As electricity demand doubles in Latin America over the next two decades, wind and solar projects will account for an increasing share of energy supply as coal and oil-based energy generation falls out of favor, Moody's Investors Service has projected.
Those with higher risks of assets becoming impaired or otherwise non-productive will step up investments in renewables
. According to the credit rating agency, debt will increase amid declining energy prices and shorter-term contracts.
Growing electricity demand in most Latin American countries will be largely met by renewables, boosted by clean energy targets.
Actual renewable energy levels
are already close to target levels in most countries, but carbon dioxide emission reduction targets will be more difficult to achieve.
Development costs for renewables will continue to rapidly decrease as technology advances and competition among suppliers intensifies.
In many countries in Latin America, wind or solar projects are cheaper to develop and operate than traditional carbon-based projects even without subsidies.
Power generators with a larger share of coal and oil-fired generation will need to invest more heavily in renewables to remain active.
Coal power will lose relevance and become uneconomic in some markets. Coal-based generators will have fewer funding options than clean energy peers as market perception toward climate change shifts and demand for sustainable investments increases.
A higher share of intermittent renewable generation
will be credit neutral for most power generators in Latin America.
Higher energy demand, boosted by increased electrification of everyday life, will further business opportunities at lower development costs, but that is offset by a more competitive environment and less predictable revenue streams.
The energy transformation in Latin America has broader economic and geopolitical implications that go beyond the energy sector.
Changes are likely to affect trade balances, overall cost competitiveness of domestic products, and the geopolitical balance of power in light of lower demand for fossil fuels.