BOGOTA, May 30 (Reuters) - The risk of government interference in Latin America's electricity sector has increased due to rising fuel prices stoking inflation, particularly in Argentina, Colombia and Mexico, ratings agency Moody's said on Tuesday.

Higher energy costs have created political difficulty for governments throughout the region, a key factor driving the higher risk of intervention in the power sector, Moody's said.

"While regulatory environments remain supportive overall for power producers in Latin America, regulation continues to evolve, and credit risks are increasing as the region's governments attend to constituents' concerns about energy affordability," Moody's said.

In the case of Argentina, which has the highest regulatory risk in the region, Moody's highlighted high levels of intervention in the sector, with subsidized prices decoupled from the cost of generating electricity.

"The biggest risk to Argentina's power sector comes from unrelenting inflation and the government's tight finances for matching the increasing energy subsidies," Moody's said.

The report also found that governments in both Colombia and Mexico have shown greater interest in intervening in regulatory matters.

For Moody's, regulatory stability continues to be crucial for supporting the investment needs of electricity companies in Latin America at a time when high interest rates are raising the costs of financing.

While Brazil has made significant efforts to modernize its electricity market, signs of intervention are increasing as renewals for a number of concessions in 2025 approach, Moody's said. At the same time, the country's growing market will also test the regulatory framework.

In Chile, although the regulatory regime has generally benefited its power companies, "market conditions represent the greatest risk for the sector in the country," the agency added.

In Peru, despite volatile social conditions amid protests, the regulatory framework has remained stable, partly thanks to abundant natural gas reserves, Moody's said.

Reporting by Nelson Bocanegra; Editing by Sonali Paul

Our Standards: The Thomson Reuters Trust Principles.

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