The smog-laden skyline of Mexico City may not be a poster child for air pollution much longer. Demand for clean energy is on the rise in Latin America, particularly in Mexico, Brazil, and Chile.
Clean-energy acquisitions nearly tripled in the region last year--the highest growth rate in the world, according to PricewaterhouseCoopers (PwC). An increasing demand for electricity coupled with stricter environmental policies has resulted in renewable energy deals valued at $7.6 billion, up from $2.7 billion in 2014, the consulting firm said in its annual Power & Renewables Deals report.
"There is increasing interest in the region," Arthur Ramos, a partner at PwC's strategic consulting unit Strategy& told BloombergBusiness. "Multinationals are taking stronger positions in Latin America where there is a perspective of lack of power supply in the long term. And many countries are offering low risk models of energy contracts for investors."
In total, mergers and acquisitions in Latin America shot up 56 percent to $12.4 billion last year. Only the Asia Pacific region brokered more deals.
China has already jumped on the investment bandwagon. The Chinese power company Three Gorges Corp. bought the Jupia and Ilha Solteria hydropower plants in Brazil for $3.7 billion, the largest acquisition in the region. Sempra Energy, the San Diego-based natural gas company, came in second with its acquisition of the remaining stake in its Mexican joint venture Gasoductos de Chihuahua for $1.5 billion.
As energy sector reform opens the Mexican electricity sector to private investment, the country is attracting more international interest. Spain's Iberdola has targeted Mexico as one of the four countries outside continental Europe (the others are the U.S., Brazil, and the U.K.) where it sees major growth opportunities. Mexico will also host its first long-term energy tender in March 2016, with an estimated 1.5 to 2.5 gigawatts to be awarded and further tenders to follow.
But Mexico and Brazil aren't the only countries of interest. Chile remains a focus for companies such as Spain's Gas Natural Fenosa, and China's State Power Investment Corporation's Pacific Hydro acquisition included around $1 billion worth of assets.
Steady returns from clean-energy assets make Latin America an appealing region for investment, despite its economic turmoil. "We expect this momentum to continue in 2016, despite the current challenging economic and political environment in many countries," Ramos said.
Globally, energy deals fell 16% to $199 billion last year. However, renewable deals nearly doubled to $55.3 billion, up from $28.3 billion in 2014.
As the demand for affordable energy continues to rise in the developing world, the need for clean-energy alternatives will likely fuel investments for the foreseeable future.