Energy Reform and opportunities on renewables in MeCAR, particularly in Mexico

Transcription

1 Energy eform and opportunities on renewables in MeCA, particularly in

2 EY presents an overview of the Power and Utilities (P&U) market in MeCA, which is a great opportunity to invest, particularly in. EY s team of energy experts has reviewed the contents along MeCA and it s clear that the electricity market is opening to private competitors. For this reason, EY offers its latest analysis and insights to assist clients in the energy sector. he strategic plan details s intention to invest approximately $12 billion US in the generation, transmission and distribution sectors. here is enough evidence that s historical demand for energy has been strong, and that the demand for energy is expected to be even stronger over the next 15 years. Also, it is important to consider that the top 2 utilities in MeCA have aggregated revenues of over US$41b, with s CFE accounting for 69% of the total. As per the above, these findings are important for investors, as not only but also MeCA expects to attract investment partners from around the globe to meet the nation s growing economy and the intensifying need for new infrastructure in electric sector. Executive summary: reform and a growing focus on renewables are the top enablers of opportunity for EY, particularly in Opportunity enablers across our core P&U Solutions EU Unbundling and market restructuring in s electricity market estructuring in Honduras / reform proposals in om. epublic and El Salvador Smart US$11b planned investment in Smart in, inc. installation of 3.2m meters 35, meters planned by CEE in om. epublic C&I $58b P&U spend through 22, with a growing focus on renewables and gas-fired power in the MeCar area Strong renewable power policies and targets encouraging private investment in most countries C&B eforms and focus on efficiency in and Honduras could open up modest opportunities isk s reforms have major implications for governance, risk and compliance activities Best practices needed in tender processes to expand renewables and networks across region Key recent wins and pursuits, led by EU s Ministry of Energy, SENE (US$1.5m) scenario modelling to support the unbundling of CFE, s state-owned national monopoly utility. EY pursuing further CFE opportunities around organizational operating model, financial / SAP transformation EY AS pursuing opportunities with domestic / international energy players looking to participate in the liberalized Mexican wholesale electricity market. Also, advise to new qualified supplier players.

3 is the largest P&U market in MeCA at US$24b it also boasts the highest projected power sector investment Corruption and red-tape remain key concerns for investment across the region Country P (US$b) P growth rate (5 year avg) 1 Electricity Consumption (Wh) as Consumption (bcm) Corruption Perceptions Index(ank /175) 3 Ease of oing Business (ank / 189) 4 Expenditure per capita (index, US=1) 5 Projected power sector investment through 22 (US$b) 6 Costa ica % ominican epublic % El Salvador % uatemala % Honduras % , % * Nicaragua % % Key: op rank for metric Bottom rank for metric *includes water sector investment of close to US$3b 1 Climatescope (BNEF) 2 EIA 3 ransparency International ranks 175 countries and territories evaluates a range of polls and data to determine how corrupt a country s public sector is perceived to be. he lower the number, the better 4 he World Bank ranks economies from 1 to 189 based on 1 topics, such as starting a business, getting electricity, registering property, etc. Note: he lower the number, the better 5 World Bank ICP 211- based on PPP 6 EY analysis from BMI and SNL

4 Except for the ominican epublic, MeCA countries have highly interconnected power systems, and actively trade electricity Hydro and oil-fired generation dominate in the region Nearly 1.6Wh of electricity was traded between the countries in 214, with only, uatemala and Nicaragua reporting net exports Population:123.8m Electrification: 99.1%. & losses: 15% Net electricity exports: 498 Wh Honduras Population: 8.3m Electrification: 91.7% & losses: 31.3% Net electricity exports: (275 Wh) ominican epublic Population: 1.5m Electrification: 98% & losses: 3% Net electricity exports: NA uatemala Population: 15.9m Electrification: 9.2% & losses:16.3% Net electricity exports: 479 Wh El Salvador Population: 6.4m Electrification: 96.2% & losses: 12% Net electricity exports: (381 Wh) Costa ica Population: 4.9m Electrification: 99.4% & losses: 11.6% Net electricity exports: (182 Wh) Nicaragua Population: 6.2m Electrification: 77.3% & losses: 23.3% Net electricity exports: 27 Wh Population: 3.9m Electrification: 92.5% & losses: 14.1% Net electricity exports: (91 Wh) Central American Electrical Integration System (SIEPAC) 3MW (being expanded to 6MW) and 1,8km transmission line between uatemala, Honduras, El Salvador, Nicaragua, Costa ica and (completed in 214) 2MW ransmission link between and uatemala Installed electricity generating capacity by fuel (W, 214) Nicaragua El Salvador Honduras Costa ica uatemala om. ep. Oil, iesel Coal Natural gas Nuclear Large Hydro other renewables 56% of installed capacity and 6% of generation from renewable power (led by hydro) in the region interconnected by the SIEPAC line More than 5% of generation is natural gas-fired in and ominican epublic Source: Climatescope (BNEF), CEPAL

5 eform, renewables and regional interconnections are on the rise Energy security, high tariffs and capital scarcity are some of the key challenges 75% higher industry power prices than in the US eforms have been initiated to enable greater private investment 15% transmission and distribution losses investment shortfall for infrastructure development owing to over US$17b of accumulated losses at CFE Policy focus on renewable power arget of 35% power from renewables by 225 Other MeCA countries: energy security concerns drive focus on greater energy mix and interconnections 46% generation from hydro-power 37% generation oil/ diesel fired ecent droughts have forced greater use of oil-fired plants ependence on oil imports sparking energy security concerns + historically higher power tariffs Shift to renewable power planned; targets and enabling policies drawn up Natural gas pipeline between, uatemala and Honduras planned LN regasification terminal being built in for LN import Stronger electricity interconnection Expansion of SIEPAC line (from 3MW to 6MW) underway Honduran and ominican governments also evaluating reforms following a decline in incumbent utility performance Source: Climatescope (BNEF), CEPAL

6 : state-owned CFE dominates the electricity sector; reforms underway to drive private investments Electricity market: State-owned CFE dominates; reforms targeted towards greater private participation State-owned CFE controls more than 7% of installed generating capacity, and holds legal monopoly on electricity transmission and distribution. enerating capacity: 64W (57% natural gas, 2% hydro, 15% oil). Wholesale market is being operated by an independent agency CENACE eforms in ecember 213 to increase private player participation in & networks. CFE has being unbundled into separate generation, transmission and distribution subsidiaries but will continue to hold sole ownership. Iberdrola, as Natural Fenosa, Enel reen Power and ENIE are the leading private players as Market: Significant private participation in distribution segment s gas pipeline system is around 8,991km long to supply gas to the country s gas-fired power plants and industries. Post reforms, Cenagas became the independent pipeline operator. IENOVA, ranscanada Corporation, Fermaca, ENIE and Kinder Morgan are key private players in the gas pipelines segment. as Natural Fenosa is the largest player in the distribution segment, followed by ENIE and IEnova. eneration CFE 7% Private players 3% ransmission CFE 1% istribution/ retail CFE 1% Water market: State-owned water commissions responsible for water supply Utility size and channel he National water commission (Conagua) is responsible for planning, investment and monitoring water infrastructure. State-level water Commissions (CEAs) are responsible for irrigation and provision of water supply and sanitation services. SACMEX is reponsible for provision of water supply services in city. Company CFE IENOVA as Natural Fenosa ENIE SA FEMACA evenue* (US m) 28, NA NA EY Client Channel Channel 2 Channel 2 Channel 2 Channel 1 Channel 2 Sources : Company websites, regulator website and publications, FIS database, Factiva *Most recent annual revenue for subsidiary headquartered in this country or MeCA region

7 he top 2 utilities in MeCA have aggregated revenues of over US$41b, with s CFE accounting for 69% of the total MeCA top utilities by revenues Company Activities in MeCA Home country Power as Water Parent Annual evenue* (US$m) CFE ICE CEEE EEME AES El Salvador IENOVA AES ominicana EE Haina ENSA EEESE as Natural INE SAM ELSU AES AyA ranscontinental Capital Corporation Ltd EAA isnorte-issur CEPM SA Costa ica ominican epublic El Salvador ominican epublic ominican epublic ominican epublic uatemala El Salvador Costa ica ominican epublic Nicaragua ominican epublic CFE ICE CEEE as Natural S SA AES Corporation Sempra Energy AES Corporation EE Haina istribution roup, S.A CEEE as Natural S SA INE SAM Empresas Públicas de Medellín E.S.P. AES Corporation AyA Seaboard Corporation ltd Mitsui Corporation SK-Melfosur Internacional CEPM Energy Ltd 28,427 2, , = eneration = istribution = ransmission Presence in the segment Source: CapitalIQ, AES annual report

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