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    Peru Energy & Utilities Infrastructure Forecast


    May 6, 2022 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Peru Energy & Utilities Infrastructure Forecast

      • 06 May 2022
      • Peru
      • Infrastructure

      Key View: There is growth potential on offer in Peru's energy & utilities infrastructure sector as the country is working to expand domestic capacity in order to keep up with rising consumption rates. Extensive gas resources mean thermal power remains the focus on new power plant developments, though Peru is also committed to expanding the role of non-hydropower renewables as part of long-term carbon reduction targets.

      Latest Developments
      • We are forecasting overall growth in the energy and utilities infrastructure sector of 1.8% in 2022 followed by average annual growth of 2.5% over the remainder of the forecast period to 2031. The power plants and transmission grid sector is expected to outperform while water infrastructure will continue to record limited growth.
      • In February 2022, Acciona Energia announced plans to invest around USD180.0mn for the construction of a 131.1MW wind farm in Ica Region. The wind facility, which will come up in San Juan de Marcona will feature 23-units of turbines, each with a capacity of 5.7MW. The wind power facility is expected to produce 608GWh, to serve 478,000 local homes. The wind farm is expected to be operational by the end of 2023 (Renewables Now).
      • EDF Renewables, a unit of Electricite de France, has secured a contract for the construction of a 100MW solar photovoltaic (PV)-plus-storage project in Peru. The hybrid facility will also feature a 100MWh battery energy storage system. Under the contract, EDF Renewables will develop, build and operate the power plant, which will be linked to a micro-grid network of the town of Iquitos in the Peruvian Amazon. Electro Oriente will purchase electricity from the facility under a 20-year power-purchase agreement, with operations due to begin in 2026.
      Energy And Utilities Infrastructure Data (Peru 2021-2031)
      Indicator 2021e 2022f 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f
      Energy and utilities infrastructure industry value real growth, % y-o-y 17.0 1.8 1.3 3.0 2.9 3.2 2.9 2.6 2.4 2.1 1.8
      Power plants and transmission grids infrastructure industry value real growth, % y-o-y 17.8 1.8 3.1 3.1 3.0 3.3 3.0 2.7 2.4 2.2 1.9
      Oil and gas pipelines infrastructure industry value real growth, % y-o-y 13.9 1.8 -4.9 3.1 3.1 3.3 3.0 2.7 2.5 2.2 1.9
      Water infrastructure industry value real growth, % y-o-y 18.9 2.2 1.6 1.4 1.5 1.8 1.3 1.6 1.5 1.4 1.3
      e/f = Fitch Solutions estimate/forecast. Source: BCRP, Fitch Solutions
      Structural Trends

      Expected To Maintain Stable Growth

      Peru's energy and utilities infrastructure sector saw a sharp contraction in 2020 due to the impact of the Covid-19 outbreak. Government restrictions had a considerable impact on energy and utilities infrastructure development, bringing on-site construction activity to a halt on most projects beginning in March 2020 and extending through much of Q220. While there was repeated disruption over 2021, high government spending (and base effects) supported a rapid rebound in growth. Ongoing reconstruction efforts in northern Peru following flooding in 2017 also boosted investment in energy and utilities infrastructure, with the water sector a focus of reconstruction efforts. We expect that growth rates will normalise from 2022 onwards with energy and utilities infrastructure value growing at a steady rate over the remainder of the forecast period to 2031. Within the power sector, non-hydro renewables development will see significant investment, as several sizeable projects are set to advance over the coming quarters.

      As in the case of the transport sector, risks to our outlook include elevated political uncertainty after the election of leftist Pedro Castillo as president in the second round of Peru's 2021 presidential election held in June 2021. As an outsider candidate, Castillo had vowed to enact policies to disrupt the country's business-friendly economic model, raising risks around multiple industries in the country. However, a recent cabinet re-shuffling, which saw Guido Bellido replaced as prime minister by Mirtha Vásquez, former president of Congress between November 2020 and July 2021, points towards a shift to the centre-left and away from the left. While this seems to reduce risks for key industries and significantly improves business sentiment compared to when Castillo was elected, his agenda may face considerable obstacles if he or Vásquez cannot build a legislative coalition of more centrist parties, leaving the possibility for political gridlock. While the risks associated with policy direction have calmed, these latest developments point towards a situation where political volatility will likely continue over the coming quarters. Indeed Castillo has survived two impeachments attempts in the early stages of his presidency suggesting that the policy environment will remain unsettled. This will deter private investment in the infrastructure sector and potentially slow down the launch of new publicly funded projects beyond 2022.

      Renewables, Hydropower To Drive Power Capacity Growth

      Peru’s power sector will see moderate investment over the coming decade, with a growing importance of non-hydropower renewables within the country’s power mix as well as continued investment in hydropower development. Our Power team expects total installed capacity to rise from 15.8GW in 2021 to 16.3GW in 2022 before rising further to 18.4GW in 2031, as new hydropower and renewable plants are brought online to power Peru's energy-intensive mining and industrial sectors and to ensure sufficient electricity supply for its growing middle class. While this expansion will see significant investment in power capacity development, the power sector will see a more limited expansion in capacity compared with previous years. This will be primarily due to limited demand for new capacity following a robust expansion over the previous decade, over which time power capacity grew by 75.6%, rising from 8.7GW at the end of 2010 to 15.1GW at the end of 2020, largely driven by robust increases in thermal, hydropower and non-hydropower renewables over the period.

      Moderate Power Sector Growth
      Peru - Power Capacity By Source, MW (2021-2031)

      e/f = Fitch estimate/forecast. Source: EIA, Fitch Solutions

      We expect Peru's renewables output to increase from 3.3TWh in 2021 to 3.8TWh in 2022 before rising further to 10.1TWh in 2031, with the share of total electricity generated increasing from 6.5% to 12.9% over the forecast period. This growth will be supported by considerable interest from private firms and favourable natural conditions for both solar and wind. In April 2016, Peru's Ministry for Energy and Mining stated that total wind power potential in Peru is 22.5GW and a study carried out by the MEM and Japan International Cooperation Agency found that the country has about 3GW of geothermal power potential. Government figures from 2021 show that almost 2GW of new renewables capacity has been granted a temporary concession, including large-scale solar power projects such as the 500MW Solar Sunny development and wind power projects such as the 350MW Los Vientos, both being developed by Kallpa Generación, a subsidiary of Inkia Energy.

      While marking significant growth, our forecast is conservative relative to the potential growth of renewables capacity in the country, a view premised on the fact that the Peruvian power market will be sufficiently supplied by its vast hydropower and gas-fired power capacities in the near-to-medium term. This will weigh on the government's impetus to eliminate the bureaucratic hurdles for non-hydropower renewables investment such as difficulties in financing and licensing, leaving the country’s high solar and wind power potential largely underutilised.

      Following 4.5% growth in 2022, our Power team expects hydropower capacity to grow by an annual average of 1.7% between 2023 and 2031, pushing total capacity to almost 6.7GW with the completion of new large- and small-scale facilities. In absolute figures, hydropower generation is forecast to reach 41.4TWh in 2031, up from 33.2TWh in 2022. Nevertheless, as in the case of non-hydro renewables, hydropower development will also underperform potential. Project delays will remain a major challenge as public opposition, through both litigation and protest action, remains commonplace in the market. Several major hydropower projects remain excluded from our forecast due to delays, including the 2.2GW Inambari, 278MW Molloco and 600MW Chadin 2 projects.

      Weak Growth For Oil And Gas Pipelines

      Our forecasts show very modest growth in the oil and gas pipeline sector, which accounts for around a fifth of energy and utilities infrastructure value. The key development in this sector is the Southern Gas Pipeline. The long-running project is part of a wider bid to develop power generation and distribution in Peru. The project includes the construction of dry gas and liquid gas pipelines from Malvina's separation plant to the North Peruvian pipeline connection point and from there onto the Chiquintirca compression plant as well as as the construction of a gas pipeline from the North Peruvian connection point to Cusco and from there to Ilo and Mollendo on Peru's southern coast.

      Following multiple delays, construction and operation of the project were awarded to a JV between Odebrecht (75%) and Enagas (25%) in June 2014 for a period of 34 years. Construction of the project began on May 22 2015 and was awarded a USD4.125bn loan the following October. However, everything was halted in 2016 when the company became embroiled in the corruption scandal involving Odebrecht and other Brazilian construction firms. The contract for the project was annulled in 2017, returned to the Peruvian state and a new public tender has not yet been launched as of the end of early 2022. Improved global energy prices mean the project may be able to regain momentum in 2022 but at present we continue to exclude the development from our forecasts.

      Peru - Major Energy & Utilities Infrastructure Projects
      Project Name Project Risk Metric Value (USDmn) Size Unit Companies Status Construction End
      Inambari Hydropower Plant, Tambopata 1.5 4,847 2000 MW Construtora OAS[Construction]{Brazil},Government of Brazil[Sponsor]{Brazil},Peru Ministry of Energy and Mines (MEM)[Sponsor]{Peru},Electroperu S.A[Construction]{Peru} At planning stage na
      Peruvian Southern Gas Pipeline (GSP), Anta (Carhuaz) - Ilo (Moquegua) 3.5 4,500 1134 km Odebrecht[Sponsor]{Brazil},Grana y Montero[Sponsor]{Peru},Proinversion[Sponsor]{Peru},Mott MacDonald[Consultant/Project Management]{United Kingdom},Enagas[Sponsor]{Spain} At planning stage 2024
      Chadin II Hydropower Project, Maranon River Basin, Amazonas 7 2,023 600 MW Peru Ministry of Energy and Mines (MEM)[Sponsor]{Peru},Conservation Strategy Fund (CSF)[Consultant/Project Management]{United States},Odebrecht[Sponsor]{Brazil} Under construction 2023
      Veracruz Hydroelectric Project, Maranon River, Cajamarca And Amazonas Regions 7 1,444 635 MW Peru Ministry of Energy and Mines (MEM)[Sponsor]{Peru},Empresa Nacional de Electricidad (Endesa)[Operator]{Chile} Under construction 2022
      Molloco Hydroelectric Complex, Arequipa 4 680 280 MW Proinversion[Sponsor]{Peru},Enex[Construction]{United States},Grupo Engevix Brazil[Construction]{Brazil} Under construction na
      Note: Top five projects by value; Project Risk Metric scores out of 10; higher score = lower risk. Source: Fitch Solutions Infrastructure Key Projects Database
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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