So you want to enter a new energy market?

Here's what you need to know

Morten Lund | May 26, 2015

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.



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Morten Lund (malund@stoel.com) is a partner in the San Diego office of Stoel Rives. You can follow him on Twitter @MortenLundStoel.

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