Latin America is making its mark on the global solar map.
In 2010, the region barely had a solar market to speak of. In 2021, the region is expected to have more than 40 gigawatts of installed solar capacity, according to the latest edition of GTM Research’s Latin America PV Playbook.
This year, the region is expected to boost its share of global PV demand to more than 6.2 percent, up from around 2.4 percent in 2016, and virtually no solar demand just a few years earlier. The report projects strong solar growth in several quasmajor Latin American markets, such as Mexico and Chile. At the same time, new markets like Argentina and Colombia are emerging, while regional giant Brazil is poised to bounce back after a lackluster year.
What exactly has been driving this growth, and where are things headed? We outline four major trends from the Latin America PV Playbook.
Solar prices plummet in Latin American auctions
Distributed generation is starting to gain a larger share of Latin America’s solar market, particularly in Mexico and Brazil, where net metering and other incentives are in place. However, utility-scale solar is the primary market driver due to a rapidly declining price trend.
Chile’s August national supply auction could be pegged as a turning point in Latin America’s solar journey. In the second half of 2016, Chile’s solar auction prices reached a new low, not only Latin America, but globally, at $29 per megawatt-hour.
A dry year last year caused hydroelectric generation to fall, leading to a higher average spot price on Chile’s central grid and an easier price target for utility-scale solar to hit. “A worsening 2016 drought improved market conditions for existing PV projects while strengthening confidence for other project developers that they will be able to secure better returns on future projects,” the report states.
While Chile is home to some of the most competitively priced solar, El Salvador has also seen prices dramatically decline in recent years, and saw solar PV overtake other clean energy sources, such as wind.
Argentina is not far behind, and GTM Research expects that the next RenovAR auction will yield PPA prices lower than $50 per megawatt-hour. In Mexico, where there was concern solar wouldn’t be able to compete with other resources, PV prices have hit levels as low as $33 per megawatt-hour.
But low PV prices, while so far positive for solar deployment, pose a challenge to developers trying to finance low rate return projects. However, the introduction of tax reforms, partnerships with development banks and funds for renewable-specific projects, and economic recovery at a broader level is helping sustain regional renewable energy investment in 2017.
Multi-gigawatt pipelines in Chile, Mexico and Brazil
The fall in prices and a concurrent increase in demand have resulted in multi-gigawatt pipelines in Chile, Mexico and Brazil.
Despite being hit by political and economic firestorms last year, Brazil is still expected to command a top-five share of PV demand in Latin America for the near term. Brazil’s PV market added upward of 267 megawatts in PV capacity in 2016, but it will soon lose ground to its neighbors if recent economic and demand trends do not reverse, said Manan Parikh, solar analyst and author of the Latin America Playbook.
Chile is currently the leader of cumulative PV installed in Latin America, but in 2017 the country will experience a down year and cede its top standing, according to Parikh. Even though Chile has a few more projects of over 50 megawatts in the pipeline, the projects will wait to connect to an already congested grid.
Mexico has the largest contracted pipeline in the entire region, with over 4 gigawatts of solar contracted out through 2018-2019, with upcoming clean energy targets of 25 percent by 2018, 30 percent by 2021, and 35 percent by 2024.
Nearly half of Latin American PV will be installed in Mexico in 2017
There was doubt as to whether Mexico’s proposed energy transition would pan out to the benefit of solar, and whether PV would be able to compete with other energy sources like wind and natural gas. But these apprehensions were alleviated when PV emerged as the overwhelming winner in 2016 utility auctions, totaling 4.2 gigawatts of capacity at prices as low as $33 per megawatt-hour.
The country is supported on the utility-scale side by supply auctions, and distributed generation is supported by recently revised net billing and net metering regulations.
Distributed generation took almost a third of Mexico’s solar market share at close to 50 megawatts last year year. Only 0.23 percent of Mexico’s distributed generation market has been penetrated to date, against a 5 percent target, leaving room for more progress particularly if the peso is able to recover from a slump.
The country’s Energy Secretariat recently reported that more than 5,900 megawatts (AC) of PV will be installed by the end of 2019, but GTM Research’s forecasts (given in DC) for the same time period see a possibility of 16 percent more solar installed in the timeframe, with the promise of small power producers and distributed generation segments seeing significant growth outside of the auctions. The Federal Electricity Commission in Mexico continues to raise tariffs for certain residential and commercial customers, expanding the potential pool of customers.
Latin America to reach 10% of global PV demand by 2020
In light of these developments, the Latin American market is on track to grow exponentially, with a cumulative forecast of 41 gigawatts of PV demand installed between 2016 and 2021. Annual installations are on track to more than double over the same period. By the end of the decade, Latin America will represent 10 percent of global PV demand.
However, rapid growth is not guaranteed. A couple of negative influences could crank the trend in the opposite direction. Financing for low rate of return projects could remain a barrier for developers, slowing overall deployments. Currency depreciation in Mexico and Brazil could also sway the trends the other way.
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