Latin American solar sector to shine brighter in 2022
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.
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.
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."
- BOEM sets date for largest US offshore wind lease sale yet in New York Bight
- Solar PV installations to continue surge in US as costs fall
- Southeast Asia to renew efforts to boost renewable capacity in 2022 after climate pledges: ASEAN researchers
- BlueFloat Energy eyes 1 GW+ Australian floating offshore wind projects
- Spain fires starting gun for offshore wind, but without clarity on auctions
- Four US states’ offshore wind ambitions advance
- Malaysia wins praise for green electricity sales scheme with lower tariff, RECs
- Philippines embarks on long-awaited market reforms for renewable expansion
As we all embark on a new year of discoveries, may curiosity light your way forward. Wishing health, peace, and h… https://t.co/cxz7jIxMUy