Antonio Garibay
Director General
Ingeniería Administración de Contratos
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Insight

New Business Models Will Thrive in the New Market

Wed, 02/24/2016 - 09:39

For a firm specialized in integrated contract management, technical and financial consulting, and turnkey project development, the opportunities are endless in the aftermath of Mexico’s structural reforms. Antonio Garibay, Director General of Ingeniería Administración de Contratos (IAC), sees a lot of potential in Mexico’s renewed electricity market, as companies show rising interest in developing renewable energy projects, among others. With this in mind, IAC is broadening its horizons by examining new sectors such as solar, wind, biomass, and even nuclear if the possibility arises, since the firm can take advantage of its previous participation and experience won in a Laguna Verde retrofit project a few ago. Garibay says his company is also looking to delve deeper into cogeneration and combined cycle plants. After all, IAC was involved in the first private cogeneration projects in Mexico. According to Garibay, the transmission and distribution markets for EPC projects have traditionally been dominated by European companies, but now he is noticing players from other countries wishing to enter the local market. “We are aiming to work with them and offer our local expertise and knowledge. One of the competitive advantages of IAC is its vertical integration. We have the technical, legal, environmental, and financial aspects under control and we understand how to navigate this complicated environment.”

For Garibay, important projects are not defined by size, but rather by their transcendence in terms of technology, environmental, and social impact. “I can think of a wasteto-energy project of less than 1MW that incorporates interesting technology and has an evident impact on the adjacent communities. Geothermal projects are also beautiful in terms of where the energy originates from and the complex technology that they incorporate,” Garibay shares, adding that IAC likes to be involved in the early stages of a project in order to help select the financing schemes and the technology

IAC has kept a close eye on CFE in order to secure business in Mexico. The Mexican utility publishes its future projects according to its power generation and distribution needs, enabling IAC to approach CFE and its contractors with business development plans. Now that CFE will compete with other private companies, and private projects of all sizes will arise, Garibay says IAC needs to redefine its strategies and start following the lead of private players on a more regular and permanent basis, while trying to enter new projects at the point of conception.

Garibay says that CFE helped craft the first generation of regulatory mechanisms to foster renewables, and with the Energy Reform seeking to level out the playing field, mechanisms such as contract models need to evolve. He believes several aspects have to be addressed in the regulation, such as market demand, production costs, TIR analyses, and environmental impact assessment. “In the case of renewables, which tend to be in isolated areas, it will be crucial to define the technical and legal considerations and rules for interconnection to the grid, and these should be included in the contracts.” For Garibay, it is important to clarify how energy will be integrated into the grid so that companies can enjoy the same interconnection and dispatching possibilities.

A popular business model in the renewables energy industry is to develop a project and sell that developed project to a buyer under a stock or asset purchase and sale agreement (PSA). Garibay explains that a company’s desire to sell or buy a legacy project does not rely on the new laws or new schemes, but rather on how the company wishes to be positioned in a particular market and how it can use the features of the new schemes and new laws to do that. For example, a natural gas transporting company may wish to buy a legacy project in order to incorporate generation into its business portfolio model. Garibay recalls that there has been a shift of paradigm in the electricity industry, resulting in more consolidation around the world. He claims the acquisition of Alstom Power by GE, and joint ventures created in the renewable energy industry herald a diversification within the industry, and as a result, the market will consist of small and large companies with differing business strategies. “New schemes in Mexico will provide new criteria and will incorporate variables into the general analysis for selling and acquiring assets in the industry,” he asserts.