Some of the smaller players in Latin America’s solar market appear to be taking off this year, leaving some of the bigger names in their wake. Brazil, the region’s largest country with a huge population and energy demand, falls off the top five markets in terms of installed capacity, according to the latest GTM Research forecasts. Meanwhile Honduras, Guatemala and Panama will see huge increases by the end of 2015.
Despite forecasts of its market tripling in size, even the outlook for Mexico has disappointed and surprised many, under GTM’s 'Q1 2015 Latin American PV Playbook’ released this week. Nevertheless, Chile remains the stalwart market accounting for half the region's capacity.
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PV Tech spoke to GTM Research solar analyst Adam James in lieu of the latest quarterly results for an in-depth look at what will make up the Latin America’s 2.2GW of solar installations this year.
James said: “Central American nations have finally turned a corner in terms of development of PV. A lot of these markets held auctions, but the development of those projects which won tenders has taken some time, especially in Guatemala. In each of those markets you had a few drivers that accelerated their development, whereas Brazil stayed still for this year.”
Honduras
Honduras sees an enormous lift this year from 5MW installed in 2014 to an expected 460MW. It has a lucrative incentive in place for the first 300MW of capacity to connect before the end of July, James said, so there is a huge motivation for companies to go out and complete their projects quickly. The utility ENEE had a huge pipeline of projects, which were stalling, but there are now a few projects with credible developers charging ahead.
“Sometimes people sign PPAs that are too low and they cannot make the project work, but in Honduras we’ve seen a lot of the projects getting built and we can attribute that to a couple of big sophisticated players getting involved in the market. They have already completed 250MW of projects this year.”
Guatemala
Guatemala is set to increase its annual installations from 6MW to 98MW this year. We are seeing the fruition of several tender processes that they've held over the last two years, James said. The country has had 65MW installed already this year.
Panama
Panama is a “mixed bag”, James said: “It actually could have been a much larger market this year, but has been fraught with mismanagement. However, despite that, some development will still trickle through – enough to put it in the top five markets.”
Panama undertook an auction, with relative success, James said, although many bids were far too low for some projects to install. Nevertheless, with 62MW, it will still develop more capacity than Brazil this year.
Mexico
The Mexican market was waiting for 100-150MW of projects to be started by April to account for a bigger forecast this year, but they stalled for a variety of reasons including the continuation of currency risks.
“That was a surprise. It should temper people’s expectations for Mexico this year,” said James.
Brazil
Brazil's outlook has actually improved since last year, said James, although there is a lot of uncertainty in the market. Dropping out of the top five for 2015 is more due to other markets improving, rather than Brazil weakening.
Its market is expected to take off in 2016 with distributed generation gaining a lot more traction and utility-scale projects starting to come through. Currently projects over 1MW are very limited with just 16MW of capacity expected this year, down from 22MW last year.
“2016 is when we see a lot of the larger projects getting developed. They have contracts, but they don’t have to start until 2017,” said James. “They would be taking a huge risk to build their projects early. If the currency strengthens against the dollar again then they would be able to get a much better deal on buying equipment. That’s only a real issue because of heavy taxes and an entirely import dependent market; they are a lot more exposed to currency risk. A lot of them are just waiting for macroeconomic conditions to improve.”
Barriers to solar in Brazil
There are two barriers to distributed generation in Brazil, James said. One is access to capital and financing.
“Not everybody has enough money to pay the upfront cost of PV. The problem is that in Brazil right now interest rates are so high that you can’t really get access to lower cost capital for distributed generation.”
The second barrier is the tax regime on imports, which raises the cost of PV in the country significantly. Furthermore the ICMS tax on electricity consumption means people are taxed the same for the energy they use, even if they produce energy themselves.
There have been two recent developments for net metering in Brazil including the government granting ICMS tax exemptions for three states and the country’s energy regulator, ANEEL, set to revise its net-metering regulations for distributed generation. James said these are steps forward but other taxes are still an issue on top of financing problems.
Despite these barriers, Brazil’s reliance on hydropower has become fragile after recent droughts, which improves the case for solar technology.
“Brazil is taking the approach of viewing solar based on value, rather than just costs. While hydropower may be cheaper on a cost basis in an energy auction bid, the value that resource has to the grid is tempered by its risks. As was demonstrated recently, one risk is that during a drought, hydropower competes with water consumption. Another is that reduction in hydropower generation exposes the consumers to fuel oil volatility.”
This means that despite expense in energy auctions, solar offers additional value to the market, James said. There is no fuel risk, the intermittency is predictable, and the production tends to correspond to hours where energy is needed most. Solar can be valuable not just as a resource, but also as a hedge.
“That lesson has been learned the hard way over the last year, but will be a boon to solar in Brazil.”