According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report, renewable power capacity in Latin America is expected to increase 45% (+130 GW) during 2022-2027 in the main case. Growth shifts from hydropower to solar PV (+78 GW) and wind (+36 GW), which together make up almost 90% of the region’s expansion. Brazil accounts for over 55% of regional growth, though a slowdown in distributed solar PV is expected due to a change in net-metering compensation, leading to a sharp decline in the region’s annual additions.
Lower government-led auction volumes in Brazil, Chile, Mexico and Argentina are offset by greater numbers of bilateral power purchase contracts, which increasingly drive expansion. However, in addition to declining auction volumes and participation, the lack of long-term policy certainty remains a key challenge in markets such as Argentina and Mexico, hampering growth in the long term.
Brazil
Deployment outside of the government’s auction scheme and net metering prompts over a 60% upward revision to the forecast
Brazil is expected add over 70 GW of new renewable capacity through 2027, with solar PV and wind making up the majority. This year’s forecast has been revised upwards by over 60% to reflect continued utility-scale project growth through the free market, auction deadlines for onshore wind power and a deadline for distributed PV benefits.
For utility-scale solar PV and onshore wind, free-market demand is the main growth driver, supplemented by previously awarded auction capacity. Demand for free-market capacity comes partially from bilateral contracts with retail and industrial customers to help meet corporate decarbonisation goals. In addition, the forecast expects a rush of installations in 2023 before the grid use tariff exemption ends in March 2024.
New distributed PV capacity of more than 20 GW is forecast, with over 8 GW forecast to come online this year (systems installed before January 2023 are eligible for the current generous net-metering scheme, which has provoked an installation rush). New installations will receive less compensation for surplus energy, reducing their economic attractiveness and resulting in lower annual capacity additions over 2024-2027. Still, average market growth of over 2.5 GW per year is expected in the remainder of the forecast period as the business case remains attractive despite lower remuneration.
The accelerated case forecasts 16% higher growth, which can be achieved with additional free-market contracts, a slower-than-expected demand drop for distributed PV and higher-than-anticipated auction volumes due to higher consumer demand.
Chile
Ambitious renewables-based hydrogen production accelerates wind expansion
Renewable energy capacity in Chile is forecast to more than double by 2027, reaching 45 GW. Onshore wind leads growth, with half of new capacity intended to supply electricity for green hydrogen and ammonia production. Indeed, Chile’s ambitious plans to expand renewables-based hydrogen production, combined with solar PV additions in its deregulated market, incite a 46% upward revision from last year’s forecast.
Auctions have historically driven utility-scale renewable capacity expansion in Chile. However, the country awarded only 15% of offered energy during its latest auction in August 2022. Despite higher investment costs for onshore wind and solar PV due to elevated commodity prices, auction reference prices remained unchanged. Thus, three-quarters of the bids submitted were not accepted because they exceeded the reference price of USD 42/MWh. While the forecast therefore expects less renewable capacity to come online from auctions, expansion in the deregulated market is accelerating owing to higher prices.
In 2020, Chile announced ambitious plans to ramp up renewables-based hydrogen production, and in December 2021 the Chilean National Development Agency (Corfo) issued a call to finance and leverage green hydrogen projects, awarding a total of USD 50 million to six green hydrogen initiatives. These projects are expected to be operational in 2025 and will use 100% renewable energy supplied by PV and wind plants (some currently operational, and some planned), as well as employing PPAs. Renewable energy projects dedicated to hydrogen production represent 27% of the main-case forecast, which takes into account the 10-GW H2 Magallanes project.
The accelerated case estimates 31% higher installed capacity over the forecast period compared with the main case, led by wind and solar. It assumes additional capacity from potential auctions in upcoming years as well as higher growth from projects participating in the deregulated market. The accelerated case also includes faster expansion of transmission and distribution infrastructure, as bottlenecks have been restricting renewable energy expansion, especially in the north.
Colombia
Realising high renewable energy ambitions depends on the timely construction of transmission infrastructure
Colombia’s renewable capacity is forecast to expand by more than 5 GW (+44%) during 2022-2027. Hydropower, utility-scale solar PV and onshore wind make up nearly all this expansion. While the largest share of total renewable capacity is currently hydropower, auctions to help meet national targets will enlarge the wind and utility-scale solar PV share to 17% by 2027.
The 2.4-GW Ituango hydropower plant is the main source of hydropower additions, as commissioning is to begin in 2023 and it is expected to be fully operational by 2026. Meanwhile, past auctions enable the commissioning of over 1.1 GW of capacity for each solar PV and onshore wind during the forecast period. The country’s Long-Term Auction Programme has awarded more than 2 GW of wind and solar capacity combined, with additional auctions planned for 2023. However, slow transmission infrastructure development is impacting the pace of expansion and permitting delays due to community acceptance concerns have resulted in project deferments of up to three years.
Offshore wind additions of 550 MW in the forecast period come from two projects currently undergoing feasibility studies. In addition, Colombia launched its Offshore Wind Roadmap in May 2022, outlining the potential for 50 GW of new capacity. The government will open tendering in 2023 to help realise this capacity, though awarded projects will not be commissioned within the forecast period.
Renewable capacity growth could be almost 60% higher in the accelerated case with additional renewable capacity auctions and the realisation of more announced projects. In addition, this case assumes that current transmission infrastructure issues will be resolved quickly, enabling faster wind and solar capacity uptake. Finally, Colombia aims to begin producing green hydrogen in 2030 (with 1-3 GW of electrolysis capacity installed), spurring additional development by the end of the forecast period.
Mexico and Argentina
Distributed solar PV leads renewable capacity expansion in Mexico
Mexico’s renewable energy capacity is set to expand nearly 8 GW during 2022- 2027 in the main-case forecast. At COP 27, Mexico announced its intention to deploy 30 GW of combined wind, solar PV, geothermal and hydropower by 2030. The forecast has been revised upwards by more than 20% to reflect higher distributed solar PV uptake resulting from net-metering and net-billing benefits. Distributed projects of less than 500 kW do not require a generation permit or need to be registered as market participants, enabling faster project deployment.
Outside of government-led efforts for utility-scale expansion, lack of policy certainty remains the main reason for declining additions throughout the forecast period. Growth in utility-scale solar PV capacity (+2.5 GW) and wind (+1.2 GW) is enabled by projects awarded previously through green certificate auctions, corporate PPAs and bilateral agreements.
While large hydro projects under construction drive expansion in Argentina, policy uncertainty and growing macroeconomic challenges prompt a downward revision to the wind and PV forecast
Argentina’s renewable capacity is set to increase by almost 5 GW over the forecast period, led by hydropower and followed by onshore wind. Full or partial commissioning of large-scale hydropower projects, including Jorge Cepernic, Presidente Nestor Kirchner and Brazo Aña Cuá, provides almost half of Argentina’s renewable electricity expansion.
Historically, the long-term auction scheme RenovAr was the primary driver of record wind and solar contracts of more than 4 GW. However, persistent economic challenges and suspension of the fourth round of the RenovAr programme have delayed many projects. As of September 2022, only half of the programme’s projects had been commissioned.
Meanwhile, the government’s fund for the development of renewable energies (FODER) continues to support project financing at preferential interest rates. The country is also promoting distributed renewable energy generation through realtime self-consumption models. Considering Argentina’s macroeconomic challenges and the absence of long-term renewable energy targets, our forecast expects that only some of the delayed projects will be commissioned by 2027.
In the accelerated case, growth could be over 30% higher if the country addresses challenges of transmission network availability, provides affordable financing, encourages private investment and resumes supply auctions.
