Local Expertise Helps Navigate Murky RegulationsWed, 02/22/2017 - 10:56
Q: What market risks, particularly for solar and wind energy companies, exist in Mexico and how can Marsh help mitigate those?
MA: Wind and solar power generation in Mexico has encountered difficulties due to changes brought by the Energy Reform, which transformed the previous regulatory framework completely. In this regard, Marsh can help companies navigate the new regulations by using its local expertise and knowledge of the market, taking part of the load off their shoulders and allowing companies to focus on their core activities. We want to play an advisory role for new and existing companies willing to understand the new market rules and the risks inherent in it.
RM: In terms of risks, one of the main concerns for power generators is the vulnerability of their facilities in certain regions, particularly in isolated locations. For renewables, this concern is especially relevant because their location must be selected according to where the renewable resource is available. It happens that the optimal resources might be in remote or difficult to access locations, which raises risk exposure and security concerns. These types of projects may also be exposed to natural hazards, including the effects of climate change, which may affect their profitability. Social issues, including right of way permits, are another recurring matter. If a company fails to handle these issues correctly it can face delays or even the cancelation of the project, heavily impacting its finances. Marsh can help companies with all these issues by developing special insurance programs to better address these challenges.
Q: Globally, one obstacle to effective risk management is the lack of information. What has been the firm’s experience in Mexico?
MA: Fortunately, there are many firms operating in Mexico that are performing analytical studies, such as mapping the potential of wind and solar resources. This has created a pool of information that can be used for our operations. We have not come across any restrictions for accessing the information required for our risk and strategic assessments because there is plenty of information available.
RM: At Marsh we have an engineering team specialized in power generation that can help companies identify different risk scenarios and design mitigating strategies. There are other specialized companies that can collect or generate relevant information to evaluate the risk effectively. So far, we have not experienced any problem with information availability, which is a good indicator.
Q: How does Marsh expect electricity-sector M&As to develop and how is the company positioned to assist clients?
MA: Marsh has a special department dedicated to M&A services, known as the Private Equity and Mergers and Acquisition (PEMA) practice. This practice has already handled several M&A projects for Marsh. Presently a number of firms are analyzing the possibility of establishing joint ventures with other companies to enter the Mexican electricity market. In these cases, we can provide risk assessment services from the early stages to the actual operation of the project. During all the M&A operations we work hand in hand with our clients, using our expertise to help them successfully navigate this process. We have seen an increasing interest from companies to generate electricity as a side operation and are therefore looking to establish partnerships, such as through joint ventures or acquisitions, with supplier companies that have expertise in power generation. As the Energy Reform advances, we expect to see an evergrowing number of M&As in the sector.
Q: What is Marsh’s view of the renewables sector and what will be the company’s position in this new landscape?
RM: The whole energy industry remains cautious about the transformation of the sector due to the uncertainty that still reigns regarding regulations, particularly in respect to the operation of the wholesale market, which involves new players and new trading products, as well as CENACE as operator of the grid and administrator of the wholesale electricity market.