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The prospects for solar photovoltaic (PV) generation capacity
additions in Latin America are set to improve in 2022, but that
doesn't mean to say there aren't hurdles in the way.
In addition, financing the projects as the region battles its
way back from a COVID-19 pandemic that disproportionately
devastated Latin America's populace and economies will tax the
wherewithal and resilience of governments, although green, social,
and sustainable bonds could offer one solution.
IHS Markit now expects 16.5 GW of PV capacity additions across
Latin America in 2022, compared with 15.9 GW in a forecast three
months earlier. Some 9.7 GW of that will come online in Brazil, the
regional front-runner in solar, said IHS Markit Research Analyst
Angel Antonio Cancino, where a boom in distributed PV installations
played a large role in boosting the forecast for the continent as a
whole.
Brazil had a banner year in 2021, with distributed generation
sector additions surpassing 5 GW and utility-scale installations
topping 2 GW. Cancino said 2022 is expected to continue along the
same path.
The growth prospects across the region defy the cost challenges
currently wreaking havoc on solar supply chains around the
world, said Cancino, while noting price surges for modules,
freight, and raw materials such as steel, copper, and glass.
Those supply chain issues are going to continue globally in
2022, according to IHS Markit Executive Director Edurne Zoco. It
was a perfect storm in 2021, with record demand, price increases,
power cuts, and tariffs all contributing to major bottlenecks, she
said during a recent webinar. Supply lines
are set to remain very tight in 2022, although some costs will
decrease, including polysilicon, she added.
Latin America's PV opportunities are gaining notice in the wider
solar sector. Global Solar Council (GSC) Chairman Jose Donoso said
15 December he was optimistic about the prospects for solar in
Latin America, particularly given the increasing number of power
purchase agreements being signed.
To support the next level of growth in the region, Donoso said
during a GSC webinar that investors need targets from governments
and regulatory certainty.
Beyond Brazil
While Brazil is setting the pace in the solar sector in Latin
America, opportunities abound elsewhere across the continent,
market participants say.
Chile is expected to see 2.6 GW of PV newbuild in 2022, said
Cancino. Chile has a large pipeline of late-stage projects and new
projects continue to be added to the permitting queue for
large-scale utility plants and small scale distributed projects
known by the acronym PMGD, which have a capacity of less than 9
MW.
However, modernization of the Chilean distribution grid should
be near the top of the agenda, said Chilean Association of Solar
Energy (ACESOL) Vice President David Rau, for the country to take
advantage of the world's highest solar irradiation and replace
hydroelectric capacity that is dwindling rapidly as a result of
climate change.
Across Chile's northern border in southern Peru, there are
similar solar opportunities, said Peruvian Renewable Energy
Association Executive Director Paloma Sarria, but a grid revamp is
needed there, too, because the majority of the country's generation
capacity is in the center of the country.
Peru has an opportunity to become an energy exporter as well as
a metals and minerals exporter if it seizes the chance offered by
solar, said Sarria. Peru could build as much as 25 GW of solar
capacity, she said.
Sarria said the absence of government auctions since 2015 due to
an excess of supply at the time had hampered solar buildout. Even
without a grid revamp, 2.1 GW of solar capacity could be added in
the next few years in Peru, she said. In addition, he said, "if we
want to get to our net-zero targets, we really need to think about
the transmission grid" and the help it needs.
Brazil's great rival Argentina, meanwhile, was fourth in the
regional capacity table at the end of 2020, according to Rodrigo
Sauaia, GSC regional task force coordinator, who is also the CEO of
the Brazilian Solar Photovoltaic Energy Association (ABSOLAR)
Argentina has fallen further behind after Brazil's banner year,
but local hopes are high that things can be turned around despite
financial challenges and project delays. Argentina has a major
opportunity for a substantial buildout of its solar capacity, said
Marcelo Álvarez, president of Cámara Argentina de Energia
Renovables (CADER).
Brazil's economy, the largest in South America, is four to five
times bigger than Argentina's, but its solar sector is many
multiples bigger still, he said, with the gaping chasm between the
two at the moment indicating the massive unfulfilled potential in
Argentina—which has the world's eighth-largest land mass.
To start fulfilling the opportunity presented, said Álvarez,
Argentina must offer bigger and better incentives and standardized
nationwide tariffs and subsidies.
The country's embattled economy—bedeviled by inflation and
rising unemployment—needs the additional jobs the sector can
offer. And aside from panels and inverters, Argentinian companies
can provide almost all of the rest of the parts required, he said,
offering a boost to individual communities and the country as a
whole. With Argentina's goal of 20% of electricity from renewable
sources by 2025, some 10 GW of opportunity is waiting for
developers, he said.
Pandemic hurt
Argentina wasn't the only country in the region where the
economy and political classes are feeling the strain. The impact of
the COVID-19 pandemic on Latin America was disproportionate, UN
Development Programme Regional Director for Latin American and the
Caribbean Luis Felipe López Calva said 16 December, with 18% of
cases and 29% of the COVID-19-related deaths seen in a region that
only accounts for 9% of the global population.
Latin America's recovery from the pandemic has been slowed by
structural deficiencies, and around 50% of households across the
region have yet to return to their pre-pandemic income levels. As a
result, the amount and intensity of protests and social discontent
has increased since the pandemic started, López Calva said during a
Center on Global Energy Policy (CGEP) webinar.
Latin American nations are poorer after this crisis, said the
economist, and as a result there is limited space for fiscal
changes and minimal room for taxation reform. One solution could be
to find new ways of financing investment, including sustainable
bonds, he said. A reform of property taxes could also help and have
a chance of succeeding, but taxes just on the rich would fail
miserably, he added.
Former Colombian finance minister Mauricio Cárdenas, who was
also on the 16 December call, said every country in Latin America
is trying to avoid imposing tax increases, and all are looking into
new forms of financing even though many nations across the region
already have high levels of sovereign debt relative to countries in
Africa for instance.
Engagement on the energy transition can help tackle the civil
unrest flaring up across region, restoring trust that has
disappeared in a number of countries, Cárdenas said earlier in the year.
Speaking at the 2021 Columbia Global Energy
Summit (CGES), Cárdenas said climate change and the energy
transition can be part of the solution to the unrest. The
transition can be a tool no matter the political leanings of a
government, he added.
Where the money to build the renewable capacity comes from is a
big question. As Cárdenas pointed out during the CGEP webinar,
regional governments are strapped for cash, and there is little
room for fiscal maneuvering.
A proposed fuel tax hike in Cárdenas' homeland led to widespread
protests earlier in 2021 and they were withdrawn as a result of the
discord.
Green, social, sustainable bonds
The global pandemic is set to fuel a steep increase in regional
sovereign debt, which is expected to climb from 58% of GDP in 2019
to 76% in 2023, Daniel Vicente Ortega Pacheco, director of the
Sustainable Finance Initiative of Ecuador, said.
Borrowing in capital markets can work hand in hand with the
energy transition though, with Chile at the front of the queue to
do so in the region.
As market participants discussed the options for green, social
and sustainable (GSS) bonds in the region during a 7 December
event, a Chilean government official casually told his fellow
panelists that the ministry he represented had issued the equivalent of $1.3
billion in Chilean pesos in a social bond not 30 minutes
earlier.
The official, Patricio Sepulveda, head of the Chilean Ministry
of Finance's public debt office, said thematic bonds like the $1.3
billion social bond have expanded the country's investor base.
Among the social projects financed in recent months by the Chilean
government are COVID-19 pandemic-linked support for housing and the
labor market plus essential services, said Sepulveda.
Chile's GSS debt was equal to 23% of its overall outstanding
government debt, Sepulveda told an October International Capital
Markets Association (ICMA) briefing. At that point, the country had
issued $14.6 billion in social bonds, $7.6 billion in green bonds,
and $1.5 billion in sustainability-linked bonds in 2021. The
December tranche lifted its GSS borrowing for the year above $27
billion, he said during the 7 December event.
2021 saw a sea change in the Andean sustainable bond markets,
with the first Latin American telecommunications issuer and more
interest from environmental, social, and governance (ESG) funds,
Scotiabank sustainable finance director Daniel Gracian told the
same 7 December ICMA event.
The Andean GSS market has a lot of room for growth, with some
sustainable segments such as water virgin territory, Inter-American
Development Bank Senior Financial Specialist Isabelle
Braly-Cartillier told attendees of the ICMA event. Where sovereign
issuers lead in debt markets, local markets heed and follow, she
said. The volume of smaller deals is growing and such growth is
sustainable, according to Braly-Cartillier.
Gracian said the introduction of key performance indicators
(KPIs) tied to emissions and other environmental factors would be a
welcome development, especially with Paris Agreement-related
net-zero targets for 2050 coming more into focus. These could help
heavily indebted sovereign issuers.
"KPIs should be telling the story the issuer wants to tell the
market," he said, be it diversity or governance for instance,
adding that KPIs for sustainability linked bonds (SLBs) should be
an extension of the underlying ESG strategies of the issuer.
"Investors will dig deep, they will look beyond the framework, and
they want to see that the story the issuer is telling is aligned
across the board," he said.
But GSS bonds need the appropriate institutions to be in place
if they are to work, López Calva said. Spending the proceeds of the
social and sustainability-linked bonds on environmental issues
needs the right institutions, protections, transparency, and
guidelines to succeed, and he said "we cannot just expect this to
happen."
RT @SPGlobal: Many nations have set #NetZero Emissions by 2050 as their climate goal. Will be enough minerals to meet the requirements? Joi…
Jul 11
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