RENEWABLE ENERGY

MARKET ANALYSISLATIN AMERICA

IRENA 11 Council side event

25 May 2016

• Introduction

• A changing energy landscape

• Key drivers and dynamics underlying RE deployment in Latin America

• Towards a more diversified mix of technologies and countries

• Declining costs and growing benefits of renewables

• Enabling policies central to deployment

• Key role of public financing institutions

• Recent emergence of private investors in renewables

• Catalysing private finance to scale up investment

• IN FOCUS: Complementarity between hydropower and other RE as a levering factor

• IN FOCUS: Renewables for industrial heating applications

• Key findings

2

Presentation outline

3

RENEWABLE ENERGY MARKET ANALYSIS LATIN AMERICA

4

Total final energy consumption by economic sectors in 2013

• Transport and industry dominate regional

energy consumption.

• Transport share larger than in other

regions of the world.

• Industrial share also larger.

• Residential consumption relatively small.

• Commercial also significantly smaller.

• Important differences across sub-

regions.

Changing energy landscape: demand

Source: IEA (2015)

Changing energy landscape: supply today

Total primary energy supply (TPES) in 2013

5Source: IEA (2015)

• Oil share larger than in other regions,

similar to OPEC. Some of the world’s top

10 exporters.

• Bioenergy and hydropower several times

larger than world average.

• Much less coal and nuclear.

• Gas use growing, similar order of

magnitude as in high-income. countries

(OECD)

Changing energy landscape: supply evolution

Shares in TPES by sources, 1990-2013

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Source:

IEA (2015)

• Oil decreasing in most regions except Andean States

• Bioenergy decreasing in most sub-regions, reduced use of traditional solid biofuels

• Hydropower, coal, nuclear and geothermal stable or slightly decreasing

• Gas growing, specially in Mexico, Brazil and Southern Cone, mainly for power generation

• Solar, wind and other renewables still very small, but growing fast (see IRENA data)

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Source: IRENA (2016), IEA (2015)

Electricity generation by sources and by sub-region

• Huge role of hydropower, gas growing rapidly and expected to play a major role

• Oil and nuclear stagnant

• Coal growing slow, mainly in Central America

• Recent data shows fast increase in non-hydropower renewables

Changing energy landscape: electricity generation

2014

Key drivers and dynamics underlying

RE deployment in Latin America

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• Overarching energy policy drivers

o Energy security: macro impacts, supply disruptions, climate resilience

o Decarbonisation of the energy mix

o Diversification away from fossil sources and from hydropower

• Sub-regional dynamics

o Mexico recasting its energy mix towards clean sources

o Diversification through renewables and integration in Central America

o Off-grid renewable energy opportunities in the Andean States

o Brazil as a powerhouse for non-hydropower renewables

o Chile and Uruguay leading RE development in the Southern Cone

Towards a more diversified

mix of technologies and countries Renewable energy investment by technology

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Source: Bloomberg New Energy Finance (2016)

• Total investment over USD 80 bln since 2010, excl. large hydropower.

• USD 16 bln in 2015. Top markets: Brazil, Mexico, Chile, Uruguay, Honduras, Peru.

• Decreased investments in liquid biofuels in Brazil; increased in wind and, lately, solar PV across

countries (wind in Brazil and Uruguay, PV in Chile, Brazil and Mexico)

• In addition, significant investments in large hydropower: IRENA estimate at USD 9 billion in 2015

• Significant fall in LCOEs in

the region

• Largely explained by

technological

improvements,

development of domestic

supply chains, better

financing and overall sector

maturity

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Source: IRENA (2015) “Renewable power generation costs”

Evolution of LCOEs for utility-scale projects in (USD/kWh)

Increasing cost competitiveness of

renewables in Latin America

RE benefits gaining prominence in Latin America

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Enabling policies central to deployment

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An overview of policies in Latin America

• Latest trends and emerging themes in RE

policy development

• 20 supporting country Policy Briefs

• Based on review of 325 primary sources

including legislation and official

government sources

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Support development policies

Leverage private finance

Promote technological advance

• Chile’s Economic Development Agency had a key role in enabling the establishment of the Research Centre for Solar Energy Technologies, focused on applied R&D.

• BNDES offered low-cost, long-term loans for up to 70% of

total capital for RE projects.

• Through local content requirements, contributed to the

development of wind power supply chain in Brazil.

• In Mexico, syndicated loans have become common, with state-

owned financial institutions joining local private banks, the risk

thus being spread between different lenders.

Main functions:

Key role of public financing institutions

in Latin America

In 2007, IDB and IFC financed the first Mexican wind power

project, and invited the domestic development banks NAFIN

and BANCOMEXT and other lenders to co-finance the project

� Kick started learning curve for wind project financing

• Multilateral development banks

• Bilateral institutions

• Overseas investment agencies

• Emergence of climate funds

� Overall same functions as domestic

public finance institutions

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Multilateral

institutions

Bilateral

institutions

Foreign public financing institutions

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Mature RE sectors, more stable economies

• Markets with more mature RE sectors and more

mature techologies

• Markets with perceived stable economy and sound

RE policies

Niches: short-term loans and refinancing

• Lengthy administrative procedures coupled with tight

implementation schedule increase demand for bridge loans

• As public financing institutions focus on financing new projects,

refinancing operational assets becomes niche for private sector

Foreign private banks

Emergence of private financing institutions

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PUBLIC CAPITAL

TO ENABLE

PRIVATE

PARTICIPATION

Public institutions can

strategically mitigate some risks

to catalyse private capital.

KEY STRATEGIES TO

CATALYSE PRIVATE

INVESTMENT

• Allocate risks adequately

• Strategically select public

financed projects to create a

project pipeline

• Develop “financial value chain”

CAPACITY

BUILDING AND

INFORMATION

• Lower the cost of acquiring information

• Disseminate financial analysis and

project structuring techniques

ENERGY

POLICY

FIRST, THEN

FINANCE

Economic and energy

policies address broad

risks underlying

renewable energy assets.

Then, financial

instruments can be used

to reallocate remaining

risks.

Catalysing RE investment to scale up

investment in Latin America

IN FOCUS: Complementarity between

hydropower and other RE as a levering factor

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• High shares of hydropower create

opportunities to scale up other renewables

• Complementarities, such as:

• Climatic (see graph)

• Enhanced reliability and economic

performance

• Market entry opportunities

• To harness them:

• Well-developed power grid

• More robust, comprehensive

approach to power sector

management that internalises the

full value of complementarities

Complementarity: a win/win proposition

Source: Chaer et al (2014)

IN FOCUS: Renewables for

industrial heating applications

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• The region has a relatively high share of

renewables in industrial heat. Leaders include

Paraguay, Uruguay and Costa Rica.

• Mainly bioenergy in industries closely related to

agriculture and forestry - convenient sources

• Solar and geothermal emerging

• Drivers:

� Economic competitiveness and risk reduction - heat PPAs

e.g. Minera Gaby in Chile

� Reduction of residue disposal costs

� Marketing (e.g. green labelling, such as Coopedota in Costa

Rica)

• Large potential. Some barriers:

� Reduced knowledge on available technologies

� Lack of access to adequate financing

� Energy pricing regimes

� Bioenergy sourcing

Source: Energia Llaima-Sunmark

Source: Endesa/Botrosa, Gomelski

• Enabling policy and investment frameworks remain essential to scale up

RE in the region.

• Public funding will continue to play an important role as a catalyst to

attract private capital to Latin America’s RE sector.

• The socio-economic benefits of RE are gaining visibility in the region, in

particular employment and local value creation.

• Exploiting the complementarity between hydropower and other RE

sources is a key levering factor for all renewables in Latin America.

• The market for RE heat can be further developed with appropriate

business models and access to specific financing.

• Looking forward, new generation of policies combining energy

efficiency and renewable energy can unlock further potential. 20

Key findings

Thank you