Industry Trend Analysis - Strong Power Potential Despite Small RRI Deterioration - APR 2018

BMI View: Argentina lost four positions in our global Power Risk/Reward Index this quarter and one position in the regional RRI, so it now ranks 55th globally and seventh in the Latin American region. This is due to bigger relative improvements in other countries' scores and to modeling factors rather than to Argentina's investment and growth outlook becoming less positive. Argentina's score continues to be hindered by limited access to financing for project development and a track record of implementation delays, but its power market will offer some of the biggest opportunities in Latin America thanks to its abundant resources, attractive regulatory framework and growing energy needs.

Risk/Reward Snapshot
Argentina And Latin America Region Risk/Reward Index
Note: Scores out of 100, Higher score = More Attractive Market. Source: BMI Power Risk/Reward Index

Global And Regional Ranks

  • Regional rank (out of 19): 7th
  • Global rank (out of 117): 55th

Key Features And Latest Updates

  • Bucking a trend that saw its ranking improve in BMI's power sector Risk/Reward Index (RRI) last quarter, Argentina lost four positions in our global RRI and one in the Latin America index this quarter. This was the result of a deterioration in Argentina's score for all our headline indicators (see chart above) except for Country Risks, which saw a significant improvement. This deterioration, however, was the result of bigger relative improvements in the scores of other countries included in our index, and of modeling factors. It was not due to Argentina's investment and growth outlook becoming less positive.
  • In particular, Argentina's Country Rewards indicator fell this quarter because of the way our RRI is built. We are now forecasting that Argentina's net imports of electricity will decrease over the coming decade as new power capacity comes online; lower electricity import dependence weighs on the Country Rewards score because it means that policy-makers will be relatively less pressured to boost power generation, thus reducing business opportunities in the market. Moreover, Argentina's sub-indicator for real GDP growth also fell slightly this quarter as BMI revised up its economic growth forecast for other countries included in our global index, which made Argentina's growth profile relatively less attractive.
  • These factors do not change our view that Argentina will be among the most dynamic power markets in Latin America over the coming years, particularly in the non-hydropower renewables industry. The country has the third largest power sector in the Latin American region and holds notable conventional and renewables energy resources. Moreover, we expect the market will experience robust growth in power consumption, as our Country Risk team forecasts Argentina's real GDP growth to average 3.3% in 2018-2022. In line with these factors and a significant pipeline of power projects under construction and planned, Argentina maintained the highest score for the Industry Rewards indicator this quarter in our RRI for Latin America.
Growing Power Capacity And Consumption Will Offer Opportunities
Argentina - Power Installed Capacity (MW) And Consumption (TWh)
e/f = BMI estimate/forecast. Source: EIA, BMI, CNEA
  • Argentina's overall performance in the index is damaged by the country's relatively high level of risk, which reflects a default that shut it out of capital markets and a freeze on tariffs under past administrations that prevented generators and distributors from making investment. The Macri government has removed these issues and is working on reducing the market's level of risk by improving the business environment and adopting policies that favour investment in power generation capacity, such as tenders for thermal and renewables projects.
Argentina Underperforms For Access To Financing And Construction Delays
Latin America - Selected Indicators From BMI's Infrastructure Project Risk Index
Scores out of 100, Higher Score = More Attractive Market. Source: BMI Project Risk Index
  • Limited access to financing for project developers who won power purchase agreements in auctions held in 2016 and 2017, as well as delays in the implementation of large-scale hydro and nuclear power plants, remain notable issues in the market. Nevertheless, we expect issues with access to financing to gradually subside over the coming years, in line with an improvement in the country's economic environment. Indeed, Argentina's score for the Country Risk indicator rose this quarter as the country improved in BMI's Short- and Long-Term Economic Risk Index, as well as the Short-Term Political Index.
RRI Matrix Breakdown
Argentina And Latin America Region Risk/Reward Index By Component
Note: Scores out of 100, Higher Score = More Attractive Market. Source: BMI Power Risk/Reward Index