Industry Trend Analysis - LatAm Power Round-Up: Industry Growth And Business Opportunities Ahead - OCT 2017


BMI View : We hold a positive growth outlook for Latin America's power sector over the next 10 years. The non-hydro renewables sector will register the fastest growth in the region through to 2026, while hydropower will retain its dominant share in Latin America's power generation mix. Most markets in the region will offer business opportunities for international utilities , project developers and financiers , but those offering a more conducive business environment and brighter economic outlook will be most attractive .

We hold a positive growth outlook for Latin America's power industry, supported by our forecast for robust power consumption growth, government commitment to expanding and upgrading the sector and international investor interest in the region. Companies from Western Europe and North America have traditionally had a significant presence in the region and will continue to do so; however, we also expect Chinese firms to increase their market share in key countries like Brazil and Argentina over our 10-year forecast period ( see ' Chinese Investment To Be Key Driver Of Nuclear Power Development ' , August 30 2017).

We forecast that Latin America's total installed power generating capacity will grow from around 428.9 gigawatts (GW) in 2017 to approximately 518.6GW in 2026. Hydropower will account for the relative majority of the region's generation mix through to 2026. Nevertheless, non-hydro renewables generation will grow at the fastest rate of all technologies over the next 10 years, with its share in the mix rising from 9.2% in 2017 to around 13.4% in 2026.

Renewables Growing In Generation Mix Dominated By Hydropower
Latin America - Power Generation Mix By Technology In 2017f (LHS) And 2026f (RHS)
f = BMI forecast. Source: EIA, National Sources, BMI

The countries in Latin America that will be more successful in attracting investment in their power sector will be those showing a more stable business environment and a brighter economic outlook ( see ' Latin America Power RRI: Political Uncertainty And Economic Weakness Weigh On Score ' , June 27 2017). Auctions awarding long-term power generation contracts, as well as tenders for power transmission projects, will be the most effective ways for governments to attract foreign investment. In addition, privatisations, market liberalisation and adjustments in power tariffs will also be important enablers of investment.

Business Environment And Economic Outlook Trump Market Size
Latin America - Power Sector Risk/Reward Index
Source: BMI Power Risk/Reward Index. Scores out of 100, Higher Score = More Attractive Market

Consistently with our views above, Chile continues to lead in BMI's power sector's risk/reward index (RRI) for Latin America. Mexico follows in second position, in light of the large size of its power market and business opportunities created by the reform of its electricity sector. Brazil's score belies the market's tremendous potential, which is currently constrained by a weak economic recovery and uncertain political outlook. Similarly, Argentina's performance in our RRI is saddled by limited access to financing and delays in project development, but the market will offer sizeable long-term opportunities to power sector investors.

BMI's Power Sector Risk/Reward Index - Analysis For Key LatAm Markets
Country BMI's RRI Analysis Date
Source: BMI
Chile Excellent Risks Profile Underpin Index Outperformance July 27 2017
Mexico Industry Expansion And Energy Policies Create Significant Rewards July 13 2017
Brazil Vast Industry Rewards Mitigated By Economic Weakness June 23 2017
Argentina Power Sector Attractiveness Creates Potential For RRI Score Improvements August 29 2017

The pieces of analysis included in the table above provide more in-depth information on our views for the risks and rewards in the power sector of the countries highlighted in the previous paragraph.