ClearSky Advisors has recently evaluated the attractiveness of each market in Latin America by quantifying the relevant fundamental and political factors which will drive solar installations over the next several years. Fundamental factors include solar insolation, the cost of electricity and current PV market maturity while political factors include the effectiveness of existing solar policies, new generation required and economic and investment risks.
Given these factors, the most promising solar PV markets in Latin America are shown in the chart below. Darker coloured cells indicate greater attractiveness for future solar development for the associated factor and country.
Given this analysis the top five markets in Latin America are:
By far the largest electricity market in Latin America, Brazil also represents a tremendous opportunity for solar installations due to some of the highest electricity rates in the region, a growing economy and a relatively mature solar market. Brazil also has a net-metering program, a tax incentive scheme and a renewable energy target of 27 GW by 2020 which represents 16 percent of installed capacity. Factors which may hinder installations are Brazil’s complex bureaucracy which serves to increase the risk of investing in the country.
Chile’s strong renewable energy target of 20 percent by 2020 was rescinded by the government in the fall of 2012 which has cast some doubt on the future of the Chilean market. Fortunately, Chile’s excellent solar resource, net metering policy and a rising demand for electricity by the mining sector in the Northern part of the country are all expected to drive large-scale installations over the next five years. Recent droughts have also shown the inadequacy of current hydroelectric generation capacity and have forced Chile to look to new sources to supply its energy needs.
Mexico has an ambitious renewable energy target of 25 percent by 2014, but these intentions will require strong policy if the plans are to be realized. Additionally, while the country has low average electricity prices they are highly variable which has led to pockets of high cost electricity consumption which significantly increases the fundamental attractiveness of solar installations. A world-class level of solar insolation along the West of the country as well as a stable economic and investment outlook will also drive foreign investment and installations in the market.
While Peru has a small electricity market as a whole, the country represents a strong opportunity for solar installations due to its relatively mature solar market, strong renewable energy targets and low investment risk when compared to other countries in the region. Distributed solar PV installations also offer significant auxiliary benefits to Peru’s electricity grid due to Peru’s disparate population and the problems associated with transmitting electricity across a long, mountainous country.
The Dominican Republic is the highest ranked Caribbean country on the market attractiveness matrix and represents an excellent opportunity even when the small size of the electricity market is considered. The Dominican imports the majority of its energy and pays some of the highest electricity rates in Latin America. On top of this the country has a strong policy foundation, has learned valuable lessons from the failed FIT program and, with a push for increased energy security, installations are expected to be strong over the next five years. The Dominican Republic’s main challenge, like that of many middle-income nations, is convincing foreign investors of sovereign bankability and political stability, the same issues that were responsible for the failure of the FIT program in 2010.
While these five countries are by no means the only opportunities in Latin America, they do represent the strongest overall markets when evaluated on both fundamental and political factors.
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Lead image: Latin America via Shutterstock