Photovoltaics

Investors and developers are piling into the land that subsidies forgot, Latin America. They are finding a market where subsidies practically do not exist… and are not needed, since PV is already near grid parity.

Disappointed with your PV investments in Europe? Looking for a market with a bit more certainty, where perhaps you can use some of the language skills you picked up when the Spanish scene seemed a good bet? Then pack your bags for Latin America.

At least, that seems to be what a lot of PV investors and developers are currently doing. In January, China’s Sky Solar inked a deal with the municipality of Sobral in Ceará, northern Brazil, to build a 7.5-hectare, 3 MW PV plant for a reported 3 million Reales (USD$1.86m).

Spain’s Isofoton has been operating in Latin America since 1991 and has installed a total of 4 MW in the region, albeit mostly in small-scale, off-grid projects.

And in March US-based Skyline Solar announced plans for Latin America’s biggest CPV plant to date, a 500 KW, $2.33m development to be built in Durango, Mexico, with local solar integrator DelSol Systems as the first phase of an eventual 10 MW project.

In fact, Gabriela da Rocha Oliveira, head of Latin America research and analysis with Bloomberg New Energy Finance, says she knows of at least 48 utility-scale PV projects either announced or under construction in the region.

That includes 13 in Brazil, 12 in Chile, eight in Argentina, six in Mexico, four in Peru, and one each in the Dominican Republic and Uruguay. “We predict 133 MW for Latin America by 2012,” states the analyst. So what is the attraction?

Government support

Well, in contrast to Europe and North America, it certainly is not the presence of juicy feed-in tariffs or other government support. “Latin America lacks the kinds of incentives that have spurred growth in Europe and the US,” da Rocha says. “There are no feed-in tariffs.”

Neither, she says, are there plans to introduce any anytime soon. But they may not be needed anyway. Latin America’s abundant insolation, coupled with the high cost of traditional energy in remote locations, means PV is already practically at grid parity in many places.

“In Chile, Mexico, Brazil and Peru we ran a grid parity analysis and if PV prices fall to $2 per watt it could happen by 2014,” says da Rocha. This gives PV both an upside and a downside in Latin America.

The upside is that investors need not fear the kind of regulatory uncertainty that has plagued PV developments in Spain, the Czech Republic and elsewhere.

Salvador Escobedo, investment manager at the Panama-based Ecos Sustainability Equity Fund, which in March took a 28% stake in the Brazilian downstream PV systems integrator EBES, says: “The main driver for our investment decisions will be grid parity quite soon.

“As PV prices continue to drop, several places where we are making investments will see grid parity much sooner than what people think in other places. When you look at specific places in Colombia, Brazil and Guatemala we already have grid parity.”

Off-grid energy

The downside of the Latin American market, however, is that policy makers have been slow to grasp the fact that PV can make a contribution to anything other than rural, off-grid energy requirements.

“Renewable energies are interesting because they are able to generate energy in remote or isolated areas, where taking the conventional electricity grid has a cost per inhabitant which is too high at the moment,” says Isofoton spokesperson Maria Jesús González-Espejo García.

“These sources of energy are a fundamental pillar for society to prosper and an essential element in lifting thousands of people out of poverty on the continent. However, the perception of the authorities is still that renewable energies are expensive.

“Therefore, renewable energies are still framed within the context of rural development and the need to support the essential elements of the fight against inequity.”

Tim Keating, vice president of marketing and sales operations at Skyline Solar, adds: “What we see is policy developing almost on a trial basis.”

Careful planning

The absence of government support, he believes: “makes development much slimmer and a bit tougher. But it is more sustainable. It is not going to go as fast. Projects have to be carefully planned and carefully crafted.

“It is a more difficult market because you don’t have feed-in tariffs,” he concludes. “I think generally we will see slow growth over the next couple of years.”

Given the experience of developers and investors with feed-in tariffs in other countries, however, the prospect of slow but steady growth in Latin America may come as a welcome relief to many.

Indeed, Escobedo of Ecos believes the recent investments are just the tip of an upcoming iceberg. “Percentage-wise, the opportunity in the next three to four years is explosive,” he notes. “What’s stopping other investors is the cost of opportunity.

“Trying to set up a 2 MW plant is too complicated. There are not enough economies of scale. But I believe that’s slowly changing.”

To respond to this article, please write to the editor:

Katherine Steiner-Dicks: steinercommunications@yahoo.co.uk