Boston, MA -- (SBWIRE) -- 03/12/2014 -- Political and macroeconomic factors cast a shadow over the short-term development of Argentina's electricity sector. Protectionist policies have long defined the market, and while a change in the presidency is almost certain in 2015's elections, there are no obvious candidates so far. Argentina is keen to reduce its reliance on expensive energy imports, particularly given the recent devaluation of the peso, but the current operating environment does little to attract investment from foreign firms. The contract to expand the Arauco I wind farm received just one bid, confirming the need for a change in the tender process, while access to finance is another concern. That said, recent blackouts in Buenos Aires have thrust the issue of underinvestment into the political limelight, and have led the government to announce plans to make large new investments in the sector.
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Argentina's power generation increased by an estimated 1.7% during 2013, marginally below the increase in consumption rates, estimated at 1.8%, and leading to occasional blackouts across the country. We expect that increased investment on the part of the government will lead generation to increase more rapidly in 2014 as new capacity comes on line, and we forecast total generation to climb by 5.2% this year. Although the sector faces significant challenges (including rising inflation, government interventionism and a broadly unattractive business environment), blackouts in Buenos Aires in January have brought the sector's struggles into sharp focus, and could encourage the government to press forward with new investments and implement regulatory reforms.
In terms of generation, thermal-based sources, primarily natural gas, remain the cornerstones of the electricity mix. Roughly 65% of electricity is currently generated from oil-, gas- or coal-fired power plants, with hydropower providing the next largest contribution, of 28%. Despite the government's efforts to diversify the electricity mix away from unreliable hydropower and costly thermal imports, we do not expect to see a significant shift in the electricity mix during the course of our 10-year forecast period.
Key developments for Argentina's power sector this quarter include:
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