Capital structures for Peruvian electricity generation companies (GenCos) are likely to improve in the medium term from current pressured metrics, according to a new
"GenCos with strong contracted positions usually generate solid cash flows from operations, which are supported by the country's relatively low spot prices," said Paula Bunn, Associate Director.
"GenCos with weak contracted positions and some exposure to spot prices usually have less predictable and weaker cash flow generation," she added.
Flexible cost structures are a key support of GenCos' profitability and cash flow generation.
According to Fitch, issuers with a high fixed-cost component need to generate and sell uncontracted electricity, even when spot prices are below generation cost, in order to minimize losses.
The credit rating agency expects "demand for electricity to recover in 2021 to near 2019 levels since it is spurred by key economic activities."
As is known, demand declined by 7% during 2020 to 49,179GWh from 52,880GWh in 2019.
Fitch also projected that high reserve margins will likely continue at around 23% until additional demand can absorb excess supply in the system.