Industry Needs More Advice Than Ever

Q: How does Marathon Capital differentiate itself from other advisory firms in the sector?

A: Marathon Capital is an investment bank specializing in capital formation, M&A, financing and restructuring services. Marathon Capital has over 20 years of experience with a focus on clean power and infrastructure, including renewable power, energy storage, renewable fuels, natural gas generation and energy services, as well as sustainable technology and e-mobility. In North America, we started with advisory services for solar and wind energy projects, but in the last few years we have expanded to address other segments along the electricity market value chain, such as T&D and gas-fired generation. We focus on the energy industry and have been doing this for a long time. While other banks are only starting to explore the renewables world, we have already participated in the most industry-representative transactions in the US. Based on this knowledge, we have identified that there is a significant overlap between the shareholders that invest in energy projects in the US and the players investing in Mexico and the rest of Latin America. We understand what these players want and support our clients in attracting this capital.

Q: What market transaction best showcases the company’s capabilities?

A: Our most significant milestone was the consolidation of the JV between Tokyo Gas and Engie, in which we acted as Engie’s adviser. The universe of potential investors was broad, but our client was looking for a very specific partner. This partner needed to have a certain level of financial capacity and one condition from Engie was that they wanted to be the project’s asset manager. Tokyo Gas emerged as the ideal partner given its competitive costs of capital and disposition to participate under a 50/50 contract scheme. In this conversation, we added value by finding a partner that wanted to contribute equity and that had a long-term view aligned with Engie’s.

Q: What opportunities does Marathon Capital foresee under current market conditions?

A: Without the long-term electricity auction scheme, a whole array of options opened for both investors and developers. The industry is still dynamic and we foresee many opportunities for consolidation. In addition, there is an increasing appetite for auction-based PPAs but also for self-supply and even merchant assets. Under the previous market conditions, most transactions relied on the same contractual scheme. Now, we are seeing transactions with different types of assets under different offtake schemes. As the industry becomes more complex, financial advisers can add even more value in these transactions.

This also opens the door for a different investor profile. With the older scheme, a PPA with very competitive prices and ROIs required the participation of investors with low cost of capital. Under the new landscape, investors with different levels of cost of capital are involved.

Regarding the debt side of the equation, as a financial advisor, you need to work hand in hand with national development banks, with whom we have strong relationships. Our major focus is to understand how these banks are evaluating bilateral PPAs and merchant assets. Understanding the concept of bankability is fundamental, because this is how development banks evaluate if the resources brought by the equity will be enough to attract debt providers.

Q: What elements should back up a merchant transaction? How are they different for an asset with a bilateral PPA?

A: The first step for us, when we analyze if we can bring a merchant asset to the market is to evaluate if there is a buyer for this project. Parameters such as quality of the project, stage of development, resource availability, the possibility of reaching an interconnection contract and the sponsor’s experience and financial capacity are part of this analysis. Next is defining an interconnection node and analyzing price projections to see if these will translate into competitive ROIs that are attractive to the purchaser. The process is somewhat similar when analyzing an asset with bilateral contracts. In this case, it is important to look at the off-taker’s creditworthiness and how risks are being assigned by the offtake contracts. Certain particularities such as generation commitments, the presence of congestion and price adjusting should be analyzed in depth to assign risks appropriately and to end up with realistic projections that ultimately lead to an investment.

Marathon Capital is a Chicago-based investment bank and financial advisory firm focused on delivering financial products and services to the energy and infrastructure markets. It specializes in selling and financing companies, projects and assets.