London and New York | 11 August 2014 -– Both Mexico and the countries to its south are heavily dependent on diesel- and oil-fired generation, and are starting to invest heavily in cleaner options.
Plentiful resources of wind, solar, geothermal, and hydro-electric energy, combined with a need for new, more economical power capacity, are fuelling strong momentum in clean energy investment in Mexico and the six main countries of Central America, according to research from Bloomberg New Energy Finance.
Its analysis shows that investment in clean energy in Mexico totalled $1.3bn in the first half of 2014, compared to $1.6bn in the whole of last year. If activity continues at the rate of the first six months, then 2014 will be a record year, overtaking the previous high of $2.4bn set in 2010. Significant further increases in activity in both wind and solar are forecast in the next two years.
In Central America (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama), clean energy investment in the first half of this year was $317m, short of the pace required to match 2013′s full-year total of $1bn. However, the drivers of wind, solar and geothermal investment are even stronger in those countries than in Mexico, and this year’s political changes have mostly been positive for renewables.
Yayoi Sekine, Latin America analyst at Bloomberg New Energy Finance, said: “One of the striking things about this region is the very high exposure to expensive oil- and diesel-based generation. This makes up 20% of installed capacity in Mexico and 42% in Central America.
“Yet these countries have unusually good wind, solar, geothermal, and hydro-electric power resources. Using these to meet much of the additional electricity demand in coming years, and replacing that costly oil and diesel power, makes sense. It is becoming a key plank in the region’s energy policies.”
Detailed analysis of the project pipeline suggests that Mexico and Central America are likely to install just over 1GW of wind power capacity this year, beating 2012′s record of 757MW, with potentially another 1.3GW in each of 2015 and 2016. Solar may see just a modest 193MW installed this year, but the figure is likely to leap to 355MW in 2015 and 456MW in 2016.
Michel Di Capua, head of Americas analysis for Bloomberg New Energy Finance, said: “Renewables are not having everything their own way in these countries. Mexico continues to see strong investment in gas-fired generation, taking advantage of both its domestic resources and its proximity to US shale plays.
Hydro-electric has run into some difficulties in Costa Rica and Panama, because of drought. And across the Central American region, financing for renewables does not come easily, making the role of development banks and export-import banks vital for projects to get off the ground. But policy is being amended in most countries to encourage stronger investment in wind, solar and geothermal.”
These changes include Mexico and Honduras reforming their power sectors to allow a larger role for private-sector generation, Costa Rica’s parliament possibly approving an increase to the share of private-sector generation, and tenders in El Salvador, Panama and Guatemala providing specific opportunities for wind and solar project developers.