Trade and Clean Energy in the Pacific Alliance Monica Araya, Founder & Director, Nivela

Transcription

1 Trade and Clean Energy in the Pacific Alliance Monica Araya, Founder & Director, Nivela 1

2 Twitter: 2

3 Structure I. The Pacific Alliance s drivers Overview of the Alliance and core drivers II. The Alliance s energy outlook What energy attribute do they have? III. Trade renewables nexus in the Alliance Ideas for developing a strong nexus M. Araya, Nivela 3

4 i. THE PACIFIC ALLIANCE s TRADE DRIVE M. Araya, Nivela 4

5 Behind the excitement is the sense that the Pacific Alliance is a hard-nosed business deal, rather than the usual gassy rhetoric of Latin American summitry. The Economist, 2013 M. Araya, Nivela 5

6 What attributes define the Pacific Alliance? M. Araya, Nivela 6

7 The Pacific Pumas see themselves as politically and macro-economically stable supporters of global integration and free trade enablers of cooperation with Pacific and Atlantic endowed with raw materials that Asia values (copper, iron ore, fossil fuels). M. Araya, Nivela 7

8 Their combined GPD is equivalent to world s 9 th largest economy GPD (Chile + Colombia + Peru + Mexico) equals $2.2 trillion and is expected to grow 4% Exports equaled $445 billion in 2010 (~60% more than Mercosur, Brazil-led southern bloc) These countries are home to 214 million people. M. Araya, Nivela 8

9 They generate 37% of Latin American GDP Mexico s economy accounts for 60% of the Alliance Chile is the country with most disproportionate corporate revenues compared to size of the economy 25% of PAC corporate revenues 13% of PAC GDP Share of PAC GDP and corporate revenues 10% 6% 10% 18% 25% 13% 60% 59% GDP Largest companies' sales Peru Colombia Chile Mexico GDP figures from 2013 (Climatescope 2014) Top 500 Latin American Companies, 241 of which are based in Pacific Alliance Countries (2011) (rankings.americaeconomia.com) M. Araya, Nivela 9

10 The Alliance seeks new growth in the aftermath of the commodity boom The great commodity boom that had benefited South America is over. Future economic growth will have to come from productivity, investment and efficiency. Alliance supports open regionalism as a way to reverse low levels of intra-lac trade Note: The Economist M. Araya, Nivela 10

11 Did you know that? trade inside Latin America is 27% trade inside European Union is 63% trade inside Asia 52% M. Araya, Nivela 11

12 The Alliance wants to remove bottlenecks that hurt trade and investment Colombia example: The country lacks the internal transport system required to conduct major trade: sending one container from Bogotá to the Caribbean port of Barranquilla in Colombia is 3 times more expensive than sending it from Barranquilla to Hong Kong. M. Araya, Nivela 12

13 The other key dimension of the Alliance is to be a bridge to Asia In 2011, the driving impulse was to advance free trade with an orientation toward Asia China, India, Japan, South Korea and Singapore have become observers in PAC. PAC could build the physical hardware of integration improving ports and transport M. Araya, Nivela 13

14 Drivers for joining the Alliance are countryspecific Mexico: re-integration in Latin America after two decades of close partnership with the U.S. and Canada in the North American Free Trade Agreement (NAFTA). Colombia: opportunity to participate at the regional level as the country emerges from decades of violence and builds strong macroeconomic record. Source: Los Pumas del Pacifico, Bertelsman Foundation M. Araya, Nivela 14

15 Drivers for joining the Alliance are countryspecific (cont.) Peru: the world still associates Peru with poverty, hyperinflation and exotic holidays: the Alliance is an opportunity to change public perception. Chile, a sophisticated but small country, the Alliance enables projection of influence and opportunity to play a leading role in Latin America. Source: Los Pumas del Pacifico, Bertelsman Foundation M. Araya, Nivela 15

16 The Alliance members endorse OECD standards for growth and governance Mexico and Chile became full OECD members in 1994 and 2010 respectively. Colombia invited to proceed with membership in 2013 to be completed around Peru wants to join the OECD. Costa Rica is preparing for OECD accession too and wants join as 5 th Alliance's member. M. Araya, Nivela 16

17 Going forward, PAC countries face strategic choices They seek OECD-style growth Differentiation through improved governance Value of quality of growth and longer term vision Endorsement of transparency while turning to Asia markets More focus on easing barriers to transactions More focus on growth of any kind More focus on commodities and commercial fairs alone M. Araya, Nivela 17

18 From the top 500 companies in LAC, 241 are from Pacific Alliance countries The rest of the companies is mostly from Brazil: 215 companies Only 44 companies are neither from PAC or Brazil Source: America Economia s Ranking, 2012 Note: The companies are classified in terms of the location of their Headquarters. The latest research is available for M. Araya, Nivela 18

19 Companies play a big role in setting the Alliance s priorities. In 2014, governments removed tariffs on 92 % of PAC internal trade PAC promotes visa-free travel for their citizens, and agreed to run joint embassies (*) They are building a single regional bourse: The Mercado Integrado Latinoamericano (MILA) began integration of 3 stock markets in 2010 Mexico s stock exchange will join next Note: For now they are in Ghana, Singapore, Azerbaiyan, Vietnam, Argelia, Morrocco and a commercial representation in Turkey. M. Araya, Nivela 19

20 Ii. THE PACIFIC ALLIANCE s Energy CONTEXT M. Araya, Nivela 20

21 Largest companies in the Alliance are from oil, gas, mining and commercial sector Oil & Gas Commercial Mining Services Manufacturing Agro / food industries Process industry Multiple sectors Electric energy Transport Construction Chile, 73 companies 10% 20% 28% 4% 1 2 6% 10% 11% 5% 2 Colombia, 28 companies 49% 11% 4% 15% 2 5% 5% 5% 4% Mexico, 110 companies 19% 13% 4% 13% 17% 12% 9% 7% 4% 1% Peru, 30 companies 25% 6% 36% 10% 3% 11% 2 8% By total share in PAC from left to right M. Araya, Nivela 21

22 Oil & gas is a major industry in the Pacific Alliance Strong weight among the largest companies (241) of the Top 500 ranking TOP 241 PACIFIC ALLIANCE COMPANIES BY SALES AND SECTOR (2011) Electric energy Multiple sectors Process industry Transport Construction Oil & Gas Agro & food industries Commercial Manufacturing Services Mining M. Araya, Nivela 22

23 Top 10 companies in oil and gas in Pacific Alliance 1. PEMEX (Mexico) 2. Ecopetrol (Colombia) 3. ENAP (Chile) 4. COPEC (Chile) 5. Petroperu (Peru) 6. Organizacion Terpel (Colombia) 7. Pacific Rubiales Energy (Colombia) 8. ExxonMobile (Colombia) 9. Shell Chile (Chile) 10. Chevron Petroleum (Colombia) M. Araya, Nivela 23

24 Peru and Chile are highly dependent on mining Chile: 27% of top 73 companies sales Mining companies' revenues share of corporate revenues Peru: 36% of top 30 companies sales Chile, 73 largest companies Peru, 30 largest companies 28% 36% 0% 20% 40% 60% 80% 100% Mining revenues Rest of revenues M. Araya, Nivela 24

25 Annual renewables investments Colombia $809.8m total cumulative investment México $10.3bn total cumulative investment Solar Small Hydro Biofuels Biomass & Waste Other Clean Energy Small Hydro Solar Biomass & Waste Biofuels Wind Geothermal Peru $3.2bn total cumulative investment Chile $6.7bn total cumulative investment Geothermal Small Hydro Solar Biomass & Waste Biofuels Wind Geothermal Biomass & Waste Small Hydro Wind Solar Sources: Climatescope (2014), REN21 (2014), IEA (2014), ACESOLAR (2015)

26 Installed capacity in renewables Colombia Peru Large Hydro 64% Renewables 5% Small Hydro 4% Other 1% Other Fossil Fuels 11% Natural Gas 28% Large Hydro 30% Renewables 9% Oil & Diesel 20% Biomass & Waste 1% Small Hydro 6% Solar 2% Other Fossil Fuels 13% Natural Gas 13% Mexico Nuclear 2% Oil & Diesel 11% Coal 7% Coal 2% Chile Natural Gas, 51% Large Hydro 17% Oil & Diesel, 20% Renewables 6% Wind, 3% Biomass & Waste, 1% Small Hydro, 1% Geothermal, 1% Other Fossil Fuels 24% Large Hydro 30% Natural Gas 24% Oil & Diesel 16% Coal 21% Other 9% Wind 2% Biomass & Waste 2% Small Hydro 5% Coal 4% Sources: NivelaClimatescope (2014), REN21 (2014), IEA (2014), ACESOLAR (2015)

27 Some developments in renewables are noteworthy Mexico has 2nd largest clean energy market in LAC (after Brazil). Renewable energy auctions started in Peru in In 2013, Goverment mandated solar to service its clean energy electrification programme. Sources: Climatescope (2014), REN21 (2014), IEA (2014), ACESOLAR (2015)

28 Some developments in renewables are noteworthy (cont.) Chile has target of 20% non-conventional renewables by 2024 and was the world s 1st country to liberalize its energy market. Colombia has some income tax exemption for wind and biomass generators. Sources: Climatescope (2014), REN21 (2014), IEA (2014), ACESOLAR (2015)

29 And distinct patterns in renewables are observed in each country Chile has become a renewable energy market pioneer Colombia is experiencing stagnation in renewables investments. Mexico is well positioned to boost renewables but market reform is uncertain Peru s renewables producers are small companies

30 ii. A STRONGER TRADE & CLEAN ENERGY Nexus IN THE ALLIANCE M. Araya, Nivela 30

31 Global energy technology trends are opening up new opportunities Renewable and distributed energy generation Intermittency changes demands on distribution and transmission system are changing the roles of traditional players Capital cost dominates (e.g. opposite to fossil fuel generation) so the cost of financing is critical Smart demand and energy storage Load management helps reduce peak demand Improves energy system efficiency, reliability and quality. M. Araya, Nivela 31

32 Innovative energy business models also create new opportunities New business models and investment logic gaining traction Energy commodity Energy service Energy producers Energy prosumers Centralized few Decentralized many New investors: industrial, financial, commercial, consumers. M. Araya, Nivela 32

33 Implication 1: Water-energy nexus These four countries already have a high share of clean power and high dependence on hydropower 18% in Mexico 35% in Chile 36% in Peru 68% in Colombia (expected to grow even more) They already face disruption in power supply, which hurt business. Climate change will worsen this. They need to diversify energy sources and renewables can help achieve this. M. Araya, Nivela 33

34 Implication 2: Mining-energy nexus Mining will be influential when governments make energy choices. Good potential for synergies between mining and renewables. Why would the industry support renewables? They operate in remote locations, These companies have capacity to raise funds They benefit from predictable power prices. M. Araya, Nivela 34

35 Implication 3: Open energy systems and new business development New investors (e.g. pension funds, individuals, businesses) want to enter renewables space wherever conditions are welcoming The move toward Capex requirements for renewable projects (in contrast to fossil-fuel energy model) means that lower barriers to capital are key. M. Araya, Nivela 35

36 Implication 3: Open energy systems and new business development Pacific Alliance could develop common standards for investing in renewable energy (e.g. consistent regulatory approvals). M. Araya, Nivela 36

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