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Market overview Latin America

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published on 4th December 2020

 

The markets for renewable energy have grown worldwide over the years - mainly due to decreasing power generation costs for wind and solar energy. The grid parity of multi-MWp PV systems is no longer a question, but a fact. The benefits are considerable and address three key objectives of modern society: economic efficiency, ecology, and social compatibility.


In addition to the current challenges posed by the corona pandemic, the energy industry is still facing the task of decarbonization and must invest in renewable technologies.


The following article on Latin America joins the already published articles on East Africa and Southeast Asia and gives an overview of promising markets in this region.


Due to its favorable climate and abundant natural resources, Latin America stands out as a key player in the development of renewable energy (RE). In the following, we will discuss the current status of renewable energies in Latin America as well as the economic and technological potential and conclude the near future.

 

Potential and goals of renewable energies until 2030

The goal of a minimum 70 percent share of renewable energy (RE) in electricity consumption by 2030 has been set by a new regional initiative coordinated by the Latin American Energy Organization („OLADE”). Supporters of this initiative are Colombia, Chile, Costa Rica, Ecuador, Guatemala, Haiti, Honduras, Paraguay, Peru, and the Dominican Republic. Panama and Brazil are also being discussed. Another goal is the total installed capacity of 312 GW of renewable energy by 2030.


A report by IRENA Future of Solar Photovoltaic showed that the PV capacity of Central and Latin America alone could grow by 40 percent to more than 280 GW by 2050, thanks to high solar irradiation and by implementing attractive and strong political frameworks.

Even countries that are not part of the new initiative have set expansion targets for renewables. Argentina, for example, wants to increase its share of renewable energies in the electricity mix from 13 percent in 2016 to 20 percent by 2025.

Since the deregulation of the Mexican energy sector in 2014, there are increasing opportunities for the expansion of renewable energies in Mexico. The country has set itself the goal of a 35 percent share of electricity generation by 2024. In 2018, 15.5 percent of Mexican electricity was generated from renewable energy. These targets and initiatives relate to the need for investment and development in the renewable energy sector and open a new market. 

 

Positive developments in the renewable energy sector in the period 2015-2018

Share of RES and installed capacity

Figure 1 shows the share of RES in electricity consumption in 2015 in selected Latin American and Caribbean countries, including countries participating in the new initiative mentioned above. Paraguay and Costa Rica have the highest share of RES and reach almost 100 percent.


In 2017, Brazil, Colombia, and Ecuador achieved a remarkable share of 79.2 percent, 79.0 percent, and 73.8 percent respectively.

 

 

 

Figure 1: Share of renewable energy in electricity consumption in 2015

 

The countries of South America also have a high renewable share of electricity generation. Total installed renewable capacity (including large pumped storage plants) increased by 48.6 percent from 2006 to 2016, from 151.6 GW to 225.4 GW. Hydropower plays the largest role, accounting for 85 percent of total electricity generation in 2016, reaching 182 GW of installed capacity.


Photovoltaics has great potential, with the largest additions being made in large-scale projects by 2016. In the years 2016-2018, a total of 3.9 GWp were newly installed. Mexico has the largest share with around 2166 MWp, followed by Chile with 1012 MWp, as well as Argentina, and Panama with just over 180 MWp each.


Another exciting market here is wind energy, with an increase in capacity of 6 GW between 2016 and 2018, bringing the total capacity of the region to around 21 GW.


Geothermal energy is still in development despite large geothermal resources and had a total installed capacity of 1.6 GW in 2016. In the considered period 2016-2018 only scarcely 60 MW were added.

 

 

 

Figure 2: Expansion by technology in MW 2016-2018

 
Figure 2 shows the consumption of electricity from renewable energies in 2017 by technology. It can be seen that hydropower accounts for the largest share in the countries considered. The second most used technology is wind power, with Brazil leading with 42,391 GWh, followed by Mexico with 10,442 GWh and Uruguay with 3,774 GWh.


For example, Chile generates the most solar energy with 3,914 GWh, followed by Brazil and Honduras with 997 GWh and 928 GWh, respectively.
 

 

 

Figure 3: Share of renewable energy consumption by technology in GWh in 2017


Geothermal energy production was less significant in 2017 compared to other technologies. This is partly due to the large need for venture capital and complex project development.

Figure 3 shows the countries with significant installed geothermal capacity. Due to various initiatives such as the Geothermal Development Facility (GDF- conceptually developed by Rödl & Partner), which promotes projects and supports investors, it is assumed that the technology will gain in importance.

 

 

Figure 4: Proportion of the energy consumption from Geothermie in GWh in the year 2017 

 

According to a report published by REN 21, the total installed renewable energy capacity in South America in 2018 was up to 250 GW.

 

Investment and financing

With high RE expansion targets and the high potential for various technologies, Latin America and the Caribbean are very attractive regions for investors. According to fDi Markets (a service of the Financial Times), Latin America is the second most attractive region in the world for foreign investment in renewable energy after Europe. Brazil accounted for 40 percent of all foreign investment projects in the renewable energy sector in 2019, followed by Chile (29 percent), Mexico (15 percent), and Colombia (6 percent).   

 

The expansion of renewable energy is driven by auctions in many Latin American countries. In Brazil, for example, two types of renewable energy auctions are held: Auctions to meet the demand of electricity grid suppliers and capacity auctions to ensure grid stability.

 

 Since 2013, PV systems have been eligible for the national auction for generation capacity, and the first pure PV energy auction was held in 2014. The resulting prices are set in electricity supply contracts between producers and the national energy agency for 20 years. Competition between bidders promotes the cost-effective expansion of renewable energy.

 

The auction model is also preferred in Peru or Colombia, with terms of 20 and 15 years respectively. In Colombia, auctions for wind and solar were held for the first time in 2019, and a total of 1,400 MW were tendered.

 

Currently, there are many funding opportunities for RE development in the region through European and international governmental institutions, private entities, and banks. Further information can be found on the website of the Federal Ministry of Economics and Energy. 

 

The German Federal Ministry for Economic Cooperation and Development (BMZ) and the European Union (EU) have established the Geothermal Development Facility (GDF) through KfW Entwicklungsbank (KfW) in cooperation with CAF, CABEI, World Bank, ESMAP, IDB, AfD, EIB, JICA, NDF, BGR, and GIZ.

 

The GDF is the regional program for the promotion of geothermal energy in Central and Latin America and is supported by several financing partners. Currently, the 6th round of calls for proposals is already underway.

The support is granted for 10 years. The GDF is active in Bolivia, Chile, Colombia, Ecuador, Peru, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

 

Conclusion

Most countries in South America offer good investment opportunities given the price of the technologies. However, Brazil, Peru, and Mexico emerge as the most attractive countries for RE investments.

 

Brazil offers an attractive market environment, especially for large PV and wind projects, due to a largely liberalized electricity market, renewable energy auctions, numerous tax and import privileges, and favorable import regulations. Net-metering also makes investments in small PV systems attractive. Here, the growth of PV has overtaken all other energy sources in recent years.

 

In terms of geothermal potential, the Peruvian government grants 30-year concessions and privileges for the exploration and use of geothermal resources. Additional financing in this area can be obtained through the Geothermal Development Facility (GDF).

 

 

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