Contents

Introduction - Slower Growth

Latin America is in the midst of a general economic slowdown. The IMF recently cut its regional growth forecast to 1.3% in 2014 and 2.2% in 2015, the second reduction since July, and some of the region's major economies have posted negligible growth in the first two quarters of this year.

But, as some have noted, the downturn is different from previous cases in Latin America's modern history, in that it is not the result of a major political or economic crisis, but rather due to (in most cases) cyclical factors like the end of the commodities boom and slowing demand from China.

In the longer run, growth is expected to continue, although at a more subdued rate. Furthermore, the slowdown has highlighted the different paths and challenges that the region's economies face after a decade of rapid growth and unprecedented social change.

Similarly, the Latin America power sector faces several broad obstacles - some old, some new - such as community opposition to big projects or regional interconnection. Yet, from country to country, the challenges are diverse, as are the responses to them. 

Generally speaking, the Latin American power sector has gone through two major waves of reforms.

The first occurred during the late 80s and early 90s, when governments unbundled and deregulated the vertically integrated state utilities that controlled much of the region's power infrastructure. The emphasis then was on privatization and liberalization, both to attract new investment in the stagnating power sectors and replenish national treasuries drained by debt payments.

For the second round of reforms in the 2000s, the focus turned to measures that strengthened regulatory and planning mechanisms and implemented capacity auctions for new generation. The details varied from country to country, but the broad goal was to inject long-term stability into the markets.

Now, after the last decade or so of strong growth, most local industries are entering a more mature phase of development and face a new set of challenges.

Millions of Latin Americans have moved up into the middle class and have joined the industrial and natural resources sectors as the main drivers of electricity demand. Furthermore, the number of Latin Americans with regular electricity - around 95% as of 2011 - has risen sharply over the decade, mostly thanks to government-sponsored electrification programs. Access is near universal in many countries.

World Bank data show that power consumption in Latin America grew at an average annual rate of 3.4% from 2000 to 2011. Generation expanded at a similar clip (3.6%/year on average) between 2000 and 2013, according to BP's 2014 Statistical Review of World Energy. The region accounted for some 7% of electricity generated worldwide in 2013, around three-quarters of which was produced by Brazil (36%), Mexico (19%), Argentina (9%) and Venezuela (9%).

Latin Americans consumed around 1,220TWh of electricity (excluding losses) in 2013, while installed generation capacity was roughly 345GW at the end of the year, according to a BNamericas survey of regional regulatory data.

The region's ample river systems and mountainous valleys, particularly in South America, have long made hydroelectricity a relatively cheap and plentiful source of energy. Hydroelectric plants produce more than half of the region's electricity, reaching as much as 80% in Brazil and Colombia.

Countries like Argentina and Mexico, meanwhile, rely more on domestic production and imports of natural gas and others fossil fuels to supply large fleets of thermoelectric plants. In Central America and, especially, the Caribbean, limited hydro potential and a lack of hydrocarbons reserves means that many countries rely heavily on oil imports for their energy needs.

The following sections will look at some overall trends that BNamericas expects for the regional power sector in 2015.

Figure 1: Power Demand Growth
[GRAFIGO:FIGURA:ID_338]

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