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Brazil Power Report Q1 2012
Business Monitor International, Jan 2012, Pages: 55
A number of factors have prompted BMI to revise the forecasts for Brazil's power sector. As part of a revision of the historical data series, lower generation and consumption for 2010 and higher net installed capacity has now been factored in. On top of that, a number of macroeconomic and sector-specific dynamics have been priced-in in the outlook. Most notably, while still above consensus, the Country Risk team is to downgrade Brazil's growth rate for 2012 to reflect domestic and global developments. Yet Brazil is expected to remain a very attractive power market relative to its peers, as illustrated for instance by strong interest showed by European utilities and developers such as Iberdrola, Enel Green Power and Alstom in gaining a foothold in the market.
While BMI's CR analysts are in the process of revising down Brazil's real GDP growth forecasts for 2012 in response to Q311 data and a weaker external outlook, BMI will remain above consensus on real GDP growth for 2012. This is based on both the ability and desire of the Brazilian government to support domestic demand in the face of a significant deterioration in global investor sentiment. In light of this, BMI maintains the view that the power sector will continue to see strong demand, with growth in consumption expected to average 4.9% between 2011 and 2021 (only marginally lower than the 5% expected by the Brazilian authorities).
This robust growth in demand, coupled with the country's need to increase electricity generating capacity substantially as well as to diversify its power mix to reduce its dependence on hydropower, have already attracted strong interest from international players. Given the current weak global economic look, it is expected that trend will reinforce in the coming quarters, especially with regard to the wind sector. On top of these long-term elements, key developments for Brazil’s power sector this quarter include:
- A total of 280 wind projects with a combined capacity of 7,500MW were registered for the A-5 auction to take place on December 20 2011. As of November 2011, Brazilian EPE also expected some 600 applications for wind projects to be filed for taking part into the government’s A3 auction scheduled for March 2012.
- Alstom has opened its first Latin American wind turbine facility in Brazil. The plant is located in the state of Bahia and will have an output capacity of 300MW per year. The development is indicative of the potential of the market, with companies such as Alstom planning to increase their exposure.
- In November 2011, a Brazilian court ordered that plans move forward with the construction of the 11.2GW Belo Monte hydropower plant project, without indulging in additional discussion with the region's indigenous communities. Federal prosecutors had filed a case calling for the suspension of dam construction until indigenous groups were consulted and given access to environmental impact reports. Since the decision given by the Brazilian court, the federal prosecutors have announced that they will take their case to the Supreme Court.
- Brazilian state-controlled company Petróleo Brasileiro (Petrobas) has awarded Sweden-based Skanska an engineering, procurement and construction (EPC) contract for a natural gas thermal power plant in Rio de Janeiro. Under the US$490mn deal, the company is to procure equipment and material, in addition to helping in the start-up and operation of the 550MW plant. Work is scheduled to begin imminently, with completion due in Q414.
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