The Outlook for Renewable Energy in Latin America: A Banker’s View

Taking the long view, this article makes the case that the renewable energy industry is one third of the way into a century long success story. Latin America has all the requisite stakeholders in place: financial institutions, technology providers, and certainly an abundance of natural resources. Ultimate success depends on global priorities: the winning energy sources will be the ones that meet humanity’s goals best. If the goal is lowest-cost energy, then fossil fuels will win – until it runs out. If the goal is low cost and least pollution, then natural gas and renewables will win. If the goal is least impact on global warming, then nuclear power and renewable energy will win.

Michael Eckhart
Mike Eckhart

Invited Contributor: Michael Eckhart authored this piece exclusively for The Review. He is Managing Director and Global Head of Environmental Finance and Sustainability for Citigroup in New York City.

When seen from a recent perspective, this has been a turbulent and challenging several years for renewable energy.

Market demand in Europe has declined as feed-in tariffs (FITs) have been reduced. Wind power installations are declining in the U.S. this year because the Production Tax Credit (PTC) was allowed to expire before it was again renewed for one year on January 1, 2013. Overcapacity in wind turbine and solar PV has dropped prices and profit margins resulting in business failures, sharply declining share prices, and a stressful outlook. There is great distress in the solar PV manufacturing business due to sharply declining prices, but booming growth in PV installations due to the same forces. It all looks terribly difficult.

However, a 35 year perspective since the formative years in the 1970s yields a very different conclusion: that the renewable energy industries are one-third into a 100-year success story, only caught at the moment in a storm of shake-out and maturation because the barriers to entry were so low that too many companies entered the industry. On a global basis, the market is still growing, as increases in Latin America, Africa and Asia/Pacific offset declines in Europe and the U.S. It is a dynamic time.

China and Latin America are the two most interesting growth areas in the immediate future. Everyone is keenly aware of China’s growth in all renewables including wind, solar PV, solar water heating, biomass, small hydro, and large hydro.

However, the great story of this next decade will be Latin America. The region is ready to be the next growth engine for renewable energy, and many smart companies in the wind turbines business like GE, Vestas, Gamesa, and others are developing projects and building factories. Likewise in solar PV, smart companies are establishing footholds there today. Plus, there are hydro, geothermal and biomass projects under development across the region.

Brazil has accounted for perhaps 90% of renewable energy development in the past, with sugar-based ethanol as a core industry and wind power in recent years with financing being driven by BNDES, the government development bank.

The Mesoamerican region is making great strides. Mexico is one of the new growth markets in all renewables, with wind power development occurring in the lower wind zone, solar PV in the north, plus some hydro, biomass and geothermal. Meanwhile, Central American countries like Costa Rica, Honduras and Guatemala are hosts to wind, solar, hydro and geothermal projects.

Similar, the Andean countries are extremely attractive markets. Chile, Peru and Columbia are new markets for wind power but especially solar PV serving the mining industries. This is a whole new business model for the PV industry.

The Southern Cone nations of Argentina, Paraguay and Uruguay have enormous untapped potential, and Uruguay, despite its small size, has already taken leadership and been very successful with tenders promoting renewables and attracting considerable investment.

The Caribbean countries are likewise moving rapidly now with renewable energy commitments, such as Aruba with a “100% renewables” plan.

Some experts believe that the entire Latin America region is THE growth arena for renewable energy development for the coming decade and are making strategic investments to position for this opportunity.

One of the key ingredients will be financing, and in particular one’s ability to work with the development finance institutions like BNDES in Brazil, the Inter-American Development Bank (IADB), the International Finance Corporation (IFC) and others. Another set of important players are the export finance agencies like the U.S. Export-Import Bank and its counterparts in Europe, Japan and China. And there are others like the Overseas Private Investment Corporation (OPIC) of the U.S. that provides political risk insurance and co-financing.

Although there are push-backs on renewable energy this year, it is only because renewable energy is being so successful, and conventional energy is feeling the pinch. This is not to find fault on either side, but to say that renewable energy is now a “major” energy supplier to the world, no longer a “new” option, and from here on, it is a great competitor among major energy options.

The winner will be the one that meets humanity’s goals best. If the goal is lowest-cost energy, then fossil fuels will win – until it runs out. If the goal is low cost and least pollution, then natural gas and renewables will win. If the goal is least impact on global warming, then nuclear power and renewable energy will win.

In practice, as policy makers trade off various goals, renewable energy will have a greater — not lesser — role in meeting society’s needs for low cost, reliable energy that provides a cleaner environment and least impact on global warming. Especially now, this is gaining ground in Latin America – perhaps, the new growth market for renewable energy.

© Latin American Energy Review 2013

About the Author:

Michael Eckhart is Managing Director and Global Head of Environmental Finance and Sustainability for Citigroup in New York City. In international work, he serves on the Renewable Industry Advisory Board of the International Energy Agency, and on the governing bureau of the REN 21 global policy network. He has been an Observer for the formation of the International Renewable Energy Agency (IRENA), and served on the Advisory Committee to Prince Charles’ Rainforest Project.

From 2001 to 2011, he was founding President of the American Council on Renewable Energy (ACORE), a Washington DC-based nonprofit organization with members in wind, solar, hydro, ocean, geothermal, biomass, biofuels and waste sources of electricity, thermal energy, hydrogen and fuels. Previously, he developed financing for solar energy under the SolarBank Initiative through which he trained over 1,000 bankers in India on the financing of solar PV, and for which he was named Renewable Energy Man of the Year of India in 1998. Earlier, he was Chairman & CEO of the power generation development firm United Power Systems, Inc.; Vice President of the venture capital firm Areté Ventures, Inc.; a strategic planner of General Electric Company’s power systems sector; and a Principal with the energy practice of Booz, Allen & Hamilton.

He is a 2009 recipient of the Corporate Responsibility Award for Social Entrepreneurship, a 2008 recipient of the prestigious Skoll Award for Social Entrepreneurship, a 2006 recipient of RSF’s Good Deal for All Award, and a four-time invited participant in the Clinton Global Initiative.

Mr. Eckhart served in the US Navy Submarine Service. He received a degree in Electrical Engineering from Purdue University and an MBA from Harvard Business School.

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