Solar market trends and prospects in Latin America

Blessed with abundant sunlight resources, Latin America is entering the limelight. With technological advancements, policy support, and the trend of energy transition, PV technology is developing at a remarkable pace.

Statistics of InfoLink show Latin America has 24.8-27.4 GW of PV demand in 2023, with Brazil being the largest market followed by countries such as Chile and Mexico. The following paragraph l delves deeper into Latin America's PV market landscape, providing insights into the latest trends and potential challenges.


 

Major market updates

1.    Brazil

Situated near the equator, Brazil is more advantaged thanks to ample sunlight and has emerged as the leading market leader in Latin America over recent years. This year, Brazil will have around 16.3-17.5 GW of PV demand, representing a 65% share in the region. Installations of distributed generation projects exceed that of centralized generation ones. As of October, the installed capacity of distributed generation projects reached 23.8 GW, compared to 10.4 GW installed in centralized generation projects.

Brazil's Law 14.300, enacted in January this year, introduces a new electricity framework for distributed generation. Under this framework, PV projects with an output below 5 MW will be eligible for a net metering mechanism until 2045, while small-scale distributed generation projects will be subject to a grid access charge starting in 2023. Therefore, project owners hurried to submit grid-connection applications before the new regulations took effect, attributing to the rapid growth of the market in 2022. Due to installation deadlines specified in the sunset clause, Brazil experienced a surge in installations from 2022 to the first quarter of 2023, then saw a significant decline in the distribution market thereafter.

The centralized generation market in Brazil has seen a significant uptick compared to last year due to falling module prices, with numerous centralized ground-mounted projects currently under construction. The 50% discount on the tariff for the use of transmission system (TUST) for centralized generation projects applying for grants from the National Agency of Electric Energy (ANEEL) after March 2, 2022 will end and be only available for projects submitting applications before the aforesaid date and commence operation within 48 months after ANEEL's approval. In response, many manufacturers rushed to submit applications before the March 2022 deadline. As a result, the government approved a substantial number of centralized generation projects in 2022, which will underpin the country’s PV demand in the coming years.

These policy changes cast uncertainties overfuture demand in Brazil. While the implementation of Law 14.300 led to a surge in installations in the first quarter, the second half of the year witnessed a significant decline in the demand from distributed generation projects. Some distributors began selling off modules. The decrease in prices and sales added immense pressure to local distributors holding high-price module inventory, while high loan rates have undermined the willingness of end users to install.

Recently, the Brazilian government adjusted the Ex-tariff rules, specifying that imported goods qualify for tax exemption only if the functionality exceeds the local manufacturing capacity. Consequently, modules of certain specifications dropped out of the ex-tariff list and were subject to the new tariff implemented on September 22, 2023. Although the government terminating tax exemption to safeguard local manufacturing, the measure will lead to a shortage, for production capacity in Brazil has yet to be sufficient to meet its demand. Also, given the significant decline in sales volume, the outlook is pessimistic for the Brazilian market next year.
 

2.    Chile

Chile possesses abundant renewable energy, with hydropower being its primary source of low-carbon energy. Recently, to reduce dependency on imported energy and cope with rising electricity costs, the government has vigorously promoted renewable energy policies, which, combined with the country’s geographical and climatic advantages, makes solar energy an indispensable power source. As of August 2023, the total installed renewable energy capacity was 32.5 GW, with solar accounting for 8.1 GW, constituting 25% of the total. Currently, solar energy is the largest source of electricity in Chile, with an expected annual demand of 3.3-3.8 GW this year.

So far, most projects in Chile are utility-scale ground-mountedprojects, primarily located in the Atacama Desert. Nevertheless, Chile is promoting the construction of small-scale distributed generation projects through the Small Means of Distributed Generation (Pequeños Medios de Generación Distribuida, PMGD) policy. For projects smaller than 9 MW in size, the government signs agreements at fixed electricity prices to mitigate risks of price fluctuations on the spot market. In recent years, Chile has transitioned from utility-scale power stations in the desert- towards distributed generation projects.

The PMGD has been in place for several years since 2014,but the Chilean government hasn't introduced new incentives for distributed generation projects. Additionally, the country still lacks adequate transmission lines and suffers from poor grid capacity, potentially leading to power shortages or energy waste. Therefore, in June 2023, Chilean President Gabriel Boric announced plans to introduce a new bill this year to align with the 2050 carbon neutrality goal. Furthermore, there are plans to invest USD 2 billion in the Atacama Desert for utility-scale energy storage systems, which is set to commence operations in 2026. While the Chilean government is agitates for energy storage and grid solutions, financial factors may slow down the future development of PV projects.
 

3.    Mexico

As one of the top three sources of demand in Latin America, Mexico will have around 1.7-2 GW of PV demand this year. By the end of 2022, Mexico's energy mix consisted of 68.8% fossil fuels and 31.2% clean energy. The country’s total installed electricity generation capacity will reach 92.5 GW, with PV installations accounting for 6.5 GW.

The Mexican government has implemented various policies to promote PV development. In 2014, it introduced Clean Energy Certificates (CELs) to encourage the use of clean energy, with each certificate representing 1 MWh of renewable energy generation. Power generators must achieve the clean energy share mandated by the Secretariat of Energy (SENER), and provide the corresponding number of CELs, or face fines. This has led many renewable energy generators to engage in CEL trading to meet the government's clean energy requirements, thereby fostering PV demand. In June 2018, Mexico's Secretariat of the Treasury and Public Credit and the executive branch waived a 15% import tariff on PV modules. Coupled with the net metering system, the measure has benefited centralized generation projects and boosted the willingness among households and small and medium-sized enterprises (SMEs) for installation in recent years.

Despite these policies, Mexico is still lagging behind its target renewable energy mix of 35% for 2024 set in the Energy Transition Law with a slowly developing PV sector. The impediments to its growth include actions taken by the then-newly inaugurated López government in 2018. Aiming torevitalize the position of Mexico's state-owned power company (Comisión Federal de Electricidad, CFE) in the power market and reduce the participation of the private sector to ensure energy supply stability, the government canceled the fourth round of renewable energy tender. The decision halted previously planned PV projects and reduced CEL issuance. After that, Mexico has seen no progress in renewable energy tenders. Additionally, challenges such as the lack of policy support, uncertainties arising from the upcoming presidential election next year, an underdeveloped power grid, and difficulties in land acquisition for utility-scale projects may continue to hamper future growth of the MexicanPV market.
 

Future outlook

The Latin American market will continue to post slow growth, with demand slightly decreasing next year. The outlook for Brazil is gloomy, which will directly influence the rest of Latin America. Overall, PV demand in Latin America will dip to approximately 22-25.2 GW in 2024.

With recent economic growth and population increases in Latin American countries, the energy demand gradually rises, making the need for renewable energy increasingly urgent. Countries like Brazil, Mexico, and Chile, attract investors with great solar market potential, thanks to abundant sunlight resources. Nevertheless, the Latin American market faces multiple challenges, such as funding issues persistently limiting project development and inadequate grid infrastructure and storage technology constraining solar power output. Despite these challenges, there is ample room for development, as many pending projects underpin future demand. Hopefully, Latin America will see demand surge again with active capital investment, policy advocacy, reduced financing barriers, and streamlined approval processes.