Raúl Romero
Rodríguez Dávalos Abogados
View from the Top

Social Impact Assessment Defines Project Success

Wed, 02/21/2018 - 16:01

Q: What is your assessment of PRODESEN’s energy infrastructure projects?

A: Ensuring the reliability of the National Electricity System is a complex duty considering electricity cannot yet be stored under a cost-efficient scheme. An integrated system must include an electricity grid capable of redundancies to ensure the operation of the National Electricity System even when one of its components fails. The issue becomes relevant when a system’s congested connections and natural gas supply cuts might impact electric energy generation through combined cycle plants, which in 2016 amounted to approximately half of Mexico’s national electricity generation. PRODESEN considers an expected investment of US$104 billion to foster the increase in clean energy-powered electric generation and fortified electric energy transmission infrastructure that decreases the congested links, creating a downward trend in electricity prices. Although expected investments in distribution seem to be smaller, it is necessary to start exploring smart grids as part of Mexico’s commitment showcased during 2011’s Clean Energy Ministerial (CEM2). The implementation of smart grids would propel technology development, obtaining greater competitiveness and productivity within Mexico’s energy sector. CENAGAS undertook a potential natural gas capacity demand study and identified the necessity of 4 billion cf/d of firm base capacity. This means SISTRANGAS has greater demand than it can supply. Addressing this situation, CFE is spearheading projects together with the private sector to extend the natural gas network, as well as endowing the country with additional injection points to diversify supply and avoid reductions in the system that could negatively impact electricity generation facilities. 

Q: What major challenge is Mexico’s energy infrastructure facing?

A: Land acquisition and rights of way in the communities and towns located in the project’s influence area. In one recent instance, a wind power project in Oaxaca, despite obtaining the corresponding permit from CRE, is facing rejection from the region’s indigenous community. This issue raises concerns as, according to PRODESEN, the increase in clean energy’s installed capacity correlates to, among other factors, the installation of wind power plants. This is not exclusive of renewable energy projects but, rather, concerns the development of energy infrastructure in general, such as the Yaqui community case that stonewalled a gas pipeline project in Sonora. RDA’s highly qualified team in all legal matters relative to rights of way and social impact works day by day with project developers and communities to secure continuity for projects, which also implies close follow-up across the whole execution and implementation phases to avoid delays because of social issues. 

Q: What is your take from the first bid basis for the construction of new transmission lines?

A: The electricity industry regulation is complex and extensive, and involves the study of various instruments released by CRE that regulate interconnection contracts, the balance of power market and  the spot market, to name a few. The analysis and understanding of the wholesale electricity market requires an in-depth study, which is why during the release of the first bid basis for the construction of new transmission lines we supported different clients with risk analysis procedures inherent to the development of these kinds of projects. 

Q: How does financial closing for utility-scale projects differ from their transmission counterparts?

A: First, rights of way acquisitions. In power generation, a project is developed within a delineated polygon, while a transmission line can cover several kilometers, implying an increased number of rights of way acquisitions. Second, the public service of electricity transmission and distribution must follow the rules and procedures established in Chapter VIII of the Electric Industry Law (LIE) pertaining to land acquisition and rights of way, meaning project development time frames must be aligned with the terms established by the different administrative and judicial authorities involved, such as the Ministry of Energy and the Ministry of Agrarian Territorial and Urban Development (SEDATU).