High power prices, strong demand for electricity, reliance on expensive petroleum and the unpredictability of hydroelectricity are a few key factors that have set the stage for wind power development in Latin America, according to a new report from MAKE Consulting. Led by Brazil and Mexico, the region is expected to install 53 GW of new wind power capacity through 2023.
MAKE notes that the development of wind power in Latin America is progressing largely without the support of traditional incentive mechanisms or renewables targets found in more established and developed wind markets. While it is true that a number of regional development banks have been instrumental in facilitating project finance for many of the projects in Latin America, the report says that value proposition of wind power technology has proven attractive to central power authorities, utilities and private off-takers in the region. High power prices and strong growth in demand for electricity in the majority of the region's markets have facilitated the incorporation of wind into regional power mixes without feed-in tariffs or production incentives.
Brazil – which MAKE says is the most mature and established market in the region – will install 43% of all new wind power capacity expected for the region through 2023. In the near term, the research firm foresees commissioning bubbles in both Brazil and Uruguay pushing new capacity in excess of 5 GW in both 2014 and 2015. The report says medium-term growth is also promising, as the Brazilian market has already contracted a strong portfolio of wind power projects at auctions through 2018. Momentum at national power auctions is likely to be sustained.
According to MAKE, Mexico's government approved critical amendments to its constitution in December 2013 to introduce increased competition in its petroleum and electricity industries. Several rounds of support legislation are expected to be approved over the course of this year that will help clarify the new future of the country's power market. Chile, meanwhile, nearly doubled its installed wind power base with the commissioning of 187 MW in 2013, and several utility-scale projects are scheduled to be connected this year – building upon the momentum growing in the market.
Although various factors have facilitated positive growth in some Latin American markets, MAKE says many other markets in the region still face sizable challenges.
For example, the report says the rapidly deteriorating economic and political situation in Venezuela raises serious doubts about the stability of the country and the security of investing in this market. Argentina's political situation is not as dire, but its economy continues to deteriorate at the hands of currency controls and political meddling in the country's energy sector, the report adds.
More information about MAKE's Latin America Wind Power Outlook 2014 is available here.