or Mexico’s droughts in its northern region become increasingly problematic. Therefore, governments should be taking a step forward to encourage the energy transition in favor of combating climate change.

It is important to highlight that for countries to be energy independent, all types of energy should be available. To accomplish energy sovereignty, a country’s energy matrix should be diversified and keep moving toward decarbonization. All countries have fossil fuel assets and it will take time to phase them out of the energy matrix. Full decarbonization is the long-term goal. Meanwhile, developing all types of energy is the key strategy to assure energy security and keep electricity prices stable.

Q: Aside from solar and wind, what potential do other renewable energy sources have to further develop in an emerging economy like Mexico?

A: Geothermal power is starting to grow in the US as an alternative source of energy. A prolific so-called Ring of Fire provides excellent geological potential to develop such projects. Part of that ring goes down from the Salton Sea in California and through South America. Mexico has strong potential to produce electricity through geothermal energy in the Baja California peninsula, similar to what the US is doing in the same region. Another area of opportunity is offshore electricity production. Maritime platforms for floating wind and solar could also be developed in the Pacific Ocean.

Biopower is another application that is available to Mexico, as waste from its urban centers could be employed to create biofuels and biogas for power production, with the added benefit of improving waste management in the process. Hydropower is a reliable source of power production, too. Mexico has available hydropower capacity, and the government is looking to increase hydro’s participation in the energy mix. However, hydroelectricity still faces challenges, as droughts are becoming more frequent and power production is far from a priority for water use. Small hydro has greater potential for consideration, with a capacity of 5MW or less, as it is better-adapted to the climate conditions.

It is fundamental to integrate energy storage into intermittent power, like wind and solar, to make it as close to a baseload electricity alternative as possible. Baseload sources, such as hydropower, geothermal, biopower and nuclear energy, grant reliability to the grid. Through long-duration energy storage, intermittent power can strengthen and increase its participation in the energy matrix.

Kilpatrick Townsend & Stockton is an international US law firm. The company has 19 offices throughout the US, Japan, China and Sweden. Its practice areas include multiple industries, such as energy, infrastructure, agribusiness, health, technology, retail and finance.