Public tenders and auctions have driven 80% of current renewable energy capacity in Latin America and the Caribbean, according to a new study co-authored by the Global Wind Energy Council (GWEC).
The Competitive Processes for Financing Renewable Energy Projects report, produced by GWEC and the Latin American Energy Organization (OLADE), found power purchase agreements (PPAs) are “playing an increasingly important role in driving down price and bringing in investors”.
The report explores the financing mechanisms in place in Argentina, Brazil, Chile, Colombia, Costa Rica, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru, and Uruguay.
“Stable, regular and technology specific auctions, as well as long-term US dollar-denominated PPA contracts are found to be the most effective in ensuring competitiveness and transparency in prices for renewable energy and ensure long-term sustainability of the industry,” the document stated.
Wind energy makes up the majority of renewable energy capacity in Latin America with over 29GW installed as of December 2019.
The report was launched at the Mexico WindPower 2020 event.
GWEC chief executive Ben Backwell said the transition from feed-in tariffs to auctioning has been a “major turning point” in many markets to help lower the costs of renewable electricity.
Backwell said: “This has been clearly demonstrated in Latin America and the Caribbean where we see some of the lowest prices globally for both wind and solar, with the average price for wind decreasing by 46% on average across the region since 2016 when we saw a surge in auctions.
Backwell said PPAs are playing an “increasingly important role in driving renewable energy growth in Latin America and the Caribbean.”
Similar to auctions, the PPA market will require a “long-term vision” in order to continue to create transparent and low prices for renewable energy projects and attract investors, he added.
“If we can get both these financing mechanisms right, we forecast that 70GW of wind energy capacity could be installed by 2030 in the region, representing 12% of total electricity capacity,” Backwell said.
OLADE executive secretary Alfonso Blanco said: “Renewable energy has been growing exponentially in Latin America and the Caribbean over the past decades thanks to auctions.
“While there is no one-size-fits-all solution for financing mechanisms as they must be adapted to local context, through this study we have found key elements that can help ensure that and auction or PPA market is successful.”
Blanco said, for example, building auctions that are technology specific as well as PPA contracts that are long-term and done in US dollars can help ensure “healthy competition, secure interest from bidders, and create transparency and stability for investment levels and market size”.
He added, “Creating the right financing frameworks for renewables is key to ensure socioeconomic benefits and a cost-effective decarbonisation of our energy systems, and we are confident that the findings in this report can provide a roadmap for countries across the region to accomplish this.”