The current investment climate in traditionally robust electric power markets continues to be challenging, with few incentives to encourage investors to pull-out their cheque book.
In Europe, for example, the ongoing euro crisis is exacerbating an already difficult situation caused by regulatory uncertainty and a lack of both political leadership and will. All this is making investors think again before investing in existing or new power assets. And this phenomenon is right across the board – from traditional coal fired generation to the polar opposite of renewable energy.
The situation in North America is little different, with environmental legislation impacting heavily on coal and nuclear power, and uncertainty over the future of the US’ renewable energy incentives scheme – the Production Tax Credit is due to expire at the end of this year, is suddenly making wind a much less attractive investment proposition.
Thus, in all honesty, who would invest where there is no guarantee of a high return on investment? However, power assets per se do represent a good solid investment, so investors haven’t disappeared. Rather they are now looking elsewhere, but where?
Obviously Asia, with its huge growth potential, continues to attractive investment – largely untouched by the recent global economic crisis. There are undoubtedly rich picking to be made here, but anyone who has invested in China, for example, knows it can be less than straight forward, and although the returns can be high, so are the risks.
One region that is emerging as an attractive and relatively safe investment target is Latin America, and in particular its renewable energy sector (excluding hydropower).
Speaking at a recent meeting of the Latin American and Caribbean Council on Renewable Energy, George Osorio of Conduit Capital, said “Latin America comes up with some of the best incentives you have ever seen in this sector. I consider it a model to go after”. He identified Brazil and Mexico in particular as offering inexpensive financing and attractive incentives, with both Chile and Peru offering “solid opportunities”. Osorio believes that the returns for wind projects throughout the region could range from 9–15 per cent.
Speaking at the same event, Patricia McDougall of Canada’s Scotiabank, agreed. She described Chile as “a market-oriented economy” that is “open for foreign investment”.
In this issue we take a look at what is being described as the wind ‘gold rush’ that is taking place in South America at the moment. Brazil is clearly dominant, with investors from around the world – China, Spain, India etc – knocking at its door, but other countries in the region also offer opportunities. We examine three main questions: what is driving the activity, who is investing and, most importantly, how long will it last?
In the issue we also feature the first of a two-part special report on the electric power sector in sub-Saharan Africa. Here we highlight Ethiopia, Tanzania and Zambia. All three nations are experiencing healthy economic growth and an increasing population, which all means their demand for electricity is also rising.
Historically, investing in Africa has been seen, and justifiably so, as high-risk, high-return, but things are changing. Many governments are now waking up to the essentail role that direct foreign investment in their power sector can play in securing their continued economic growth, and are starting to bring in better legisaltion to promote it.
Foreign investment in sub-Saharan Africa will be one of the key issues discussed at POWER-GEN Africa, which takes place in Johannesburg, South Africa, 6–8 November 2012. For more information, please visit www.powergenafrica.com.
Heather Johnstone, PhD