Key players in renewable energy in Latin America- Potential for Swiss companies
Latin America is a key oil and gas producer with some of the world’s top 10 oil exporters. But, the rapid growth in energy demand amid energy security concerns and increasing climate impacts present Latin American countries with an opportunity to rethink their energy mix.
According to the recent published report (2016) “Renewable Energy Market Analysis: Latin America” by IRENA. In 2015, total renewable energy investment in Latin America amounted to USD 16.4 billion, representing about 6% of the global total. The compositions of these investments represent an evolution of the region’s energy mix towards a more diversified portfolio of renewable energy sources.
By technology, the trend over recent years reflects a decrease in investment in liquid biofuels, compensated by remarkable growth in wind investment and, more recently, solar. Key investment was made in Brazil, Uruguay and Mexico. Since 2012, the region has seen the emergence of solar photovoltaics (PV) as a significant focus of investment, mainly in Chile, Brazil and Mexico.
Switzerland as a developed country possesses a big number of companies creating technologies, managing international projects and subsidizing projects in developing countries.
I am talking today with the Dr. Álvaro López-Peña he is the policy & market analyst at IRENA (International Renewable Energy Agency) based in Abu Dhabi. Álvaro has a PhD from Universidad Pontificia Comillas Madrid (ICAI/IDADE) and completed part of his research at MIT.
Q1: In comparison with other regions, why is Latin America considered as a key region for the production of renewable energy? Importance of Latin America?
Dr. Álvaro López-Peña: Let me start by saying that Latin America is indeed a global leader in renewables, deriving from the historical development of hydropower and bioenergy. These sources of renewables are huge in the region. Hydropower supplies around 8% of the primary energy, a level four times higher than the global average. Bioenergy accounts for 16% of the primary energy, compared to 10% globally. The role of other renewables like wind and solar has traditionally been smaller, but it is gathering pace very fast. The region has amongst the best potentials for wind (for instance in the south of Argentina) and solar (for instance in Mexico or northern Chile) in the world. At the same time, Latin America has been at the forefront of energy policies, for instance the biofuel program that started in Brazil decades ago, the power sector reforms in the 1990s that started in Chile, the use of innovative ways to plan and implement the extension of power networks, or the leadership in the use of auctions for renewable energy. As a result, some of the world records achieved last year in renewable energy prices awarded through auctions have happened in countries like Chile and Mexico, with prices around 30 USD/MWh, which is cheaper than wholesale electricity prices in most European markets.
Q2: Latin America is a rich region with a wide diversity of natural resources, 6% of the global total investment seems for me a small number vs. its real potential and still high dependence in oil. What do you think are the main barriers?
Dr. Álvaro López-Peña: Let’s keep in mind that Latin America represents around 8% of the world population and GDP, so 6% of global investment is not that low. Also, this 6% excludes large hydropower, a technology where the region is investing significantly. So no, I don’t think the investment volumes are small. But as you rightly point out, there are still some barriers. For instance, the current macroeconomic situation adding risk to exchange rates (for instance in Brazil), the subsidies to some fossil fuels that don’t allow renewables to compete in a level playing field, the off-taker risks, the complex administrative procedures or the insufficient diversification of capital sources are usually-cited barriers.
Q3. Different factors determine the capability of each country to promote renewable energie, for example the market liberalization. Which countries do you believe are more open for foreign investment?
Dr. Álvaro López-Peña: it is important to keep in mind that the degree of liberalization of the energy sector is not necessarily a factor conditioning attractiveness for investment. Chile and Uruguay, two countries that one could consider to be opposite to each other in terms of liberalization, have been among the key markets in the region. What is common to both countries is regulatory stability and transparency. On your question, where do I see the hot markets? Argentina is becoming a key country, with successful renewable energy auctions in 2016 that contracted around 3 GW of capacity, and at least another one planned for 2017, in the context of important economic reforms. Mexico is also becoming an interesting market after the impressive energy reform that is being undertaken. After a difficult 2016, Brazil will be back on the game soon, since the economic situation seems to be levelling off, and because it seems that they are entering a dry phase where less hydropower will be available, eventually pushing up power prices and increasing again the attractiveness of wind and solar. Chile will remain a key market, despite a slight slowdown in solar during 2016 due to a slight oversupply in the market and some transmission constraints.
Q4: Switzerland has a wide experience in renewable energy, which companies looking to invest, produce or transfer of Know-how and technology, which would be your recommendation for these companies? Areas of opportunity?
Dr. Álvaro López-Peña: Given the large experience of Swiss companies in hydropower and bioenergy, I think these are two key sectors where cooperation could take place. They are already very prominent in Latin America, but they role will keep increasing. For instance, Brazil is planning to significantly increase its installed capacity of hydropower. Bioenergy for heat uses will grow in importance for sectors such as residential and commercial. Another technology where Swiss companies are leaders is power infrastructure, including transmission in difficult, mountainous terrain, very similar to several Latin American countries. One more sector where Swiss companies could do business in Latin America is railways: the region is lagging behind in the use of railway, and this mode of transport is poised to gain importance as Latin America strives to reduce oil demand and greenhouse gas emissions.
About IRENA
The International Renewable Energy Agency (IRENA) is an intergovernmental organization that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international cooperation, a center of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity.