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BMI View:, With the economy returning to growth in 2017 and the government committed to attracting
investment in the power and renewables sectors, the Brazilian electricity market will offer opportunities to
project developers and power sector investors. Wind, solar and natural gas will present the biggest
potential to international investors, but we see opportunities also in power transmission and distribution via
public tenders and the acquisition of local distribution companies. That said, weak power consumption and
delays in project implementation due to high financing and import costs will remain pertinent issues over
the coming quarters.
Latest Updates And Structural Trends
- The constrained financing environment and currency slump that characterized Brazil's economic
recession in 2015-2016 are having an impact on the growth outlook of the country's power sector. In
August it was reported that the Brazilian government is likely to cancel the 2016 A-3 auction for new
power projects, after delaying a reserve auction for wind and solar to December. Moreover, it is
reportedly considering cancelling power purchase agreements for some solar and natural gas projects
contracted in 2014-2015 that are unlikely to be developed under current macroeconomic conditions, in
order to allow them to participate in future auctions.
- Despite current hurdles, we believe Brazil will offer opportunities for power project developers over the
coming quarters, particularly in the renewables sector. Due to the risk that contracted projects do not
come online as scheduled, the government is planning to hold a number of auctions in 2017 to secure
power supply over the next few years. The large number of solar and wind projects registered to compete
in the December auction indicates that investor appetite for the market is still significant.