ANNUAL REVIEW

Energy & Utilities 2013

August 2013  |  SECTOR ANALYSIS

financierworldwide.com


Click cover to download

(Subscriber-only password access)

 

Not a subscriber?

Click here to join the FREE mailing list and receive password access


Financier Worldwide canvasses the opinions of leading professionals around the world on the latest trends in energy & utilities.

 

UNITED STATES

Clinton A. Vince

Dentons US LLP

Climate change is grabbing headlines, but shale gas is still the most significant game changer – it is clear that natural gas will remain in abundant supply in the US for many years. Exports of natural gas are no longer on hold, providing a window of opportunity for US suppliers, although for political reasons, the Department of Energy is maintaining a cautious approach. With the resurgence of North American oil, the US now rivals Saudi Arabia as the world’s largest oil producer. Solar power is coming of age, and rooftop solar may become another major game changer in the coming years. Last year’s debate over federal tax credits showed that incentives matter, but the solar industry is making great strides towards grid parity. The executive branch and the judiciary have overtaken a gridlocked congress on energy policy, as have state and local governments, the military, businesses, the investment community and NGOs. Cyber and physical threats against the power grid occur with increasing frequency and intensity, constituting one of the biggest problems facing the power industry. Water scarcity is also becoming a significant challenge.”

 

MEXICO

Raúl Fernando Romero Fernández

Rodríguez Dávalos Asociados

The expansion program of Mexico’s natural gas transportation system is one of the main catalysts for the possible reformation of the Mexican energy policy. As a result we could be heading for an increase of the national transportation system capacity of more than 35 percent. Additionally, new natural gas distribution geographic zones are being developed within Mexico. Furthermore, recent investments in combined cycle power plants – natural gas fired – have begun to provide around 50 percent of the electricity generated in Mexico. Moreover, investment in the sector’s activities has been multiplied in order to avoid a decrease in hydrocarbons production. Some risks and challenges for the energy industry can be defined through the opposite profiles of natural gas supply and demand along the past few years. From 2000 to 2011, there was a significant increase in energy demand, however there was a decrease in oil production. In addition to this, Mexico’s current natural gas transportation system capacity has been overtaken by the industry’s fuel requirements. Efforts should be focused on addressing challenges such as oil reserves recovery, refining processes and transportation capacity constraints.”

 

CHILE

Juan Francisco Mackenna

Carey y Cia Limitada

In Chile, there has been a lot of activity in the power generation sector, especially in projects devoted to generate energy through non-conventional renewable methods like small hydro, solar and wind power plants. There have also recently been studies into sea wave generation, although at an experimental phase. Geothermal is also currently under evaluation and development. Chile may face, in the future, a deficit in power generation that needs to be covered with these kind of projects, especially in its deserted northern area where mining activity is quite intense, placing a high demand on electricity which has become highly expensive.”

 

VENEZUELA

Sergio Casinelli

Norton Rose Fulbright

In the energy sector, the general trend of the Venezuelan state in recent years has been to implement a policy of full sovereignty over natural resources, through which the government has sought to re-establish full sovereignty over the management of its hydrocarbons. As a result of this, the tendency has been to increase the participation of the state in hydrocarbon activities, and to have a more controlled participation by private investors. In the utilities sector, the state has also increased its participation in recent years as a result of reserving the power industry to the government and limiting the participation of private investors in the supply of drinking water, which has been declared by law as a public service. Among the challenges that these industries are currently facing are the requirements of substantial financing in order to fully implement the projects required to meet the current needs in these sectors.”

 

SWITZERLAND

Marc Schmidl

PricewaterhouseCoopers AG Switzerland

Against the backdrop of the decreasing wholesale market prices for power and gas, competition in the Swiss energy and utilities sector has gradually evolved. Compared to previous years since the inception of the first stage of market liberalisation in 2009, significantly more entitled customers, with a consumption greater than100 Mwh/a, changed their power supplier in 2012 and 2013. Also, the gas industry and large industrial gas consumers have concluded an agreement on third-party access from 1 October 2012, although the gas market remains a monopoly. Decreasing margins due to higher competition and low market prices, have forced Swiss utilities to transform their business models in an unprecedent manner. This encompasses the development of new businesses such as energy efficiency, smart technologies and renewable energies as well as the implementation of process optimisation, cost savings and divestiture programmes.”

 

SPAIN

Hermenegildo Altozano

Bird & Bird

The last 12-18 months have witnessed a number of trends, First, regulatory changes have had a devastating effect on the development of renewable energies in Spain. Various foreign investors have already initiated international investment arbitration vis-à-vis the Kingdom of Spain under the energy charter treaty. The aim of the government is to reduce the so called tariff deficit – the gap between income and expenditures due to the decrease in the demand. To that end new regulatory measures have recently been adopted to reduce costs in the electricity sector in order not to increase tolls and tariffs, and not hinder competitiveness within the sector. However, a number of these new measures – mainly affecting distribution and transmission activities and the production of electricity from renewable sources – have retroactive effects and will very likely lead to challenges by aggrieved parties before domestic courts and to international arbitration. Foreign governments – inter alia, Japan, Germany and the US – have expressed their disappointment with the new regulatory measures given the adverse effect on the investments of companies of their jurisdiction. Equally, due to the economic crisis, firms such as construction companies that have traditionally operated in other areas but have also developed a significant energy assets portfolio have moved back to their core business through a divestment policy which has opened opportunities to new comers. At the same time, traditional operators in the LNG business are also divesting in order to concentrate on their core areas. Spanish operators are benefiting from these opportunities. Many Spanish companies have also increased their presence in the power sector particularly in LATAM, not only in conventional installations but also in renewable energy. Foreign operators are increasingly partnering with Spanish companies in LATAM through the acquisition of participation interests on a global basis or through selected asset deals.”

 

POLAND

Rafal Hajduk

Norton Rose Fulbright

Like most European energy markets, the Polish sector has entered a period of major uncertainty. All utility companies active in Poland have substantial investment plans, including the construction of substantial new power generation capacity, mainly coal fired but also gas fired. Additionally, PGE, the largest Polish state-owned utility has started the development of the first Polish nuclear power plant. However, low wholesale market energy prices have undermined the economics of the new projects, and uncertainty about the future climate change policy and carbon prices also further complicates investment decisions. Most of the new conventional power facilities, which were under development, are now on hold and the country’s nuclear programme now faces major delays. The Polish renewable energy industry has also been hit hard by the prolonged uncertainty about the change in the support scheme. The government has been working on the new support system for more than two years now, frequently changing its position on some of the key proposals, and no end date is in sight. As a consequence, over the past 18 months new investments in the Polish renewable energy sector have been brought to a virtual standstill.”

 

ROMANIA

Monica Cojocaru

Schoenherr

It can be said that Romania follows general European trends. The country mainly seeks security and diversification of energy supply, looking for alternatives to Nabucco and possibly finding them in shale and offshore gas, or looking for investors for the development of two additional nuclear reactors at the existing Cernavoda Nuclear Power Plant. Similar to other EU member states, renewable energy has proved too costly for the end consumers, so the support scheme is being considerably downsized. The state, upon agreement with IMF, has undertaken the privatisation of state-owned energy and utilities companies, such as Romania’s energy distribution operator, nuclear operator, gas producer and gas transmission operator.”

 

JAPAN

Kenichi Yamamoto

Anderson Mori & Tomotsune

In recent times there has been a push for Japan to adopt an anti-nuclear policy, particularly in the wake of the Fukushima Daiichi nuclear disaster. The use of nuclear energy in Japan has dropped dramatically following the disaster, whilst the use of fossil fuels such as oil and gas has increased. Japan has also seen a boom in the renewable energy sector, particularly after the introduction of the Feed-in Tariff (FIT) scheme for renewable energy in July 2012. The scheme incentivises developers to invest in power generated from renewable resources, and various domestic and foreign parties have sought to take advantage of these incentives by entering the Japanese renewable energy market. Japan has also successfully extracted natural gas from frozen methane hydrates in the Nankai Trough. Significantly, the availability of these resources may transform Japan’s status from being an energy importing country to an energy exporting country in the future.”

 

NEW ZEALAND

David Clarke

Russell McVeagh

The global economic downturn has affected growth in the New Zealand energy and utilities sector in recent years. Electricity demand and wholesale prices have been flat, resulting in the deferral and cancellation of a number of new investments, and the renegotiation of existing arrangements. However, resource consents continue to be granted based on applications submitted prior to the slowing down of the markets, meaning that new projects are ready for development should the demand outlook improve. In addition, wide ranging legal and regulatory reforms have been, and are in the process of being enacted, affecting the majority of the participants in the New Zealand energy and utilities sectors. Extensive legislative developments in the areas of crown minerals – including minerals, oil and gas, consenting, health and safety, and transmission pricing have been well received by many in the industry, but have, in the short term, increased regulatory uncertainty and decreased appetite for investment.”

 

VIETNAM

Kevin B. Hawkins

Mayer Brown

Over the last 12-18 months we have seen an increase in both oil & gas production. The auctioning of nine blocks last year may increase oil & gas reserves once licensing is completed. However, despite record production levels, Vietnam’s increasing demand for oil & gas will force the country to become an importer of both oil & gas by 2015. Vietnam has already become an importer of energy, purchasing electricity from China since 2010. Development of Vietnam’s renewable energy sector is envisioned but is moving slowly, as is restructuring of the energy sector into a competitive market. Midstream and downstream continue to develop at a slow pace with the Dung Quat refinery raising capacity and plans for the Nghi Son refinery under way. The Nghi Son facility is expected to be in operation by 2016.”


CONTRIBUTORS

Anderson Mori & Tomotsune

Bird & Bird

Carey y Cia Limitada

Dentons US LLP

Mayer Brown

Norton Rose Fulbright

PricewaterhouseCoopers AG Switzerland

Rodríguez Dávalos Asociados

Russell McVeagh

Schoenherr 


©2001-2016 Financier Worldwide Ltd. All rights reserved.