The winds of change are blowing through the Latin American energy markets
According to research, annual wind power capacity installations will double as more than 20,000 new wind turbines are built across 15 countries
Renewable energy developers seeking the next big thing should turn their sails toward Latin America, where growing electricity demand, pro-renewable government policies, and limited fossil fuel resources are creating one of the world’s fastest-growing wind power markets.
Over the next decade, annual wind power capacity installations will double as more than 20,000 new wind turbines are built across 15 countries, according to Navigant Research’s Latin America Wind Market Assessment.
Although modest overall in comparison to established wind markets in Europe, North America, and Asia, the Latin American market could balance out recent boom or bust demand trends and keep the wind industry aloft for years to come.
Power Demand Surge + Limited Supply = More Wind
The main factor behind Latin America’s wind power surge is economic growth. As foreign manufacturers have invested in new factories, domestic electrical demand has surged. However, underinvestment in transmission and generation hasn’t been able to keep pace, generating grid reliability concerns.
Many Latin American nations rely on hydropower for their electricity supply, but seasonal rainfall trends have varied in recent years, exacerbating nagging energy shortages. In addition, several regional economies have limited oil and gas reserves, leaving policymakers to explore alternative energy sources.
And that’s where wind power comes into the picture. Until recent years, wind has been a modest part of the region’s energy mix, with just under 4.9 gigawatts (GW) installed capacity at the end of 2012, according to the Global Wind Energy Council.
Now hold onto your hat – Navigant predicts 2.2GW of new wind capacity will to go online across Latin America in 2013, up from 1.7GW installed in 2012, and that rate is forecast to jump to 3GW annually by 2015 and 4.3GW annually by 2022.
At that pace, Latin America will have 5.5 percent of all global installed capacity in 2013 and 5 percent of all worldwide capacity additions by 2022. While other established markets experience single-digit or negative growth rates, the countries in Navigant’s study will average a 22.6 percent compound annual growth rate (CAGR), with four countries (Peru, Uruguay, Venezuela, and Cuba) exceeding 30 percent CAGR.
Brazil and Mexico Lead A Truly Regional Market
So where exactly will wind power’s growth be strongest? As expected, Mexico and Brazil, the “twin pillars” of the Latin American economy and already home to nearly 4GW of installed wind capacity, will dominate the regional wind market.
Brazil will provide roughly half of the new wind power capacity. Eight auctions since 2009 have awarded 8.5GW of wind power contracts to be built over the next five years, and annual installations could average 1.5GW as soon as 2016. Brazil set a goal of 10GW by 2025 total wind power capacity goal, and Navigant notes it’s on track to hit that mark by 2017.
But while it may be booming, Brazil’s wind market is tricky. Federal regulations impose a de facto 60 percent local content sourcing requirement, meaning international developers need to either locate manufacturing in the country or partner with local companies.
In addition, the government now requires developers to ensure grid access to adequate transmission capacity. However, power contracts in recent years have averaged $50 per megawatt-hour (MWh) – meaning if you can build it, you’ll profit from it.
Not to be outdone, Mexico installed over 800 megawatts (MW) in 2012 and should pass 2GW cumulative capacity by the end of 2014. However, wind currently only provides 2.5 percent of national power supply and the country has a 35 percent renewable electricity by 2024 goal, meaning demand will skyrocket in short order.
Mexico is also home to two innovative policies fueling market growth: A self-supply scheme allow partnerships between large power consumers and wind developers to own and build new wind farms to meet their own electricity demand, while regional transmission needs are proactively identified by the government and built in coordination with private developers as new wind farms go online.
American- and Canadian-based companies are uniquely positioned to take advantage of Mexico’s wind market growth due to the North American Free Trade Agreement, as they can avoid a 15 percent import duty, providing an outlet for manufacturers concerned about slowing American demand.
Cumulative wind installations in the 13 other nations will be modest, but collectively should hit 1GW annually in 2014, creating a truly regional market. Forecast growth is spread evenly across these countries but will be led by Uruguay with 1GW, Argentina with 745MW, Chile with 540MW, Peru with 232MW, and Nicaragua and Panama with 220MW apiece.
Each country in the Latin American wind race has its own set of local market conditions, but pulling back to look at the region makes it clear that wind power is growing like never before across the region.
Editor’s note: Silvio Marcacci is Principal at Marcacci Communications. The views expressed in this post do not necessarily reflect or represent the views of ABB or its employees.