A Highlight on RES Deployment in Emerging Markets

REGIONAL INVESTMENT FOCUS – A Highlight on RES Deployment in Emerging Markets

While politicians are setting climate change goals throughout their armchair decisions, private investments are needed to finance project development and further progress necessary to reach the high goals set for 2040.
The following blog post aims to highlight the development of renewable energy projects in selected emerging markets. Looking beyond the traditionally strong markets like Europe and North America, this post gives you an insight in under appreciated markets.
And before you close this tab: No, the next few rows of this article will not be a promotion tour for the big emerging markets like China or India, although their political framework is improving and becoming more favorable for renewables deployment.
We are yielding at South- and Central America, both have areas which are global growth drivers for renewable energy deployment, illustrated by a 250% growth rate of newly installed capacity in 2015 compared to the previous year.
Although some experts argued that 2016 will be a year of stagnation for Latin America in terms of new installations, based on market developments and currency devaluation, two large markets are fighting for the pole-position in terms of market growth: We are talking about Chile and Mexico.
Both countries have vast renewable energy resources (solar, wind, and hydro) as well as an increasingly developing electricity demand – building a strong basis for private renewable energy deployment.

CHILE – the Solar Giant in South America

Chile’s potential for solar projects in the Atacama Desert is enormous, while the coastal regions can shelter a wind power potential of about 40 GW (according to GENI).
Based on the CIFES report, Chile installed 254 MW of solar solely throughout the first quarter of this year. Resulting in the nation maintaining it’s position as the largest solar market in Latin America.
Among the projects which have been put into service is the 79 MW Pampa Norte PV plant by Enel Green Power. Additionally in February Grenergy announced that it had put into service the 3 MW El Olivo PV project.
Put together, the capacity of non-conventional and renewable energy (ERNC) projects in the nation reached a capacity of 2.9 GW-AC at the end of March.
Power generation by ERNCs (excluding large hydro power plants) totalled around 655 gigawatt-hours (GWh) in March, representing around 10% of electricity production during the month.
Under mandates set by new legislation, this volume if generation will more than double with an objective of 20% renewable energy by the year 2025.
2.7 GW-AC of ERNC projects are currently under construction and are expected to enter into operation ranging dates between April 2016 and August 2018. Of those, solar PV represents nearly 2.1 GW. Additionally, more than 19 GW-AC of ERNC projects have gained environmental approval, of which more than 11 GW corresponds to PV plants, and more than 8 GW ERNC projects which have reached the first process stage. More than 5 of these GW are PV projects.

A vast amount of renewable energy projects are participating in electricity supply auctions for regulated off-takers. Recently, the date for presentation of bids was deferred for the largest solicitation of this type to date. Auction 2015/01 will take place at the end of July instead of April, as was previously planned.

MEXICO – the New Growth Engine?

Mexico is to be expected as the new growth engine; mainly through a first auction of green certificates in 2016
Mexico wrapped up its first Clean Energy Auction for electricity and Clean Energy Certificates for purchase by CFE, Mexico’s sole utility.
The results of this auction were immense, with 11 projects earning contracts worth 4,000,000MWh per year, equalling 1,860MW of capacity. Additionally, all 11 sites mentioned have earned contracts for a combined 4,000,000 Clean Energy Certificates (CELs). Contributing to GTM research predicting that solar in Mexico will increase by 521% in 2016, as opposed to the earlier 267% forecast.

The winning projects are from five different developers, with an average contract price of US$50.7 per MWh.

Out of the total of 5.38 million megawatt-hours of energy awarded in auction, PV earned 74%, while wind won the remaining 26%.

The pressure is on for construction on the projects to start soon as the January-March 2018 deadlines loom. With an ambitious 3.4GW now planned between 2016 and 2018, according to GTM’s research, in remains to be seen whether Mexico will execute according to plan. Whilst the results of the auction and conjunctive predicted increase in PV put Mexico’s solar development in a positive light, there is still the challenge of installing all the awarded capacity on time.

This is the moment, where the chances for established European Project Developers and Investors come up. Backed with a lot of experience in the development and finance of RES projects as well as strong brands, European players now have the unique possibility for the development of – as we call it – “High-IRR” utility scale projects. (Research from Mercatus shows that renewable energy projects in emerging markets are on aggregate 28% higher than in markets like Europe or North America).
How a European player can address a totally different market from off-shore will be the topic of our next interview series with Mag. Martin Thomas, former OMV Vice President and Owner of the Project Development Company mthpower services GmbH, a Vienna-based entity developing Solar PV Projects in the Middle East and North Africa region.

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Philipp Lobnig, 19. May 2016, 10:28

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