Led by Brazil, Mexico, and Chile, 2020 shall be one of many greatest years for photo voltaic demand in Latin America, regardless of coronavirus-related setbacks. And from 2020-2025 utility-scale and distributed photo voltaic will each develop in lots of international locations within the area, with distributed photo voltaic choosing up velocity in Brazil particularly.
However regardless of falling system prices, development within the area shall be pretty constrained, and far of will probably be offset by Mexico’s renewable vitality growth bottleneck. Builders within the area may even face elevated competitiveness available in the market resulting from decrease system prices and lowered energy costs.
Nation demand and system price tendencies
As utility-scale photo voltaic demand climbs in 2020, system prices will fall. In response to new analysis from Wooden Mackenzie, common utility-scale system prices in main Latin American international locations are anticipated to say no 9 p.c from 2019 to 2020.
Mexico will maintain the bottom system prices of all main markets analyzed, with Colombia and Chile shut behind. Falling module costs, together with heightened EPC and developer competitors will contribute to lowered system prices. Growing module energy density may even drive down prices.
All-in utility-scale PV system prices by nation in Latin America, 2019-2025E ($/Wdc)
Supply: Wooden Mackenzie
Nevertheless, whereas falling prices shall be a driver of future photo voltaic demand, main Latin American international locations will face headwinds that can stunt market development over the subsequent 5 years.
Wooden Mackenzie estimates photo voltaic PV installations in Mexico will develop solely 7 p.c this yr in comparison with 2019, a slowdown that’s linked to rising political and regulatory uncertainty and excessive growth prices resulting from Covid-19-related delays.
The slowdown will proceed into the 2020s. No new auctions are deliberate within the foreseeable future resulting from an unfriendly shift in coverage from Mexico’s authorities and new measures that don’t favor non-public funding within the renewable electrical energy sector.
Brazil’s rising utility-scale pipeline faces a considerably totally different set of challenges. Though Brazil’s pipeline of utility-scale tasks retains rising, these tasks’ operational and financial feasibility will depend on a rise in vitality demand, jeopardizing tasks’ CODs. Capability additions will gradual by round 2023 when the federal government is anticipated to take away transmission price subsidies for renewable vitality tasks.
Then again, Brazil has incentivized development in its distributed photo voltaic phase, which grew 266 p.c between 2018 and 2019. Web metering and low-interest price financing from non-public and public banks are anticipated to gas additional development by 2025.
Chile’s photo voltaic market will expertise unprecedented development in 2020 and 2021, pushed partly by its Pequeños Medios de Generación Distribuida (PMGD) regime and a sound coverage framework focused in direction of renewable vitality investments. The PMGD scheme ensures builders a steady value for tasks as much as 9 MWac. Nevertheless, this pricing framework is anticipated to alter within the first half of 2022, when builders are topic to fluctuating costs.
Challenges to photo voltaic development
Energy oversupply and a lower in demand in each Brazil and Chile have challenged photo voltaic mission economics and elevated the competitiveness of bilateral PPAs. Delays and difficulties in acquiring governmental permits have change into a further burden for builders in international locations like Brazil and Mexico. In Mexico, acquiring correct allowing and interconnection agreements has change into more and more difficult for builders beneath the present authorities, and Covid-19 has solely made issues worse.
Builders in Mexico face different challenges: securing financing and long-term PPAs because of the dangers related to regulatory uncertainty. The Mexican authorities additionally requires a social affect evaluation for brand new mission growth, which may enhance developer prices. Social seek the advice of necessities have additionally been a trigger for setbacks in Colombia, particularly within the north the place native communities have sturdy affect and are essential within the growth of tasks. Relying on their expertise working in Colombia, builders might choose to rent exterior consultants to navigate the native consultations, which may enhance prices.
Brazil faces a few of the highest system prices in Latin America, partly resulting from native content material necessities and import tariffs. Despite the fact that the import tariffs on photo voltaic elements had been eliminated earlier this yr, system prices stay larger than common.
Brazil additionally experiences risky overseas alternate charges, and builders might maintain off on procuring gear if charges negatively affect a mission’s profitability. Like Brazil, Argentina additionally prefers native content material necessities which may enhance system prices. Additional, the political and financial uncertainty creates an unfavorable atmosphere for brand new photo voltaic growth.
If photo voltaic demand slows yr over yr, system prices might fall at a slower price resulting from lowered EPC and developer competitors.
Whilst utility-scale photo voltaic development is hindered in some international locations past 2021, system prices are nonetheless anticipated to fall. Excessive demand for bifacial module expertise will proceed to drive down smooth prices, and maybe system prices as these module costs change into aggressive with monofacial module costs. Moreover, whole photo voltaic demand in these main LATAM international locations may even be pushed by the distributed era (DG) phase, as costs proceed to drop, significantly in Brazil and Chile.
Chile’s new PMGD value framework to roll out in 2022 will possible heighten demand for tasks to be accomplished earlier than then, however may hinder development after the deadline given the brand new fluctuating value scheme.
Concerning residential photo voltaic, Chile, Mexico and Brazil all have a promising outlook. Mexico maintains the bottom common residential system costs at $1.04/Wdc in 2020, whereas many tasks report whole costs effectively beneath $1.00/Wdc. Each Mexico and Brazil have low limitations to entry for residential installers, which will increase competitors and can contribute to future residential value declines.
Sound monetary positions and native data shall be essential for brand new market entrants as markets mature and competitiveness will increase. Whereas part costs proceed to fall, developer prices stay elevated with little or no room to lower yr over yr.
There shall be a heightened give attention to lowering these developer prices, as international locations within the area advance of their renewable developments.
Sturdy market circumstances and coverage frameworks shall be key for elevated development.
Molly Cox and Valentina Izquierda are Wooden Mackenzie photo voltaic analysts. Study extra in regards to the new report, Latin America and Canada photo voltaic PV system pricing 2020.