Latin America is one of the fastest-growing solar markets worldwide, spurred on by high solar resources and surging electricity demand, resulting in 280% installation growth in 2015 compared to 2014.
Even though the Latin America solar market may dip slightly in 2016, it’s expected to rebound strongly between 2017–2020 and add 23.7 gigawatts (GW) of new capacity, according to GTM Research’s Q3 2015 Latin America PV Playbook.
But while Mexico solar – one of Latin America’s most promising markets – has so far underperformed against initial expectations, GTM predicts that’s about to change with a compound annual growth rate (CAGR) nearly double the region as a whole through 2020.
Solar Booms Across Latin America in 2015
Solar energy is an unquestioned boon for countries across the entire Latin America region. Even with a relatively slow third quarter, the solar market will to generate remarkable growth through the fourth quarter and 2015 as a whole. 2.3 GW of new installed solar capacity is expected across Latin America in 2015, up 280% compared to 2014 for a cumulative installed total of 3.1 GW – including a record 1.4 GW in Q4 and a total solar photovoltaic (PV) project pipeline of 38.5 GW.
Utility-scale installations shone brightest, with 2.1 GW installed capacity for a 296% year-to-year (Y/Y) growth led by Chile (71 MW), Honduras (61 MW), Guatemala (35 MW), and Brazil (11 MW). All other market segments show triple-digit 2015 growth, but less installed capacity: The commercial market will add 121 megawatts (MW) for 157% Y/Y growth and a 205 MW cumulative installed capacity, the residential market will add 51 MW for 180% Y/Y growth and 90 MW cumulative capacity, and the industrial market will add 27 MW for 183% Y/Y growth and 42 MW cumulative capacity.
This growth comes on the strength of new policy rollouts. Chile’s successful national auction secured the lowest competitive and unsubsidized power purchase agreement (PPA) in the world at $64/megawatt-hour (MWh) while pushing 300 MW of projects into construction. Brazil also held a successful auction, procuring 1 GW of projects at an average price of $87/MWh.
The Solar Boom May Slow in 2016
But even though economic drivers like rising power demand, high electricity prices, and exposure to volatile fuel prices create a strong overall market, Latin America’s solar market will slow in 2016. GTM forecasts the regional market will fall slightly next year, with a 4% Y/Y decrease and slightly lower overall capacity additions of 2.2 GW, attributable to macroeconomic forces like currency devaluation and exchanges as well as a decline in Chile’s market.
However, as the region’s massive project pipeline is developed, Latin American solar will rebound strongly between 2017–2020. GTM expects a 76% Y/Y growth rate to add 3.9 GW total capacity in 2017, increasing at a 39% CAGR to reach an annual market of 5.7 GW and 23.7 GW total capacity by 2020.
But Mexico Solar May Soon Outshine The Entire Region
Here’s where Mexico’s outlook gets interesting. Once considered among the largest potential national markets in Latin America on the strength of high solar resources and last year’s energy market reform, Mexico has stagnated compared to its neighbors.
This disappointing growth rate is partially due to regulatory red tape and depreciation of the peso compared to the dollar, but is primarily due to a 15% import tax on PV panels – considered the major reason 200 approved solar projects have yet to be constructed.
GTM identifies several developments which mean the market could rebound including rising target tariffs for residential solar, customer perception of rising electricity prices, and an expected solar-only capacity auction in 2016.
Of these trends, national auctions will likely drive the largest capacity increases. Auctions were one of the most promising outcomes of Mexico’s energy reform, and the country’s first auction will offer between 4-6 million 20-year renewable energy certificates as well as 15-year contracts for energy and power, all purchased by state-owned electric utility CFE to meet its obligation of supply 5% total customer energy demand with renewable energy by 2018. GTM does not expect solar bids to win out in the first auction due to price competition from other resources, but does expect a solar-only auction at some point in 2016.
Individual market segments will also benefit from specific drivers. The commercial and industrial markets, representing 67% of total power sales and exposed to volatile power prices during peak hours, can benefit from fixed-price solar PPAs at rates below grid prices as well as net metering incentives. GTM also estimates long-term PPAs will benefit the 520,000 homes consuming the most power and paying average rates of $0.21 per kilowatt-hour. GTM also expects the peso to stabilize in 2016, increasing demand for distributed generation as retail tariffs increase.
Tailwinds Add Up To A Bright Solar Future
GTM expects Mexico to add 149 MW in 2015 to reach a cumulative installed capacity of 286 MW, and increase steadily from 2016 through 2020 at a 71% CAGR, reaching nearly 8 GW total installed capacity by 2020. The utility-scale market will benefit the most from Mexico’s growth with 78% CAGR through 2020 but the commercial (10% CAGR), residential (8%), and industrial (5%) segments are also expected to increase.
This forecast doesn’t even account for the renewable energy tailwinds which could be created by Mexico enacting a carbon market in 2017, or its 40% emissions reduction by 2030 INDC pledge to the COP21 climate summit. It’s worth noting GTM’s outlook pairs nicely with IRENA’s recent estimate renewable energy will make up 21% Mexico’s total output by 2030.
Add it all up, and GTM predicts Mexico’s solar market growth rate will be nearly double Latin America’s as a whole – especially distributed generation. “We see tremendous upside in the distributed generation segment as it could get a boost from improved financing and increasing demand charges at the end-customer level,” said Mohit Anand, senior solar analyst at GTM Research.
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