2013-12-25 21:32:05 - New Energy market report from Business Monitor International: "Peru Power Report Q1 2014"
Peru's ambitious capacity expansion plans and robust macroeconomic trajectory continue to underpin our buoyant forecasts for growth across all segments of the country's power sector. Despite fears that a slowdown in China will have a deleterious impact on the country's commodity-derived export revenues, reservations that underpin our below-consensus macroeconomic outlook, we maintain that the country will retain its position as one of the most vibrant economies in Latin America. It will maintain this mantle based on its significant mineral wealth, a host of attractive investment opportunities across certain industries (including the power sector) and healthy growth in consumer demand.
Key trends and developments in the Peruvian electricity market:
* While we expect Peru to remain one of the most dynamic economies
in Latin America over our forecast period a slowdown in China is a threat to the country's export-oriented economy. As China rebalances its economy and moves from an investment-led growth model to one in which private consumption plays a more fundamental role, Peru could be affected quite dramatically as demand for its resources also cools -with trade and investment channels hit hard.
* Indeed, although economic growth is robust, we have seen this view start to play out. As a consequence, BMI's Country Risk team has downgraded its 2013 real GDP growth forecast from 5.4% to 5.1%, based on weak real GDP growth in H113, as well as further signs that the external weakness is weighing on the broader economy. In addition, following a substantial currency sell-off in recent months, we believe that a weaker sol is likely to weigh on consumers' purchasing power and dampen sentiment, leading to more moderate real private consumption growth.
* However, as growth slows we expect the government to come under greater pressure to spend to stimulate growth - creating some upside to our forecasts for the power sector. Notably, with President Ollanta Humala having come under fire for not sharing the proceeds of the country's mining boom, we forecast government expenditure will grow - and this will feed into support for new power infrastructure and capacity.
* To this end, President Humala continues to advance plans to establish a 1,000km, US$2.4bn natural gas pipeline known as the Peruvian Southern Pipeline project, which will reportedly be tendered in February 2014. The project is hugely ambitious in scale and will include US$4bn-worth of new power plants (known as the Nodo Energetica del Sur) and a US$3.5bn petrochemicals complex. It is hoped the project will boost economic development in the south of Peru.
* Yet, despite the government's ambitious plans, BMI's Oil & Gas team warns that the development of Peru's gas pipeline infrastructure could be slow - a substantial downside risk to the outlook for the country's power sector. To this end, some of the biggest projects, including the expansion of the Camisea Pipeline (due to be completed in H115) and the building of the South Peruvian Pipeline, will have to overcome security concerns and delays. We highlight that this could mean that sourcing gas as feedstock for power plants might prove problematic; something that could ultimately constrain electricity generation.
* Mines and Energy Minister Jorge Merino announced at the Latin American Investment Summit in May 2013 that the government was preparing a US$3bn concessions package that would include 1,000MW of hydropower capacity, 800MW of dual gas- and diesel-fired plants and 300MW of renewables projects. Furthermore, while the awarding of concessions also ties in with Peru's wider aims of bringing a total of 4.3GW of new capacity online by 2016, it appears moves to address some of the problems associated with its centralised power generation and grid infrastructure could also create opportunities.
* Indicative of the fact that such power projects are progressing, Termochilca's 200MW Santo Domingo de los Olleros facility in Canete province in the Lima region was inaugurated by President Humala on November 22 2013. The facility will run on gas from the Camisea field.
* Notably, energy and mines minister Jorge Merino announced in September 2013 that he was set to propose a new law aimed at stimulating investment in new hydropower plants. Merino said that this would be done by including a remuneration component in electricity bills, which would benefit hydropower electricity generators and encourage private investment.
* In the same month, Peru's energy and mining ministry awarded domestic utility Generalima a permit allowing it to commence a feasibility study on the 96MW Maranon hydropower project. Meanwhile, the ministry also presented Odebrecht with 161 questions pertaining to the environmental impact declaration for the 600MW Chadin 2 hydroelectric project. The ministry is reportedly seeking to guarantee that the US$1bn project is socially and environmentally responsible.
* In November 2013, the Peruvian government inaugurated the US$3mn Cajamarca Norte substation and a 220kv power line in the Northern Andean region of Cajamarca - in a move which it is hoped will unlock another US$15bn of mining investment in the area.
* Plans appear to be progressing with regards to the construction of a 500kv line that would link to the grid in Ecuador. In November 2013, Peru and Ecuador signed an association agreement pertaining to the line after preliminary studies (started in 2012) indicated that the commercial exchange of electricity may be viable.
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