Opportunities Still Present In Power Markets


BMI View: Despite the region ' s long-standing liberalisation and opening up of the electricity market, moderately positive macro fundamentals and very high existing electrification rates, the regional average score for the Power Risk/Reward (R/R) rating s has slipped marginally over the last quarter. However, the Latin American power market business environment still remains relatively attractive when compared to other regions, including Central Eastern Europe and Middle East and Africa. We also note that there has been a change in the regional table rankings, with Peru beating Brazil to the top s pot. Venezuela , on the other hand , maintains its position at the bottom of the heap.

Latin America Power Risk/Reward Ratings
Rewards Industry Rewards Country Rewards Risks* Industry Risks* Country Risks* Power Rating Rank
*Higher score = Lower risks. Source: BMI.
Peru 56.62 50.75 66.00 63.12 61.79 64.90 58.89 1
Brazil 57.31 71.50 34.60 60.76 55.57 67.68 58.51 2
Chile 44.69 40.00 52.20 75.63 73.68 78.24 55.52 3
Mexico 52.69 56.00 47.40 58.03 58.77 57.05 54.56 4
Colombia 48.62 39.00 64.00 58.54 57.36 60.11 52.09 5
Panama 46.54 34.50 65.80 54.01 51.23 57.70 49.15 6
Costa Rica 39.92 30.50 55.00 57.80 49.85 68.40 46.18 7
Guatemala 43.54 34.50 58.00 47.46 46.46 48.79 44.91 8
Argentina 38.08 39.00 36.60 53.41 48.62 59.80 43.44 9
Nicaragua 38.23 27.50 55.40 43.17 46.42 38.83 39.96 10
El Salvador 33.38 26.50 44.40 48.09 45.65 51.35 38.53 11
Honduras 38.15 27.50 55.20 38.33 43.53 31.40 38.22 12
Venezuela 40.46 40.25 40.80 26.80 21.24 34.22 35.68 13
Regional Average 44.48 39.81 51.95 52.70 50.78 55.27 47.36

Power Ratings Slipping...

When comparing Latin America's Power R/R Ratings from Q412 to Q113 it becomes evident that scores across all components of the ratings system have declined slightly, as opposed to one area in particular dragging down the average. As scores have fallen across the board we believe that the small reduction in the regional average Power R/R ratings can most likely be attributed to the thorough review and updating process of the entire Latin American database portfolio we undertook over the last month.

Attractiveness Waning Slightly
Latin America Power Risk/Reward Ratings, Scores Out Of 100

...But Still Relatively Attractive

That said, t he overall power market business environment picture that emerges across the Latin American region is quite strong, with moderate macroeconomic and demographic fundamentals helping to support the region ' s power sector and underpin ning our growth outlook for elect ricity capacity and generation.

The risks side of the matrix outweighs the rewards score by over 8 points, with scores particularly high for country risks. A stable short - term political outlook and a good record for policy continuity in the region boosts country risks, whereas substantial potential in the renewables sector , widespread liberalisation and sound levels of transparency in the tendering process elevate the industry risks side.

This reinforce s our view that, overall, power markets in the Latin American region are generally more attractive than some of their peers in Central and Eastern Europe (CEE ) and in Middle East and Africa; presenting more opportunities for investment.

Rewards Vs Risks
Latin America Power Industry Risk/Reward Ratings, Scores Out Of 100

The key themes and trends we have identified in our L atin America Power Risk/Reward r atings are:

  • Peru has overt aken Brazil to lead the region al ranking in terms of Power R/R ratings and presents an attractive business environment to prospective investors. Despite the size of the power market being significantly smaller than Brazil's, we forecast exceptionally high levels of growth for both electricity capacity and generation. Furthermore, with promising GDP and population projections, coupled with a sound bureaucratic process and comprehensive regulatory environment, Peru ' s power sector is certainly appealing.

  • Brazil has an undeniably well-developed and expansive industry size which significantly boosts the rewards potentially on offer in the market . However, we note that whilst power generation growth is moderating, consumption is likely to remain strong, therefore possibly increasing Brazil's electricity import requirements in the short term. Additionally, liberalisation remains somewhat limited in the power sector, thus dampening the overall score for risks.

  • Despite boasting the highest r isk scores across the region, both in terms of Country Risk and Industry Risk, Chile lies in third position in the regional ratings. This is due to the country's disappointing Rewards score, particularly in terms of capacity and generation growth. That said, we highlight Chile ' s expanding renewables industry as a major investment opportunity for companies, and we expect strong growth across the majority of the renewables segments over our forecast period. In fact, Chile tops the Latin America Renewables R/R ratings, largely owing to the passing of a new law earlier this year that mandates that all energy suppliers achieve at least 20% of energy from renewable sources by 2020.

  • Central American power markets, such as Nica ragua, Honduras and El Salvador, are clustered towards the bottom of the regional table, as high levels of corruption and sizeable external risk dampen market attractiveness and deter investment .

  • Venezuela remains the clear underperformer in the region owing to chronic and deteriorating power shortages, poor outlook for financing and liberalisation, in addition to w ider business environment risks.

Hit And Miss In Regional Ratings
Regional Power Risk/Reward Ratings, Scores Out Of 100