On 7 October 2026, the International Energy Agency published an assessment of how electricity systems across Latin America and the Caribbean can strengthen their preparedness for El Niño.
The report examines a challenge familiar to electricity-dependent economies: hydroelectric generation provides substantial capacity at relatively low operating cost, but its availability depends heavily on rainfall, reservoir levels and wider climatic conditions.
In Brazil, Colombia, Costa Rica, Ecuador, Panama, Paraguay and Peru, hydropower accounts for more than half of average annual electricity generation. During periods of hydrological stress, this dependence can create substantial pressure on electricity systems.
The IEA highlights that, during the 2023–2024 El Niño event, reservoir levels in Colombia fell below 30% of their average levels by April 2024, while natural gas demand from the power sector almost doubled. The agency also expects the developing 2026–2027 El Niño event to be among the strongest since 1950, although its eventual geographical impacts remain uncertain.
The immediate implications concern electricity-system preparedness. The broader implications extend to the businesses, infrastructure operators and investors whose economics depend on reliable electricity.
For capital-intensive companies, electricity availability is becoming more than a technical assumption. It is increasingly a variable that deserves explicit consideration in financial underwriting.
That distinction matters for acquisitions, industrial expansion, project finance and long-term capital allocation.
- Electricity reliability should be underwritten as a financial variable, not treated only as an operational risk.
- Grid dependence can create hidden infrastructure concentration across otherwise diversified portfolios.
- Acquisition models should stress-test downtime, backup generation, working capital, maintenance and resilience capital expenditure.
- Targeted resilience investments can protect material asset value and may require longer-tenor, risk-sharing finance.
- Boards need governance that connects technical exposure with capital allocation before acquisitions, expansion and major capex commitments.
From electricity security to corporate financial exposure
Electricity reliability has historically occupied a relatively narrow position in corporate financial analysis.
Management teams model energy consumption, forecast electricity prices and incorporate utility expenses into their operating budgets. Investors examine energy costs as part of margin analysis, particularly in energy-intensive industries.
The reliability of the underlying supply is often treated separately, through engineering assessments, operational contingency plans or insurance coverage.
That distinction is becoming less adequate.
An industrial company can operate in a market offering attractive labour costs, competitive taxation and growing demand while remaining materially exposed to electricity-system disruption.
When power becomes unreliable, the financial consequences extend beyond the electricity bill.
Production may be interrupted. Equipment utilisation can decline. Delivery schedules may deteriorate. Manufacturers can incur additional costs from backup generation, damaged work in progress or the need to rebuild inventories.
For businesses operating under contractual delivery obligations, prolonged interruptions may also affect customer relationships and future revenue.
These consequences are particularly relevant to industrial manufacturing, mining, food processing, cold-chain logistics, digital infrastructure and certain infrastructure services.
The economic distinction is between the cost of electricity and the cost of unreliable electricity.
The first is relatively straightforward to model.
The second requires a more comprehensive assessment of operational dependency, interruption exposure and available alternatives.
SMAM analysis suggests that this distinction should become more explicit in investment cases involving electricity-dependent assets, particularly in markets where hydrological variability, grid constraints or generation concentration can materially affect operating conditions.
Climate variability is revealing hidden infrastructure concentration
The latest IEA assessment illustrates how exposure can accumulate at the electricity-system level even when individual companies appear commercially diversified.
Between 2015 and 2025, the annual share of hydropower in electricity generation fluctuated by as much as 20 percentage points in Ecuador, 17 points in Panama and 10 points in Colombia, partly reflecting weather variability.
Those figures do not directly measure corporate outages or financial losses. They do, however, demonstrate the extent to which national generation portfolios can respond to changing hydrological conditions. IEA
For investors, the distinction is important.
A business may diversify its customers, suppliers and distribution channels while remaining exposed to a single electricity system.
Similarly, an infrastructure investor may own several assets in different sectors that depend on the same grid, water basin or transmission corridor.
Economic diversification can therefore coexist with considerable infrastructure concentration.
This is especially relevant when evaluating portfolios rather than individual assets.
Several geographically proximate facilities may experience the same disruption simultaneously. A diversified portfolio of manufacturing, logistics and digital infrastructure assets can consequently contain correlated electricity exposure that is not immediately visible through sector-level analysis.
The implication is not that hydro-dependent markets are inherently unattractive.
Hydropower offers substantial economic and operational benefits, including flexibility and relatively low marginal generation costs.
Rather, investors need to distinguish between attractive underlying infrastructure economics and the financial consequences of specific system vulnerabilities.
In this context, the geographical distribution of revenue is not necessarily a sufficient measure of diversification.
The geographical distribution of infrastructure dependency may be equally important.
The implications for valuation and acquisition due diligence
Traditional corporate valuation models generally assume that operational activity can continue within a reasonably predictable range.
Forecasts incorporate revenue growth, margins, capital expenditure, working capital and terminal value. Sensitivities often address pricing, sales volumes, inflation and financing costs.
Electricity reliability may remain embedded within general operating assumptions.
For electricity-dependent businesses, that approach can underestimate certain risks.
Consider two industrial companies with comparable revenue, EBITDA and growth prospects.
Both operate in markets with attractive long-term demand. Both have modern production facilities and similar labour costs.
The first has diversified electricity supply, contractual protections, backup capacity and established operating procedures for supply interruptions.
The second depends heavily on one electricity source and has limited contingency arrangements.
Their historical financial statements may appear similar.
Their resilience under stress may be materially different.
An acquisition model that applies the same forward operating assumptions to both businesses could fail to capture that difference.
The appropriate response is not automatically to impose a lower valuation multiple on the more exposed company.
It is to incorporate relevant operational scenarios into the financial model.
These may include reduced production availability, higher backup-generation costs, temporary increases in working capital, additional maintenance expenditure or capital investment required to improve reliability.
For leveraged acquisitions and infrastructure financing, the analysis should extend to debt-service capacity.
A temporary operating disruption can become financially significant when it coincides with scheduled interest payments, principal repayments or covenant testing.
The relevant underwriting question is therefore not only whether an asset remains profitable under normal conditions.
It is whether the business can preserve adequate liquidity and financial flexibility when critical infrastructure performs below expectations.
This requires asset-specific analysis rather than applying generic climate-risk assumptions across an entire portfolio.
Resilience investment has an increasingly measurable economic case
A central difficulty in financing resilience is that its financial benefits often appear as losses avoided rather than additional revenue generated.
A new production line can be justified through incremental capacity.
A commercial expansion can be supported by expected sales.
An investment in backup power, flood protection, storage or grid reinforcement may produce no obvious increase in turnover.
Its economic return comes from preventing interruptions, protecting asset value and preserving future cash generation.
That makes the investment case harder to communicate, particularly for companies operating under capital constraints.
Recent research is beginning to address this challenge.
A 2026 study developed by the World Bank Group, AXA Climate and Scientific Climate Ratings examined the financial benefits of targeted infrastructure adaptation.
Using assets in three Brazilian infrastructure sectors under high-emissions scenarios, the researchers found that selected resilience measures could protect up to $8.60 of asset value for every dollar invested.
The study also found that targeted interventions representing approximately 2.4%–8% of asset value could produce particularly attractive benefit-to-cost ratios within the cases examined.
These are scenario-specific findings, not universal returns available to all infrastructure investments. IFC
Nevertheless, they illustrate an important shift in investment assessment.
Resilience expenditure can be evaluated through conventional financial criteria when the underlying risks and avoided losses are appropriately quantified.
The OECD’s June 2026 review of climate-related financial metrics reaches a related conclusion. It identifies reduced downtime, lower repair costs, avoided losses and reduced asset value at risk as relevant measures for assessing adaptation investments. OECD
For management teams, this suggests that resilience should not sit exclusively within sustainability reporting.
Where financially material, it belongs within capital expenditure planning, investment appraisal and operating-risk management.
A project designed to reduce expected interruptions can potentially be assessed using the same financial discipline applied to productivity investments: projected expenditure, operating benefits, risk reduction and payback.
The challenge is to establish credible assumptions and distinguish measurable improvements from benefits that remain uncertain.
Financing resilience requires more than identifying the risk
Recognising exposure does not automatically create a financeable investment.
A manufacturer may understand that backup generation or storage would improve operational continuity without having sufficient liquidity to fund the project.
An infrastructure operator may identify necessary reinforcement works but face restrictions under existing borrowing arrangements.
A mid-market company may regard energy resilience as essential while struggling to demonstrate incremental revenue to prospective lenders.
The financing challenge is particularly acute because resilience investments can have long-term economic benefits without generating additional cash flows that can be separately pledged to lenders.
This is where financing tenor, guarantees and risk-sharing mechanisms become relevant.
The World Bank Group research referenced above finds that longer financing tenors can improve the bankability of resilience investments more effectively than interest-rate reductions alone in the cases studied. IFC
This finding has practical implications.
A resilience project with durable benefits may be economically attractive but difficult to accommodate within a short repayment schedule.
Longer-term financing can improve the alignment between upfront expenditure and the period over which the investment delivers value.
Development finance institutions, commercial banks, infrastructure investors and specialist funds may therefore play complementary roles.
Yet financing arrangements should reflect the actual economic characteristics of the investment.
Some projects may be appropriate for conventional corporate loans. Others may benefit from leasing, equipment finance, guarantees, dedicated infrastructure financing or partnerships with energy service providers.
The OECD’s 2026 work on private-sector climate adaptation highlights the continuing barriers businesses face in financing resilience measures and the importance of appropriate public-policy and financial support. OECD
The broader management implication is that financing strategy should be developed alongside the technical resilience plan.
Otherwise, companies risk identifying infrastructure vulnerabilities without establishing a credible route to address them.
Governance must connect operational resilience with capital allocation
The final issue concerns governance.
Electricity reliability is often managed by technical or operational teams. Capital allocation is generally led by finance, executive management and the board.
The two functions need to operate from a common assessment of risk.
A technical team may identify a critical vulnerability without the authority to fund the required investment.
A finance team may reject resilience expenditure because the financial benefits are insufficiently quantified.
A board may approve expansion into a new market without understanding the infrastructure dependencies associated with the investment.
These are not necessarily failures of individual departments.
They reflect weaknesses in the connection between operational risk and strategic decision-making.
For companies undertaking acquisitions, international expansion or major capex programmes, that connection should be established before significant capital is committed.
Management needs reliable information about electricity dependency, supply alternatives, contractual protections, contingency expenditure and the potential financial consequences of disruption.
That information should feed into investment models and board-level decisions.
The IEA’s October assessment identifies clear responsibilities, emergency-response capabilities, long-term resilience planning and regular testing as important foundations of electricity-system preparedness. IEA
While the report concerns electricity systems rather than corporate governance, its underlying logic is relevant to businesses.
Preparedness is more effective when responsibilities and response mechanisms are defined before a disruption occurs.
For boards and investors, a comparable discipline involves establishing who owns material infrastructure risks, how those risks are quantified and when corrective investment becomes necessary.
A credible resilience framework should ultimately improve decision quality, not merely produce additional reporting.
Energy reliability is becoming an increasingly relevant consideration in corporate investment decisions.
The latest IEA assessment illustrates how climate variability can affect electricity systems that remain essential to industrial activity and economic development.
The financial implications extend beyond the energy sector.
For companies undertaking acquisitions, international expansion or capital-intensive development, infrastructure dependency can influence operating cash flows, debt capacity and the resilience of projected returns.
The relevant distinction is not between companies exposed to infrastructure risk and those that are not. It is between companies that understand, quantify and manage that exposure and those that leave it embedded within their assumptions.
For boards and investors, resilience deserves consideration not only as an operational requirement but as part of the investment case.
The objective is not to eliminate every possible disruption.
It is to ensure that foreseeable infrastructure risks are appropriately reflected in the capital decisions on which long-term enterprise value depends.
