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Boston, MA -- (ReleaseWire) -- 12/12/2012 --BMI View: Brazil depends upon energy generated at hydroelectric power plants for the majority of its consumption needs, and we do not envisage this changing over our 10-year forecast period to 2021. Our Q412 power update reveals that Brazil's power sector experienced two setbacks this quarter: the expansion of its nuclear power programme was delayed, with construction of its Angra III nuclear power plant postponed; while a judge ordered that work be halted on Brazil's Belo Monte hydroelectric dam. As a result, we forecast that Brazil will continue to turn to energy imports to meet domestic requirements and those of its energy intensive manufacturing and mining industries. Positive developments this quarter include the government's proposals to reduce taxes on electricity, which if approved, should help reduce energy prices and attract investors.

Our Q412 report on Brazil's power market shows that the energy sector continues to post healthy growth, despite a downward revision of Brazil's 2012 real GDP growth forecast by BMI's country risk analysts. We forecast that Brazil's power sector will continue to post strong demand, even though some risks remain, with growth in consumption expected to average 4.4% per annum between 2012 and 2021. BMI calculates that total electricity generation capacity in 2011 stood at 519.54 terawatt hours (TWh) and that this figure will rise to 544.02TWh by 2012 and 834.02TWh by the end of our forecast period in 2021. We forecast that hydroelectricity generation will continue to dominate the energy mix, accounting for an anticipated 438.32TWh in 2012 and rising to 636.53TWh by 2021.

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One of the challenges of operating in Brazil stems from its transmission network, with sources of energy generation often very far from target markets. This quarter sees the successful conclusion of ANEEL's latest transmission and distribution auction, delays to the installation of new capacity, and the prospect of the government approving reduced taxes for electricity. Given that Brazil's energy prices are some of the highest in the Latin American region, existing and potential investors will welcome any simplification of the complicated tax regime associated with the electricity market.

Key developments in Brazil's power sector:

- Work on Brazil's flagship energy project, the Belo Monte hydroelectric power plant, was brought to a halt in August 2012, following orders by a federal court which claimed that the constructors did not consult the indigenous population.
- Aneel announced in July 2012 that it had awarded five contracts it its latest transmission auction. Six transmission lines were originally opened up to bidders, but the sixth lot failed to attract bidders' interest and will be reauctioned.
- Work on Angra III, Brazil's nuclear power project, has been delayed, with its completion date moved from December 2015 to mid-2016.

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