Regulatory due diligence
Regulatory due diligence in relation to the acquisition of power generation and distribution assets in Spain.
Description of project:
Our client is considering the purchase of power generation and distribution assets in the northern part of Spain. Within this potential transaction, we provided an overview of the legal regulatory context in which the target company operates. This included analyzing the "hard" aspects of the institutional framework including:
- the legal framework relevant to renewable and conventional generators;
- the legal framework relevant for distribution companies;
- the powers of regulator, competition authority and the government.
The consulting team also reviewed the "soft" aspects of the institutional framework, including:
- the views of the regulatory authority and of the government on the overall approach to regulation, including in particular regulatory commitment and acceptability of retroactive measures;
- the government's inclination to steer the development of the generation assets and, in particular, to adopt measures which implement risk reallocation from investors to consumers;
- the views of the competition authorities on the state and perspectives of competition and regulation in the Spanish generation market;
- the views of external parties (including, where relevant, credit rating agencies) on the regulatory framework and in particular on the credibility of the government's and the regulator's commitments;
- the extent to which the government (across its different departments) influences regulatory policies.
Overview of the legal and regulatory context in which the target company operates, with a detailed analysis of above-mentioned hard and soft aspects of the institutional framework in the Spanish power sector.
Presentation and discussion on the organisation of the Spanish wholesale electricity, including:
- the design of forward and real time markets;
- congestion management and the allocation of transmission rights;
- ancillary service procurement and allocation of the corresponding cost among market participants;
- Imbalance assessment and pricing;
- Allocation of responsibility on generation capacity adequacy, capacity remuneration mechanisms and any other forms of generation support;
- Market power mitigation measures.
Presentation of a new regulatory model due to be implemented from 2015 and discuss, qualitatively, its impact on the target company's profitability:
- Analysis of the methodology to set and update allowed revenues;
- Assessment of the risk allocation implemented by the regulatory model;
- Assessment of the risk allocation implemented by the regulatory model.
- Assessment of the future performance in the market (as well as the future revenues from regulated tariffs) of the target company's generation assets.