Contents

Introduction

Like in most emerging markets, energy demand in Latin America closely tracks the health of its economy. The present deceleration, beginning around 2014 when the decade-long commodities boom came to a close, has impacted electricity consumption across much of the region.

Regional GDP posted near-zero growth in 2015, and most current forecasts indicate a contraction in the range of 1-1.5% for this year. Electricity use (excluding transmission losses) across 24 Latin American and the Caribbean countries expanded just 0.7% in 2015 to 1,275TWh, according to BNamericas estimates using data from local sources and multilateral institutions.

Preliminary figures from some of the region's largest power markets - Argentina, Brazil, Chile, Colombia, Mexico, Peru, and the six Spanish-speaking Central American countries in aggregate - show that growth in electricity demand has continued to slow during the first nine months of 2016. Most outlooks cautiously predict that economic activity in the region will begin to gradually pick up in 2017, but the recovery will likely be uneven from country to country, given that some have fared far worse than others over the last few years.

Latin America's largest power market, Brazil, has struggled with a severe economic recession, political turmoil, and rising inflation and unemployment. To the north, in crisis-stricken Venezuela, the local power grid is now teetering on the brink of collapse due to droughts and underinvestment.

Other countries in South America, such as Peru, Chile and Colombia, have managed to adjust to the new economic scenario in a relatively orderly fashion. In Argentina, the government is currently dismantling cumbersome subsidies and price controls, a process with painful short-term effects but which is expected to start paying off in 2017. Mexico, Central America and much of the Caribbean have all benefited from their strong trade ties to the recovering US economy.

However, the upset victory of Donald Trump in the US presidential elections on November 8 introduces an element of uncertainty to the outlook for next year. His aggressive anti-trade and anti-immigrant rhetoric could have serious implications for Latin America - and for Mexico and Central America in particular. In the power sector, one possible repercussion is a decrease in US cooperation with Latin America on energy and climate change issues. But for now, it remains unclear which specific policies Trump will (or can) implement after he assumes office next January.

Despite the fact that electricity demand is cooling off, activity in the Latin American power industry has not stagnated. The region added nearly 17GW of new generation capacity in 2015, just slightly exceeding 377GW by the end of the year, according to BNamericas estimates. In the nine months through September this year, at least another 11.4GW had come online.

Over the last year, some large power firms have exited or scaled down their operations in Latin America. Others are expanding their regional footprints, acquiring the assets of the exiting firms or pursuing organic growth opportunities in, for example, the newly liberalized Mexican power market, or in the various supply auctions held throughout the region.

The recent auctions have also served to bolster the region's rising renewable energy sector, with wind and solar projects securing power purchase agreements (PPAs) at record low prices. Several countries are also building or putting out to tender transmission projects to connect new generation capacity to the grid, alleviate congestion problems, and reduce losses.

This report will examine these trends and others in the Latin American power sector, with an eye toward the challenges and opportunities it will face in 2017.

Figure: Electricity Usage
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Figure: Installed Capacity
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