A brief analysis of Central America’s recent renewable energy growth

Summary: Central America’s renewable energy installed capacity grew by 23 % — 320 MW — in 2016. Commissioned wind projects finally passed the one gigawatt mark, with Vestas and Gamesa dominating the marketplace. And El Salvador announced auction winners — with surprising pricing results.

About the AuthorCarlos St. James is a leading advisor to energy investors and developers in emerging markets since 2005. He co-founded and presided over the Argentine Renewable Energies Chamber from 2005-2011; has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010; and also publishes the Latin American Energy Review as a way to generate greater understanding and debate on these issues.

He will speak at the next LAC-CORE Finance Summit to be held in June 2017 in Miami, Florida.

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Central America’s renewable energy sector had an excellent 2016. Total new installed capacity of solar and wind grew by a combined 23% year-over-year with 320 newly commissioned megawatts (MW). Solar capacity grew by 181 MW and wind by 139 MW.

The most impressive growth came in El Salvador with over 102 MW of new solar capacity, and Panama with a combined 97 MW of new capacity between wind and solar. Costa Rica also had a great year with 74 new MW of wind energy coming online. An earlier introductory analysis of the region, Making Sense of Central America’s Renewable Energy Sector, can be found here.

Renewable Energy Map of Central America. Courtesy Clean Energy Maps, LLC

Latin American governments still think in terms of wind energy as the primary utility scale renewable energy resource (at least when compared to solar). We’ve seen it most recently in the Argentine tenders, where the government sought 600 MW of wind and a mere 300 MW of solar and found out that there is considerably more interest in solar than anticipated: before the dust even settled on Argentina’s Round One, solar energy offered was almost ten times oversubscribed, while wind was oversubscribed by 5.7x.

El Salvador announces results of their auction

The same happens in Central America. Last week El Salvador announced the winners of its much delayed renewable energy auctions seeking 170 MW of renewable energy (strictly wind and solar), offering 20 year power purchase agreements (PPAs) with the government utility as offtaker. Price ceilings had been established at US$105.30 per megawatt-hour (MWh) for wind and $113.14/MWh for solar. The ceilings themselves were high, reflecting the reality of doing business in the country, but didn’t seem to take into account the rapidly dropping cost of solar technology and comparative advantage of solar resources over wind in the country. The government received four bids for wind and 25 for solar. The results speak for themselves:

  • 50 MW of wind was awarded to one winner at a price of $98.78/MWh (6% below the ceiling price). It went to a regional consortium that built and owns the San Antonio wind farm in Guatemala using Vestas technology (see below location of the wind farm, connected to the 230 kW transmission line).
  • 119.9 MW of solar were awarded to four separate projects with a weighted average price of $51.48/MWh: that’s 55% below the ceiling – and $47.30/MWh lower that the winning bid for wind. The French group Neoen proved the winner of the lion’s share of the solar projects.
Detail of Guatemalan renewable energy facilities. Courtesy Clean Energy Maps, LLC

Wind projects have three years to reach commercial operation; solar, two.

Contact us if you need additional information or help with introductions and guidance on entering this market.

With any luck Latin America’s historic preference for wind over solar (explained here) can now be put to rest. These technologies are equally competitive, and in small countries like El Salvador (slightly smaller in area than Israel or the state of New Jersey in the U.S.), where large tracts of land for renewable projects might be in short supply, smaller solar projects might be easier to accommodate. These are also great places for distributed energy to take off.

Installed Solar Energy Capacity in Central America. Detail from Renewable Energy Map of Central America, courtesy Clean Energy Maps, LLC

El Salvador has greater solar resources than wind. It is the only country left in Central America that still doesn’t have any installed wind capacity (the average installed wind capacity of Guatemala, Honduras, Nicaragua and Costa Rica and Panama is 178 MW). And El Salvador commissioned its first 102 MW of solar parks in 2016, all tightly packed near the country’s primary transmission grid parallel to the Pacific Ocean side.

Wind: a new milestone achieved

Despite the above, the Central American wind industry still had a more significant year than solar: it grew by 20.3% in 2016, but installed capacity finally surpassed the one gigawatt mark to a new total of over 1082 MW at year end (versus 656 MW of installed solar) – with Honduras and Panama commissioning new wind farms.

Wind Energy Turbine Market Shares in Central America. Detail from Renewable Energy Map of Central America, courtesy Clean Energy Maps, LLC

Vestas and Gamesa, both dominant in Mexico (see related analysis here), are also strong in Central America: they each have a quarter of the market. Vestas has been successful in Costa Rica since the ‘90s, where the region’s wind sector started. But the market share pie (click on graphs and maps to enlarge) shows as many participants as Mexico, with many companies finding a project or two in the region.

Installed Wind Energy Capacity in Central America. Detail from Renewable Energy Map of Central America, courtesy Clean Energy Maps, LLC

Goldwind burst onto the scene in 2015 with the commissioning of the giant Penonomé I & II farms, giving the Chinese turbine manufacturer a sudden 20% market share in the region. But phases III & IV of the project, called Nuevo Chagres and Portobelo, went to Vestas. The location of these Panamanian wind farms – along a 230 kW transmission line but past the end of the regional SIEPAC transmission line — makes future wind development possible candidates for the planned expansion of SIEPAC into neighboring Colombia. I have made the case against the regional power integration in an earlier analysis (see here), but connections with neighboring countries are a different matter. Please read it; I’m not crazy.

Geothermal

Installed geothermal capacity in Central America. Detail from Renewable Energy Map of Central America, courtesy Clean Energy Maps, LLC

Central America has 601 MW of installed geothermal capacity and potential for far more. Every country in the region has installed capacity save Honduras. As can be seen on the renewable energy map, Honduras is closer to the Caribbean, whereas all geothermal capacity is located on the western banks (Pacific Ocean side) of the mountains. No new plants have been commissioned since 2012 although more are planned.

© Latin American Energy Review 2017

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