New markets for energy projects are all the rage
these days. Barely a day goes by that we don't hear
about new projects being developed in Latin America,
MENA, Asia or some other exciting place that isn't
here. Renewable energy projects in particular are
popular, but gas plants are also getting significant
attention. And, quite often, these projects are
developed by foreign companies, which might make you
wonder if your company also should look for project
opportunities outside of the U.S. After all, all the
other kids are doing it, and you don't want to be
left behind.
The first question to ask yourself is "why?" Why do
you want to enter a new market? This question is not
just corporate existentialism, or to challenge a
possible fad-motivated herd-joining, but also an
important first step towards plotting a course for
success. If, for instance, your "why" is that your
company excels at incentive-mining and there are new
incentives available in certain countries, then that
automatically shapes and limits your target
countries and project type. If, on the other hand,
you are looking abroad because you are running out
of opportunities domestically, then you will need to
spend some time researching opportunities and
limitations in a variety of locations.
After all, "overseas" is not a single country, and
doing business in China and Chile are two quite
different things. Just because "everyone" is looking
for projects in Mexico and Brazil does not mean that
either of these countries is a fit for you.
Once you have made it that far, the next step is
obvious, yet essential and all too frequently
ignored: Get connected locally. Get connected well
locally.
This means several things: first, get local boots on
the ground. It is a common arrogance to believe that
you, an experienced developer of projects, will
simply show up anywhere and successfully develop
projects in short order. Sure, all development is
local; everyone knows that. But you are a fast
learner. After all, you didn't have trouble
switching from Texas to California---how hard could
it be to figure out India? You'll just send some
guys over there, and in a few months they will be on
top of things. Best get going on the financing right
away.
Don't be that guy. Make a local connection---a real
local connection. Hire experienced local developers.
Buy a local outfit. Do a JV with an established
local company. But do something. India is not
California. Uruguay is not New Jersey, and Costa
Rica is not Arizona. Your guys will not simply
"figure it out." They won't have the local knowhow.
They won't have the local connections. You need
local development expertise.
Second, learn the local order of business. At the
end of the day, you will be faced with the same
fundamental development issues you face at
home---you will need a site, you will need an
offtaker, you will need
permits/licenses/entitlements, you will need
interconnection and transmission, you will need
construction and equipment supply, and you will need
financing.
But even though these are the same categories of
challenges you face in the U.S., they will be
different. Not just different individually but
different together. For instance, all aspects of
renewable energy projects in the U.S. are driven
entirely by tax-equity financing. This is a
non-issue everywhere else. If you are in a feed-in
tariff environment, then the offtaker is mostly
taken care of. But this will change the requirements
for each of the other categories. If you have grid
stability problems, then this will change your
offtake and financing requirements. There is almost
always a primary local linchpin, and you ought to
know what it is.
Third, consider your financing options. It is quite
possible that your familiar sources of financing
will not be available to you, and local financing
may very well be your best option. This is
particularly true if you are building a renewable
energy project, because the "standard" big
international project finance banks are not yet
fully engaged in renewables around the world. On the
other hand, you may now also have access to
financing from ExIm Bank, World Bank, and similar
institutions.
Sure, there are many other things to consider as
well when going to other countries. Beware the FCPA
(Foreign Corrupt Practices Act) and don't bribe
foreign officials---no matter how much your
local partner says it is ok. Currency risk,
political risk---those are all extra challenge
layers that come with working abroad. But, in the
end, your main challenge and your most important
step will be to make good local connections.
It should not be surprising that "get connected
locally" is exactly the same advice I have for
foreign energy companies entering the U.S. for the
first time, since they are facing the exact same
challenges as Americans in Romania. This should be a
hint to you as to the seriousness of the matter. If
you have ever had the opportunity to deal with a
developer from Italy or China or Germany (or
anywhere else) that had decided they did not need a
local U.S. connection, you may recall how they
exuded a strange mix of arrogance and na•vetˇ---and
how you were torn between mirth and pity during the
conversation. Don't let that be you. Get local.
###
Morten Lund (malund@stoel.com) is a partner in the
San Diego office of Stoel Rives. You can follow him
on Twitter @MortenLundStoel.
Copyright © 1996-2015 by
CyberTech,
Inc.
All rights reserved.
To subscribe or visit go to:
http://www.energycentral.com
To subscribe or visit go to:
http://www.energybiz.com
http://www.energybiz.com/article/15/05/so-you-want-enter-new-energy-market