SECTION FIVE BLUEPRINT FOR RENEWABLE POWER
Blueprint for Renewable Power | Section 5 197 Renewable Power everywhere, due to their high up-front costs, are significantly exacerbated by a general lack of domestic 5.1 Introduction sources of long-term debt in most countries in the region. In some countries, including Argentina and Rising costs for fossil fuels, growing energy security Ecuador, renewable power development has been concerns, and the persistent gaps in electricity service hamstrung by political risks that have crippled the entire provision in rural areas throughout LAC call for the power sector, and in others, such as Mexico, it has been targeted and strategic expansion of renewable power slowed by regulatory barriers. technologies throughout the region. In addition to these powerful drivers and the evident need, the region’s While the renewables sector has yet to establish a strong abundant wind, solar, geothermal, and small hydro legal and regulatory foundation, there have been resources offer a clear opportunity for the region to successes in the region. Brazil has led the region in match the explosive growth that the sector has small hydro as well as wind power development, thanks experienced elsewhere around the world. Renewable to its PROINFA program, a feed-in tariff policy that power technologies can truly transform the region, stands as the most effective policy for renewable power offering an escape from the electricity supply crises that development in LAC, as well as the availability of low- have frequently disrupted economic development in past interest loans from the Brazilian National Social and decades as well as a means to achieve important social Economic Development Bank (BNDES). More recently, objectives through the provision of rural electricity by Chile has passed the region’s first renewable portfolio way of a decentralized microenergy paradigm. However, standard policy and has laid the foundation for strong despite this compelling case for sector development, growth in the wind, small hydro, and geothermal sectors, LAC has lagged behind the rest of the world in the the last of which will likely make it the first country in adoption of renewables. South America to develop geothermal power. Costa Rica has been an early adopter of renewables as well, Global renewable power generation capacity (excluding using an effective system of government auctions to lead large hydropower and biomass) expanded rapidly to total Central America in geothermal as well as wind power 186 GW at the beginning of 2008, which represented generation. New policies to support renewables have 4.3% of total electricity generation capacity. Wind power also been passed in countries including Argentina, capacity alone has reached 100 GW globally, averaging Nicaragua, Guatemala, the Dominican Republic, and growth of roughly 25% per year, and solar power has others, demonstrating the widespread desire to tap into reached 10 GW, growing at a pace of nearly 50% per these energy sources throughout LAC. year. This growth has been strongest in the U.S., Europe, and Asia, where, coupled with the increased Over the last several decades, the Inter-American competitiveness of renewables, the most important Development Bank and other multilateral institutions drivers have been robust policy incentives, including have played an important role in the deployment of feed-in tariffs, tax credits, renewable power mandates, renewables, particularly for large hydro and geothermal and government tenders. plants. Their assistance will be critical to catalyzing the widespread adoption of renewable power throughout By contrast, LAC has an estimated 4.6 GW of renewable LAC going forward, particularly in light of the recent power capacity (excluding large hydropower and economic downturn, which will most certainly impact biomass), comprising just 1.7% of its overall generation access to finance. The sustained support by the IDB will portfolio. Moreover, nearly 90% of this capacity comes be essential as countries in the region strive to meet their from small hydro plants in Central and South America energy diversification and economic development goals. and geothermal plants in Central America and Mexico, In order to facilitate this transformation of the region’s which are technologies that have been deployed in the power sectors, interventions must not only seek to region for decades. Despite the rich resource base, LAC develop individual projects but to consider the more has barely 500 MW of wind power generation and fundamental, systemic changes necessary to foster a virtually no solar power. self-sustaining movement toward low-carbon generating sources. Just as the existence of strong policy support has been a core driver of the success of renewables elsewhere, the The following section will evaluate the key factors absence of such policies in most LAC countries remains determining the adoption of renewable power a key impediment to the adoption of these technologies. technologies on both the global and regional levels by Moreover, the financing challenges faced by renewables assessing electricity supply and energy security
198 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf concerns, resource endowments, access to finance, electricity market structures, policy incentives, socio- economic impacts, and technological development. The section will also discuss the interaction of these factors within the context of individual countries, with in-depth case studies on the development of renewable power in Brazil, Mexico, Argentina, Chile, and Guatemala. The final pages of this chapter synthesize and distill the global, regional, and country analyses, providing recommendations and program ideas for a comprehensive renewable power strategy in LAC.
A Blueprint for Green Energy in the Americas 2009 | Section 5 199 200 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2 Key Factors Influencing small fraction of the total. In 2007, renewables other than large hydropower reached 240 GW of cumulative capacity, Renewable Power Development an increase of 50% since 2004, but this is just 5% of a total global generation capacity of 4,300 GW, and this capacity generated just 3.4% of actual power consumed, 5.2.1 GLOBAL AND REGIONAL ELECTRICITY since much of the capacity consists of intermittent wind SUPPLY AND DEMAND and solar generation.1
Wind power is the largest source of renewable power Global Renewable Power Trends generation worldwide in terms of capacity, with an estimated 95 GW installed, including 21 GW added in 2007 Global Electricity Supplies and the Role of Renewables alone, more than any other technology. Wind capacity Renewable power is a rapidly growing sector of the global grew at an average annual rate of 25% between 2002 and power generation mix, although it still accounts for only a 2006, more than any renewable power technology other
Chart 5.2.1a Global Electricity Generation, 2006
Fossil Fuels 67% Nuclear 14% Large Hydro 15% New Renewables 3.4%
Source: REN212
Chart 5.2.1b Global Renewable Capacity, 2007
Wind 41% Small Hydro 32% Biomass 20% Geothermal 4% Solar PV 3%
Source: REN212
201 A Blueprint for Green Energy in the Americas 2008 | Garten Rothkopf Blueprint for Renewable Power | Section 5 201 Chart 5.2.1c Average Annual Growth Rates of Renewable Capacity, 2002–2006
Solar PV (Grid-Connected)
Wind
Solar PV (Off-Grid)
Small Hydro
Biomass
Geothermal
0% 10% 20% 30% 40% 50% 60% 70% Source: REN212 than solar, and capacity is expected to continue double- that is expected to surpass 10 GW by 2010,4 while China digit growth through 2012, adding annual quantities that surpassed Denmark in early 2008 to become the world’s will steadily increase to 36 GW in 2012.3 While Europe has fifth-largest market, with 4.6 GW in current capacity that is been the leader in this sector, with over 50 GW installed expected to reach up to 30 GW by 2020.5 Overall, wind (led by Germany, Spain, and Denmark), the U.S. is now power has been deployed in 70 countries around the growing more rapidly. India and China are also huge and world, including many developing countries such as Brazil, fast-growing markets; India is the fourth-largest user of China, Egypt, Iran, Mexico, Morocco, and South Africa, all wind power in the world, with a current capacity of 7 GW of which installed new wind capacity in 2006.
Chart 5.2.1d Global Wind Power Capacity 1996-2007
100000
90000
80000
70000
60000
MW 50000
40000
30000
20000
10000
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Global Wind Energy Council6 Annual Cumulative
202 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Small hydropower is the second-largest source of Geothermal power provides 10 GW of generating renewable power in terms of capacity, with 73 GW capacity worldwide, most of which is concentrated in Italy, worldwide. The majority of this capacity is found in Indonesia, Japan, Mexico, New Zealand, the Philippines, China, where it is by far the largest source of renewable and the United States. Moreover, while Iceland has less generation, with capacity increasing by 19% in 2006 to installed capacity than these leading countries, it relies on reach nearly 50 GW.7 In contrast to the serious negative geothermal for the provision of one-quarter of its power environmental impacts that can accompany large needs.9 While geothermal has been established as a hydropower development, small hydro plants are reliable source of baseload renewable power in these and increasingly being incorporated into existing waterways other countries for decades, limited opportunities for such as irrigation canals, existing hydro dams, and deployment and high risks and up-front costs have made wastewater treatment plants, further reducing their it the most slowly growing renewable source, growing at environmental footprint. an average of just 2%–3% per year.
Biomass power accounted for a total of 45 GW across Grid-connected solar photovoltaic (PV) power is the 40 countries in 2006, most of which are located in the fastest-growing source of new renewable capacity, with developing world, although there has also been 50% annual increases in cumulative installed capacity in increasing co-firing of biomass with coal in the United both 2006 and 2007. However, it is still the smallest Kingdom and growing use of biomass and biomass contributor to the renewable power mix in absolute terms, pellets for district heating and combined heat-and- with an estimated 7.8 GW installed at the end of 2007.10 power (CHP) systems in Austria, Denmark, Finland, Worldwide, this is roughly the equivalent of 1.5 million Sweden, and the Baltic countries.8 The use of bagasse homes with rooftop PV panels. Thanks to its industry- for power and heat production is common worldwide in leading feed-in tariff program, Germany is leading solar countries with large sugar industries, including Australia, capacity and growth by far, with an estimated 850–1,000 Brazil, China, Colombia, Cuba, India, the Philippines, MW added in 2006, enough to account for roughly half of and Thailand. Biomass power is treated separately from all installed capacity. Spain was the fastest-growing other renewables in this report and is not discussed in market for solar PV in 2007, with its revised feed-in tariff this section. attracting an estimated 400 MW in new installations, four times the amount added in 2006.
Chart 5.2.1e Global Solar PV Module Sales 1996-2007
10000
8000
6000 MW
4000
2000
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Worldwatch Institute12 Annual Cumulative
Blueprint for Renewable Power | Section 5 203 Off-grid PV installations have grown less rapidly than grid- Thus, while developing countries consumed 24% less connected PV in recent years, but estimated capacity has energy than developed countries in 2005, by 2030 their increased by double-digit rates over the past decade, aggregate energy use is expected to exceed the OECD reaching an estimated 2.7 GW in 2007.11 These systems countries by 46%. This dramatic difference is driven by a are usually significantly smaller than grid-connected variety of interrelated factors, including more mature systems, with most off-grid PV panels significantly less infrastructure development in the OECD as well as slow or than a kilowatt in size, compared to grid-connected even negative population growth compared to the young, installations that are often tens of kilowatts in size. rapidly growing developing countries that are still in the early stages of infrastructure development. Concentrating solar power (CSP), also known as “solar thermal power,” has seen a resurgence in growth after In terms of energy mix, the EIA’s business-as-usual case over a decade of stagnation.13 Three plants with 77 MW in projects that the global power generation portfolio will capacity were installed in the U.S. and Spain in 2007, and remain largely unchanged, that is, heavily dependent on there were an additional 20 new CSP projects in various fossil fuel and nuclear sources. Coal is currently the most stages of planning in the U.S., Spain, Mexico, Morocco, widely used fuel for power generation, accounting for 41% Algeria, China, India, and South Africa. of global generation in 2005. The EIA projects worldwide capacity to grow at 3.1% per year, giving it a total of 46% Projections for Future Growth of global generation in 2030, due to its low cost and The world is in the midst of a period of explosive growth in abundant supplies in the world’s three largest countries, power generation that will be increasingly characterized by China, India, and the United States. Natural gas–fired a steadily growing share of consumption by non-OECD power grew rapidly through the 1980s and 1990s due to countries. The U.S. Energy Information Administration stricter environmental regulations in OECD countries, the projects that generation worldwide will nearly double steady decline of oil-fired generation since the oil crises of between 2005 and 2030 from 17.3 trillion kWh to 33.3 the 1970s, and the advent of low-cost gas turbine trillion kWh, but growth in non-OECD countries will technology, and the EIA projects that natural gas will be increase at nearly triple the rate of OECD countries, at an the most rapidly growing source of global power average annual rate of 4% per year, compared to 1.3% for generation through 2030, increasing at an annual rate of the industrialized countries.14 3.7%. Despite this steady growth, its share of total power
Chart 5.2.1f Projected Annual Electricity Generation Growth by Region Through 2030
North America
Europe
Asia
Europe/Eurasia
China
India
Other Asia
Middle East
Africa
Central/South America
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Source: EIA15
204 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.1g Projected Electricity Growth by Source Through 2030
Renewables
Natural Gas
Coal
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
Source: EIA 16 generation will continue to be roughly half that of coal. Following the privatization and power sector reforms of While nuclear power generation is projected to decline in the 1990s, this shift accelerated rapidly, with the OECD Europe as reactors are phased out by countries deployment of gas-fired turbines as the generation source such as Germany and Belgium, it is expected to grow of choice in many cases because their fast construction robustly in non-OECD Asia, with nuclear capacity times and low up-front costs were attractive to private- projected to grow at an average annual rate of 8.8% in sector developers. This has resulted in a sharp change in China and 9.4% in India through 2030. the generating mixes of some countries, with Chile and Guatemala both going from almost complete hydropower While renewable generation (including large hydro as well dependency to having more than half of their generating as the renewable technologies covered in this report) is bases running on fossil fuels. expected to grow at an average annual rate of 1.8% globally over this period due to high oil and gas prices, its However, while thermal generation has generally offered share of overall power generation is projected to decline greater supply stability compared to hydropower, soaring from 18% to 15%. Despite volatility in fossil fuel prices in fossil fuel prices over the past five years have resulted in recent years, the lower capital outlays required to build new crises over rising power costs. Moreover, reduced coal- and gas-fired power plants are seen to drive faster exports from key South American gas producers Bolivia growth in these sectors than in high-capital-cost, low- and Argentina have further highlighted the risks of fossil operating-cost renewables. fuel dependency, forcing Chile to substitute more expensive, dirtier, and less efficient fuel oil for natural gas in many of its power plants. Latin America and the Caribbean Trends Between the risks of hydropower-depleting droughts and Latin America, and particularly South America, has the quickly rising costs of fossil fuel–fired generation, historically been heavily dependent on large-scale many countries in Latin America and the Caribbean have hydropower schemes for electricity generation. More than thus shown a new interest in developing non-hydro three-quarters of Brazil’s electricity-generating capacity is renewables in recent years, particularly wind and hydropower, as is more than two-thirds of the installed geothermal power. However, the high costs of base in Venezuela and Costa Rica, and roughly half in renewables, a lack of strong policy incentives, and the Peru, Ecuador, and Panama. This reliance on hydropower political risks associated with investments in certain has led to several power-supply crises throughout the countries have resulted in a relatively slow uptake of these region in recent decades due to periodic droughts, which, technologies compared to the U.S., Western Europe, and along with growing resistance to the social and parts of Asia. environmental impacts caused by large dams, have led many countries in the region to move toward fossil Thus, development of non-hydro, non-biomass renewable fuel–fired thermal generators. technologies is at a low level in the region, with
Blueprint for Renewable Power | Section 5 205 geothermal, solar, and wind energy accounting for just 1.9 figures probably understate the true impact of this GW out of a total of 267 GW in the region — technology. While small hydro can provide low-cost approximately 0.7% of the total.18 This is significantly renewable capacity, particularly if integrated into existing lower than the role they play in the overall global mix, irrigation or other hydraulic schemes, it generally has not where these three technologies account for 113 GW, or been a focus of policies or international support due to about 2.5%, of the 4,300 GW total worldwide capacity. negative (and usually inaccurate) associations with large When small hydro installations are included, these figures hydro schemes and because these plants exacerbate the increase to totals of 4.6 GW of 267 GW, or 1.7% in LAC, region’s already-significant dependence on hydrological and 186 GW, or about 4.3% globally.17 trends for power generation.
This section will begin with an overview of renewable Geothermal: The large majority of Latin America’s non- power development, followed by an overview of general hydro renewable capacity consists of geothermal power, power-demand trends, and then a breakdown of which has been a major source of baseload power for electricity-generation portfolios with a focus on energy Central America and Mexico for decades. Over 60% of security for each subregion. the overall non-hydro renewable capacity in the region is located in Mexico, and over 95% is located in Mexico and Overview of Renewable Power Adoption in LAC the Central American countries, most of which also have Small Hydro: Data on small hydro projects in the region substantial installed geothermal capacities, as discussed are patchy because many countries do not separate below. While most of this was developed in the 1980s and small- from large-hydro statistics, and definitions of 1990s, recent years have seen new additions, including “small” hydro may vary widely among countries. the 18 MW Amatitlán plant in Guatemala and the 8.5 MW Moreover, many of these projects are off-grid micro-scale San Jacinto Tizate plant in Nicaragua. projects serving rural communities. However, data from New Energy Finance and the World Energy Council, as Wind: Much as with global renewable trends, wind power well as the case studies in this report, identify several is growing more rapidly than geothermal, although in Latin countries with significant amounts of small hydro capacity America it still represents a much smaller share of overall installed, including 1.9 GW in Brazil and 100 MW or more capacity. It is the main source of non-hydro renewable in Argentina, Peru, and Guatemala, although even these power being developed in South America, led by Brazil’s
Chart 5.2.1h Small Hydro Capacity, LAC Region
2000
1800
1600
1400
1200
MW 1000
800
600
400
200
0 Argentina Brazil Chile Colombia Ecuador Guatemala Honduras Mexico Peru
Source: New Energy Finance,19 World Energy Council,20 case studies
206 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.1i Geothermal Capacity, LAC Region
1200
1000
800
MW 600
400
200
0 Costa Rica El Salvador Guatemala Mexico Nicaragua
Source: International Geothermal Association,21 Geothermal Resources Council,22 Polaris Geothermal,23 Business News Americas24
Chart 5.2.1j Wind Capacity, LAC Region
300
250
200
MW 150
100
50
0 Argentina Brazil Chile Colombia Costa Rica Cuba Ecuador Jamaica Mexico Peru
Source: GWEC, OLADE, LAWEA25 26 27
Blueprint for Renewable Power | Section 5 207 249 MW installed between 2004 and 2007 under its this sector still substantially lags growth in large hydro and PROINFA program, discussed in the case studies. conventional thermal generation, which are still the focus Argentina has the greatest wind power potential in the of most efforts to meet the region’s rapidly growing region and was an early leader in this area, building 28 demand for electricity. More detailed profiles of the power MW of wind farms operated by electricity cooperatives demand trends and existing generation mixes throughout and municipalities in the late 1990s and early 2000s. the region follow below. However, the country’s fiscal crisis in 2002 and the subsequent freezing of power tariffs have stalled the Electricity Demand and Projections for Growth further development of this resource. Colombia and Chile The LAC region is the world’s fifth-largest region of have also built roughly 20 MW each of wind power, and electricity consumption, with its 1,175.97 TWh Chile in particular is looking to expand this as rapidly as demanded in 2006, trailing Asia and Australia possible given the power crisis that it faces following the (6,424.63TWh), North America (4,838.4 TWh), Western loss of Argentine gas imports. Europe (3,786.35 TWh), and the former USSR and Eastern Europe (1,447.72 TWh).28 Only the Middle East Costa Rica has been a leader in wind power (686.42 TWh) and Africa (596.03 TWh) consumed less development in Central America, thanks to its strong power. Over the past decade, Latin America has been concessioning framework for renewable power, the world’s fourth-fastest growing region, with its 47% developing 74 MW through 2006. To the north, Mexico increase over this period outpacing growth in North has recently overtaken it with the development of its America (16%) and Eastern (15%) and Western Europe state-backed 83 MW wind farm in Oaxaca state in 2007, (21%) but lagging behind Asia (82%) as well as the an area with wind resources rivaling Argentina’s. With a rapidly growing Middle East (90%) and Africa (53%) pipeline of 2.5 GW in public- and private-sector projects regions that are starting from a smaller base. planned for the next five years, Oaxaca is likely to become the area of the greatest wind power South America development in Latin America over at least the near term, Booming international demand and high prices for South given the delay in harnessing the similarly massive America’s natural resources have fueled robust economic resources of Southern Patagonia. growth and associated increases in power demand, with a continental average of 5.35% annual growth over the past Jamaica and Cuba have led the development of wind five years. Brazil is the largest electricity market in Latin power in the Caribbean, with the 20 MW Wigton wind farm America by far, consuming 460.5 TWh in 2006 — developed by Jamaica’s state-owned oil company in 2004 equivalent to nearly 40% of the entire region’s demand. and two smaller wind farms totaling 6.8 MW developed in Outside of Brazil, Argentina and Venezuela surpassed 100 Cuba between 2006 and 2007. Cuba, in particular, is TWh of power consumption in 2004 and 2005, pushing to increase development of this resource, as it respectively, and Chile and Colombia each passed the 50 has struggled with power shortages ever since the fall of TWh mark in 2004 and 2006. the Soviet Union and the subsidized oil supplies it once provided, although Hugo Chavez’s Venezuela has partially The fastest growth has been in the relatively small markets filled this gap in recent years. of Ecuador and Paraguay, with average rates of 8.22% and 7.20%, respectively, building from small bases of Solar: While solar PV is used in rural electrification 11.61 and 5.97 MW in 2002. Among the region’s major projects in a growing number of countries in the region, economies, Argentina (6.89%), Chile (6.48%), and there are very little reliable data available on the amount of Venezuela (6.01%) have all seen average growth of 6% or power generated by these off-grid systems, which are more due to rapidly rising prices for Argentina’s usually used for lighting, water pumping, and/or agricultural exports, Chile’s copper, and Venezuela’s oil. refrigeration needs in rural areas. There are negligible Bolivia (5.52%) and Peru (5.31%) have also seen strong amounts of grid-connected photovoltaics in Latin America, demand growth driven by their mining industries. Brazil’s owing to the still-high costs of this technology, although as average growth of 4.86% over the past five years is fairly discussed in the following section on resource potential, strong as well and hews closely to the continental average many areas, especially Central America and the of 4.88%. Caribbean, will have great generating potential from this resource if costs decrease. OLADE has projected that overall power in the region will increase to 1538.65 TW in 2018, representing an average While these renewable power sources have seen a annual increase of 5.89% from 871.1 TWh in 2006. This considerable uptick in interest in recent years, growth in pace is expected to be led by Brazil (7.57%), Chile
208 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.1k Global Power Consumption Growth by Region 1996–2006
Africa
Asia and Australia
Former USSR- Eastern Europe
Latin America and the Caribbean
Middle East
North America
Western Europe
0 1000 2000 3000 4000 5000 6000 7000 TWh
Source: OLADE29 30 1996 2006
(8.05%), and Panama (8.39%), which all share a strong where the onset of peace and stability in recent years commitment to free trade and strong prospects for following the conclusion of its decades-long civil war in economic growth. 1996 has driven strong economic growth in recent years. In addition to having the region’s largest Central America and Mexico population, with 13 million people, Guatemala is home Mexico is the second-largest power market in Latin to Central America’s second-largest power market, with America, with 224.3 TWh demand in 2006. However, 7.5% growth since 2002, increasing demand to 7.8 TWh while it has grown steadily in recent years, it has also in 2006. grown significantly more slowly than Brazil, Argentina, Chile, and other leading countries in the region. Its Honduras and Nicaragua have also shown robust growth annual average growth 3.52% over the past five years is of 6.75% and 6.68% respectively, as both countries due to the slower growth of its manufacturing and fossil continue to recover from the devastation of Hurricane fuel–based economy and its inefficient, state-run power Mitch in 1998, and Nicaragua has enjoyed increased sector (as discussed in Section 5.4.2). political stability following the end of its civil war. The region’s largest power market and country with the In contrast to Mexico’s huge power market, Central highest per capita GDP, Costa Rica, has long benefitted America’s five countries had just 31.4 TWh of total from its political stability and saw power demand grow at demand in 2006 — just slightly more than Peru’s 27.4 an average of 4.8% over this period. TWh. However, it is the most rapidly growing region in the study overall, due to peace and political stability Economic growth and power demand are expected to following the conclusion of civil wars throughout the region grow even more robustly in the years ahead due to the in the 1990s, economic recovery following Hurricane Mitch recent signing of the Central American Free Trade in 1998, and a growing openness to trade. Agreement (CAFTA) with the U.S. OLADE projects more than a doubling of power demand, from 31.4 TWh to 72.52 The pace for the region is set by robust growth in TWh between 2006 and 2018, a 10% average annual Guatemala (discussed in detail in the case studies), growth rate.
Blueprint for Renewable Power | Section 5 209 Chart 5.2.1l South America Electricity Consumption and Growth
Venezuela 2002 2003 Uruguay 2004 Suriname 2005 2006 Peru
Paraguay
Panama
Guyana
Ecuador
Colombia
Chile
Brazil
Bolivia
Argentina
0 100 200 300 400 500 TWh Source: OLADE31 32 33 34
Chart 5.2.1m South America Projected Electricity Consumption Growth
1000 2006 900 2013 800 2018
700
600
TWh 500
400
300
200
100
0 Venezuela Uruguay Peru Paraguay Panama Ecuador Colombia Chile Brazil Bolivia Argentina Source: OLADE35 36
210 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf The Caribbean varies by region and by country, in broad terms the region The Caribbean is the slowest-growing region in Latin has been historically dependent on large hydropower and America, with average annual growth of just 2.74%. Its coal and oil-fueled thermal plants, with a turn towards two largest markets, Cuba and the Dominican Republic, natural gas in many countries with the privatizations of the are growing at a rate of 2.39% and 2.35%, respectively, 1990s. Power sector crises stemming from periodic and its third-largest, Jamaica, is growing at just 1.56%. droughts as well as from volatile fossil fuel prices have Trinidad and Tobago, the Caribbean’s leading oil and gas highlighted the dangers to the region of continued reliance producer, has shown more robust growth at an average of on these conventional electricity sources. However, with 5.6% since 2002, due to rising fossil fuel prices as well as the exception of geothermal power, which has a long its openness to foreign investment in the energy sector. history in Central America and Mexico, the adoption of The tiny markets of Haiti (4.78%) and Grenada (22.5%) are new renewable power sources is a more recent also growing quickly, albeit from small bases. phenomenon that has only begun to take hold in a few countries and at relatively small scales. OLADE has not broken down projections for growth for individual Caribbean countries, but it projects power South America demand for the region as a whole to continue to lag South America is heavily dependent on hydroelectric behind the pace of Central and South America. Overall power generation, which accounts for 53% of the demand growth is expected to grow from 49.17 TWh in continent’s installed capacity overall and significantly 2006 to 66.46 TWh in 2018, an average annual growth rate more than that in many countries. Brazil has over 72 GW of 2.7% that hews closely to current trends. of hydro capacity, equal to 76% of its overall capacity and over a quarter of the capacity of the entire continent. Power Supply Matrix and Energy Security Implications Several countries with substantial natural gas and/or oil The rising power demand in LAC detailed in the previous resources, including gas-rich Argentina, Bolivia, and section is met by a mix of conventional thermal, large Peru, as well as oil-endowed Ecuador, have thermal hydro, and new renewable power plants. While this mix plants accounting for greater than half of their generation
Chart 5.2.1n Central America and Mexico Electricity Consumption and Growth
Nicaragua 2002 2003 2004 Honduras 2005 2006 Guatemala
El Salvador
Costa Rica
-1 0246810
Mexico
160 180 200 220 240 TWh Source: OLADE37 38 39 40
Blueprint for Renewable Power | Section 5 211 Chart 5.2.1o Central America and Mexico Projected Electricity Consumption Growth
25 500 2006 450 20 2013 400 2018 350 15 300
TWh 250 10 200 150 5 100 50 0 0 Costa Rica El Salvador Guatemala Honduras Nicaragua Mexico
Source: OLADE41 42
capacity. Despite having very few fossil fuel resources, resource nationalism in key energy-producing nations. As Chile has grown heavily dependent on natural gas electricity demand continues to soar, along with revenues imported from Argentina in recent decades, with thermal from the region’s energy as well as agricultural and mineral power generation now accounting for almost two-thirds exports, there is a looming danger that this economic of its installed base. Brazil and Argentina are the only growth could be derailed by spiking power costs and/or countries on the continent with nuclear power capacity, supply disruptions. with 2 GW and 1 GW installed accounting for 2.1% and 3.6% of their respective power capacities. While the percentages of fossil fuels used in electricity generation are generally lower in South America than in Oil and Gas: South America is endowed with substantial the Caribbean or Central America, the scale of fossil- oil and gas reserves, yet energy security is of increasing fueled electricity generation in South America far concern as the region experiences a resurgence of overshadows that of northern neighbors. For example, in
Chart 5.2.1p Caribbean Electricity Consumption and Growth
Trinidad & Tobago 2002 2003 Jamaica 2004
Haiti 2005 2006 Grenada
Cuba
Dominican Republic
Barbados
-5 0 5 10 15 20 TWh Source: OLADE43 44 45 46
212 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.1q Caribbean Projected Electricity Consumption Growth net exporters of both oil and gas, while Ecuador is a net exporter of oil. However, Chile and Uruguay rely on 52 70 imports for virtually their entire oil and gas supply. A breakdown of the region’s top oil and gas importers can be found below. 60 2006 2013 While the figures outlined above are useful indicators of 50 2018 the extent to which South America relies on fossil fuels, they do not accurately portray the complex energy 40 interdependencies within the region. In order to understand these interdependencies as well as their TWh 30 political dimensions, it is helpful to have separate discussions of the oil and gas sectors in South America. 20
Oil: While South America is home to vast oil reserves, 10 they are concentrated in Venezuela, Ecuador and Brazil. The overwhelming majority of these reserves are located 0 in Venezuela, which is home to the largest oil reserves in Caribbean the Western Hemisphere. Under president Hugo Chavez, Source: OLADE47 48 the Venezuelan state oil company Petroleos de Venezuela (PDVSA) has provided substantial volumes of 2006, Argentina alone generated more electricity from subsidized oil under agreements with a number of state- fossil fuels than all Caribbean and Central American owned oil companies in Caribbean and Central American nations combined.50 The table below provides a countries.54 In South America, Argentina has become breakdown, by country, of the fossil fuel electricity- similarly dependent on subsidized oil from Venezuela to generating profiles of South American nations. run thermal generators, a result of declining domestic Argentina, Bolivia, Chile, Ecuador, and Uruguay are the natural gas production due to a lack of private sector countries that depend on the greatest proportion of oil and investments following the economic crisis of 2001–2002 gas for their power generation. Argentina and Bolivia are (discussed below and in the Argentina case study).55
Chart 5.2.1r Generation Capacity in South America
100000
90000 Hydro Thermal 80000 Nuclear 70000 Geothermal/Solar/Wind
60000
50000 MW
40000
30000
20000
10000
0 e uay Chil ador ama Peru Bolivia Brazil uyana Ecu G Pan Urug Argentina Colombia Paraguay Suriname Venezuela Source: OLADE49
Blueprint for Renewable Power | Section 5 213 Table 5.2.1a Electricity Generation from Oil and Gas
South America Electricity Generation Electricity Generation Total Electricity Generation from Oil (% of total) from Gas (% of total) from Oil and Gas (% of total) Argentina 7 50.2 57.2 Bolivia 16.7 39.3 56 Brazil 3 4.4 7.4 Chile 1.6 19.9 21.5 Colombia 0.2 12.4 12.6 Ecuador 44.1 9.6 53.7 Paraguay - - - Peru 8.4 9.5 17.9 Uruguay 35.1 0.1 35.2 Venezuela 14.6 13.4 28
Source: IEAl51
Most of these imports are procured through a bilateral preferential arrangements, and the sudden reduction or arrangement with Venezuela, and they reached 1.9 elimination of these subsidized supplies could have million metric tons of fuel oil and 626,000 cubic meters of ripple effects throughout the region. diesel in 2007 and are expected to reach 2 million cubic meters of fuel oil and 1.4 million cubic meters of diesel in Yet, with an estimated 100 billion to 270 billion barrels of 2008.56 Operating these previously gas-fired generators heavy crude, Venezuela’s oil producing Orinoco belt is with oil has resulted in lower efficiencies, higher potentially one of the largest petroleum resources in the pollution, and steadily rising marginal costs. world. Until recently, the extraction of these super-heavy crude reserves was being spearheaded by private oil Declining production and increasing domestic companies; super-heavy crude is difficult to extract and consumption may threaten Venezuela’s ability to continue thus requires substantial financing and expertise. to supply oil under preferential arrangements, and the However, in May 2007 PDVSA took controlling shares in sudden reduction or elimination of these subsidized private operations, resulting in billion-dollar losses for supplies could have ripple effects throughout the region. international oil companies such as Chevron, BP, and Exxon. While some of these companies renegotiated What remains unclear is whether or not Venezuela will their operations with Venezuela, others such as be able to maintain its oil shipments to its regional ExxonMobil and ConocoPhillips walked away and have allies. Oil output has declined for the past ten brought lawsuits against PDVSA to recover their losses. quarters57 due to natural decline at existing oilfields Now under state purview, the Orinoco belt is unlikely to (many of these fields suffer annual decline rates of see its resources fully developed because of a current 25%) and use of PDVSA revenues to fund social lack of funding and expertise.60 programs. Industry analysts estimate that in order to maintain production levels, PDVSA must spend Ecuador also has substantial proven oil reserves, but approximately $3 billion each year.58 Furthermore, oil their development has suffered from recent political consumption at home is on the rise, placing increasing disputes and conflicts with private companies. Over the strain on production.59 These trends may threaten past ten years, oil production by the state-run Venezuela’s ability to continue to supply oil under Petroecuador has decreased by 50%,61 and private
Table 5.2.1b Oil and Gas Imports and Exports
Country Net Imports of Barrel of Oil Equivalent Country Net Imports of Cubic Meters Oil 2006 (mtoe) (in millions of barrels) Natural Gas 2006 (mtoe) Equivalent (in millions) Chile 13.45 92.12 Brazil 8.15 9168.75 Peru 2.73 18.70 Chile 4.83 5433.75 Uruguay 2.34 16.03 Uruguay 0.1 112.5 Paraguay 1.2 8.22 Brazil 0.27 1.85
Source: IEA53
214 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf production has slowed following massive protests by reduce its dependence on Bolivia. The terminal has the indigenous groups in 2005 and the expulsion of U.S. oil capacity to unload 7 million cubic meters of gas a day into company Occidental in 2006 over a legal dispute. These Brazil’s pipeline system.68 events have raised concerns about future investments in the country’s energy sector, potentially affecting oil Chile, while not an importer of Bolivian gas, is impacted production as well as renewable energy projects. by this web of dependencies nonetheless. After the energy crisis of the late 1990s when hydropower Natural Gas: Bolivia, one of the poorest nations in South resources were reduced by drought (as discussed America, also possesses one of the continent’s largest below and in the Chile case study), Chile stepped up its natural gas resources. The nationalization of Bolivia’s natural gas imports from Argentina as a means to gas reserves by President Evo Morales in 2006 was diversify its energy mix. By 2006, 70% of Chile’s popular within the poverty-stricken nation, but it created domestic primary energy consumption came from a precarious investment environment that has slowed foreign sources, and more than 30% of electricity foreign investment to a trickle, limited production, and generated in Chile depended on natural gas supplies significantly raised energy costs for neighboring from Argentina.69 Chile does not purchase gas from Argentina and Brazil, renegotiated contract prices Bolivia due to ongoing political animosity dating back to increased 285% to $4.20 per MMBtu for Brazil and from the War of the Pacific (1879–1883).70 The Bolivian $3.40/MMBtu to $5/MMBtu for Argentina.62 Today, due government has proposed a “Gas for Sea” policy, to waning foreign investment and production capacity, whereby Bolivia would supply natural gas to Chile in Bolivia is unable to meet its contractual agreements with exchange for renewed access to the sea, which it lost both Argentina and Brazil, with its exports to Argentina to Chile in the War, but Chile has not been receptive to cut in half.63 Furthermore, Bolivia is fraught with political this proposal.71 Thus, Chile is completely dependent on instability that is affecting its export capacity; on gas exports from Argentina. September 10, 2008, demonstrators opposed to Evo Morales’s attempts to modify Bolivia’s constitution to Since 2004, Argentine gas exports to Chile have redistribute the country’s wealth severed Bolivia’s natural fluctuated between 20% and 50% below contracted gas supply to Argentina.64 volumes due to its own energy crisis, brought on by stagnating investments in domestic supplies since the Due to waning foreign investment 2001–2002 economic crisis as well as the reduction by half of its gas imports from Bolivia.72 This reduction in and production capacity, Bolivia is gas imports from Argentina has forced a sharp rise in unable to meet its contractual use of higher-cost and more polluting diesel generation in Chile. In the face of dwindling supplies of Argentine agreements with both Argentina gas, the skyrocketing cost of fossil fuels, and Chile’s and Brazil, with its exports to current water deficit, some forecasters predicted Argentina cut in half.65 another energy crisis in Chile in 2008. The concerns were so pressing that the Chilean government announced a series of measures on February 7, 2008 Consequently, both Argentina and Brazil are courting short- that are expected to result in electricity savings of term energy shortfalls due to a lack of natural gas. approximately 4.4% in 2008 as a precaution.73 Argentina’s energy grid is highly dependent on natural Tightness in the market is expected to persist at least gas–fueled plants, but exploration of domestic gas fields through the second quarter of 2009, when a new LNG has remained low due to a depressed investment climate. receiving terminal in Region V will start operations.74 Electricity supply has not kept up with growing demand The project will include a regasification facility with an because of low energy sector investment. Despite the fact output of up to 3.5 million cubic meters per day, to be that Argentina is a net exporter of natural gas, Bolivian gas expanded to 10 cubic meters per day. While this will is crucial to Argentina’s continued growth. However, Brazil improve reliability significantly, LNG imports will be currently receives two-thirds of Bolivia’s gas and is unwilling significantly more expensive than the gas imported via to cede any of its imports to Argentina due to energy pipeline from Argentina, making them unlikely to reduce concerns of its own.66 Brazil has a natural gas demand of power prices significantly.75 54 million cubic meters per day, about half of which it obtains from Bolivia.67 Due largely to concerns over the Large Hydro: South America is one of the most reliability of Bolivia’s gas supply, Brazil has already invested hydropower-dependent regions of the world. Argentina, in a liquefied natural gas (LNG) import terminal in order to the country least dependent on hydropower in the region,
Blueprint for Renewable Power | Section 5 215 nonetheless generates a third of its electricity from this shortage in recent years, as discussed above.82 Chile resource. On the other end of the spectrum are Brazil currently faces another looming energy crisis after it and Paraguay, which respectively generated 83.2% and suffered one of the driest years in the past half century in 100% of their electricity from hydro energy in 2006. 2007, resulting in a 40% shortfall in hydropower reservoirs in early 2008 that caused a spike in spot- Before Argentina’s power sector reforms in the 1990s, it market power prices to $246 per MWh in January 2008 was significantly more dependent on hydropower, and it (compared to $57 per MWh in January 2007) and led the was severely impacted by a persistent drought in the government to undertake a number of energy-saving late 1980s, cutting the country’s hydroelectric supplies measures including a recent extension of daylight by 70%. This event, coupled with the economic crisis savings time.83 84 of 1989, played a major role in catalyzing the restructuring of the industry, with new private-sector South America is one of the most power developers leading the way in developing huge amounts of new thermal capacity, adding more than 6 hydropower-dependent regions in GW of gas-fired generation to the grid in the 1990s and the world. boosting fossil fuel capacity to over half the country’s generation mix.78 79 Colombia also had to ration electricity for six months in 1992 due to a drop in hydropower reservoirs due to El Brazil also experienced serious energy disruptions due to Niño. In 1997, when El Niño struck again, Colombia was drought in the late 1980s and more recently. The Brazilian forced to import electricity from Venezuela due to low energy crisis of 2001, during which the government was water levels in its hydroelectric dams.85 forced to institute six months of obligatory energy rationing, was precipitated by a lack of investment in Renewables: Non-hydro renewables make up a tiny additional generating capacity and dramatic reductions in portion of the South America’s power generation portfolio, hydropower reserves due to the El Niño event of accounting for less than 1% of the installed capacities of 1997–1998. As a result, consumers had to reduce their Argentina, Brazil, Chile, Colombia, Ecuador, and Peru, consumption by 20%, and private companies considered with no significant supplies elsewhere. This comes moving production abroad during the emergency.80 Brazil almost entirely from wind power, led by the 249 MW of also saw its growth projections and investment grade wind developed in Brazil between 2004 and 2007 under lowered due to the energy shortfall.81 the aegis of the country’s pioneering PROINFA feed-in tariff policy. In Chile, severe droughts linked to El Niño crippled the power sector from late 1997 through 1999, with rolling Argentina, home to the continent’s richest wind resources blackouts in Santiago from November 1998 through May in Southern Patagonia, established itself as an early leader 1999. This played a major role in spurring the in wind power with 28 MW developed by electricity development of new gas-fired capacity fueled by cooperatives and municipalities in the late 1990s and early seemingly secure imports from Argentina, a strategy that 2000s, but growth has stalled in recent years due to frozen has also proven costly due to Argentina’s own gas power tariffs that have cooled power sector development
Table 5.2.1c Reliance on Hydropower
South America 200676 Total Electricity Generation (GWh) Electricity Generation from Percent of Total Hydro Energy (GWh) Argentina 114,990 37946.7 33.0 Bolivia 5293 2159.54 40.8 Brazil 419,337 348888.38 83.2 Chile 57,555 34245.23 59.5 Colombia 54,301 42734.89 78.7 Ecuador 15,406 7132.98 46.3 Paraguay 53,784 53,784 100 Peru 27,358 21476.03 78.5 Uruguay 5,619 3596.16 64.0 Venezuela 110,357 79457.04 72.0
Source: IEAl77
216 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf across all generation sources. Colombia and Chile are El Salvador, Guatemala, Honduras, and Nicaragua all also establishing themselves as wind power producers, depend on fossil fuel–fired capacity for at least half of with the 20 MW Jepirachi wind farm in northeastern their power, led by Nicaragua, where 75% of the Colombia, developed with assistance from the World country’s installed base is thermal power plants. Unlike Bank’s Carbon Finance Unit in 2004, and the 18.5 MW Mexico, these smaller Central American countries have Canela wind power project developed by Endesa in Chile little or no domestic fossil fuel production, forcing them in 2007, marking the first large-scale projects in these to rely on increasingly expensive imports — mostly of countries. Ecuador and Peru have also developed wind- fuel oil. power projects on a small scale. Oil and Gas: In 2006, over 37% of all electricity Mexico and Central America generated in Central America (excluding Mexico) was The installed power-generation base in Mexico and produced from oil. However, this figure will likely rise as Central America is distinctly different from South the number of oil- and diesel-fired plants grows in order America’s, relying less on hydropower and more on oil- to keep pace with robust economic growth and an and gas-fired thermal plants. Other than Costa Rica, expanding manufacturing industry. Despite a wealth of where its 1.4 GW of hydropower accounts for just over hydro resources, thermal generation is growing at a two-thirds of installed capacity, hydropower generally faster rate than hydropower generation, due to a shorter makes up roughly a third or less of the generating portfolio construction time, lower up-front costs, and lack of for countries in this region. cyclical/seasonal variation associated with hydroelectric generation. As in the Caribbean, oil is the predominant Mexico, the largest power market in the region by orders fossil fuel feedstock in the region due to a lack of of magnitude, is also one of the most heavily reliant on infrastructure for natural gas, heavily exposing these thermal generation, with over 36 GW of capacity fueled power sectors to the recent precipitous rise in oil prices. by its domestic oil and gas resources. This fossil fuel Mexico is exceptional in many ways and will be dependency has become a source of increasing concern discussed separately. A more detailed breakdown of the as legal measures preventing private-sector participation percentage of electricity generated from oil and gas in in the energy sector have resulted in dwindling oil and these countries is below. gas production by Mexico’s huge, inefficient, and debt- ridden state monopoly Pemex, which Mexican President Despite a dearth of indigenous hydrocarbon reserves, Felipe Calderon has targeted for politically challenging which are limited to Guatemala and Belize, Central reforms. Mexico also has 1.4 GW of nuclear power America’s energy consumption has doubled in the capacity, joining Argentina and Brazil as Latin America’s past two decades.88 As a result, the region has only three nuclear powers as well as its three largest become highly reliant on imported oil to meet its power markets. energy needs, and even Guatemala and Belize are
Chart 5.2.1s Generation Capacity by Type in Central America and Mexico
2500 50000 Hydro Thermal 2000 Nuclear 40000 Geothermal/Solar/Wind
1500 30000 MW
1000 20000
500 10000
0 0 Costa Rica El Salvador Guatemala Honduras Nicaragua Mexico
Source: OLADE86
Blueprint for Renewable Power | Section 5 217 forced to import petroleum products due to a lack of natural gas from the U.S.; estimated imports in 2006 refining capacity. The top net importers of oil in the were 7.23 mtoe, or 8133.75 million cubic meters, and region are listed below. Mexico will become increasingly dependent on imports if it is unable to increase domestic output. Table 5.2.1e Net Importers of Oil As of 2006, Mexico was the sixth-largest oil producer in Country Net Imports of Oil Barrel of Oil Equivalent the world, but production is declining by approximately 2006 (mtoe)89 (in millions of barrels) 200,000 barrels per day.94 Furthermore, analysts believe Guatemala 2.38 16.30 that the state oil monopoly Pemex, which is plagued by Honduras 2.38 16.30 underinvestment and mismanagement, does not have Costa Rica 2.2 15.07 El Salvador 2.13 14.59 sufficient funds available for new exploration and Panama 1.99 13.63 investment to reverse the decline in production.95 Nicaragua 1.36 9.32 Source: IEA90 Indeed, Pemex is operated primarily as a government cash cow and not as a modern oil and gas company, with the government depending on it for 40% of its In an attempt to satisfy their growing energy needs and budget, which devoured nearly 84% of the company’s offset the rising price of world oil, Central American revenues through the first seven months of 2008.96 nations are seeking similar concessionary prices from Recently, President Felipe Calderon succeeded in Venezuela as their Caribbean neighbors. In fact, Honduras pushing through legislation to allow Pemex to offer joined Petrocaribe in December 2007,91 and Guatemala incentives for international oilfield service providers, signed on to Petrocaribe in July 2008. Costa Rica has although it is unclear how effective this will be in also expressed interest in joining the oil alliance.92 stimulating the new investments that are needed.97
Venezuela has become a major financier both in the Large Hydro: Hydropower generation accounts for over Caribbean and Central America, yet as oil prices rise, so 50% of all electricity generated in Central America and does the magnitude of the debts incurred by Caribbean 12.17% of electricity generated in Mexico. Costa Rica is and Central American countries. President Chavez’s the most reliant on hydro resources in the region by far, provision of subsidized oil to regional allies is influencing using them to generate over three-quarters of its total their energy policies, yet as discussed above, the power supply. underpinnings of agreements such as Petrocaribe may be increasingly precarious as Venezuela’s domestic demand However, these vast hydropower resources have a increases and production slows. history of failing during times of extreme weather, particularly during El Niño events. In 1997 and 1998, Mexico’s electricity generation mix is also highly there were widespread electricity shortages throughout dependent on fossil fuels. Natural gas is increasingly the Central American region due to this phenomenon. In replacing oil as a feedstock, generating 49% of Mexico’s September 1997, the government of Costa Rica electricity in 2006, but oil also plays a role in the mix, declared a national emergency in response to the accounting for approximately 20% of the nation’s power persistent drought.100 In 1998, with dam waters generation.93 Currently, Mexico is a net importer of receding, the government of Honduras also declared a
Table 5.2.1d Electricity Generation from Oil and Gas
Central America & Mexico Electricity Generation from Oil Electricity Generation from Gas Total Electricity Generation (% of total) (% of total) from Oil and Gas (% of total) Costa Rica 6.1 - 6.1 El Salvador 44.2 - 44.2 Guatemala 25.3 - 25.3 Honduras 56.1 - 56.1 Nicaragua 72.2 - 72.2 Panama 38.9 - 38.9 Mexico 20.04 49.15 69.19
Source: IEAl87
218 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf provisional state of emergency. Honduras was forced to In recent years, the region has also shown a growing ration water and electricity, limiting those services to six interest in the development of wind power, given the hours a day.101 strong equatorial trade winds blowing across the area. Mexico’s Tehuantepec Isthmus, in the state of Oaxaca, is Renewables: While Central America has relatively less home to some of the best wind resources in the region hydropower capacity than South America, it has made and the world, and in 2007 the country’s largest wind farm significantly greater use of its non-hydro renewable came online, the 83 MW La Venta project developed by resources, with 963 MW of non-hydro renewables in state electricity company CFE. There is a pipeline of 2.5 Mexico and 442 MW in the rest of Central America at GW of public- and private-sector projects planned for the end of 2006. The vast majority of this capacity is Oaxaca over the next five years, potentially making this geothermal power, with Mexico’s 960 MW enough to the locus of the most rapid development of wind power make it the third-largest geothermal producer in the anywhere in Latin America. world. Costa Rica, El Salvador, and Nicaragua each rely on geothermal power for more than 10% of their Costa Rica is the regional leader in wind power among the respective generating capacity, and Guatemala Central American countries due to its proactive policies increased its geothermal capacity to 2% of its supply toward the concessioning of key wind sites. It had 74 MW with the addition of the 18 MW Amatitlán geothermal of wind power developed by 2007. Guatemala is in the project in 2007. Most of this capacity was developed in process of developing its first wind power project, the 15 the 1980s and 1990s with financing assistance from the MW Buenos Aires project, which saw construction begin World Bank, the Inter-American Development Bank, in late 2007. UNDP, JICA, and other multilaterals. The only major geothermal additions in recent years have been the The Caribbean Amatitlán plant, developed by Ormat, and the 8.5 MW In contrast to Central and South America, the Caribbean San Jacinto Tizate plant in Nicaragua, developed by has very little hydropower resources and is heavily Polaris Geothermal. dependent on fossil fuels. A quarter of Haiti’s electricity- generation base comes from hydropower; no other country While Central America has in the region derives more than 10% of its power capacity from this source. Barbados, Grenada, and Trinidad and relatively less hydropower capacity Tobago all rely on thermal generators for 100% of their than South America, the region capacity. Other than fossil fuel–rich Trinidad and Tobago, has made significantly greater use most of this capacity is fueled by imported oil. of other renewable resources. The Oil and Gas: In 2006, out of total gross electricity vast majority of this capacity is generation of 45.71 terawatt hours (TWh), 43.15 TWh or approximately 93% of all electricity generated in the geothermal power, including 960 Caribbean region was produced from fossil fuels. MW in Mexico alone and 442 MW Petroleum products and crude oil are the primary sources of thermal generation in the region, accounting for 93% of in the rest of the region. fossil fuel feedstocks.103 A notable exception is Trinidad and Tobago, which is a net exporter of gas and
Table 5.2.1f Reliance on Hydropower
Central America & Mexico 200698 Total Electricity Generation (GWh) Electricity Generation from Hydro Energy (GWh) Percent of Total Costa Rica 8,698 6601.78 75.9 El Salvador 5,597 1964.55 35.1 Guatemala 7,916 3823.43 48.3 Honduras 5,982 2584.22 43.2 Nicaragua 2,958 369.75 12.5 Panama 5,989 3581.42 59.8 Mexico 249,648 30382.16 12.17
Source: IEA99
Blueprint for Renewable Power | Section 5 219 generates its electricity predominately from its own With no viable electricity generating alternatives in place, natural gas resources. Chart 5.2.1t goes into more detail these Caribbean economies continue to hinge on a on the specific make-up of each country’s electricity reliable supply of affordable fossil fuels. With these generation mix. concessionary financing agreements, the region’s economic well-being is also increasingly tied to the ability Besides gas-rich Trinidad and Tobago, there are few of Venezuela to maintain its oil shipments and continue to hydrocarbon resources indigenous to the island nations bankroll the preferential pricing agreements. As of the Caribbean. Consequently, the region is highly discussed below under South America, this is hardly dependent on imported fossil fuels, particularly oil, and assured, as Hugo Chavez’s conflicts with international oil extremely vulnerable to rising oil prices. A list of the top companies and his use of state oil company PDVSA’s net importers of oil in the Caribbean follows. Note that profits to fund social programs has starved the country’s the oil-import figures used throughout this section oil sector of needed investments, and fast-growing represent total oil demand, including oil used for domestic consumption may further reduce the availability transportation. of oil for export.
Increasingly, these nations are turning toward resource- Large Hydro: Hydropower amounts to a mere 4.3% of all rich Venezuela to offset soaring fossil fuel prices. In 2005, electricity generated in the Caribbean. However, as 14 Caribbean countries entered into an oil alliance with shown in the table below, this statistic masks the variation Venezuela called the Petrocaribe Accord. Under the terms in the generating profiles of Caribbean nations. of this agreement, signatory nations are allowed to Haiti generated 47.5% of its power from hydro energy in purchase oil from Venezuela under a preferential payment 2006, and it is clearly the most dependent on plan, which enables importing nations to pay 40% of their hydroelectric generation in the Caribbean. Haiti’s energy bills at 1% for 25 years. The number of signatories has sector has been plagued by mismanagement and now risen to 17 and the financing system was recently underinvestment for decades, and in recent years, Haiti’s modified to allow up to 70% of financing of bills if oil tops largest hydroelectric power station, Peligre, has fallen into US$150 per barrel.107 Venezuela supplies member disrepair. However, Electricite d’Haiti (EDH), the country’s countries with approximately 185,000 barrels of oil per day state-owned power company received $750,000 in (b/d),108 over half of which goes to Cuba109 and it is January 2008 from the Inter-American Development Bank estimated that Cuba receives Venezuelan fuel subsidies to refurbish Peligre’s generating machinery and improve amounting to $2 billion per year.110 the station’s efficiency.113 An additional loan from the
Chart 5.2.1t Generation Capacity by Type in the Caribbean
6000
Hydro Thermal 5000 Nuclear Geothermal/Solar/Wind 4000 MW 3000
2000
1000
0 Barbados Cuba Dominican Grenada Haiti Jamaica Trinidad & Republic Tobago Source: OLADE102
220 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.2.1g Electricity Generation from Oil and Gas
Caribbean Electricity Generation from Oil (% of total) Electricity Generation from Gas (% of total) Total Electricity Generation from Oil and Gas (% of total) Cuba 96.7 - 96.7 Dominican Republic 67.3 9.1 76.4 Trinidad & Tobago 0.2 99.4 99.6 Jamaica 96.4 - 96.4 Haiti 52.5 - 52.5 Source: IEA104
Table 5.2.1h Net Importers of Oil development. Globally, 1.6 billion people, or approximately a quarter of the world’s population, live Country Net Imports of Oil Barrel of Oil Equivalent 2006 (mtoe)105 (in millions of barrels) without regular access to electricity.115 The provision of Cuba 5.73 39.25 electricity to replace the use of traditional fuels, such as Dominican Republic 5.51 37.74 wood, kerosene, or charcoal, offers a wide range of Jamaica 4.1 28.08 benefits, helping to fulfill basic needs of nutrition, warmth, Haiti 0.6 4.11 and lighting as well as providing opportunities for Source: IEA106 education, improved public health, and entrepreneurship. Electricity (even when generated from fossil fuel sources) Bank to help rehabilitate the dam’s mechanical equipment provides services at lower operating costs and without the was approved in December 2008. harmful indoor emissions of traditional fuels, but connection costs of $80 to $300 are often an Renewables: The region has little non-hydro renewable insurmountable barrier for poor households. Moreover, generation capacity. Jamaica’s 20 MW Wigton wind farm the often challenging geography of remote rural areas and was developed by the state-owned oil company, the their widely dispersed communities pose serious Petroleum Corporation of Jamaica (Petrojam), and began obstacles to the expansion of the electricity grid that can operations in 2004 to become the region’s largest wind render such initiatives completely economically and/or power project.114 Cuba has also pursued the development physically unfeasible. of its wind resources increasingly vigorously, with the opening of a 1.8 MW demonstration wind farm on the The inherent difficulty of gathering accurate data on this Island of Youth (Isla de la Juventud) and a 5.1 MW wind segment has frustrated researchers, who must work with farm in Gibara in 2007 and early 2008, respectively. “bold” assumptions to generate credible cross-country datasets.116 Although much of the available information on access is extrapolated from IEA surveys dating back to Extending Access in LAC — Renewable 2000, the extension of access to grid electricity is thought Power and Rural Electrification to have lagged access to water and sanitation across all income groups. The disparity is most marked in the It is important to note that these statistics of global and lowest-income countries, where just 31% have access to regional power capacity and generation include only grid- electricity, compared to 75% with access to water and connected electricity, which is still lacking in many parts of 61% with access to sanitation. Among developing the world, including not only areas in the least-developed countries generally, 58% of the population has access to countries but also rural and isolated areas in countries that electricity, compared to 83% for water and 80% for have otherwise achieved relatively high levels of sanitation.
Table 5.2.1i Reliance on Hydro Energy
Caribbean 2006111 Total Electricity Generation (GWh) Electricity Generation from Hydro Energy (GWh) Percent of Total Cuba 16,469 98.81 0.6 Dominican Republic 14,150 1415 10.0 Trinidad & Tobago 7,045 - - Jamaica 7,473 164.41 2.2 Haiti 570 270.75 47.5 Source: IEA112
Blueprint for Renewable Power | Section 5 221 Table 5.2.1j Access to Basic Services by Country Income Level
Country Income Level Percentage of population Number of fixed & mobile Percentage of population Percentage of population with access to grid telephone subscribers with access to improved with access to electricity (2000) per 1,000 people (2005) water sources (2005) sanitation (2005) Low 31 114 75 61 Lower-Middle 82 511 82 77 Upper-Middle 87 901 94 91 Developing 58 523 83 80
Source: World Development Indicators via World Bank117
OLADE has more recent statistics for the Latin American Renewables and Rural Electrification region alone. They indicate a generally high level of In areas where connection costs are too high, off-grid electrification compared to other developing regions, with renewable power systems are a potentially ideal means of overall access rates of over 90% of the population in most satisfying rural electricity needs without having to make countries.118 There are notable exceptions, however. In major transmission infrastructure investments or rely on South America, fewer than 80% of Peruvians and costly and volatile supplies of fuel for diesel generators. Bolivians have access to electricity, with coverage of 78% Small-scale renewables have thus been incorporated into and 67%, respectively. In Central America and the rural electrification programs in a growing number of Caribbean, just 55% of Nicaraguans, and only 34% of countries in Latin America and throughout the developing Haitians enjoy access to grid power. world, including Argentina, Bangladesh, Bolivia, Brazil, Cambodia, Chile, China, Ethiopia, India, Kenya, Mexico, These national-level statistics can also mask substantial Pakistan, Peru, the Philippines, Thailand, Uganda, and disparities between regions within a country, as problems Vietnam.122 Altogether, these sources — including of access are frequently related to the particular biomass, small wind power, household solar, and other geographic and population distributions of different technologies — provide electricity for an estimated 25 countries120 In general, rural areas lag urban areas in grid million rural households. connectivity, although this disparity is much more pronounced in some countries than others. In the LAC While conventional grid-extension activities are still a region, while coverage is close to universal in most urban priority in many Latin American countries, a growing areas, with access levels of more than 90%, there are number of governments are recognizing the value of major gaps in many rural areas. The rural-urban disparity utilizing renewables to reach areas where access to the varies widely by country, with Peru having the greatest grid may be prohibitively expensive. Throughout the difference of several countries for which data are available, region, there are at least 13 government-initiated rural with 92% of the urban population enjoying coverage, electrification programs, enacted since 1994, that compared to just 28% of the rural population. incorporate renewable power (see box below). Rural electrification with renewables in LAC is discussed in more detail in Section 5.2.6.
222 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.1u Electricity Coverage in LAC, 2005
Argentina Barbados Bolivia Brazil Chile Colombia Costa Rica Cuba Dominican Republic Ecuador El Salvador Grenada Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Suriname Trinidad & Tobago Uruguay Venezuela
0% 20% 40% 60% 80% 100% Source: OLADE 119
Chart 5.2.1v Urban vs. Rural Electricity Coverage
Brazil (2002)
Costa Rica (2002)
Guatemala (2000)
Jamaica (2000)
Peru (2000)
0% 20% 40% 60% 80% 100%
Rural Urban
Source: World Bank121
Blueprint for Renewable Power | Section 5 223 Table 5.2.6e Rural Electrification Programs Using Renewable Power in LAC Country Name of Program Technologies Used Goals Impacts Argentina Renewable Energy Project Primarily solar, wind, To electrify 87,000 homes and 2,235 homes and 556 public buildings have been for the Rural Electricity mini-hydro, and possible 6000 schools, health clinics and electrified in Chaco, Chubut, Jujuy, Misiones, Neuquén, Market (PERMER) use of fuel cells police stations Salta, Santiago del Estero, and Tucumán provinces electricity has been provided through a decentralized grid to the Valle Colorado area in Valle Grande
Bolivia Bolivia’s Rural Solar PV, mini-hydro To increase coverage in The Bolivian government signed two Agreements Electrification Plan rural areas from 24% to 45% of Financial Support in 2003 and 2004 with Kreditanstalt (PLABER) 2002 within five years. Für Wiederaufbau (KfW), and the financing was used to build 6 mini hydroelectric power stations, with 11 more in Brazil Light For All 2003 Solar PV, biomass, To provide access to 12 In 2004 1.375 million people were newly connected small hydro million people by 2008 and to the power grid in 2005, benefitted 2.15 million people, secure the electrification of all created 80,000 jobs, and 700,000 electricity poles Brazilian households by 2015. were installed in 2006 3 million were expected to benefit six hydroelectric dams are planned
Chile Rural Electrification Solar PV, wind To increase rural electrification N/A Plan (PER) 1994 rate to 90% by 2006
Ecuador National Electrification Plan Small and mini-hydro, N/A Joint project between Ministry of Energy and Mines (PLANER) – ESMAP, PROMEC. Solar PV and Ministry of Health installed PV electricity to 94 remote CONELEC, the National Electricity medical clinics in the Ecuadorian Amazon region. Also, Council, oversees all electricity from 1998-2007, FERUM supplied electricity to programs, and FERUM (Fund for 3,240,111 homes and completed 18,878 proje Rural and Marginal Urban Electrification) is a part of CONELEC.
Peru National Rural Electrification Small hydro, To increase rural electrification Added 61 hydroelectric generation projects, 207 thermal Plan (PNER)2006 – 2015 wind and solar rate from 30% to 75% by 2013. generators, 4 wind turbine projects, and 2 solar panel programs.
Costa Rica National Rural Electrification Solar PV, mini-hydro To increase the national Identified 329 sites with potential for renewable Program 2000 electrification rate from energy of which 178 will be mini hydroelectric 94.9% to 99% by 2010. plants of 13 kW each and 151 sites will be PV this will permit electrification of 7,273 rural homes, 5,159 of which will be powered by mini hydroelectric pla Dominican Republic National Rural Mini-hydro, wind Goal for project 2008-2013: N/A Electrification Plan 33 mini hydroelectric plants with a capacity between 5 and 150 kW, a system of wind energy not to exceed 50 kW
El Salvador Rural Electrification 2007 Solar PV, wind, hydro To increase electrification rate Installation of some 950 domestic solar systems in rural areas from 78% to and provision of technical assistance for the creation 97% in 2012. Impacting more of communal companies for the administration, than 47,000 households, and operation and maintenance of the isolated systems. nearly 250,000 people.
Guatemala Rural Electrification Solar PV, wind, biogas To provide access to N/A Program (PER) 283,000 new users (equivalent to 1.5 million people).
Honduras National Social Electrification Mini-hydropower To raise rural electrification Information available for projected impact of electrification Plan (PLANES) 2002 rate from 17.4% to 46.3% in general, specific numbers for RET are N/A. Projected by 2012. Impact between 2003 and 2012: 4,148 connected communities, 160,700 new electricity consumers (households) in rural areas, total additiona
Nicaragua National Rural Electrification Mini-hydropower To raise electrification rate from New Mexico State University and Sandia Labs Program (PLANER) 40% to 90% of the country’s (Albuquerque, NM) are working with the CNE to implement 2004 - 2012 rural areas by the end of 2012. PERZA (GEF and World Bank funding also). In 2005 they completed three projects: adding 7 PV stations to provide energy for 300 homes in indigenous Miskito
Panama Plan for Rural Electrification Solar, other RET To increase the electrification FIS worked with European commission and Panamanian (PLANER) managed by specifics not available rate up to 95% in the next Education ministry to bring solar power to Oficina de Electrificación 12 years. Also, to bring power 150,000 people between 2004 and 2008. Rural (OER). Panama Social to 30,000 homes. nvestment Fund (FIS)
Source: Various International and LAC Government Sources33
224 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2.2 RENEWABLE RESOURCE ENDOWMENTS hydrothermal resources leaves data necessarily incomplete, and largely based on extrapolations based on whatever limited exploratory drilling has taken place in an LAC Renewable Resources area. By contrast, the extent of another long-utilized source of renewable energy, hydropower, is much better The Latin America and Caribbean region encompasses a understood, with hydrological surveys providing data large area and a wide range of geographic zones, giving it dating back decades in many areas. Moreover, while there a rich endowment of natural resources including both is increasingly high-resolution data on wind and solar renewable and non-renewable forms of energy. While the resource density thanks to improving satellite-imaging harnessing of these resources to meet the region’s technologies, these maps may obscure substantial electricity energy needs has historically focused almost localized differences, requiring wind and solar projects to exclusively on large-scale hydropower stations and fossil collect extensive measurements on the ground before fuels, there is also enormous untapped potential for a siting a project. more extensive utilization of new renewable sources, including small hydro, wind, solar, geothermal, and various The analyses here provide a guide to the present state of forms of ocean energy. knowledge about the distribution of renewable resource endowments in the region. As discussed throughout this The availability and quality of data on each of these report, the possession of these resources is a necessary, resources varies widely, depending significantly on the but hardly sufficient, condition for their exploitation. While nature of the resource being studied. Geothermal power, some resources may be distributed broadly throughout for example, is one of the most long-established Latin America, only a small, but growing, number of renewable energy technologies, but the difficulty of countries have the energy needs, policy frameworks, and evaluating the number and size of suitably hot subsurface access to financing that have catalyzed their use.
Table 5.2.2a Hydropower Capability in LAC, Theoretical and Actual, 2005 2
Country Land Size Gross Theoretical Economically Actual Generation % of Developed % of Developed (sq. Km) Capability (TWh/yr) Exploitable (TWh/yr) Theoretical Economically Capability (TWh/yr) Capability Exploitable Capability Central America Belize 22,966 1 0.08 8.0% Costa Rica 51,100 223 20 6.57 2.9% 32.8% El Salvador 21,040 7 1.41 20.2% Guatemala 108,890 54 2.50 4.6% Honduras 112,620 16 1.76 11.0% Mexico 1,972,550 135 32 27.97 20.7% 87.4% Nicaragua 129,494 33 7 0.44 1.3% 6.2% Panama 78,200 26 12 3.78 14.5% 31.5%
The Caribbean Cuba 110,860 3 0.08 2.7% Dominican Republic 48,730 50 6 1.90 3.8% 31.7% Haiti 27,750 4 0.28 7.0% Jamaica 10,991 1 0.08 7.8%
South America Argentina 2,766,890 354 34.19 9.7% Bolivia 1,098,580 178 50 1.42 0.8% 2.8% Brazil 8,511,965 3,040 811 337.46 11.1% 41.6% Chile 756,950 227 50 25.49 11.2% 51.0% Colombia 1,138,910 1,000 140 37.00 3.7% 26.4% Ecuador 283,560 167 106 6.88 4.1% 6.5% Paraguay 406,750 130 101 51.16 39.4% 50.6% Peru 1,285,220 1,577 260 17.98 1.1% 6.9% Uruguay 176,220 32 6.68 20.9% Venezuela 912,050 320 130 77.23 24.1% 59.4%
Source: CIA World Factbook,3 World Energy Council 4
Blueprint for Renewable Power | Section 5 225 Hydropower developed 26% of its 140 TWh/yr of its economically exploitable capacity, and Peru has only developed 6.9% Many countries throughout Latin America, particularly the of its economically exploitable capacity. Peru, Ecuador, South American countries, have a significant natural and Bolivia have all developed under 7% of their resource potential for developing hydropower on both a economically exploitable capability, indicating significant large and small scale, although much of this potential, room for further hydropower developments in each particularly for large hydropower stations, has already country. been harnessed.
The “gross theoretical capability” of hydropower, as Climate Change and Its Impact on estimated by the World Energy Council, is the amount of Hydropower energy in terawatt-hours per year that could be generated in each country by all flowing water, “turbined” Of all the renewable energy resources discussed in this from the source to the sea or country border.1 This value section, hydropower is most vulnerable to the potential provides a proxy for the number of rivers and the flow of impacts of climate change. In June 2008, the IPCC water in each country. The “economically exploitable published a technical paper discussing the effects of capability” is the amount that can be exploited given climate change on the hydrological cycle, which found that current technology and expected local economic the warming climate is already causing:5 conditions. Based solely on resource endowments, countries with a large hydropower potential and a low • An increase in atmospheric water vapor, percentage of developed economically exploitable • Altered precipitation patterns, intensities, and extremes, capability, like Peru, Ecuador, Bolivia, and Colombia, are • A decrease in snow cover and the widespread melting the most attractive for new hydropower development. of ice, and While estimates for small-scale hydro are generally not • Changes in soil moisture and runoff. separated from overall hydropower potential, many of the best locations for large-scale hydropower have long All of these changes are particularly important to consider been tapped, leaving a growing proportion of unexploited in the short and long run when planning the development potential in the small hydro segment. Comparisons of and design of small as well as large hydropower facilities. overall hydropower potential between countries can be used as a proxy to gauge the relative levels of small Global Impacts hydro potential in the region as well. Erratic weather patterns leading to increased rainfall and rainfall intensity can trigger flooding and erosion. The In Central America, Mexico and Guatemala have the IPCC estimates that rainfall is very likely to increase in high greatest theoretical hydropower potential at 135 TWh/yr latitudes and some areas of the tropics, but decrease in and 54 TWh/yr, respectively. However, in Mexico only the subtropics and lower-middle latitudes. The intensity of 23.7% of the theoretical capacity is economically precipitation, however, is likely to increase as well in these exploitable. In Panama, there is only a theoretical areas, enhancing the risk of flooding.6 An increase in capacity of 26 TWh/yr, but over 46% is economically flooding can increase the potential for damage to run-of- exploitable. river (RR) hydro facilities of any size as large amounts of sediments are pushed though the system uncontrollably. In the Caribbean, only the Dominican Republic (DR) has In general, the capability of RR hydro systems to respond a significant amount of theoretical capacity, at 50 TWh/yr. to changes in flow distribution is limited due to their lack of It only has 6 TWh/yr of economically exploitable capacity, storage capacity, making small hydro plants even more of which more than 31% has been developed. Cuba, susceptible to climate change impacts than their larger, Haiti, and Jamaica have less than 10 TWh/yr of dam-equipped counterparts. theoretical capacity combined and only 0.44 TWh/yr in actual generation, compared with 1.9 TWh/yr in the DR. The IPCC is highly confident that declining water supply from glaciers in the coming decades will be accompanied In South America, Brazil, Peru, and Colombia have the by a greater risk of spring flooding and dry-season greatest hydropower potential at 3,040 TWh/yr, 1,577 droughts in the next half century. In general, the IPCC TWh/yr, and 1,000 TWh/yr, respectively. Demonstrating a estimates with a high level of confidence that average river wide range of hydropower utilization, Brazil has runoff is predicted to increase though the middle of the developed more than 41% of its 811 TWh/yr of its twenty-first century. RR facilities located on glacial-fed economically exploitable capacity, Colombia has rivers will feel the impact of climate change more severely
226 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Diagram 5.2.2a Normal and El Niño Weather Patterns over the Pacific Ocean
Source: Based on diagram by South African Weather Service9
Blueprint for Renewable Power | Section 5 227 in the dry seasons due to the reduced quantity of runoff. Beyond the potential for more dramatic El Niño events, Systems located on rainwater-fed rivers should take there will also likely be more gradual, long-term changes to adequate precautions against damage from flooding. Latin America’s and the Caribbean’s hydrological resources Careful consideration should also be given to the due to climate change, although the inherent uncertainty development of RR systems in the subtropics and lower- surrounding climate change discussions makes these mid-latitudes, as declining precipitation may cause a impacts difficult to predict reliably. Since the 1970s, total decline in river levels. rainfall has declined between 10°S and 30°S, affecting the lower half of Brazil, Bolivia, Peru, Paraguay, Northern Impact in Latin America and the Caribbean Argentina, and Northern Chile.10 However, IPCC modeling The climate in Latin America is controlled by a number of consistently predicts that rainfall will likely increase by as factors such wind patterns, geographic features such as much as 10% in parts of Peru and Ecuador, and by up to the Andean mountain range, and the vast topical jungles 5% in southern Colombia and though equatorial Brazil by of Brazil. One major factor affecting the consistency of the end of the twenty-first century. Uruguay, Paraguay, and the climate in South America is deep ocean current parts of Argentina and southern Brazil are also expected to upwelling that occurs off of the Pacific coast. Trade experience rainfall increases of between 5% and 10%. winds drive the cool, upwelling water west, where it warms, evaporates, and precipitates over the South By contrast, subtropical regions, south of the Tropic of Pacific. Occasionally, this cycle is interrupted, and the Capricorn, on the west coast of South America, like flow of water reverses, bring warm surface water from the Argentina and Chile, as well as in the northern portion of South Pacific toward South America.7 When this occurs, Colombia and Venezuela, are very likely to experience a weather patters shift east as well, decreasing precipitation decline in precipitation by as much as 20% to 25%. In in the South Pacific and increasing precipitation in South Central America and the Caribbean, IPCC modeling America. This event is known as the El Niño Southern predicts a decrease in precipitation up to 20% in most Oscillation (ENSO) or El Niño. countries. The IPCC also reported that glacier shrinkage in the Andes has been observed, with some smaller glaciers The effects of an El Niño event can be felt across Latin predicted to disappear completely by 2010.11 The loss of America for up to a year or more. According the UNEP, an glacial ice is expected to increase dry-season water El Niño event can cause severe droughts in most of central shortages as the climate warms, which could lead to Mexico, the Pacific coast of Guatemala, El Salvador, concerns over the ability to generate hydropower in Bolivia, Honduras, Nicaragua, Costa Rica, and Panama. Excessive Peru, Colombia, and Ecuador, with flood risks increasing rainfall and flooding can occur on the Caribbean coast of during the wet season. southern Mexico, Honduras, Belize, Nicaragua, Costa Rica, and Panama. In South America, severe droughts can be The construction of run-of-river hydro facilities built in Latin experienced in central Brazil, with scarce precipitation in America should thus seriously consider the potential for Venezuela and eastern Brazil. Southern Brazil experiences short- and long-run climatological impacts on surface high temperature anomalies as well. Along the western water flow in their design and in their projections for future coast of the continent, Ecuador, Peru, Argentina, and Chile generation. More generally, while small hydro represents experience intense rains in the summer and abnormal an excellent source of “low-hanging fruit” for renewable dryness in the Andean region. Eastern Argentina, power development in many countries in the region, these Paraguay, Uruguay, and the southernmost region of Brazil plants are susceptible to the same shortages and droughts experience higher rainfall in the spring and the summer.8 that have plagued large hydro installations, and the fact that these risks may be growing is likely to hinder these The National Oceanic and Atmospheric Administration plants’ ability to improve the region’s long-term energy (NOAA) has shown an increase in the sea surface security. temperature changes associated with El Niño since the 1970s. As global temperatures warm, these events can have more drastic effects on weather patterns, specifically Geothermal rainfall and drought conditions in Latin America. As discussed in Section 5.2.1, impacts of El Niño on Latin High-temperature geothermal resources are generally America’s hydropower-generation capacity over the years found along the mountainous and volcanic areas found at have been frequently disastrous, leading to recurring, major the boundaries of the tectonic plates that make up the power crises throughout the region in heavily hydro- Earth’s crust. The boundary around the Pacific Plate is dependent countries like Brazil, Chile, Colombia, Costa best known as the “Ring of Fire” due to the immense Rica, and Honduras. number of volcanoes found along its border. This “ring”
228 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.2.2b Geothermal Energy Resource Potential
Country Geothermal Potential (GW) Region(s), Province(s) of Best Potential Central America Costa Rica 1.0 - 3.5 Guanacaste province in the country’s northwest El Salvador 2.2 - 4.1 The Plio-Quaternary Volcanic Belt in the country’s south Guatemala 3.3 - 4.0 Highlands of the southern and southwestern area of the country Honduras 0.9 La Unión in west-central Honduras Mexico 6.5 - 8.0 Baja California, Trans-Mexican Volcanic Belt (Eje Volcánico Transversal, or Sierra Nevada) Nicaragua 2.0 - 4.0 Marrabios mountain range running along the country’s Pacific coast
The Caribbean Lower Antilles 15.0 Guadeloupe, St. Lucia, Dominica, St. Vincent, Nevis, Saba, St. Kitts, Grenada, Martinique, Montserrat and Statia
South America Argentina 2.0 Neuquén province Bolivia 2.5 Cordillera Occidental of the Western Andes, the Bolivian Altiplano Brazil 0.36 Parana Basin Chile 2.4 Northern Andean Mountains Colombia 2.2 Cordillera Central of the Andes Ecuador 1.7 Tufiño Chiles, Chalupas, and Chachimbiro Peru 3.0 Borateras, Calientes, Chivay, and Hualca-Hualca in the south Venezuela 0.91 The El Pilar-Casanay geothermal zone in the north
Source: Sandia National Laboratory15 includes most of the world’s best geothermal producers, and along the Trans-Mexican Volcanic Belt. Mexico is including Japan, Indonesia, and the Philippines on the also the world’s third-largest geothermal power producer western plate boundary, and California, Mexico, and after the U.S. and the Philippines with 960MW installed Central America on the east. As discussed below, this capacity. Furthermore, Guatemala, El Salvador, and area also includes many of South America’s Andean Nicaragua have power potentials of up to 4.0 GW each. regions, although as of yet, this resource has not been Excluding Mexico, Central America has a combined harnessed for power generation on the continent. potential capacity ranging between 9.4 GW and 15.6 GW, with 442 MW of currently installed capacity. Currently, very little data exist that accurately map the geothermal potential of much of the world, despite the The only area in the Caribbean with any significant volume of potential information gained from oilwell-digging geothermal potential is known as the Lower Antilles, which operations. Except where noted, the data presented here includes the countries of Guadeloupe, St. Lucia, Dominica, are drawn from the 2007 World Energy Council “Survey of St. Vincent, Nevis, Saba, St. Kitts, Grenada, Martinique, World Energy Resources”12 and the 1999 “Database of Montserrat, and Statia. Together, this region has as much Geothermal Resources in Latin America and the as 15,000 MW of geothermal potential.16 However, the only Caribbean,” resources published by the U.S. Department installed capacity in the region is 4.5 MW in Guadeloupe. of Energy and the Sandia National Laboratory. The DOE/Sandia report itself draws its data about aggregate Aside from the countries in the Lower Antilles, geothermal resource estimates from extensive global surveys potential is significantly limited. The Greater Antilles as a conducted by the International Geothermal Association whole, including Cuba, Haiti, the Dominican Republic, between 1995 and 1999.13 14 Jamaica, and Puerto Rico, have little geothermal activity sufficient for electricity generation from existing Hot dry rock geothermal technology, or “enhanced subterranean water sources. However, the region’s geothermal systems” (EGS), are expected to expand the geological characteristics warrant further investigation into potential for geothermal utilization far beyond these the potential for enhanced geothermal systems. estimates, which are based on conventional geothermal technology applied to naturally occurring hydrothermal In South America, Peru, Bolivia, Chile, and Colombia reservoirs. have the highest estimated geothermal power potential at 3.0 GW, 2.5 GW, 2.4 GW and 2.2 GW, respectively, In Central America, Mexico has the greatest geothermal due to the high level of volcanic activity along the power potential with estimates ranging from 6.5 GW to 8.0 continent’s Pacific Coast. Despite this considerable GW, most of which is located in the Baja California region potential, South America’s geothermal resources have
Blueprint for Renewable Power | Section 5 229 Table 5.2.2c Wind Energy Resource Potential18
Country Wind Speed Range (m/s) Region(s), Province(s) of Best Potential Central America Belize 4.8m/s Costa Rica 4.8m/s - 5.6m/s Guanacaste El Salvador 4.8m/s - 6.4m/s Ahuachapán, Sonsonate, Santa Ana Guatemala 4.8m/s - 5.6m/s Jutiapa Honduras 4.8 - 6.4m/s Southern Border Mexico 4.8 - ≥8m/s Oaxaca Nicaragua 4.8 - 6.4m/s Rivas, Esteli, Matagalpa Panama 4.8m/s
The Caribbean Cuba 4.8m/s - 6.4m/s Holguin, Guantanamo Dominican Republic 5.5m/s - 9.0m/s Eastern Regions, and Pedernales Haiti 5.6m/s - 6.4m/s Jamaica 6.4m/s - 7.0m/s
South America Argentina 4.8m/s - ≥8.8m/s Southern regions Bolivia 4.8m/s - 8.8m/s Santa Cruz Brazil 4.8m/s - 7.5m/s Rio Grade do Sul, Minas Gerais, Bahia Chile 4.8m/s - ≥8.8m/s Southern regions Colombia 4.8m/s - 7.5m/s Guajira Ecuador 4.8m/s Paraguay 4.8m/s - 7.5m/s Alto Paraguay Peru 4.8m/s - 5.6m/s Uruguay 4.8m/s - 7.0m/s Rocha, Maldonado Venezuela 4.8m/s - 6.4m/s Falcon
Source: SWERA19 yet to be tapped for electricity generation. A number of Our assessment of the SWERA data indicates similar countries including Argentina and Peru use geothermal seasonal surface wind variations throughout Central for a wide range of direct applications such as heating, America, the Caribbean, and the northernmost regions of however. South America. Wind speeds tend to peak between October and February and experience declining intensity between March and September. The opposite generally Wind holds true for countries in South America south of the equator. The wind resource endowment of Latin America, and all over the word, is caused by regional air-pressure Of the countries in Central America, the Oaxaca province in differences between the equator and the poles. The U.S. Mexico is one of the best regions of wind power potential, Department of Energy’s National Renewable Energy with wind speeds greater than 8.8m/s. A number of Laboratory (NREL), in conjunction with the United regions along the Pacific coast in Guatemala, El Salvador, Nations’ Environmental Programme as part of the Solar Honduras, and Nicaragua have a notable wind power and Wind Energy Resource Assessment Project potential as well. Costa Rica and Panama lack significant (SWERA), collected a significant amount of surface wind wind power due to their geographical locations; wind data, which are available for public use. Largely, the data resources are low near the equator due to the presence of used in this study represent low-resolution country the Inter-Tropical Convergence Zone — characteristic of averages and do not take into consideration the micro- low atmospheric pressure and wind speeds. wind surface variations in certain regions where local wind conditions may be much greater, or smaller, than In the Caribbean, Jamaica and the Dominican Republic the country averages. Due to the low resolution of data, posses the majority of the wind power potential of the there is a greater probability that the wind-speed values region, ranging from 5.5m/s to 9.0m/s. The central and in given regions vary much more than indicated. All southern portions of Cuba also have some wind power values have been adjusted to reflect wind speeds at 50 potential, however, it is limited to a few small, northern meters above ground level.17 coastal regions.
230 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf In South America, the southern provinces of Argentina of the tropics. The impact of climate change on cloud and Chile posses the greatest wind power potential, cover, which could affect solar radiation fluxes, remains ranging from 6.4m/s to greater than 8.8m/s. Southeastern largely undetermined by climate scientists.21 Scientists in Bolivia has a wind power potential ranging from 6.4m/s to the UK published research this year indicating that, in the 8.8m/s, and the eastern provinces of Brazil, especially past 20 years, there has been no significant link between along the southern Atlantic coast, possess wind speeds cloudiness and incoming solar radiation fluxes.22 ranging from 6.4m/s to over 8.8m/s in some cases. The northern Atlantic coast and the northeastern region of Average solar radiation ranges for countries in the LAC Bahia also have wind speeds between 7.0m/s and 8.8m/s. region, derived from the SWERA database, are listed in Table 5.2.2c below. While understanding the global average for incoming solar radiation allows us to make Solar broad claims of usefulness of solar power in different regions, it is also important to note that the solar radiation The sun is directly or indirectly the ultimate source of flux varies widely from location to location and with the almost every form of energy we rely on (aside from seasons. geothermal or nuclear), including fossil fuels as well as biomass, wind, and hydro resources. Of the sun’s In Central America, the region with the best solar power emissions rate of 3.8x1023 kW, 1.08x1014 kW reaches the potential is located in central and northern Mexico, earth’s surface, accounting for atmospheric reflection and ranging between 5.5 and 6.5 kWh/m2/day. El Salvador absorption.20 Of this energy, 0.1% converted to useable also has fairly consistent solar radiation across the country power at a 10% efficiency rating would generate four at 5.5-6.0 kWh/m2/day. Areas along the border of times the world’s total generation capacity of 3,000 GW. Honduras may experience slightly lower values of annual The solar radiation hitting the earth every year is an order solar radiation. The solar power potential of Belize, Costa of magnitude greater than all the estimated non-renewable Rica, Guatemala, Honduras, Nicaragua, and Panama fuel sources on the planet. The average global incident ranges from 4.0 kWh/m2/day to 6.0 kWh/m2/day. solar energy on one square meter over one year is equal to the amount of energy in one barrel of oil. In the Caribbean, Cuba and Haiti have the greatest solar power potential, ranging from 4.5 kWh/m2/day to 6.5 While the sun’s rays hit the earth most directly at the kWh/m2/day. The western regions of the Dominican equator, average solar power potential is limited in this Republic also experience a solar power potential between region due to the presence of storm clouds characteristic 5.5 kWh/m2/day and 6.0 kWh/m2/day.
Table 5.2.2c Solar Energy Resource Potential (Horizontal to the Earth’s Surface)23
Country Average Solar Region(s), Province(s) of Best Potential Radiation (kWh/m2/day) Belize 4.5 - 5.5 Corozal Costa Rica 4.5 - 6.0 Pacific Coast (Northern region of Guanacaste El Salvador 5.5 - 6.0 Western Guatemala 4.5 - 6.0 Pacific Coast (San Marcos to Jutipa in the South) Honduras 4.5 - 6.0 Valle, Choluteca, Intibucá and Lempria Mexico 4.5 - 6.5 Zacatecas, Durango, Coahuila de Zargoza, Guerro Nicaragua 4.5 - 6.0 Chinandega, Léon Panama 4.0 - 5.5 Southwestern Coast Cuba 4.5 - 6.0 Cienfuegos, Sancti Spíritus, Granma, Santiago de Cuba, Las Tunas and Guantánamo Dominican Republic 5.0 - 6.0 Monti Cristi, Dajabón, Santiago Rodriguez, La Estrelleta, Independencia, Baoruco, San Juan and Santiago. Haiti 5.5 - 6.5 Artibonite Jamaica 5.0 - 6.0 Clarendon, Hanover and Westmorland Argentina 2.0 - 7.0 Jujuy, Salta and Catamarca Bolivia 4.5 - 7.0 La Paz Brazil 3.0 - 6.5 Goiás, Minas Gerais, eastern Tocantins, central to western Bahia, Southern Piauí, Rio Grande do Norte, and Paraiba Chile 2.0 - 7.0 Tarapacá, Antofagasta, and Atacama Colombia 3.5 - 6.0 Guajira, Cesar and Magdalena Ecuador 3.5 - 5.0 Central region, from the coast to the Brazilian Peruvian boarder Paraguay 5.0 - 6.0 Alto Paraguay and on the boarder between the northwestern provinces of Boqueron and Presidente Hayes Peru 3.5 - 7.0 Ica, Ayachucho, Arequipa, Moquengua and Tacna Uruaguy 4.5 - 5.5 Northern provinces of Artigas and Salto Venezuela 4.5 - 6.0 Northern coast in the provinces of Mariba, Aragua, northern Guárico, and Falcon Source: SWERA24
Blueprint for Renewable Power | Section 5 231 The greatest solar power potential in South America is The greatest wave power potential in Latin America exists located in the Atacama Desert. The majority of this along the Pacific coast, ranging from 15kW/m to 97kW/m, desert is in northern Chile, however, the solar potential of a high found along the southern coast of Chile.28 Along the this region, ranging between 5.0 kWh/m2/day and 7.0 southern Atlantic coast of Argentina, the wave power kWh/m2/day, is shared with southwestern Bolivia, potential can also reach 97 kW/m. On the northern Pacific northeastern Argentina, and southern Peru. If CSP coast of South America, including the coasts of Ecuador, technology is used, the power potential increases ranges Colombia, and Venezuela, wave power levels range from between 7.0 kWh/m2/day and greater than 9.0 11kW/m to 16kW/m. In Central America and the kWh/m2/day. The eastern regions of Brazil also have a Caribbean, wave power levels range from 11kW/m around notable level of solar power potential ranging from 5.5 Panama and Jamaica to 15kW/m on the northern Pacific kWh/m2/day to 6.0 kWh/m2/day. coast of Mexico. In April 2008, the oceans and water resources engineering company Baird & Associates Concentrating Solar Power (CSP): This review identified Chile as having the highest wave energy potential assesses the solar power potential of a solar panel of any country in the world.29 As Baird has commercial aligned horizontally to the earth’s surface. Solar energy interests in the sector and will not release its data, IDB is can also be harnessed at utility scales using funding an independent and objective wave resource study concentrating solar power (CSP) technology, as for the country in cooperation with the Chilean economic discussed in Section 5.3.4. However, because CSP development agency CORFO. The company estimated plants require the steady heating of water, oil or another that 3,800 MW could be generated along the coast. medium to create steam, it is most viable in regions with little cloud cover, such as northern Mexico and the Tidal Atacama Desert in the Andes. Tidal energy has occasionally been called “lunar energy,” as it derives its power from the gravitational pull of the moon on the earth’s oceans. While there is an estimated Ocean worldwide generation potential of 3,000 GW, as little as 3% of this is located in areas suitable for power generation, Various forms of ocean energy, including wave, tidal, and making it a very site-specific technology.30 Traditionally, ocean thermal power, offer a potentially huge source of barrages or dams are constructed across estuaries or bays renewable power. However, the technologies to harness with large, natural tidal ranges. The water flowing in during these resources are in their infancy, as are efforts to high tide is captured and released during low tide to drive assess their extent accurately. Currently, there are turbines. In Latin America, tides are the strongest off the research endeavors, such as the NASA’s Ocean Surface Pacific coast of Central and South America, centering Topography Mission/Jason 2, attempting to develop and around Panama, Costa Rica, Colombia, and Ecuador. analyze a comprehensive database of high-resolution There are also strong tides off the Atlantic coast of Brazil sea surface and subsurface information such as wind and the very southern tip of Chile and Argentina. Despite speed, wave height, wave speed, ocean current flow, the relative strength of the tides in these areas, barrage- and water temperature gradients. As ocean power based tidal power potential is limited by the availability of energy systems become more cost-effective, the adequate basins or estuaries for constructing tidal power availability of detailed ocean data will be crucial for facilities.31 While there is thought to be potential off the determining where the best ocean power potential is in coast of northern Mexico and off the Patagonian coast of Latin America. Argentina, a detailed assessment of coastal tides, bays, estuaries, and basins should be conducted in these regions Wave to gain a better understanding of the tidal potential for both The frictional energy transfer of wind passing over a barrage and free-flow tidal power technologies.32 body of water creates waves. Wave energy technology seeks to capture the vertical and lateral movement of the Another form of tidal power technology under development waves and convert it into useable energy.25 The Pelamis does not require the use of dams or barrages. Offshore wave-power company of Scotland claims that any area tidal power, or free-flow tidal power generators, utilize with wave power averaging 15kW/m annually can underwater turbines, similar to wind turbines, which can produce cost-competitive wave electricity.26 The power harness tidal flow energy and ocean current energy. These potential of a wave is proportional to the square of the turbines can be constructed over a wider coastal area amplitude of the wave and the period of motion, meaning because they do not require an estuary or bay to store the that the longer the period and higher the amplitude (wave potential energy. They are also less resource-intensive and height), the greater the power potential.27 potentially less environmentally damaging.33
232 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2.3 RENEWABLE POWER INVESTMENT AND different types of finance can be broken down loosely into FINANCING early-stage venture capital and private equity (VC/PE) finance, public financing through stock markets, and asset finance used to build generating plants. Global Renewable Power Investments Venture capital and private equity investments in Current Global Trends renewable power increased more than fourfold between Investments in renewable energy, including investments 2004 and 2007, growing from $1.4 billion to $6.4 billion, in new generating capacity as well as manufacturing including an increase of 73% between 2006 and 2007. plants, technology development, commercialization, and Early-stage VC investments (seed capital and series A and other public and private sector investments, are B rounds) saw the greatest increase across all renewables booming, increasing 60% from 2006 to 2007 alone. (including biofuels), growing by 112% as later-stage According to New Energy Finance and the UNEP opportunities became relatively more scarce. Private Sustainable Energy Finance Initiative (SEFI), total new equity to finance expansion also grew strongly in 2007, investments in renewable energy (including biofuels) and with a 44% increase over 2006 levels, but this began to energy efficiency investments combined reached $148.4 slow toward the end of the year due to emerging concerns billion in 2007, compared to $92.6 billion in 2006 and by lenders over the U.S. sub-prime mortgage crisis, a $49.6 billion in 2005.1 A majority of this total, $87 billion, trend that continued into 2008. Geographically, the U.S. went to the renewable power sector, representing a more led in overall VC/PE investment due to well-established than a doubling of the $41 billion invested in the sector in venture capital markets that attracted 75% of total VC 2006 and more than seven times the $12 billion invested investment globally. However, European VC and PE in 2004.2 markets are growing more quickly as EU investors become more willing to back newer and less-proven The development of a robust renewable power sector renewable technologies, and PE in particular was more requires investments throughout the value chain, from balanced overall, with the U.S. drawing 43% of early-stage development to commercialization activities to investments, Europe drawing 32%, and Brazil, China, and the construction of full-scale generating assets. These India drawing 23% of the total (although investments in different activities usually require distinct types of Brazil were almost exclusively focused on biofuels).5 financing, whose availability may vary dramatically among different regions and different energy technologies. In terms of technology, solar power companies have shown the strongest growth, increasing in 2007 by 85% Following the NEF/SEFI typology presented in their Global over 2006, with its $3.7 billion in VC/PE investments Trends in Sustainable Energy Investment report, the accounting for more than half of the total invested in
Chart 5.2.3a Global Renewable Power Investments by Type
$100
$90
$80
$70
s $60 Asset Finance $50 Billion Public Markets S U $40 VC/PE
$30
$20
$10
$0 2004 2005 2006 2007 Source: SEFI/NEF3
Blueprint for Renewable Power | Section 5 233 Chart 5.2.3b Venture Capital and Private Equity
$7
$6
$5
$4
s Other Renewables Wind
Billion Solar S $3 U
$2
$1
$0 2004 2005 2006 2007
Source: SEFI/NEF5 renewable power technologies. This was split fairly evenly reflected the more mature status of wind power between VC and PE investments, as early-stage technology, as a greater number of companies went to companies saw increased investor interest, particularly in public markets to raise funds, and VC/PE investment was California’s fast-growing solar sector and thin-film similarly skewed toward private equity deals for buyouts in photovoltaic manufacturers in general, and more- a consolidating market.6 established companies sought to expand manufacturing capacity rapidly through private equity. Wind investments, Despite their small share overall, investments in other which had dominated VC/PE funding in 2004–2005, grew renewable technologies saw the strongest growth, at a slower pace of just 20% to $1.8 billion. This generally increasing by 347% to just under $1 billion for the year as
Chart 5.2.3c Venture Capital and Private Equity, 2007
Wind 28% Geothermal 10% Small Hydro 2% Marine 3% Solar 57%
Source: SEFI/NEF7
234 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.2.3d Public Markets
$25
Other Renewables $20 Wind Solar
s $15 Billion S U $10
$5
2004 2005 2006 2007 Source: SEFI/NEF8 venture capital investors began looking to less-established was at the low end of expectations but still has been the technologies such as wave, tidal, and enhanced geothermal largest IPO in Europe so far this year.10 Italian utility Enel systems (EGS). Geothermal technologies took a 10% share pushed back plans for the IPO of its own renewables unit of the overall VC/PE market, followed by more than 2% until at least early 2009, hoping for better market each from marine as well as small hydro technologies. conditions.11
Public market investments in renewable power rose from In terms of technologies, Iberenova’s performance allowed just $178 million in 2004 to a whopping $21.5 billion in wind to dominate this financing segment in 2007 with over 2007, with an increase of more than 200% between 2006 $11 billion raised on global stock markets, over half of the and 2007 alone. This growth on the stock markets was total. However, this activity was exclusively from European somewhat skewed by the $7.2 billion IPO of Iberdrola ($9.4 billion) and Asian ($1.7 billion) wind companies, with Renovables (Iberenova), the renewable-energy arm of none raised in the U.S., although Connecticut-based Noble Spanish utility Iberdrola and the single largest wind power Environmental Power filed for an IPO on Nasdaq in July producer in the world. The December 2007 IPO was the 2008, although it has yet to set a date for the stock’s largest ever by a renewable power company, by a wide launch.12 Solar power companies accounted for most of margin, and it was the largest offering ever made by a the remainder of the market, raising $9.4 billion in 2007, Spanish company, helping to propel renewable energy to a more than doubling its 2006 total of $4.6 billion. This was 19% share of overall energy-sector money raised on led by a growing number of Chinese solar cell and module public markets, representing a substantial increase over manufacturers such as LDK Solar and Yingli Solar, the previous levels. latter of which raised nearly $450 million on public markets on the year. Geothermal companies also raised $609 However, renewables have not been exempt from the million on public markets, about 3% of the total in 2007.13 worldwide market downturn in 2008, which has seen the number of IPOs across all sectors of the global economy Overall, the amount of money raised by non-OECD decline by 75% as of August 2008, compared to the same companies on stock markets in 2007 more than tripled from point in 2007.9 Iberenova’s IPO may thus have represented $662 million to $2.9 billion, although most of this activity, a high-water mark for the renewable power sector for the particularly for Chinese firms, came on OECD exchanges time being, with a number of companies delaying or such as London’s AIM and the New York Stock Exchange cancelling IPOs originally planned for 2008. Despite these due to their greater liquidity and greater investor interest in headwinds, the renewable energy arm of Portuguese utility renewable energy technologies in general. Indian wind EDP — the world’s second-largest wind power producer — turbine manufacturing giant Suzlon was the major went forward with its IPO in June 2008, raising $2.4 billion exception, raising more than $1 billion for the year on the from the sale of 25% of its shares in a performance that Bombay and Singapore Stock Exchanges.14
Blueprint for Renewable Power | Section 5 235 Chart 5.2.3e Public Market Investments, 2007
Solar 44% Wind 53% Geothermal 3% Marine < 1%
Source: SEFI/NEF14
Asset financing for new renewable power generation China, as discussed earlier in Section 5.2.1, “Global and capacity nearly doubled on the year, from $30 billion in Regional Electricity Supply and Demand.” While globally 2006 to $59.1 billion in 2007, representing a nearly six-fold this asset finance was split roughly evenly between project increase compared to $10.6 billion in financing in 2004 financing and on-balance-sheet financing, it was and two-thirds of new renewable power investments significantly skewed toward project finance in developed- overall.15 The growth in these investments has been driven country markets due to greater access to debt finance, heavily by the proliferation of renewable power incentives while generating assets in China, India, and other geared toward making these technologies competitive developing countries were financed largely through equity. with conventional power generation, as discussed in Access to debt finance has been curtailed due to Section 5.2.5 “Renewable Power Policy Incentives.” The tightening global credit markets in 2008, which has slowed vast majority of this growth came in the U.S., the EU, and growth as in other financing segments, although robust
Chart 5.2.3f Asset Financing
$60
Other Renewables $50 Wind
Solar
s $40 Billion
S $30 U
$20
$10
2004 2005 2006 2007 Source: SEFI/NEF17
236 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf growth continued in many areas, particularly in energy- increasingly fueled by the innovative use of power- hungry China and in European markets with feed-in tariffs purchasing agreements (PPA) for rooftop solar installations, that provide long-term revenue guarantees.16 as discussed in the side box “Asset Financing for Distributed Solar in the U.S.” Of the 2007 total, $39 billion, or almost exactly two-thirds, went to investments in 21 GW of new wind power Other renewable power sources saw slower growth with a capacity, which itself represents an increase of two-thirds combined $2.4 billion, a 37% increase over 2006 and over the sector’s 2006 total and more than a quadrupling roughly triple their 2004 total of $822 million. This was led since its 2004 total of $9.4 billion.17 Wind power has by $1.5 billion for small- and mini-scale hydro plants and consistently led in asset financing as well as capacity due $603 million for geothermal plants in 2007, representing to its low costs and widespread applicability compared to 2.6% and 1% of the total, respectively, along with $76 other renewable sources. Solar asset financing saw the million for demonstration wave and tidal power fastest growth of any sector, with $17.7 billion in 2007 technologies, which have yet to be deployed on a representing a more than 250% increase over $5 billion in commercial scale. 2006 and a more than 40-fold increase over $406 million in 2004. This was fuelled almost entirely by generous feed-in In general, as discussed in the side box “Renewable tariff subsidy regimes in Europe, led by Germany (the Power Financing Challenges,” asset financing for largest market) and Spain (the fastest-growing), although renewables often faces greater challenges than for new subsidies in Italy as well as South Korea also resulted conventional plants in securing sources of debt finance, for in strong growth. Growth in the U.S. market was also a range of reasons including high up-front costs, perceived
ASSET FINANCING FOR DISTRIBUTED SOLAR IN THE U.S.
While the photovoltaic solar-generating sector in the U.S. is less developed than in pioneering European countries like Germany and Spain due to its reliance on tax credits that are less generous and much less certain than Europe’s guaranteed feed-in tariff programs, the private sector is taking the lead in developing innovative new ways to finance these projects. Most notably, a fast-growing proportion of commercial, industrial, and, increasingly, residential solar systems are being financed through the use of power-purchasing agreements (PPAs) modeled after PPAs that are commonly signed between utilities and independent power producers (IPP).
Just as PPAs for utility-scale power projects provide long-term assurances that utilities will purchase a given amount of power from an IPP at either fixed prices or prices determined by a variable formula that provide sufficient certainty for a project’s financial viability, solar power PPAs allow solar developers to effectively lease an end-user’s rooftop to install solar panels that produce electricity sold to the end-user for a guaranteed price over the life of a project. With these arrangements, end-users can avoid most or all of the up-front costs and risks of purchasing and installing a solar panel, which can be prohibitively expensive for many businesses and households. Instead, project-development risks are shifted to solar power developers such as SunEdison (for commercial or industrial customers) or Recurrent Energy (in the residential sector) that have the expertise and financing economies of scale necessary to make these projects feasible. End-users simply pay for the power generated by the project at rates fixed below retail power tariffs.18 While solar power is much more expensive than wholesale power generated by conventional plants, it is competitive with retail rates because it avoids the transmission and distribution costs bundled into these tariffs, making it a cost-effective proposition for both solar developers and end-users.
PPAs are becoming increasingly mainstream for relatively large-scale solar systems for industrial, commercial, and institutional customers. Half of the U.S. commercial and institutional market for solar power in 2007 was developed under PPAs, up from 10% in 2006, and PPAs are expected to cover 65%–75% of new solar installations for this segment in 2008.19 While smaller residential installations have generally been less able to take advantage of these financing models thus far, this is changing as a number of start-ups targeting this market begin to emerge, some of which are backed by financing from major investors such as Morgan Stanley.20
Blueprint for Renewable Power | Section 5 237 Chart 5.2.3g Asset Financing, 2007
Solar 30% Wind 66% Geothermal 1% Small Hydro 3%
Source: SEFI/NEF21
riskiness, and a lack of a commercial track record with billion in 2006. In total, there are approximately 441 some areas and technologies. These problems are funds known to have some interest in renewable particularly acute in developing contexts, including most energy, with 87 exclusively dedicated to renewable countries in Latin America, due to even less of a track power projects and 149 with over 50% investment in record for these technologies and a general lack of robust renewable energy. Of the total, 62%, or $41.9 billion policy incentives to reduce risk. Policy incentives, as was in public equities, and 22% came from VC/PE. discussed elsewhere in this section, as well as the public- The surge in investments is due to increases in public private financing tools discussed below, are designed to and investor concern over climate change in the address this and other key financing gaps. past year.24
Mergers and Acquisitions and Investment Funds: In Future Global Growth in Renewables Investments addition to these new investments, the renewables sector A recent study by the energy consultancy CERA projects also saw growth in mergers and acquisitions activities as that rising private sector enthusiasm for renewables will well as the activities of investment funds. drive a cumulative $7 trillion in global investments worldwide by 2030.25 However, continued and expanded • Mergers and acquisitions (M&A), buyouts and government support will be necessary to reach this level, refinancing reached $56.6 billion in 2007, up 49% from including policy incentives for renewables as well as about $38 billion in 2006.22 By itself, M&A was $25.7 mechanisms to put a price on CO2 emissions, such as a billion. The 237 deals that transpired in 2007 were global carbon-trading system. While there certainly has predominantly driven by market consolidation, been notable progress in this area, particularly in the capitalized by the equity of well-established companies, European Union (as discussed in Section 5.2.5, requiring little debt financing. Wind led M&A activities “Renewable Power Policy Incentives” as well as Section 7 with $11.5 billion in deals, in both power generation and on Carbon Markets), the wider spread of these policies is manufacturing. Utilities, rather than independent far from certain, as is the timetable on which they might be developers, participated in M&A investments, primarily implemented. due to their access to independent funding. Manufacturing bottlenecks provided a significant Moreover, renewable power projects in all regions of the incentive for M&A investment, helping to streamline the world continue to suffer from finance-related risks and production process.23 barriers that currently hinder growth. Renewable power projects generally have high up-front capital costs relative • Investment funds, wholly or partially focused on to fossil fuel technologies and low rates of return, a tough renewable energy and/or energy efficiency also totaled sell for many investors.26 Moreover, many investors are $67.3 billion by the end of 2007, up from only $17.8 still unfamiliar with the sector and are thus likely to
238 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf RENEWABLE POWER FINANCING CHALLENGES
The project financing of renewable power technologies is, in most cases, dramatically different from financing conventional power plants, requiring new forms of capital and new approaches. Thus, although renewables are the fastest-growing segment of the global generation mix, in all regions of the world, renewable power projects continue to suffer from finance-related risks and barriers that have hindered growth in ways not faced by more established energy technologies for a range of reasons.22
• Lack of Familiarity: On a basic level, the renewables sector is unfamiliar to most financiers, and the widespread lack of reliable, timely information on the track record of these projects can constitute a significant barrier to entry into the market. Compounding this issue, individual project developers rarely have the resources or the economic justification to produce such information on their own. With insufficient information, lenders generally tend to overrate underlying project risk, resulting in increased financing and transaction costs.
• Financial Structure and Scale: Renewable power projects generally have higher capital costs and lower operational costs per unit of energy than conventional fossil fuel–generating technologies, resulting in a high requirement for external financing amortized over the life of the project. Thus, there is long-term exposure to risk for lenders. Moreover, because most renewable power projects are of a smaller scale than central power plants, transaction costs are disproportionately high, with every investment requiring initial feasibility and due-diligence work that vary little with project size. Thus, pre-investment costs, including legal, consulting, and engineering fees as well as permitting costs, have a higher impact on transaction costs.
• Underfinanced and Unproven Project Developers: Often, developers of renewable power projects lack the proven track record and financial backing of companies building large power plants, leading them to be perceived as higher risks and questionable candidates for non-recourse lending.
• Commercially Unproven Technologies: With the exception of onshore wind, financiers often regard the full cost and long-term performance risks of renewable technologies as higher than those of established technologies. This results in a vicious circle, where financiers and manufacturers are reluctant to invest because demand is too risky, which in turn prevents the investments necessary to reduce costs through economies of scale.
• Fuel Supply Risks: While the fuels used for renewable plants are usually either free (in the case of wind, solar, hydro, or geothermal) or low-cost (potentially in the case of biomass), financiers will want assurances of a sufficient resource to meet projections. For wind projects, at least one year of on-site wind-speed measurements is usually required before investments are considered. Small hydro projects will need to review long-term hydrology records. Lenders for biomass energy projects virtually always require a guaranteed fuel supply for non-recourse financing.
• Use of Conventional Market Pricing Models: While renewable generation costs are dropping, they are still generally more expensive than fossil fuel generation strictly on a cost-per-kilowatt-hour basis. However, as climate change–focused policy interventions in developed as well as developing countries increasingly place a premium on carbon-free electricity — or place increasing costs on fossil fuel energy — these economics will change.
Blueprint for Renewable Power | Section 5 239 overestimate the risks of projects. This impression is The World Bank Group committed $262 million in funds enhanced by the uncertainty surrounding some incentives, to new renewables (i.e., renewables not including large as in the case of the U.S. production tax credit in the past, hydro) and energy efficiency in 2007. Including financing which has also made revenues more difficult to project, for large hydropower and carbon credits, the Bank adding further challenges. committed $1.43 billion to renewables in 2007, up from $680 million in 2006. This level of financing was in Problems are particularly acute in developing countries, keeping with the Bank’s goal of increasing its support for where access to affordable finance is often difficult and renewables and energy efficiency by 20% annually reliant on targeted subsidies. Investments in many between 2005 and 2009, and the cumulative investments developing contexts are limited by poorly developed in renewables through 2007 was close to the cumulative financial markets; products; institutions; high political, level targeted for 2009. More than half of the World Bank credit, currency, and economic risks; the lack of local Group’s financing went to Africa.28 capacity to adapt technology; and the lack of infrastructure to deliver services. A number of multilateral The World Bank Group’s International Finance and international development organizations have played Corporation (IFC) and the Global Environment Facility a critical role in providing sources of finance to address (GEF) allocated $156 million and $7 million, respectively, to these gaps. co-financing renewable energy projects implemented by the Bank, UNDP, UNEP, and other UN agencies in recent Development Assistance for Renewables years. This co-financing is usually more than matched by Multilateral, bilateral, and other public financing flowing indirect or associated private sector co-financing, which is from developed to developing countries are major often several times greater than direct finance from the sources of financing for renewable power projects in GEF. Recipient-country governments are also a significant these regions. In 2007, international development banks source of co-financing for these projects. and organizations invested $8.3 billion in clean energy projects, up from $6 billion in 2006. These funds go to a KfW committed $389 million to developing-country wide variety of initiatives, including investments in renewables in between 2003–2007, and its “Special renewable energy and clean water projects as well as Facility for Renewable Energies and Energy Efficiency” training, policy development, market facilitation, and loan program, established in 2005, is expected to provide technical assistance programs. The largest clean energy over $2 billion in loans between 2005 and 2011. investor in 2007 was the European Investment Bank (EIB), with $3.2 billion. The World Bank Group and the Over the next three years, development assistance is European Bank for Reconstruction and Development expected to increase substantially. The EIB, EBRD, the (EBRD) followed with $1.43 billion and $1.21 billion, World Bank and the Asian Development Bank have all respectively. Bilateral groups such as Germany’s KfW made commitments for the years to come. In September and the Japanese Bank of International Cooperation 2008, several industrialized countries pledged more than (JBIC) have also invested in developing countries over $6.1 billion over the next three years to a new Climate the past few years. Investment Fund created by the World Bank that will support broad climate change innovation as well as the In 2007, international development demonstration, deployment, and transfer of low-carbon technologies. Instruments used by the fund will include banks and organizations invested grants, concessional loans, and loan guarantees, with the $8.3 billion in clean energy first projects to receive support expected to be announced in early 2009. Donors include the U.S. (at $2 billion), the projects, up from $6 billion in 2006. UK (at $1.47 billion), Japan (at $1.2 billion), Australia, France, Germany, the Netherlands, Norway, Sweden, and Switzerland.31 The European Investment Bank (EIB) made huge steps in 2007 toward addressing climate change by quadrupling its support for renewable energy from 2006. Renewable Power Investments in LAC At $3.2 billion dollars, the EIB is leading the way, providing loans for projects inside and outside of the EU Renewable Power Investment Trends in Latin America that focus on developing efficient transportation To date, virtually all of the investments in the renewable networks, renewable energy solutions, and protecting the power sector in Latin America and the Caribbean have environment.27 come in the form of asset financing, which increased from
240 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf $300 million in 2002–2004 to $620 million in 2005 and endowments of Brazil in particular and South American nearly $2.5 billion in 2007. As of August 2008, another countries more generally, which received most of the $987 million in asset financings had been announced non-Brazilian investments. Although wind power asset throughout the region on the year, reflecting continued financings more than doubled mini-hydro financings in strong growth, albeit at a slower pace.32 2005, $426 million to $195 million, mini-hydro investments have surpassed wind investments every While this seems to indicate that the renewable power year from 2006 through the first three quarters of 2008, sector is beginning to see the same kind of strong growth virtually all of which were directed toward projects in in Latin America as it has in other areas of the world over Brazil. The only generation assets outside of South the past four years, these investment flows are miniscule America and outside of wind and mini-hydro compared to global totals, representing less than 3% of all technologies were a pair of geothermal power projects renewable power investments in 2007. financed in Guatemala and Nicaragua with a total value of $81.2 million in 2006. Moreover, this picture of regional growth is somewhat deceptive, as the vast majority of this surge in investment Private Equity: Outside of asset financings, New Energy has come from Brazil, owing both to its unsurpassed Finance notes just one private equity placement in Latin market size and the combination of its PROINFA feed-in America and one planned IPO within the renewable tariff program and low-interest loans from the Brazilian power sector, both of which, unsurprisingly, are for National Social and Economic Development Bank, which Brazilian firms. June 2008 saw a private equity together have fueled enormous growth in wind and small investment in Brazilian mini-hydro developer Poente hydro power since 2005. Brazil has thus been the target Energia by Brazilian and international investors, one of of over 90% of the disclosed investments in the region the first disclosed private equity activities in the region by value since 2005, including 100% of the $2.5 billion outside the biofuels sector.38 While private equity invested in 2007 and 99% of the $987 million invested in funding is expected to expand its role in renewable the first three quarters of 2008. power financing globally as the credit crisis weakens debt and public equity markets, it is unclear whether this In terms of technologies, these investments were almost will benefit Latin America or divert this financing to entirely dedicated to the development of wind and mini - projects in developed countries. hydro power projects, reflecting the resource
Chart 5.2.3h LAC Renewable Power Asset Financing
$2500
$2000 s $1500 Million S U
$1000
$500
$0 2002 2003 2004 2005 2006 2007 2008 (3Q) Source: NEF33
Blueprint for Renewable Power | Section 5 241 Chart 5.2.3i LAC as a Portion of Global Renewable Power Investment
$90
$80
$70
$60
World s $50 LAC Billion
S $40 U
$30
$20
$10
0.02% 2.22% 1.31% 2.85% $0 2004 2005 2006 2007 Source: NEF, SEFI/NEF34 35
Chart 5.2.3j Brazil as a Portion of Total LAC Renewable Power Asset Finance
100% $2500
$2000
s Total LAC
$1500 Brazil Million S U
98.9% $1000
72.7% 72.4% $500
65.7% 39.9%
$0 2002 2003 2004 2005 2006 2007 2008 (3Q)
Source: NEF36
242 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Public Markets: July 2008 saw an announcement for the As discussed below, Brazil is the only country in the region first planned non-biofuels renewable energy IPO in the with a substantial track record of providing domestic region, for ERSA, a mini-hydro and wind power project sources of debt for renewable power projects, almost all of developer in Brazil that will seek a placement on Brazilian which come from the Brazilian National Social and and/or international markets, being led by Banco Economic Development Bank (BNDES) — the source of Bradesco in cooperation with Credit Suisse.39 The creation most long-term finance for the power sector more of a growing number of privately managed pension funds, generally. Similarly, Brazil has been the only country to often modeled after the pioneering steps taken by Chile in begin to utilize public markets and private equity funding the 1980s, has helped to increase the capitalization of for renewables in the region, although this trend is at a public equity markets, although these are still small by very early stage. developed country standards and have yet to be tapped for renewable power offerings. Brazil Debt Finance: Brazil’s relative success in developing Expanding Access to Finance in Latin America renewable power compared to other countries in the While countries throughout the Latin America region enjoy region is due in substantial part to its superior access to significantly different natural resource endowments, domestic sources of debt finance, usually through BNDES energy security concerns, and policy supports for in connection with the PROINFA incentive program. renewable power, along one key determinant for the BNDES has been the country’s main source of long-term development of renewables, the region is significantly project financing for all types of power projects for the more homogeneous — almost all of the countries in Latin past 12 years, offering access to low-cost debt at long- America lack access to competitive domestic sources of term interest rates that had declined to 6.5% per year in long-term debt for the project financing of renewable 2008.40 Slightly more than half of the bank’s capital as of generation assets. Although there are important and December 2007 came from the national Workers sometimes dramatic differences in the way financial Assistance Fund (FAT), with most of the remainder coming systems have developed in these countries, long-term from the national treasury, returns on foreign investments, debt finance is difficult or impossible to secure in most bonds, debentures, and other domestic sources, with countries, particularly for renewable power technologies loans from multilateral and international development that lack the proven financial track records of conventional banks including the Japanese Bank for International generation assets. Cooperation (JBIC), the German Credit Bank for Economic
Chart 5.2.3k Renewable Power Asset Finance in Latin America
2500
2000
Geothermal
s 1500 Wind
Mini-Hydro Million S U
1000
500
0 2002 2003 2004 2005 2006 2007 2008 (3Q) Source: NEF37
Blueprint for Renewable Power | Section 5 243 Reconstruction (KfW), the Nordic Investment Bank (NIB), Public Equity: Brazilian renewable power generation the World Bank, and the IDB accounting for a combined firms are also beginning to explore the potential for public 6% of its capital.41 equity financing, following in the footsteps of the biofuels sector. In July 2008, Empresa de Investimentos em Thus, while renewable power projects in other countries Energias Renováveis (ERSA), a developer of mini-hydro have had to rely on pure equity financing or loans from and wind power projects, filed for an IPO in July 2008. multilateral institutions or foreign development banks, nine ERSA currently has one wind and one mini-hydro project of the 11 Brazilian wind power projects and 25 of its 40 in operation, along with a pipeline of 20 mini-hydro mini hydro projects that have disclosed details of their projects in development. The IPO will be arranged by financing have received debt funding. Almost all of these Banco Bradesco in cooperation with Credit Suisse, and debt-financed renewable generation assets relied on although no details as to the number of shares to be BNDES to cover 65%–75% of project costs. Other issued or their price have been released, the sources of project finance were regional development announcement noted that they would seek placements banks, with Banco do Nordeste providing debt finance for on Brazilian and international markets.44 two wind power projects and one mini-hydro project, and the Banco da Amazonia providing debt for one small There is substantial potential for the further utilization of hydro project as well. public market funding for renewable power developers and other renewable power companies in Brazil, although Private Equity: Unique among Latin American companies, it remains to be seen how deep of an impact the Brazil has also begun to attract private equity funding in economic crisis will have on global markets. Bovespa, the the renewable power sector, with the only disclosed main Brazilian stock market, is the largest in Latin America private equity investment in the renewable power sector and reached a capitalization of $723 billion in 2006, an so far according to New Energy Finance. The Bermuda- increase from $482 billion in 2005, and in 2007 based private equity firm Tarpon Investments and the capitalization reached roughly 70% of GDP. Despite Brazilian firm Winbros purchased a combined 80% stake periods of difficult conditions on international financial in Brazilian mini-hydro project developer Poente Energia in markets, the Bovespa index had a record-breaking 2007, June 2008. Poente, which aims to acquire a 1 GW reaching 55,000 points for the first time in July. portfolio of mini-hydro projects by 2015, was subsequently International investors have also steadily increased their renamed Omega Engenharia Renovável.43 participation following the elimination of the withholding
Chart 5.2.3l Renewable Power Investments in Brazil by Technology and Finance Type
$2500
Wind Balance Sheet/ $2000
) Syndicated Equity s Wind Project Finance Million S $1500 Mini-Hydro Balance Sheet/Syndicated Equity
Mini-Hydro Project $1000 Finance Project Value (U Value Project
$500
$0 2002 2003 2004 2005 2006 2007 2008 (3Q) Source: NEF42
244 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf tax on foreign investments in the stock market in 2005. IPOs on the market have also steadily increased from A PATH TO GREEN GROWTH virtually zero in 2002 and 2003 to seven in 2004, nine in 2005, 26 in 2006, and 30 in just the first half of 2007, Wind power could provide 10% of increasing the total number of listed companies to more the region's electricity by 2030, than 420.45 representing an estimated $86 billion LAC Region Outside of Brazil in new investment in the region. Debt Finance: Domestic Sources of Debt Finance: Outside of Brazil, renewable generation assets have generally been financed through balance sheet and syndicated equity or else through financing from multilateral venture Inelec (subsequently purchased by Italy’s Enel) and international institutions. In many cases, this has was financed in part by long-term loans from FMO, the effectively limited the development of these assets to public Netherlands Development Finance Company.46 Going entities and large international corporations that have forward, the Mexican development bank BANOBRAS is access to the substantial equity sums and/or international seeking to establish itself as a significant source of credit markets required for these projects and their relatively long-term financing for renewable power projects, high up-front costs. Mexico, Colombia, Ecuador, Cuba, and potentially playing a similarly catalytic role for the Jamaica have all relied on the government and/or state- development of the sector as BNDES has played in owned energy companies to finance their existing Brazil. It expects to provide long-term financing for the renewable capacity, and the Argentine government has also 20 MW Santa Catarina municipal wind farm being moved toward public-sector financing for renewables and developed by U.S.-based Econergy, which would be its power investments in general in the aftermath of its first loan for a renewable power project, and it is 2001–2002 financial crisis. Elsewhere, including Chile, currently in the process of evaluating four more wind Guatemala, and El Salvador, international utilities with a energy projects, two hydroelectric projects, one strong interest in renewables, such as Italy’s Enel, Spain’s geothermal project, three biogas projects, and one Iberdrola and Endesa, and France’s EDF, have taken the biofuels project.47 lead as they draw on their own extensive equity resources to establish themselves as important players in these Chile: Despite a financial system that is largely without nascent renewable power markets. peer in Latin America, the handful of renewable power projects that have been built in Chile with disclosed Despite the current lack of domestic financing experience financing details — one wind and two small hydro projects with renewables in virtually all of the countries in the region — have been financed through pure equity by project save Brazil, the banking systems of most of these sponsors, including Spain’s Endesa, with none securing countries more generally are improving, and there are sources of debt finance according to New Energy efforts underway to provide ongoing sources of domestic Finance.48 This may be changing, however, as the need to private sector renewable power financing in Mexico as develop renewables becomes more urgent given the well as Chile. country’s growing energy crisis and as these technologies continue to build their track record internationally as well Mexico: While the only major wind energy project in as domestically. The Lircay small hydro project will be one the country, the 83 MW La Venta II project, was of the first renewable power projects in the country to financed through the equity of state-owned power utilize long-term debt finance, with as much as 60% of company CFE, increasing participation in the sector by project costs covered by loans from the World Bank’s private sector wind developers through self-supply International Finance Corporation (IFC).49 arrangements with large industrial and commercial users (as discussed in the Mexico case study) may Promisingly, in December 2008 Chilean economic establish a role for debt financing in the sector. development agency CORFO created a long-term loan Although France’s EDF is financing its 67.5 MW wind program specifically dedicated to renewables and energy farm entirely through equity, Spain’s Iberdrola will efficiency in collaboration with German development bank finance 30% of its 102 MW La Ventosa wind farm KfW. This new initiative is based on a successful program through debt financing from unspecified sources. of soft loans for a wide range of environmental Similarly, although most of the small hydro projects in investments already administered by the two institutions. the country have been built with equity finance, a small Loans given under the program will have terms of 12 hydro portfolio developed by the joint Mexican/U.S. years, beginning with a three-year grace period, and will
Blueprint for Renewable Power | Section 5 245 have an upper limit of $15 million.50 CORFO already plays • Netherlands Development Finance Company a key role in the renewable power sector in Chile by (FMO) has provided loans for a series of small hydro providing grants for feasibility studies, financial consulting, projects in Mexico. and “matchmaking” services to connect projects to sources of finance. Private Equity: While there have been no disclosed private equity investments in the region outside of small International Sources of Debt Finance: In the hydro developer Poente Energia in Brazil, there are absence of domestic sources, most renewable power growing opportunities in the region for similar investments in Latin America and the Caribbean have investments. The small scale and geographically had to rely on international and multilateral sources of specific nature of renewables facilitates the debt finance. These organizations have played a participation of smaller, localized project development critical supporting role in surveying the region’s companies, which may possess valuable expertise for renewable resources in past decades, particularly the development of these resources but lack the equity geothermal resources, and they have been similarly needed to finance projects. relied upon for project financing as these resources have been harnessed. Several international and Chile is a particularly good target for such investments, multilateral organizations have provided debt financing as the country’s rich renewable resources and for major renewable power projects outside of Brazil in entrepreneurial economy have led to the creation of a recent years: number of small mini-hydro and wind project- development companies led by engineers with long • Inter-American Development Bank (IDB) has experience in the country’s infrastructure sector. provided $349 million in loans through the Inter- Mexico and Guatemala have also seen independent American Investment Corporation (IIC) for several small hydro developers emerge in recent years that major renewable power projects in the region since have similarly been characterized by a thorough 2006, including support for the Tecsis wind turbine knowledge of the country’s rivers and/or hydraulic blade manufacturing plant in Brazil, Ormat’s Amatitlan infrastructure. geothermal project in Guatemala, and bioenergy power plants in Belize and Brazil. The recently developed Public Equity: There is also potential for financing of Sustainable Energy and Climate Change Initiative project developers and other renewable power (SECCI) has also provided smaller-scale support in a companies on public equity markets, as shown with the number of areas, including a feasibility study for a wind recently announced IPO plans of Brazil’s ERSA. farm in Colombia, the construction of a small hydro However, it remains to be seen whether it will proceed project in Panama, and the development of wind maps with its plans if global markets remain weak, a trend for Costa Rica. that will likely significantly limit the opportunities for future stock offerings by renewable power companies • Central American Bank for Economic Integration more generally for at least the near term. (CABEI) has supported a range of projects in Central America, including wind power in Costa Rica, a small In the longer term, however, the region’s generally small, hydro station in Honduras, and the San Jacinto Tizate but growing, stock markets could provide a similar geothermal project in Nicaragua. source of funding, particularly as pension reforms continue to increase the capitalization of these markets. • International Finance Corporation (IFC) of the Chile has long been a leader in this area, thanks to its World Bank recently provided debt finance for the pioneering creation of a privately run pension system in Lircay small hydro project in Chile as well as backing 1980, and today it has some of the most liquid and well- for loans for the Punta Cana wind power project in developed capital markets in the region, with three stock the Dominican Republic. exchanges and a steady stream of new listings increasing total market capitalization by 22% in 2007 • Andean Development Corporation (CAF) provided alone. Recent reforms to Mexico’s pension system will financing for the Argentine firm IMPSA’s wind also help to grow its BMV stock market, already the turbine–manufacturing plant in Brazil. second-largest in the region behind Bovespa. The Colombia Stock Exchange has also seen fast-growing • Danish International Development Agency activity in recent years as well, including the IPO of state (DANIDA) has helped to finance wind power projects oil company Ecopetrol in 2007. in Costa Rica and the Dominican Republic.
246 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2.4 ELECTRICITY MARKET STRUCTURES In general, for most of the twentieth century, the electricity sector was thus considered to be a natural monopoly throughout the generation, transmission, and distribution Global Evolution of Power Market segments, with centralized utilities given an exclusive Structures monopoly over the provision of electricity in a given region. In return for these monopoly rights, utilities were required to provide service to any and all customers at The business and legal arrangements that structure global regulated rates, often calculated using complex and electricity development have evolved steadily in the U.S. highly variable formulas that may have considered the and Europe as well as developing countries over the utilities’ marginal cost of generation, the average cost of course of the twentieth century in response to changing capacity in a given system, the estimated ability of technological and economic pressures. The early customers to pay, or other factors.2 development of the sector in the U.S. was characterized by chaotic and often unnecessarily duplicative privately Interactions among technological, owned networks, but the industry there and elsewhere moved toward a vertically integrated model after the Great economic, and political drivers Depression eliminated many of the smaller producers, and have driven power sector reform the remaining utilities sought greater economic, technical, and regulatory economies of scale.1 initiatives around the world.
DRIVERS OF POWER MARKET LIBERALIZATION IN THE US:4
Technological Efficiency breakthroughs for gas turbines made the construction of natural gas–fired power plants an economically viable choice for baseload generating capacity. This technological development reversed the trend in preceding decades toward ever-increasing economies of scale in power generation, with gas turbine plants of hundreds of megawatts in size suddenly competitive with coal and nuclear plants 1,000 MW or greater in size. Key policy changes noted below were also driven by the development of new renewable power technologies such as solar and wind power in the 1970s, which turned out to be more expensive than gas turbines but also offered potential for smaller- scale generation by a greater number of competitive private sector producers. More sophisticated computerized grid control systems also played a role in making grid operations flexible enough to accommodate a larger number of more dispersed generators, which could be ramped up or down quickly in response to changing demand.
Economic Through the 1970s, centralized utilities’ pursuit of ever-increasing economies of scale had culminated in the development of a large number of nuclear plants that were much more expensive to build and operate than planned, a problem that resulted in higher prices for consumers due to regulations that allowed utility developers to charge tariffs that provided for full cost recovery. These high nuclear power prices combined with the emergence of competitive natural gas markets in the 1980s to make gas-fired turbines a much more attractive economic proposal, especially as environmentalists’ opposition to nuclear plants resulted in increasing delays for these projects.
Political In the U.S., the main political catalyst of the liberalization of the power sector was the 1978 Public Utility Regulatory Policy Act (PURPA), which required utilities to purchase power at “avoided cost” (the cost of building new capacity) from qualifying privately operated power-generating facilities. The regulation was not intended to lead to a restructuring of the industry, aiming simply to encourage the development of small-scale wind, solar, and other renewable power generation. However, given the unforeseen technological and economic drivers noted above, this new framework resulted in the undermining of utilities’ exclusive rights to build new capacity, enabling the construction of a new generation of privately held baseload gas-fired capacity.
Blueprint for Renewable Power | Section 5 247 While this model of the industry (or elements of this In many cases, particularly in Latin America and Africa, model) still persist in many countries, particularly in the governments and donors reduced their investments in developing world, the overall structure of the global utility infrastructure in the 1990s on the assumption that power sector began to change in the 1970s and 1980s the private sector would more than make up for the with pioneering moves in the U.S. and UK toward power difference.7 However, due to the myriad of economic and market liberalization, which led the way for a growing regulatory challenges noted above, investment frequently number of countries in the 1990s to follow suit in failed to materialize on the scales hoped for, resulting in a opening up the generation segment (and, in some cases, net negative effect on investment at the same time that the distribution segment) to private sector competition.3 demand was soaring due to economic growth. Despite Once again, the changes were driven by both arguments by economists and sector analysts that the technological and economic factors, along with a new reforms were generally successful, consumers have role for important policy trends. Similar interactions generally expressed frustration with their results, due to a among technological, economic, and political drivers combination of higher electricity rates (resulting from a have driven power sector reform initiatives around the shift from public financing of power through taxes to a world in the subsequent decades. system where tariffs are paid by users in accordance with the costs of generation), along with the absence of many In contrast with the somewhat accidental and, in any of the promised improvements in service that ostensibly case, decentralized move toward privatization in the were to come from private sector participation. U.S., the drive toward the liberalization of the UK electricity sector was very much a conscious objective, The overall picture in developing and developed countries with Margaret Thatcher’s administration spearheading is thus of a vision unfulfilled, and an overall sense of a the privatization of a number of previously nationalized rejection of the privatization experience by the public is industries such as telecommunications and gas as well widespread. In many cases, this loss of political support as power in the mid-1980s.5 This ideological imperative has led to the halt or abandonment of planned toward the privatization of public services was explicitly liberalization programs even though reforms are left driven by a desire for increased efficiency and decreased incomplete, leading to an ad hoc mix of public and private public sector support for utilities, and this perspective sector control. quickly became conventional wisdom in the 1990s as jurisdictions around the world worked to make similar In contrast to the often inflexibly moves toward the liberalization of generation and/or distribution segments. applied, ideologically driven deregulation efforts of the 1990s, Thus, after a long and frustrating experience with an underperforming public sector, governments — including power sector governance is now developing country governments — came to believe that generally characterized by a more the private sector would step in and provide more pragmatic approach. reliable power at a lower price, leaving only residual roles for the public sector in providing guidance for the deregulation and restructuring of the sector as well as In contrast to the often inflexibly applied, ideologically regulation for remaining monopolies in transmission driven deregulation efforts of the 1990s, power sector and/or distribution.6 governance is now generally characterized by a more pragmatic approach.8 The public sector is, once again, expected to play a leading role in financing new power Electricity Market Structures Today projects in many countries, particularly in the developing world, and the private sector plays a leading role in The actual experience of deregulation in the 1990s and meeting the critical needs associated with infrastructure early 2000s has been fraught with difficulties as varied as construction and operation, as well as financing to a the jurisdictions in which these reforms have been lesser extent. The donor community is also once more attempted, including poor implementation (as in California expected to be a central actor in the scaling-up of public and other U.S. states), regional economic crises (as first in investment efforts, particularly in the poorest countries. East Asia and then Argentina and South America more generally), and increases in global natural gas prices that Currently, however, there is widespread uncertainty over rendered many of the independent power projects built in just how these needed investments will materialize, and the 1990s unprofitable. there remain large gaps in service in developing
248 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf countries, particularly in rural areas where public-sector 2004, 73% of surveyed LAC countries had independent efforts and large-scale privatizations have failed to reach regulators, nearly as high a proportion as the 79% found users. Increasingly, the small-scale, local private sector in developed countries and second only to Eastern is filling these gaps, with small providers taking the lead Europe’s 78% in the developing world.14 Along with in serving low-income households and dispersed Eastern Europe, LAC is the only region to have created populations in areas outside urban centers.9 This regional associations of energy regulators, an important alternative to both inefficient public-sector programs and step toward benchmarking regional performances and privatized central utility giants (discussed in the essay on producing more usable regional data. microenergy at the beginning of this report) could offer a promising new avenue for greater progress in rural LAC also had the highest proportion of survey electrification as well as the more widespread respondents with private sector generation participation development of small-scale renewable technologies, but of any developing region, with its 68% very close to the costs still need to come down before these sources are developed countries’ 70%, but note that the sample size competitive with utility-scale power plants. for East Asia & Pacific countries was too small to make an accurate estimate of privatization progress in that region. Electricity Market Structures in LAC Latin America’s power markets generally reflect these When it comes to electricity distribution, the results are global trends, and in some areas they have set the pace even more dramatic — LAC has the highest prevalence of for progress with liberalizing reforms, although this private sector participation in distribution of any region in momentum has stalled there as elsewhere in recent the world, developing or developed, with 61%. No other years. As elsewhere, Chile has the longest and most region scored more than 50% on this section of the survey. successful experience with liberalization, becoming the first LAC country to privatize its power sector and one of Backlashes Against Liberalization the first countries anywhere in the world to adopt the As elsewhere, despite the substantial reforms that have British example beginning in 1986.10 Argentina followed been made in the LAC region, liberalization is still in 1992 and attracted sufficient private sector investment incomplete or significantly flawed in its execution in to drive 10 GW of hydro and gas-fired capacity growth many countries, leaving uncertainties about the sector’s between 1992 and 2002.11 Bolivia, Colombia, and Peru future that hampers private sector investments. followed with their own privatization efforts, and in the Moreover, many countries have moved to roll back late 1990s, Brazil, El Salvador, Guatemala, Honduras, elements of previous reforms, some in dramatic ways: Nicaragua, and Panama all introduced significant regulatory reforms, including the establishment of • In Argentina, the government has kept electricity independent regulatory boards. Some countries, tariffs for most of the population virtually frozen since including Paraguay, Uruguay, and, most notably, Mexico, the fiscal crisis of 2001–2002, resulting in an exodus have yet to make significant reforms to the sector, but of private sector investment that has left the country they are in the distinct minority.12 struggling with a power crisis due to the slowness of government efforts to build publicly financed plants. Indeed, along with Eastern Europe, Latin America and the Caribbean show the greatest overall progress on • Ecuador is set to consider new constitutional reforms electricity liberalization of any developing region. As of that include a mandated 25% reduction in power
Table 5.2.4a Global Electricty Sector Liberalization
Region Countries with Independent Countries with Private Countries with Private Electricity Regulators Participation in Generation Participation in Distribution Sub-Saharan Africa 36% 41% 28% East Asia & Pacific 36% 67% 20% Eastern Europe & Central Asia 78% 41% 48% Latin America & Caribbean 73% 68% 61% Middle East & North Africa 19% 31% 13% South Asia 50% 38% 13% Rest of World 79% 70% 43% TOTAL 56% 51% 37%
Source: Estache and Goicoechea13
Blueprint for Renewable Power | Section 5 249 sector tariffs and the assumption of new rural- and for lower-income groups, which are often distributed urban-electrification projects by the state.15 inefficiently. Privatization has also led directly to job losses as the efficiency of operations have been • Brazil has also taken significant, albeit less radical improved, although it is argued that this trend is being steps to re-regulate its power system in the aftermath reversed in the medium term.20 of its power crisis of 2001, creating a government-run auction system for the development of new power While there is much debate over projects and requiring distributors to contract for all of their projected power needs for at least five years. the particular course that power sector development should pursue Experiences such as Argentina’s and Ecuador’s, and similar backlashes against private energy sector in light of negative public reactions development in recent years in Bolivia and Peru, have to privatization, it is widely helped to sour some investors on the region.16 recognized that public perceptions Moreover, even in areas with relatively stable regulatory frameworks, private power producers are often of fairness, as well as challenged to recover their investment costs adequately, expectations, must be carefully despite significant and controversial progress on this front during the 1990s. The average residential managed to win acceptance for electricity tariff in 19 LAC countries rose from $0.07 per future initiatives. kWh in 1990 to a peak of $0.10 per kWh in 1996 before decreasing slightly to $0.09 in 2002, succeeding in doubling the proportion of countries in which at tariffs With regard to problems with public perceptions, there were high enough to cover O&M as well as at least a may have been confusion between the effects of portion of capital costs from one-third to two-thirds.17 privatization and the negative effects of more general However, these gains are coming at the cost of economic downturns in some countries on the provision increasing social discontent due to a lack of perceived of services — perhaps most dramatically in Argentina. benefits (as discussed below), and tariffs are still much Perceptions may also be more negative than the lower than OECD tariff and cost-recovery levels. evidence suggests because outcomes thus far, while improved, have fallen short of lofty expectations for From the perspective of the public, as in other regions, reforms. A lack of transparency in the privatization there is increasingly widespread dissatisfaction with the process may also have undermined public trust, trend toward private sector participation in general. In a particularly in countries where corruption is already a 2004 survey, 75% of the population in LAC countries significant concern. Frequent renegotiations of terms were unhappy with the results of privatization, up from with private concessionaires may also play a role in 40% in 1998, and public opposition has become a undermining public trust in the process. While there is serious constraint on private sector investment in some much debate over the particular course that power countries, politically as well as operationally.18 However, sector development should pursue in light of this public it should be noted that this public rejection of reaction, it is widely recognized that public perceptions privatization contrasts sharply with the generally positive of fairness, as well as expectations, must be carefully evaluations that economists have made. On a managed to win acceptance for future initiatives.21 fundamental level, this dissonance is thought to be due either to an under-reporting of important failures or a New Opportunities for Participation in Renewable major communications failure that has resulted in Power Development problems with public perceptions of the sector.19 While some of the region’s incomplete and/or failed liberalization programs have created obstacles for With regard to hidden failures, some experts have renewables in certain cases, elements that have been hypothesized that the partial data on reported quality either retained from previous reforms or recently created improvements may miss large areas where quality may hold the promise of opening the renewable power sector have deteriorated, and/or that the quality improvements up to a broader range of actors, including small IPPs as are not sufficient to compensate for price increases. well as large industrial and commercial consumers. Given Moreover, the redistributional impact of price increases, the smaller scale of renewable power projects in general, which have moved cost recovery from taxes to tariffs, these types of market frameworks will be critical for the may not have been sufficiently mitigated by subsidies sector to realize its potential.
250 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf • Mexico’s limited power sector reforms of 1996 did significant incentive for commercial and industrial not end the state-owned utility CFE’s monopoly on consumers to contract directly with renewable power generation for the public sector, but it did generators. create provisions allowing private sector generators to produce power for their own consumption. In the same way that the emergence of new, highly Because the law allows these “self-generation” efficient and scalable gas turbine technologies paved the projects to be built by joint ventures, projects can be way for the deregulation of the power sector and the move built by companies dominated by independent from utility monopolies to the development of power private sector power producers, so long as plants by IPPs in the 1980s and 1990s, the emergence of commercial and industrial off-takers have at least a competitive renewable generation technologies could token share in the venture. Given stagnating drive further decentralization of power markets worldwide. investment in both power and gas in the country, as However, the transition to this still cleaner and more well as some of the region’s highest tariffs for decentralized power generation paradigm will also depend commercial users in particular, a fast-growing heavily on the development of adequate policy incentives number of private sector companies are joining for renewables, much as the competitiveness of gas ventures to build wind projects in Oaxaca, one of the turbines was critically enhanced by new environmental windiest areas in the world. A pipeline of as much as regulations. There are concerns that a relative lack of 2 GW is planned by such commercial and industrial access to financing for local governments and small, entities, with off-takers including retail giants Walmex private sector firms could hamper this development.22 (Wal-Mart de Mexico) and Soriana as well as Cemex, one of the largest cement producers in the world.
• Argentina was considered a model deregulator in the 1990s, and although frozen tariffs noted above have stifled the power sector’s growth, previous reforms still provide the legal framework for a competitive and decentralized power sector. These rules allow large industrial users as well as electricity cooperatives to build and/or contract for their own power, providing a potential avenue for renewable power development for self-supply. Cooperatives in Chubut and Buenos Aires led the development of wind power in the country in the 1990s and early 2000s, and a new initiative by the Argentine Federation of Electricity Cooperatives (FACE) is seeking to develop 15–25 MW of wind as well as biomass power in every region of the country. Similarly, industrial users’ tariffs are much less heavily subsidized than residential users, and power- rationing efforts have been targeted toward this sector as well, driving many of these consumers to begin exploring the potential to develop their own generation supplies, which could include wind power.
• Brazil’s “New Model” for the power generation sector includes special provisions for consumers who purchase renewable power. While commercial or industrial consumers typically must have electricity demand of more than 3 MW of power in order to be permitted to participate in the deregulated power market, these consumers may also participate if they contract for just 0.5 MW or more of electricity from renewable sources. A growing number of firms have sought to join the free market in order to purchase power on the spot market, which provides a
Blueprint for Renewable Power | Section 5 251 5.2.5 RENEWABLE POWER POLICY INCENTIVES By 2007, at least 37 countries and nine states and provinces had adopted feed-in tariff policies, more than half of which have been enacted since 2002, although Global Trends in Renewable Power Policies many of these policies have yet to be implemented.6 Brazil has led the use of feed-in tariffs in Latin America Creating Incentives for the Renewable Power Sector with its PROINFA program, and Argentina, Costa Rica, Although costs for new renewable generating Ecuador, and Nicaragua have all created, or are in the technologies are steadily decreasing and are increasingly process of developing, their own feed-in policies. Other close to being cost-competitive with conventional fossil developing country adopters include Algeria, Indonesia, fuel and large hydro power plants, the sector’s growth is Sri Lanka, Thailand, Turkey, and Uganda, although in many still largely dependent on the existence of policy cases these policies are limited in scope or have yet to be incentives to make the necessary investments feasible. implemented. While policies to promote the development of renewable power date back to the 1980s in some countries, the use The level of the required tariff and its design varies from of these policy instruments started to become country to country, but is generally set in one of three increasingly widespread beginning in the late 1990s and ways:7 early 2000s at the national, provincial, and municipal levels. Today, at least 60 countries, including 37 • Estimated long-term cost, plus an adequate profit developed and transition as well as 23 developing • Wholesale avoided cost of power countries, have some type of policy that provides • Fixed percentage of retail electricity rate incentives for renewable power generation.1 The first of these three is essentially the same way that In general, these incentives fall under four main categories: utility tariffs are set in many regulated electricity markets, feed-in tariffs, mandatory renewable power targets, and indeed the feed-in tariff approach tends to work best government tendering, and tax incentives. A in such markets, where utility tariffs are already determined supplementary policy, local content requirements for by regulation and not through competition.8 Given a tariff renewable power development, is also discussed. While that provides a sufficient level of profit, as well as a long- these policies can vary widely in their implementation and term duration of 15–20 years, feed-in tariffs have been effectiveness, a general consensus is emerging on the shown to be highly effective in sending a strong and strengths and weaknesses of each approach, as immediate signal of future market stability to investors in discussed below. renewable capacity as well as those investing in longer- term technology innovation.9 Feed-in Tariffs Feed-in tariffs refer to programs that require utilities to Beyond their ability to drive rapid development of pay all renewable generation a guaranteed, government- renewables in a relatively short period of time compared to mandated price per kWh generated for a fixed period of other types of incentives, feed-in tariffs offer other time, and usually with no government subsidy — instead, advantages. costs are generally passed on to consumers.2 While the U.S. was the first to implement a feed-in tariff with the • Long-Term, Guaranteed Price: Feed-in tariffs are, in PURPA legislation of 1978, it later abandoned this for a most cases, designed to guarantee fixed, above-market production tax incentive (see below), and feed-in tariffs prices over a guaranteed long term, usually 15–20 years. are today associated with several European countries This gives renewable power project developers that have used them to become global leaders in extraordinary certainty as to future revenues when renewables. Germany and Spain, two of the world’s evaluating a project, greatly reducing risks and making it leading countries in the development of wind as well as relatively simple to calculate a project’s long term solar power, have relied on feed-in tariffs to create profitability. sizable, stable markets for these renewable technologies.3 Germany’s feed-in program is widely • Diversity: Compared to other incentives, such as recognized as the most robust in the world, with renewable generation mandates, which encourage generous subsidies that vary by technology that have generation by only least-cost technologies, feed-in enabled it to become the world’s leading producer of tariffs can be designed to provide incentives for a wide solar power as well as an up-and-coming geothermal range of renewable technologies at levels that are set producer despite possessing relatively little in the way of according to each technology’s needs, which can be set either of these resources.4 5 to decline over time along with technological
252 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf improvements.10 11 Thus, they can provide incentives for from anywhere between $3.30 and $12.32 per month more expensive, cutting-edge technologies such as in the coming years as solar continues to grow, solar or wave power as well as more established, low- which is leading to growing pressure from the public cost technologies such as wind turbines.12 and conservatives in the government to reduce the tariff rate.18 • Local Manufacturing: The local market stability provided by these long-term guarantees has the effect • Importance of Proper Design: While the transaction of providing a significant boost to investments in costs of a feed-in system are generally low, as noted domestic renewable power manufacturing capacity, above, the proper functioning of the tariff requires close enhancing the economic development and technology attention to the establishing of proper tariff levels to innovation benefits of the sector’s development.13 ensure the system’s efficiency.19 For example, the This has been dramatically proven in Germany, whose establishment of Germany’s feed-in tariff required generous feed-in tariff for solar of $0.76 per kWh — scientific studies on the average cost per kWh for each seven times wholesale electricity prices — is widely technology as well as studies estimating the rate at credited with being instrumental to its development of which costs will decrease over time, which is then used the world’s third-largest solar industry and the single to calculate an adequate internal rate of return for each largest solar photovoltaic producer in the world, technology that is itself determined by a complex Q-Cells.14 calculation including plant costs, operating costs, projected inflation, and costs of capital.20 • Administrative Simplicity: While tariffs must be set at appropriate levels, as noted below, feed-in tariffs have The chart of the German tariff system, below, illustrates the advantage of being the simplest and most the wide range of tariffs that can be applied for different transparent incentive to implement. This not only helps technologies as well as the potential complexity of to secure investor confidence, as noted above, but it designing such a broadly applicable program. While the reduces the administrative, enforcement, and other tariff paid to a particular project is fixed and guaranteed for transaction costs of the system compared to other types 20 years, the tariff offered for new projects declines of incentives.15 annually from the 2005 base according to a degression rate assigned to each technology. In September 2008, the Feed-in tariffs also suffer from several disadvantages, German government doubled the degression rate of the however. solar tariff from 5% to 10% due to the rising costs of the program and expected declines in solar generating costs • High Cost: Although these systems are usually not in the near future.21 subsidized by the government, the overall costs to utilities and consumers of the long-term, guaranteed Table 5.2.5a Tariff Degressions tariff is greater than other types of incentives.16 Tariffs Technology Tariff (Euro Cents/kWh) Degression are generally paid indiscriminately to all renewable (%/year) generation covered by the policy, unlike RPS policies Hydropower 6.65-9.67 0 that emphasize least-cost technologies deployed in the Biomass (<20 MW) 8.27-17.33 1.5 most efficient manner possible.17 Moreover, the granting Geothermal (<20 MW) 7.16-15.00 1.0 of guaranteed long-term PPAs to renewable producers Wind (onshore) 5.39-8.53 2.0 under most feed-in systems locks in these costs for Wind (offshore) 6.19-9.10 2.0 Solar 43.42-59.53 5.0 15–20 years. Source: Oschmann,22 Burgermeister23
• Consumers Pay: Because the costs of feed-in tariffs are usually passed on to consumers, there is a danger Tax Credits, Grants, and Other Types of Financial that popular support for these policies could be Incentives undermined if they result in unacceptable increases in Financial and tax-based incentives generally fall into the electricity bills. While the quantity of renewable category of either policies that reduce up-front capital generation receiving incentives is too small to have a costs in a variety of ways or programs that provide per- noticeable impact in most jurisdictions with feed-in kWh incentives for renewable generation. A wide range of tariffs, Germany’s program may be in danger of direct capital investment subsidies or rebates, loans and becoming a victim of its own success. The feed-in loan guarantees, income or property tax-based incentives program currently adds $1.69 to a typical home’s and credits, and sales tax and VAT exemptions are offered monthly utility bill, but this is expected to increase in at least 35 countries around the world.24 While reducing
Blueprint for Renewable Power | Section 5 253 up-front investment costs can play an important role in been adopted by relatively fewer countries, including the encouraging the development of renewable power U.S., Finland, the Netherlands, and Sweden.27 The most projects in many cases, these incentives do not ensure or prominent example of a per-kWh tax incentive for otherwise enhance their ongoing competitiveness in renewables is the U.S. Production Tax Credit (PTC), which power generation markets, and they have generally played has generally proven effective in encouraging investments a supplementary role compared to other policies.25 in renewables in a manner similar to a feed-in tariff, by Tax credits granted for every kWh of power produced, by offering a premium for renewable generation to help contrast, function in a manner similar to feed-in tariffs by make it competitive with conventional power plants. improving the competitiveness of renewables compared to Like the feed-in tariff, it can also provide differentiated conventional generation.26 These types of credits have support to a wide range of technologies; while the
THE U.S. PTC AND THE NEED FOR LONG-TERM RENEWABLES SUPPORT POLICIES
The effectiveness of the U.S. PTC has been undermined by the credit’s need for repeated extensions since 1999 that have been granted in increments of just one or two years, with occasional gaps in the credit’s availability during periods of waiting for its renewal. This inconsistent, short-term approach to providing incentives for the sector has had a number of negative effects on the development of the industry.32
Uncertainty over the timing and duration of the PTC has led to the development of wind power in tight, frenzied windows of development that have alternated with dramatic drop-offs in investment during years when the tax credit lapsed before its later renewal. Thus, the U.S. wind industry saw strong growth in 1999, 2001, 2003, and 2005–2008, and dramatic decrease in investment in 2000, 2002, and 2004.33
While eligibility for the PTC has only been expanded to other technologies in recent years, the implications of continued short-term PTC cycles are expected to be even more damaging for technologies with relatively longer development times such as geothermal and biomass generation.34 An extension of at least five years may be necessary for the PTC to provide value to these sectors.
Beyond just hindering the growth in installed renewable capacity, the intermittency of the PTC has resulted in a number of other negative side effects that illustrate the dangers of providing an insufficiently stable regulatory framework in any context.35
Higher Supply Costs: The boom-and-bust cycle has left equipment suppliers uncertain as well, contributing to shortages of key components that can lead to higher costs.
Lower Domestic Manufacturing Capability/Greater Reliance on Imports: Uncertainties as to the future scale of the U.S. wind power market have limited the investments of U.S. firms in the development of domestic turbine and component manufacturing capacity. Thus, the U.S. remains significantly dependent on turbines and components produced elsewhere, particularly in Europe.
Difficulty in Planning Transmission Expansion: New investments in wind capacity require expansions of the grid in many cases. Uncertainties over the PTC translate directly into uncertainties over whether a given project will be built, and thus over whether the substantial investments required to build transmission capacity should be committed.
Reduced R&D Spending: R&D cycles are generally significantly longer than the 1–2 year cycles currently provided by the PTC, thus discouraging companies from pursuing such long-term investments for fear that any incentives it might enjoy may have disappeared by the time an innovation reaches the market.
254 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf program was originally offered only to wind generation, REC toward meeting their RPS requirements in lieu of it has been extended to cover most forms of renewable developing their own renewable power projects.38 generation (other than solar, which receives an up-front investment tax credit of 30% instead) with a credit of In contrast to feed-in tariffs or a production tax credit, in 2 cents per kWh.28 which the incentive determines or subsidizes the price paid for renewable generation and allows the market to While this aspect of the credit has an effect similar to the determine the amount of capacity that is built, renewable feed-in tariff, the PTC and similar programs have two power-use mandates seek to determine the amount of distinct differences: capacity of renewables to be built and allows the market to achieve this target at the lowest price.39 Thus, the • Cost Burden on Government: Unlike feed-in tariffs, the incentives provided by RPS are distinct from those created PTC premium is not paid by utilities, but instead by feed-in tariffs or per-kWh tax credits: financed by the government through tax revenues.29 While this may be less than ideal if public funding for • Lower Costs: Because RPS programs encourage energy programs is limited, it may be the only feasible competition among renewables developers, they allow option in deregulated markets. This can add up to a for set targets to be met at the lowest possible cost. As substantial burden in major markets — for example, in in other markets, however, a sufficient number of the U.S., the PTC was projected to cost the treasury interested developers are necessary to make a market $850 million in 2007.30 To minimize the burden on the truly competitive and yield these benefits. government, this subsidy could be offset by taxes on other, traditional forms of power generation or other new • Lower Certainty for Project Developers: In contrast to taxes. feed-in tariffs, estimating the effect of an RPS on a given project’s revenue is difficult, requiring projections • Utilities Not Required to Purchase: While the PTC of not only overall electricity market prices but also the subsidy allows renewable generators to sell power at a value of the REC market and the project’s lower price to distributors, distributors are not competitiveness vis-à-vis other renewable automatically required to purchase all power from technologies. Thus, as with PTCs, projects will usually renewable generators, as in a feed-in system. Power- need to secure long-term PPAs to demonstrate purchasing agreements (PPAs) are still required to sufficient levels of revenue reliability to potential ensure long-term power demand, adding a layer of investors and lenders.40 complexity to the financing process.31 Once again, while this is less than ideal, it may be necessary for the • Lower Incentives for Local Industry Development: implementation of a per-kWh incentive in a competitive The competitive aspect of RPS policies tends to favor market. the most established and well-financed developers and large, high-volume renewables projects.41 Thus, it Renewable Portfolio Standards (RPS) provides fewer incentives for the development of Renewable portfolio standards (RPS), which may be smaller, local players. This is true not only in project called a variety of names, including “renewables quotas,” development but also in renewable power equipment “renewables obligations (ROs),” and “tradable green manufacturing, as the competitive RPS market will certificate (TGC) programs,” are a relatively new policy reward projects that utilize lowest-cost components instrument first developed in U.S. states in the 1990s.36 regardless of where they are produced. In its most basic form, a RPS requires that a minimum quantity of electricity (measured in either absolute units • Lower Technological Diversity: Similarly, the or as a percentage of sales) in every distributor’s portfolio competitive aspect of the RPS market encourages be generated from renewable sources, although, as project developers to utilize only the lowest-cost noted below, this model is frequently elaborated with renewables technologies, giving strong incentives to rules such as renewable certificate trading systems and wind power, small hydro, and biomass generation but technology-specific cutouts.37 Moreover, many RPS weaker incentives for the development of higher-cost programs utilize a system of tradable renewable energy technologies like solar or early-stage technologies like certificates (RECs) to enhance the efficiency of the wave and tidal power.42 system by increasing flexibility and reducing compliance costs. Under such a system, every kWh of renewable • Higher Administrative Costs: RPS policies are more power generated also creates an REC that the project administratively complex than feed-in tariffs or PTC- developer may sell to utilities, who can then count the type policies, which increase the costs of operating
Blueprint for Renewable Power | Section 5 255 Table 5.2.5b Common RPS Design Features
Structure/Size/Application Eligibility Administration • Basis (energy vs. capacity obligation) • Geographic • Regulatory oversight body or bodies • Purchase obligations over time • Resource • Compliance verification • Single or multiple tiers • Existing sources • Certification of eligible generators • Resource diversity requirements/incentives • Definition of new/incremental generation • Compliance filing • Duration of obligation (sunset provisions) • Multi-fuel facilities • Enforcement • Application to retail suppliers • Off-grid and customer-sited facilities • Cost caps and alternative compliance payments • Product- or company-based application • Flexibility mechanisms (banking, borrowing, etc) • Contracting standards for regulated suppliers • Cost recovery for regulated suppliers Source: Wiser et al.45
such a program and have resulted in implementation further magnified if an REC trading system is allowed. difficulties in some cases, such as in Italy’s experience Many of the options currently being used or with its Tradable Green Certificate (TGC) program.43 considered for RPS systems in various U.S. states are For an RPS program to be effective, it requires credible summarized in Table 5.2.5b. monitoring and enforcement mechanisms, careful attention to the appropriateness of target-setting, and RPS programs are becoming increasingly popular policy the ability to adapt the basic policy structure to instruments at the national and the state and provincial political goals as necessary. levels. Today, there are nine countries with national RPS policies, including Australia, Belgium, China, Italy, Japan, For example, an RPS could more effectively address Poland, Sweden, the United Kingdom, and most recently local industry development needs by including Chile, all of which have been established since 2000.47 requirements for a certain percentage of local Additionally, the European Commission has recently manufacturing content, and technological diversity proposed EU-wide binding renewable targets that could could be enhanced by including different cutouts for function similarly to an RPS, with different targets set for different types of renewables technologies.44 Eligibility each country according to their current production and requirements must also be carefully set, particularly their future potential, although Germany and Spain with regard to hydropower, so as to prevent the RPS cautioned that such a mandate could endanger the policy from being met with large hydro stations. success of their existing feed-in tariff-based incentive Moreover, complexity of dealing with these issues is programs.48 Moreover, RPS policies have been passed
TYPICAL RPS DESIGN CHALLENGES
Given all the potential challenges to the smooth operation of RPS programs, there is a growing awareness of some of the pitfalls frequently encountered in the use of these policies. In addition to illustrating the potential difficulty of developing such a system, these discussions also demonstrate the growing body of experience in their implementation to draw on. Common problems noted in a 2007 survey of U.S. RPS programs include:46
• Uncertainty over the duration of the policy • Eligibility rules that acknowledge too many existing sources, reducing incentives for new renewable power development • Unclear or inadequate provisions for enforcement • RPS targets set too high to be achievable, or too low to provide significant new incentives for development • Too many exemptions to the mandate for certain utilities • Lack of compliance flexibility, including a lack of REC trading as well as insufficiently liquid REC markets • Lack of sufficient standards for long-term REC contracting • Uncertainty and volatility in short-term REC markets • Cost caps and force majeure clauses that are too lenient to encourage compliance
256 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf in 25 states as well as the District of Columbia in the reasons. One of the first, and most frequently–cited, U.S., three provinces in Canada, and six states in India. examples of a tendering system is the UK Non-Fossil Fuel Half of these have been passed since 2003.49 Obligation of the 1990s, which included a government-run bidding process that was ultimately undermined by the While most of these RPS policies lack substantial track irregularity of the auctions and insufficiently profitable records necessary for a wide-ranging appraisal of their contracts, which largely failed to encourage long-term performance, data from the relatively lengthy U.S. investments in renewable projects and manufacturing in experience indicate that roughly half of the new the country.54 As discussed in the Mexico case study, renewable power capacity additions in the U.S. from the Mexico’s utility monopoly CFE has attempted to late 1990s through 2006 have occurred in states with concession the 101 MW La Venta III wind farm in Oaxaca RPS policies, totaling nearly 5,500 MW.50 Over 90% of without success due to CFE’s unprofitable contract terms, these additions have been from wind power — a despite offers of per-kWh incentives from the World Bank. technology that benefits greatly from RPS policies due to Thus, government tenders for renewable power require its status as one of the least-cost renewable ongoing funding and incorporation into the regular power technologies. Most of the rest of the state RPS planning process if they are to be effective in promoting requirements have been met by biomass and the long-term growth of the industry, or else they must be geothermal, with a minimal role for solar thus far. accompanied by other support policies such as feed-in tariffs or an RPS.55 Government Tendering The fourth major policy approach that governments have Government tenders for renewable used to encourage renewables development is to hold a state-run competitive auction for concessions to build power require ongoing funding and renewable power plants and/or to the rights to specific, incorporation into the regular prime, natural resource sites. These tendering policies are somewhat similar to RPS policies, as they also power planning process if they are dictate the quantity of renewable power to be developed to be effective in promoting the and then allow competition — here, in the form of an long-term growth of the industry. auction instead of a REC market — to achieve these targets at the lowest possible cost.51 Like RPS policies, they thus offer less in the way of local industry While the UK has subsequently abandoned its tendering development than feed-in tariffs or tax credits, as they system, this type of policy is currently being used in will favor the largest and most experienced project Canada, China, France, India, Ireland, Poland, and in developers utilizing lowest-cost equipment. Also like some U.S. states, frequently in conjunction with RPS RPS systems, they require careful administrative requirements.56 One example of a jurisdiction attention to setting appropriate targets and ensuring that incorporating a regular tendering system along with an a broad range of technologies are represented in RPS is California, which adopted such a hybrid system tenders.52 after the total breakdown of the state electricity market in 2000 and 2001. The state RPS requires all power retailers Compared to an RPS where project developers must in the state, including investor owned utilities, energy secure their own PPAs and sell their own RECs, the service providers, community choice aggregators, and tendering process can offer greater certainty for investors small- and multi-jurisdictional utilities (but not municipal by providing a guaranteed long-term PPA with an utilities), to meet a steadily increasing portion of their adequate return on investment along with the power supply through renewable sources, reaching 20% concession.53 In most cases, the government pays the in 2010.57 The state’s three large, investor-owned utilities necessary incremental funding to ensure this rate of (Pacific Gas & Electric, Southern California Edison, and return over normal electricity prices, and this incremental San Diego Gas & Electric) are required to issue annual cost may be paid for through a public benefits fund (a solicitations for renewable capacity under a state-run small surcharge for electricity ratepayers that goes to tendering program, although they may also procure fund various system improvements), regular tax funding, renewable power through all-source solicitations and or other dedicated sources. bilateral contracts.58
However, in some cases, tendering systems may lack Local Content Requirements stable, ongoing sources of funding, or may not be held on Some countries have implemented policies to encourage a regular basis for other economic or administrative the local manufacture of renewable power equipment,
Blueprint for Renewable Power | Section 5 257 which has several potential benefits as compared to the 1990s, and it has had some of the most success. imports:59 These requirements are credited with playing a key role in the creation of Gamesa in 1995, which has since become 1. Local economic development through local sales of one of the largest wind turbine manufacturers in the world. new products; increased tax base; job creation in Regional government requirements for the local manufacturing, construction and installation; and manufacture and/or assembly of wind turbine components operations and maintenance segments continue to play a significant role in Castile, Leon, Galicia, Valencia, and Navarra, and they have been credited with 2. Opportunities to export to expanding international the creation of 4,000 jobs.61 markets for renewable power, further contributing to economic development China has had extensive experience and success with local content requirements, with wind projects approved 3. Potential cost savings from lower labor costs, a during the Ninth Five-Year Plan (1996–2000) requiring at reduction in raw materials costs, and/or lower least 40% locally-made components. Starting in 2003, the transportation and shipping costs National Development and Reform Commission (NRDC) has used local content requirements in combination with Local content requirements seek to promote the government concessions for the development of large development of domestic renewable power wind farms, beginning at 50% in 2003 and increasing to manufacturing industries directly by mandating a certain 70% in 2004, a level that is now required of all wind farms percentage of locally-produced content for some or all and not just concessioned projects.62 These requirements projects installed in a country. These requirements force have led a growing number of foreign turbine international companies seeking to sell into a market to manufacturers to establish manufacturing facilities within build a new manufacturing base within the country or the country in order to sell turbines or components to the else outsource component supplies to domestic huge and growing Chinese market. companies. In order for these policies to be successful, there must be sufficient domestic market potential to Quebec and Brazil have implemented their localization make it worthwhile for foreign firms to make the policies more recently, and there is less certainty over their significant new investments required to start up success. In 2003, Quebecois utility Hydro-Quebec manufacturing operations in the country. If local content tendered 1,000 MW of wind power projects to be built requirements are implemented in markets that are too between 2006 and 2012, which included requirements for small or unstable, or if the requirements are too stringent, local manufacturing and job-creation requirements that they may result in renewable generation equipment stipulated that 40% of the total cost of the first 200 MW be supplies that are overly expensive or too limited, spent in the region, 50% of the next 100 MW, and 60% for undermining benefits accruing from increased local the remaining 700 MW. General Electric was selected to manufacturing.60 provide 990 MW of the turbines upon its agreement to meet the 60% content requirement, and it is currently If local content requirements are building three manufacturing facilities in Canada.63 In October 2005, another 2,000 MW of wind power was too stringent or are implemented tendered, to be installed between 2009 and 2013, with in markets that are too small or requirements that 30% of equipment costs must be spent in the Gaspe region and 60% of the entire project cost unstable, renewable generation must be spent within Quebec. In May 2008, contracts equipment supplies may become were awarded to two German turbine manufacturers, prohibitively expensive or limited, REPower and Enercon.64 While the vast majority of these projects have yet to be built, concerns have been raised which could undermine any over the potential negative impact of the local turbine benefits that would accrue from requirements on project costs.65 increased local manufacturing. Brazil instituted stringent local content requirements in conjunction with its PROINFA program, which provides Spain, the province of Quebec in Canada, China, and guaranteed PPAs at a premium price for renewable Brazil are all currently employing local content policies in projects, much like a feed-in tariff, as discussed below. the context of wind power, with varying experiences. For projects to qualify for the long-term contracts with Spain’s use of local content requirements dates back to state utility Eletrobras, the program required that 60% of
258 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf all equipment be produced in Brazil, with no more than • Provide as much long-term revenue assurance as 40% of parts being allowed to be imported tax-free.66 possible within the limits of the overall electricity While this was not a significant problem for the well- regulatory environment to improve developer access to established hydropower and biomass power industries, it capital. has caused a significant bottleneck for wind project developers due to the undeveloped state of the domestic • Provide long-term regulatory certainty and stability for manufacturing industry. While the PROINFA program incentive programs, which provide a broader signal for succeeded in developing 208 MW of wind power in Brazil local firms throughout the value chain to invest in in 2006, the most in Latin America by far, this dropped off increased manufacturing capacity, labor, and R&D to dramatically to just 10 MW of wind power developed in meet future demand. 2007, in part because only one wind turbine manufacturer, Wobben Windpower (a Brazilian subsidiary of Germany’s • Tailor policies to provide specific support for different Enercon), was able to meet the increased local content renewables technologies, whether through differing requirements.67 tariffs under a feed-in or PTC system, cut-outs for an RPS, or technology-specific tenders. Technologies with The government has eliminated these content different costs and at different stages of development requirements for projects developed under PROINFA’s have different incentive needs. successor, an auction-based system, and has taken steps to reduce import tariffs on renewable power equipment, which should help future projects build projects with the Policy Trends in Latin America most competitive and readily available turbines. Moreover, the planned opening of turbine manufacturing plants by While Latin America and the Caribbean have substantial Argentina’s IMPSA and Germany’s Fuhrländer in 2008 renewable resource endowments as well as a strong should help further ease this bottleneck for PROINFA incentive to harness them given growing concerns over projects waiting to be built, although it is unclear whether the rising costs and insecurity of fossil fuel–fired this policy will ultimately succeed in encouraging the generation, their development has been limited or non- development of a robust domestic manufacturing industry existent in most countries due in significant part to a in the long term.68 69 lack of policy incentives. Given the higher costs and financing difficulties that still accompany most Beyond their mixed records, local content requirements renewable power technologies, the robust development may violate WTO trade rules. Although the use of these of renewables in the region in the near term will require requirements in the wind industry have yet to be the topic more robust policies, reflecting the general dependence of an international trade dispute, they have been of renewable power growth on policies in countries contested in other sectors, particularly the automotive around the world. As noted throughout this section, the industry. India’s regulations requiring minimum local use of each of these types of policies is being explored content of 50% in auto manufacturing were successfully by countries in Latin America, including feed-in tariffs in challenged at the WTO by the U.S. and EU.70 Brazil, Argentina, Ecuador, and Nicaragua, an RPS in Chile, and tendering processes in Mexico as well as Principles for Effective Renewable Power Costa Rica. However, in some cases, these policies Policymaking have yet to be enacted, and in others they have While it is hard to compare results of different renewables experienced considerable implementation difficulties. policy incentives across different jurisdictions, particularly Moreover, most of the countries in the region have no given their lack of a substantial track record, it is clear that significant incentives for renewables. the use of incentives of each of these kinds is becoming more widespread, which will undoubtedly lead to new Most of the countries in the LAC variations and further insights. Certain general rules of good policy design are already becoming evident: region have no significant incentives for renewable power. • Emphasize the need to level the playing field with conventional generation sources, providing sufficient This need for effective policy incentives to spur renewable incentives to renewables to negate the higher power development has been reflected in the pattern of environmental costs of conventional generation as well deployment of renewables in Latin America and the as historical subsidies given to fossil fuel and large Caribbean. The large majority of renewable generation in hydro development. the region has been built in Brazil, due in large part to its
Blueprint for Renewable Power | Section 5 259 PROINFA feed-in tariff program, which is the largest and Aside from these renewable power policy leaders, most of most effective renewable power incentive program in the the countries in the region still lack any significant policy region by far — unsurprising, given the stellar track record incentives, including Venezuela, Colombia, Peru, and other of FITs in stimulating renewable power development in South American countries as well as the other Central Europe, as discussed in the first half of this section. American and Caribbean countries, where the growing However, Brazil closed the PROINFA program in 2008 after costs and energy security risks of oil dependence are reaching its stated goal of contracting 3.3 GW of wind, most acute. small hydro, and biomass power projects, despite the fact that many of these projects have encountered difficulties, Below, these Latin American and Caribbean countries with and relatively few were operational as of August 2008. As policy incentives for renewables are discussed in more discussed below, several other countries in the region are detail and grouped according to the basic types of seeking to emulate this relative success with the incentives discussed earlier in this section. Note that implementation of their own feed-in tariff policies, but their countries may often employ more than one type of effectiveness has been hindered by wider issues in power incentive — for instance, Nicaragua’s feed-in tariff policy sector governance (in the cases of Argentina and Ecuador) for geothermal power is supplemented by a ten-year or else has been too recently implemented (in the case of income tax holiday. For clarity and to delineate different Nicaragua) to demonstrate any concrete results. policy approaches clearly, the organization of this section and the focus of discussion are based on the most Beyond feed-in tariffs, a number of other countries have significant incentive provided in each country. Brazil is the recently adopted alternative models of renewable policy exception, with the first stage of its PROINFA program incentives, including renewable portfolio standards (RPS), discussed under the feed-in tariff section and its new tax incentives, and government tenders of key renewable auction program discussed under the government resource sites. tendering section.
• In South America, Chile’s new RPS policy is the first of Feed-In Tariffs its kind in Latin America, but its relatively low targets As discussed above, feed-in tariffs have emerged as the and general emphasis on low-cost renewables may limit most effective policy for the promotion of renewable its impact on a renewables sector that has already been power worldwide, providing per-kWh payments to greatly stimulated by the ongoing threat of an energy renewable generation that directly enhance their crisis in the country due to a reduction in Argentine gas competitiveness vis-à-vis conventional generating imports. sources. Moreover, in the countries where they have been most effective, most prominently Germany and Spain, • In Central America, Costa Rica’s government tendering these tariffs are guaranteed over the long term, providing a policy as well as Guatemala’s ten-year income tax high level of certainty for investors. Despite some holiday have successfully encouraged the development struggles, Brazil’s PROINFA program has provided the of both geothermal and wind power projects in recent most dramatic evidence of the effectiveness of this type of years. policy in the Latin American context, and Argentina, Ecuador, and Nicaragua have adopted or are now • Mexico’s tendering policy, by contrast, has been implementing similar policies. Mexico’s new renewable plagued by cost restrictions placed on it by the energy law has also called for the creation of standardized country’s sharply limited framework for private sector contracts for renewables, although the details of this participation, rendering tendered projects economically program's design will not be published until later in 2009. unfeasible so far. Brazil • The renewable power auction program created by Created in 2002 and launched in 2004 by the Ministry of Brazil to follow the feed-in tariffs of PROINFA has also Mines and Energy, PROINFA has been the most effective struggled. renewable incentive program in the LAC region over the past four years.71 Much like Europe’s highly effective • In June 2008, the Dominican Republic passed the first feed-in tariff programs, PROINFA offered wind, small major renewable incentive in the Caribbean, offering a hydro (<30 MW), and biomass power generation projects ten-year income tax holiday and other tax incentives 20-year power-purchase agreements (PPAs) at fixed, similar to Guatemala’s, which the country expects will guaranteed tariff rates designed to ensure profitability for stimulate substantial wind power development to help investors.72 PPAs are signed with Eletrobrás, which also reduce its dependence on oil-fired generation. administers the program and may even participate in
260 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf projects as a minority stakeholder itself.73 In addition to wind projects with a 33% capacity factor that signed this guaranteed tariff, PROINFA projects are eligible to PPAs in 2004 will receive US$110.19 per MWh (with receive low-interest loans covering roughly 70% of annual adjustments for inflation) through 2024, while project costs from the Brazilian National Social and PROINFA wind projects with a 33% capacity factor Economic Development Bank (BNDES), a critical source that signed PPAs in 2005 will receive US$123.43 per of domestic debt financing for renewables that is currently MWh through 2025. unique in Latin America.74 For projects to qualify, the program requires that 60% of all equipment be produced As of August 2008, of the 54 wind in Brazil, with no more than 40% of parts being allowed to be imported tax-free.75 projects enlisted in Brazil’s PROINFA, only six (9.5%) were PROINFA’S goal was to reach agreements with a cumulative 3.3 GW of renewable power projects, and this operational, compared to 70% of target was met in 2007. Projects were selected on the contracted biomass projects. basis of a regional quota, with each state being allowed up to 165 MW of total power generation for small Project Development Challenges: While PROINFA hydro,76 220 MW for wind,77 and 220 MW for biomass.78 has succeeded in contracting with 3.3 GW of renewable As discussed below, although many of the PROINFA projects, many of the program’s enlisted projects have projects have yet to be built, the government is not encountered hurdles preventing their full planning on awarding further contracts under this implementation. According to ANEEL, as of August program, moving instead to a more competitive, auction- 2008, of the 63 and 54 small hydro and wind projects based system. 79 80 enlisted in the program, respectively, only 25 (46%) and 6 (9.5%) were operational, compared to 70% of Tariff Setting: The tariffs paid to PROINFA projects are contracted biomass projects.85 Thus, installed capacity set at levels designed to ensure long-term revenues has reached only 38% of PROINFA’s intended objective, sufficient to support the development of each renewable with 1.27 GW installed so far. The government blames power technology targeted. These levels are based on a some of the delays in construction of projects on VETEF (Economic Value of Specific Technology) index entrepreneurs who lacked technical experience to set annually between 2004 and 2007, with annual implement them successfully. Additionally, several adjustments to account for changing estimates of approved projects that have yet to be built have been technology costs, as seen in Table 5.2.5c.81 Wind power sold to other developers for a profit. Several projects prices varied based on the estimated capacity factor of have also had difficulties in obtaining financing or the project, with lower tariffs awarded to projects with a environmental licenses, while wind energy projects have higher capacity, reflecting the fact that tariffs under the had additional difficulty obtaining equipment that meets program are set according to the level necessary to the 60% local content requirement, as only two support these projects. Similarly, wood biomass projects manufacturers operate in Brazil. are awarded higher tariffs than sugarcane projects. Note that the VETEF levels have increased every year, Despite this failure to meet the 3.3 GW goal in terms of reflecting global trends of increasing costs for power operational capacity, the government has no plans to projects of all types. develop any more projects under this feed-in tariff model. Instead, in order to promote lower costs and Projects are awarded PPAs with fixed rates based on increase competition, the government will pursue a the VETEF for the year in which the contract is signed, program of auctions for renewable generation capacity adjusted annually for inflation.84 Thus, all PROINFA as it works to reach the program’s long-term goal of
Table 5.2.5c VETEF Levels, 2004-200782
Wind Small Hydro Biomass 33% Capacity 44% Capacity (US$/MWh) Sugarcane Wood Year (US$/MWh) (US$/MWh) (US$/MWh) (US$/MWh) 2004 110.19 97.16 63.10 50.56 54.65 2005 123.43 108.83 70.68 56.64 61.22 2006 127.74 112.63 73.16 58.62 63.35 2007 134.77 118.82 77.17 61.84 68.64 Source: Brazilian Ministry of Mines and Energy83
Blueprint for Renewable Power | Section 5 261 increasing the share of renewable power to 10% of the While feed-in tariffs in Argentina country’s electricity generation by 2020. These auctions could help make wind power and are discussed separately, under the government tendering section. other renewables more competitive, they will not be Argentina Argentina was actually the first country in the region, and sufficient to catalyze growth in the one of the first in the world, to adopt a feed-in tariff absence of electricity tariff reforms. policy, with the creation in 1998 of Law 25,019, the National Regime for Wind and Solar Energy.86 This policy While these incentives could help make wind power and was to grant payments of 10 pesos per MWh (US$3.15 in other renewable generation technologies more appealing, 2008 exchange rates) for wind and solar power project developers as well as members of the energy generation, equivalent to nearly 40% of the market value secretariat interviewed for this report acknowledged that of electricity at the time. However, by the time the bill they would be insufficient by themselves to make these was passed in December 1999, and the implementing types of projects appealing to the private sector given regulations were set in 2001, the country was deep in the power sector tariffs that were frozen in the aftermath of the throes of its economic crisis, and the funds set aside to economic crisis and have been maintained at artificially pay for the incentives were depleted in order to make low levels by the government.92 93 94 95 Wind power, partial payments to the IMF..87 Thus, the policy never had expected to be the lowest-cost renewable generation a chance to have an impact on the development of technology given the strong and steady winds of the Argentina’s wind resources, which are unsurpassed on Southern Patagonia and Buenos Aires regions, has a the South American continent. projected cost of $100 per MWh or more, but generators are still paid roughly $65 per MWh by distributors due to As Argentina’s economy has recovered, growing at over the frozen tariffs, leaving a substantial gap in profitability 8% per year since 2003,88 there has been a resurgence even with the incentive. As discussed in the Argentina of interest in wind power, particularly given increasingly case study and in the following section discussing access strained domestic natural gas supplies due to a lack of to finance in the region, this unfavorable environment for investment in new production and exploration as well as private sector investments is expected to result in the a decline in imports from Bolivia. In January 2007, Law public sector leading the way in the development of 26,190 was passed, which declared renewable power renewable power as well as conventional generation development to be in the national interest and assets in the country for the foreseeable future. established a federal policy to derive 8% of the country’s generation needs from non-large hydro Ecuador renewables over the next 10 years.89 The law expands In 2006, Ecuador’s power sector regulatory body, the eligible renewable power technologies to include CONELEC, promulgated Regulation 009/06, which hydro projects of up to 30 MW in size as well as wind, created a comprehensive, European-style feed-in tariff solar, geothermal, tidal, and biomass-fired power, and it program offering long-term guaranteed tariffs for directs the energy secretary to develop tax credits for renewable power generation from a range of sources. renewable power equipment and feed-in tariffs for Additionally, rates would be differentiated by location, renewable generation.90 with projects located on the Galápagos Islands receiving higher tariffs to compensate for increased project costs These new incentives have yet to be implemented, owing to the Islands’ remoteness. Renewable although the Ministry of Planning (where the office of the generators coming online before December 31, 2008, Secretary of Energy was moved under the Nestor are eligible for the following rates, which are guaranteed Kirchner regime) has proposed feed-in tariff bonuses for 12 years, with CONELEC planning to review energy equivalent to 15 pesos (about US$5) per MWh of wind prices and establish new rates for generators coming power, 30 pesos (US$10) per MWh of small hydro, and online in 2009 and later.96 up to 90 pesos (US$30) per MWh of solar power, in addition to normal electricity tariffs. Unlike the standard Beyond this incentive, Regulation 009/06 also created a feed-in tariff model developed in Europe, rates would be unique transportation incentive for renewable power adjusted quarterly, likely according to changing prices developers that build their own transmission capacity. for fossil fuel generation and/or changing renewable These generators would receive an additional payment of generation costs. A rebate for VAT taxes on renewable $0.0006 per kWh per kilometer of transmission, up to power equipment would also be included.91 $0.015 per kWh.98
262 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.2.5d Feed-In Tariff Rates in Ecuador investments in the country’s geothermal power sector. Renewable Energy Source PRICE ($USD/kWh) PRICE ($USD/kWh) As in many Central American countries, Nicaragua Continental Ecuador Galápagos Island already utilizes geothermal power for a significant portion Wind 0.0939 0.1221 of its generating capacity, including the 77.5 MW Solar PV 0.5204 0.5724 Momotombo plant developed by the government Biomass and Biogas 0.0967 0.1064 beginning in 1983 as well as the 8.5 MW San Jacinto Geothermal 0.0928 0.1021 Small hydroelectric 0.0580 0.0638 Tizate plant developed more recently by Canadian firm (up to 5MW) Polaris Geothermal. However, it has the largest Small hydroelectric 0.0500 0.0550 geothermal resource base in Central America, with 1–3 (between 5MW and 10MW) GW of potential power capacity, and its dependence on Source: CONELEC97 fossil fuel generation for more than 70% of its power gives it a strong motivation to encourage the further development of the sector. While these guaranteed tariffs are among the most generous of the programs discussed in this section In June 2008, Nicaragua approved and are close to the rates offered by the most successful European programs, the effectiveness of new laws providing specific Ecuador’s feed-in tariff has been severely limited by incentives for geothermal wider concerns over the management of the power sector, much like Argentina. After the January 2007 development, including a minimum election of leftist Rafael Correa, access to international tariff of $0.08 per kWh for sources of finance in the region vanished due to geothermal electricity. concerns that the country would default on its IMF debt and that the economy and energy sector would become increasingly politicized.99 The U.S. oil The new Nicaraguan geothermal law will guarantee a company Occidental Petroleum was expelled from the “floor price” of $0.08 per kWh for geothermal electricity, country in 2006 over an alleged breach of contract, a which may be exceeded in some cases. Polaris move that the Correa government has approved and immediately issued a press release welcoming the followed with its own legal proceedings against legislation that also noted that it expected to receive Occidental as well as U.S. oil company CityOriente.100 $0.085 per kWh for generation from a planned In the power sector, the president has presented expansion of the San Jacinto Tizate plant.104 The constitutional reforms that would mandate a national legislative package also allows the Nicaraguan Ministry 25% reduction of tariffs paid to distributors and the of Energy and Mining to extend exploration assumption of new rural and urban electrification concessions by one to two years, an increase from projects by the state.101 previous two-month extensions, and exploitation concessions are to be awarded within 60 days of the The impacts of these reforms on renewable power tariffs ministry receiving an application. New tax credits for are unclear, particularly given the fact that CONELEC had geothermal were also introduced, including a ten-year planned to re-examine the feed-in program at the end of income tax holiday (an extension from a seven-year tax 2008 regardless. Thus far, the only renewable power holiday established by previous legislation) and an project to take advantage of the tariff has been a 2.4 MW exemption from import taxes on geothermal equipment wind project built on San Cristobal Island in the and machinery.105 Galápagos, which was funded by the government in cooperation with e8, a collaboration of 10 major power Renewable Portfolio Standards utilities from the G8 group of countries.102 A major wind In contrast to feed-in tariffs that seek to set a price for power project planned for the mainland, the 15 MW renewable power generation and then allow the market Villanoco wind farm developed by the Canadian firm to decide the quantity of power that it will develop at that Protocol Energy, has been unable to secure financing price, renewable portfolio standard (RPS) policies set a due to the uncertainties surrounding the power sector, target quantity for renewable power generation and then despite the favorable tariff.103 allow project developers to meet it at the lowest possible cost. Because of their emphasis on low costs, RPS Nicaragua policies generally promote more established and less In June 2008, Nicaragua’s National Assembly approved a expensive renewable sources such as wind, small hydro, new legislative package to provide incentives for new and biomass, making them much less effective policies
Blueprint for Renewable Power | Section 5 263 for the promotion of solar and other less-developed or economic efficiency and REC trading is in many ways higher-cost renewables than feed-in tariffs. The typical for Chile, which has long been the region’s most emphasis on cost reduction has made these policies competitive and pro-trade economy. popular with countries that stress free-market principles and economic competitiveness, including the U.S., However, as with RPS policies elsewhere, Chile’s ERNC Australia, and, uniquely in Latin America and the law has been critiqued for its shortcomings in promoting Caribbean, Chile. the full range of renewable power sources. Marketers are expected to satisfy most or all of their RPS Chile obligations with small hydro and, to a lesser extent, wind In March 2008, Chile’s Chamber of Deputies passed a power, due to their low costs compared to solar, new Non-Conventional Renewable Energy (NCRE, or geothermal, and less-developed technologies like wave ERNC in the original Spanish) Law, an RPS policy that power.108 109 As discussed in the Chile case study, the will require that at least 5% of all electricity sold by country’s current energy crisis has pushed power prices power marketers in the country come from eligible to the point where most of these small hydro and wind renewable sources by 2010. Starting in 2015, this 5% projects would be profitable regardless of the RPS requirement will begin to increase by 0.5% per year, incentive, a situation that is expected to last for years, peaking at 10% in 2024.106 Marketers are allowed to given ongoing political uncertainties surrounding buy and sell renewable energy credits (RECs) among Argentina’s gas supplies and the high costs of future each other to meet goals at as low a cost as possible, LNG imports.110 111 and marketers that fail to meet the mandated level will face fines for every MWh they fall short. Eligible, “non- Moreover, the relatively low levels of renewables required conventional” (so called because large-scale by the law, along with the five-year gap between the hydropower is excluded) sources include wind, solar, achievement of the 5% target in 2010 and the geothermal, and hydro projects smaller than 20 MW, resumption of incremental increases in 2015, could although hydro projects of 20-40 MW are also eligible further limit the policy’s impact.112 The careful calibration for partial credits.107 Chile’s ERNC law is the only RPS of RPS targets to provide adequately ambitious, but policy in Latin America and the Caribbean, and this reachable, targets for renewables development, as well uniqueness along with the policy’s emphasis on as the creation of effective penalties for utilities that fail
Chart 5.2.5a Chile RPS Requirements
10%
8%
6%
4%
2%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: Santiago Times113
264 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf to comply with the RPS requirements, represents a high purchasing prices to cover the costs of renewable significant administrative challenge, particularly generation.117 As they allow renewable capacity to be compared to the relatively simple and transparent feed-in developed at a pace and price controlled by the tariff mechanism. Although Chile’s well-regulated and government, these types of policies are often favored by competitive power sector is perhaps best suited of any countries with highly regulated power sectors, including country in the region to handle these challenges, the Mexico and Costa Rica in Latin America. Brazil has also administrative demands of RPS policies have plagued recently turned to auctions for the development of their implementation in many reasonably well-regulated renewables following the maxing out of the PROINFA developed countries, with concerns about RPS targets program, as discussed above, with mixed success. being set too low to encourage substantial renewable development in Australia and Japan, and failures to Mexico enforce sufficient penalties in Italy and Poland. Unlike most Latin American countries that reformed their Thus, while Chile’s pioneering ERNC law may help power sectors to allow for private sector participation in develop renewable power generation more competitively the 1990s, Mexico has opted to maintain a monopoly and cost-effectively than the feed-in tariff programs structure, with state-owned power company CFE being deployed in the region, as discussed above, it will responsible for all generation, transmission, and also be one of the most administratively difficult distribution outside of the Mexico City area, where the incentives to manage. Moreover, modifications to this state-owned LFC is responsible for transmission and program to include specific cutouts for solar and other distribution.118 As with PEMEX in the oil and gas sector, higher-cost technologies, and/or separate incentives to the continuation of CFE’s monopoly has resulted in a address these renewable sources, may be necessary to highly inefficient power sector that has struggled to keep promote their use.114 up with growing demand, but the political significance of keeping the country’s energy supplies in public hands As discussed in detail in the Chile case study, in addition dates back to the 1937 constitution and is still felt to the ERNC law, small-scale renewables are supported strongly by many Mexicans, making reforms difficult. by previous “Short Laws” passed in 2004 and 2005. The first short law guarantees grid access to all types of Mexico’s independent power generators 9 MW or smaller and exempts them from transmission fees, and the second authorizes CORFO, producer (IPP) tendering system the Chilean Economic Development Corporation, to fund has struggled to successfully feasibility studies for renewables and help them to find international financing sources.115 116 auction wind power concessions due to price caps set too low for Government Tendering developers to make an adequate The use of competitive government tenders or concessions for the rights to develop key renewable profit. resource sites can have a number of advantages for private sector companies as well as policymakers. However, the need for new investments in the generation Typically, these concessions are at well-defined and segment led to the passage of reforms in 1996 that extensively studied sites, removing the need for time- allowed for private sector participation under certain, consuming resource measurements for wind and hydro limited circumstances, including the construction of a projects and/or costly exploration for geothermal growing number of combined-cycle gas plants by projects, significantly reducing up-front project independent power producers (IPPs). Under this development costs and risks. Similarly, transmission tendering framework, CFE specifies the location and size rights are usually arranged beforehand, removing another of IPP projects to be developed in its power sector potentially time-consuming and costly hurdle for project planning program, after which it solicits bids from private developers. These concessions also include guaranteed, companies who compete to develop these plants at the long-term PPAs with government utilities. lowest possible cost. Winning bids receive long-term guaranteed PPAs of 20–25 years from CFE, and CFE also However, the usefulness of this type of policy is limited takes care of all necessary permitting for the plant itself by the number of suitably appealing project sites as well as well as the construction of transmission lines.119 120 as the number of competitive auctions the government is Since 2000, over 11 GW of generating capacity has been capable of administering. Further, tendering may fail if developed under the IPP framework, almost all of which governments are not willing to offer PPAs with sufficiently has been provided by combined cycle natural gas plants.
Blueprint for Renewable Power | Section 5 265 More recently, however, CFE has attempted to use the installment operational by August 2010.128 Once again, IPP framework to develop wind power projects in the Iberdrola has expressed an early interest in bidding for this Oaxaca region, where some of the world’s strongest project, despite ongoing uncertainty over whether La wind resources are located and where CFE developed Venta III or any of the Oaxaca projects will be viable given the country’s largest existing wind power plant, the 83 CFE’s cost restrictions.129 MW La Venta II project, in 2007. To further support the development of renewables, in 2005 The first wind power facility that CFE has attempted to the government created a new tax incentive for renewable tender as an IPP is a 101 MW wind farm, called La Venta projects, allowing for 100% depreciation of their capital III, which was first auctioned in 2007. However, only one expenses in their first year.130 While considered positive, company, Spain’s Iberdrola — the world’s largest wind some project developers consider the incentive to be of power producer — submitted a bid that was judged limited usefulness due to the complexity of the tax code.131 technically acceptable, and it was rejected in November In November 2008, Mexico passed its Law for the Use of 2007 because it did not meet CFE’s cost criteria, in large Renewable Energy and Financing the Energy Transition, part because CFE is required by the laws governing IPP which may provide the basis for a much more broadly- projects to only accept projects that produce power at the conceived program for renewable power promotion. lowest short-term cost, with no mechanism by which it can While details of the new policies will not be finalized until pay a premium for the environmental, social, and/or long- at least mid-2009, they may expand CFE’s purchasing of term economic benefits of renewables.121 122 Iberdrola’s bid renewable power beyond IPPs, potentially through of $205.58 million was substantially higher than CFE’s standard contracts for new renewable power projects as ceiling of $151 million for the project, a figure that was not well as improved rules for purchasing of surplus power made public until CFE rejected the bid, despite the fact that from renewable self-supply projects.132 133 Iberdrola’s submission was well within the bounds of wind power project costs elsewhere, given escalating expenses Costa Rica for turbines as well as construction crews.123 CFE plans to Costa Rica has long been a leader in the development of rebid the La Venta III project, but it remains to be seen renewables in Central America, with a generation mix whether any firms will be able to develop it at an comprising almost exclusively large hydro and, more acceptable price. While five firms attended a site visit for recently, significant amounts of geothermal and wind the project in early August 2008, only one company — power capacity. This renewable power development has Iberdrola, again — purchased the bidding rules.124 been driven by the country’s plentiful resources, its unsurpassed reputation for economic and political stability Despite these difficulties, Mexico’s IPP framework also in the region, and the government’s commitment to offers considerable potential advantages, particularly environmental values. This development has also because CFE will secure permits and build transmission occurred in spite of limited opportunities for private sector lines for these projects, which can be a significant hurdle participation in the generation sector, which is dominated in many cases.125 Moreover, the World Bank has pledged by the state power company, the Costa Rican Electricity $20.4 million to supply a “Green Fund” for Mexico that will Institute (ICE). pay a 1.1-cent-per-kWh incentive to the La Venta III project for its first five years of operation, potentially Law 7200 of 1990 was the first to allow limited private helping to compensate for the low prices offered by CFE. sector participation by renewable generators in the sector, A second phase of the World Bank initiative would offer an allowing the development of plants of up to only 20 MW in additional $45 million in grants and loans to support size, and the aggregate amount of power produced by the further per-kWh incentives that would close the gap private sector under this legislation was capped at 15% of between CFE’s price limits and the costs of wind power the country’s total demand. Moreover, projects developed generation for future projects.126 under Law 7200 were required to have a minimum 65% share of domestic capital. This law was modified in 1995 In addition to La Venta III, CFE is planning to tender a by Decree No. 7508, which increased the cap to 50 MW series of four more similarly sized wind power projects in and an additional 30% of total power demand in the the region, called Oaxaca I–IV, with a total of 406 MW country, while also reducing local ownership requirements capacity.127 CFE has said that it expects the projects to to 35%. It also introduced requirements for government cost a combined $650 million — which, as with its $151 tendering of renewable power projects through million ceiling for La Venta III, may be an unrealistically low competitive auctions, with concessionaires chosen on the figure — and it plans to launch a tender for Oaxaca I at the basis of bid price and a technical, economic, and financial end of September 2008, with a goal of having this first evaluation of proposals.134
266 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Costa Rica’s tendering process has non-large hydro renewables by 2020. The first auction for been successful in developing renewable power was launched by ANEEL in June 2007, with a ceiling price of R$140 announced 30 days earlier. major geothermal and, more PPAs were signed with successful bidders for 30 years recently, wind power projects. (small hydro) and 15 years (biomass). Unlike the PROINFA feed-in tariff rounds, there were no local content requirements in the auction, with the lowest-cost bids Costa Rica’s tendering process has been successful in selected regardless of developer or location. developing major geothermal and, more recently, wind power projects. The first successful project developed Despite this new and more flexible approach to stimulating under this arrangement was the third stage of the renewable power capacity in Brazil, the first auction has Miravalles geothermal plant (Miravalles III), a 27.5 MW been regarded as a disappointment by the renewable facility developed by the Japanese firm Marubeni in 1999. power sector, with auction prices considered too low to The subsequent construction of Miravalles IV, also a 27.5 cover investment costs in many cases, particularly for MW plant, was also concessioned to Marubeni several wind power. Although a total of 87 plants had been years later. The financing of both stages was made authorized to participate in the auction, representing 2803 possible by low-cost loans from the IDB.135 In 2006, ICE MW of potential capacity, only 18 small hydro and held a tender for the rights to develop a 49.5 MW wind biomass plants (638.64 MW) won contracts. Nine wind farm in Guanacaste, which was won by a bid from a group energy projects were authorized to participate in the including U.S.-based renewable power developer auction, but none was contracted with, as none were Econergy International, the Costa Rican firm Saret de willing to bid at or below the R$140 ceiling. The wind Costa Rica, and the German wind company Juwi GmbH. power sector regards R$210 MWh to be the minimum Financing was secured from the Germany bank Nord/LB price at which they would be able to cover investment Group in December 2007. The project is currently under costs. As seen in Table 5.2.5e, the average accepted bids construction and is expected to be completed by the first for small hydro and biomass projects auction prices were quarter of 2009.136 When built, the project will be the significantly above prices paid under PROINFA feed-in largest wind farm in Central America. tariff rounds for both biomass and small hydro projects.
While the tendering program has continued to be Table 5.2.5e Renewable Power Tariffs in Brazil successful, albeit for a limited number of projects, ICE’s Auction Average PROINFA Round Average PPAs with smaller renewable projects developed under Price (US$/MWh) Price, 2005 (US$/MWh) Law 7200 in the early 1990s will begin to expire in 2010. In Mini-hydro 81.74 77.17 order to maintain generation from these and subsequently Biomass 79.47 61.84 developed facilities such as Miravalles and the Guanacaste Wind --- 126.79 wind project, in July 2008 the Public Services Regulatory Source: Brazilian Ministry of Mines and Energy138 Authority (ARESEP) announced that it would create a new model for the sector, which would fix prices for renewable power projects whose PPAs with ICE were set to lapse. Despite these early hurdles, the government is expected ARESEP’s proposal has yet to be released to the public, to continue utilizing this auction model rather than adopt and it is unclear how this would change the framework for additional rounds under PROINFA, with future auctions future renewables concessions, if at all.137 potentially allowing for higher bids. ANEEL has already carried out a second auction for biomass, which had a The Costa Rican Congress is also considering a bill that higher ceiling price than the first renewable power auction, would allow ICE to concession geothermal power sites and is currently studying the possibility of having an located in Costa Rica’s extensive system of national auction for wind projects, expected to be carried out in parks, potentially creating significant opportunities for early 2009.139 Due to the price requirements for wind the further development of the country’s geothermal projects, this auction is also expected to have a higher resources. ceiling price than the first auction.
Brazil Tax Incentives With the PROINFA feed-in tariff program wrapping up, as A wide range of favorable tax treatments for renewable discussed above, Brazil has embarked on a new auction power projects, including exemptions or reductions on model for the development of the remaining capacity income taxes, import taxes, property taxes, and value- required to meet its goal of deriving 10% of its power from added taxes, are being used to reduce costs for
Blueprint for Renewable Power | Section 5 267 renewable power projects in a number of countries around Further incentives for a long-term renewable power policy, the world. While these are generally considered less including incentives for small hydro projects and new effective than feed-in tariffs, which provide guaranteed facilities for public-private partnerships for renewable revenues over the life of a project, they are also generally power development, were proposed by Fundación Solar less costly to governments and/or ratepayers, making and were well-received by the Ministry of Energy and them an appealing alternative in jurisdictions where feed- Mines in 2007, but the switch to a new government and ins or similar policies are politically or economically the rapid increase in energy prices in 2008 have unfeasible. They are also frequently utilized as useful postponed these plans as providing relief to low-income supplementary policies to other incentive programs.140 Guatemalans has become a more urgent priority.143 While tax incentives are included or planned to be included as supplementary incentives in Argentina, Dominican Republic Mexico, and Nicaragua, they are the primary incentive In July 2008, Dominican Republic president Leonel available to renewable power projects in Guatemala and Fernandez signed a long-awaited renewable power bill, the Dominican Republic. Law 57-07.145 The law, the first major renewable power incentive to be developed in the Caribbean, seeks to Guatemala encourage the development of the country’s renewable With assistance from the NGO Fundación Solar, the power sector through a range of tax incentives similar to Guatemalan government passed a Renewable Energy those passed by Guatemala in 2003. These include a total Incentive Law in 2003, designed to encourage the exemption from import duties on renewable power inclusion of new renewable sources in the country’s equipment, a total exemption from sales taxes for generation mix after the electricity sector’s liberalization in renewable power equipment, a ten-year income tax 1996 led to the private sector’s development of fossil holiday on renewable power project revenues, and a fuel–fired thermal plants almost exclusively. The law reduction of the tax on foreign-financed interest payments created exemptions from import customs, VAT charges, for these projects to 5%. Law 57-07 also includes a and consular rights fees for imported equipment and unique provision granting up to a 75% credit on the capital materials for renewable power projects. Most notably, it costs of renewable power equipment purchased by also exempted revenues from renewable power generation homeowners or businesses that shift partially or entirely to from all income taxes for the first ten years of a project’s renewable power systems. operation, significantly increasing project revenues.141 While it is too early to tell the impacts of the bill, the While renewable power project developers have generally national energy commission CNE claims that the tax viewed the income tax holiday favorably, some have noted incentives could help fuel the development of as much as that it also serves to discourage the use of project $1.5 billion in renewable power investments, including a financing, since the tax shield benefits of debt are number of projects that had been previously approved but dramatically reduced or eliminated.142 Given the limited were awaiting publication of the new regulatory framework use of project financing for renewables in the region in before moving forward with the development process.146 general, as discussed in Section 5.2.3, this may be of limited concern at present. Thus far, this tax incentive has helped to encourage the development of several renewable projects, including the Amatitlan geothermal project, built by Ormat in 2007, and the 15 MW Buenos Aires wind farm, the country’s first, which is currently under construction.
Plans to implement a new long- term renewable power policy for Guatemala have been postponed, as rising energy prices have forced the government to focus on providing short-term relief to low- income consumers.
268 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2.6 SOCIAL AND ECONOMIC IMPACTS OF economy have mounted over the past year, leading RENEWABLE POWER: RURAL ELECTRIFICATION policymakers to increasingly portray renewables as a AND GREEN JOBS potential panacea for a wide range of economic woes. Despite this interest, estimates vary widely as to the contributions of renewable energies to the economy and Impacts of Renewable Energy job growth, partly due to a dearth of systems in place to measure these effects and partly due to a lack of clarity of Modern electricity services have transformed communities the definition of “green jobs.” However, with an infusion of in areas where they have been adopted, improving the investment in recent years, data are beginning to emerge, quality of life for individuals. Electricity is instrumental in illustrating these economic and job growth benefits in both securing basic health services such as sanitation, developing and developed countries. The growing interest sterilization, and the refrigeration of essential medicines as in this area, combined with the increase in recent studies well as for the provision of other basic lighting and that have come out on these benefits, are sure to enhance communication services. Electrification can also be a key the ability with which they may be measured more reliably catalyst for economic growth, employment and and thus effectively promoted. community development.1 However, access to conventional electricity sources is dependent on the extension of national electricity grids, whose development Rural Electrification is generally focused on areas of sufficient population density and power demand to ensure utilization of the Socio-Economic Impacts of Rural Electrification power source and return on investment for financiers. The most dramatic impacts of electrification on health can Many rural, isolated communities are thus unable to be found in rural areas of the developing world, where a benefit from the steady supply of power to which people in lack of reliable access to energy has hindered developed markets have grown so accustomed. development on multiple fronts. Socially, it has impeded advances in basic, but critically important, educational Renewable power technologies in particular have the services, thus limiting progress in economic development. capacity to secure advancements in energy services in many of these communities. Small-scale wind, solar, and Despite the immense social and hydropower technologies have made renewable power accessible with neither the negative health impacts economic benefits of electricity associated with fossil-fuel use nor the time and costs services, 1.6 billion people, or associated with conventional power grid extension programs, which may be prohibitively expensive for approximately a quarter of the geographically remote communities with relatively low world’s population, remain without power needs. As discussed throughout this report, and reliable access to power. illustrated most vividly in the Guatemala case study, renewable power systems are thus emerging as an important alternative paradigm to grid-based There are numerous health benefits of using renewable electrification, bringing the important benefits of modern resources to provide electricity to populations that power services without the time or costs of conventional otherwise might not be served by utility companies. In grid extension. many communities where energy or electricity is scarce, families burn fuels in their homes, creating pollution that is In addition to the important benefits that renewable power harmful to their health. In addition, lack of electricity has can provide for off-grid communities, the economic made rural and low-income populations more susceptible development and job creation benefits of renewables are to disease by making proper preservation and distribution increasingly cited as a motivation for their greater use of vaccinations and basic medical care difficult if not more broadly in developed and developing countries alike. impossible. Refrigeration for vaccines (which must be kept In many countries, the rise of the renewable power between two and eight degrees Celsius from the point of industry is expected to herald a new wave of green manufacture to the point of use) and the ability to sterilize economic growth that will create a new industry, equipment properly are essential for even the smallest economize on energy costs, mitigate environmental costs clinics and health centers. of big business, and add millions of jobs to the global economy. These hopes for new growth have only become Furthermore, electricity is necessary to operate many more fervent as concerns over the health of the global medical instruments, illuminate clinics and labs, enable
Blueprint for Renewable Power | Section 5 269 proper medical record keeping, and even facilitate medical In rural communities, electrification is also key to retaining training and communications for reporting medically skilled staff; this impacts multiple sectors including health significant events or emergencies. Electrification also and education. One of the most often-cited factors enables health clinics to keep longer opening hours. Off- affecting teacher retention in rural areas is the lack of grid, renewable technologies are uniquely suited to access to modern energy services, particularly lighting meeting the needs of remote rural electrification. and power. Technologies such as small hydropower, solar photovoltaics, and wind power can help isolated rural Access to electricity is essential for communities to move communities meet these critical energy needs. For beyond agriculturally-based, subsistence economies. example, in Ecuador, solar photovoltaic systems have Without any (or regular) access to electricity and energy to been used successfully to power medical refrigerators in light offices and stores, transport goods, or communicate, 94 isolated clinics in the Amazonian region.2 the ability of small-scale enterprises to grow is severely limited. The kinds of employment available in an economy Electrification also has a pronounced impact on education are confined in terms of sectors available, absolute by improving the quality of services. Modern energy numbers of positions, and income potential. By contrast, services allow teaching hours to be extended (especially in access to electricity facilitates economic development and areas or seasons with limited daylight hours) and facilitate fosters micro-enterprises and locally owned businesses. access to educational materials (audiovisual instruments Furthermore, while the initial purchase of renewable power like projectors and even computers). In similar ways, systems requires significant capital, renewable fuels electricity makes more comprehensive basic and ongoing themselves are free, which helps offset the cost of the teacher training possible. Furthermore, children in rural initial purchase. areas are often subject to time pressures created by energy and resource scarcity. Rather than attending Despite the immense social and economic benefits of school, children are often required to collect items to be electricity services, according to the World Bank, 1.6 used for fuel, fetch water, and participate in agricultural billion people, or approximately a quarter of the world’s work. The introduction of modern energy services can population, remain without reliable access to power. Four save time and alleviate the necessity for additional out of five persons without electricity live in rural areas of manpower. Night-time illumination enables children to the developing world, where conventional grid-extension study in the evening. According to a UNDP study electricity supply is often not economically viable. conducted in Mali, girls’ scholastic achievements were measurably higher after the introduction of village-level Electrification of rural areas has progressed at low rates, mechanical power for grinding, pumping, and threshing mainly due to the high cost of extending electricity grids services.3 and developing energy systems in areas with low
Table 5.2.6a Electricity Access in 2005: Regional Aggregates
Population Urban Population Population Electrification Urban electrification Rural electrification population without electricity with electricity rate rate rate (million) (million) (million) (million) % % % Africa 891 343 554 337 37.8 67.9 19 North Africa 153 82 7 146 95.5 98.7 91.8 Sub-Saharan 738 261 547 191 25.9 58.3 8 Africa Developing Asia 3,418 1,063 930 2,488 72.8 86.4 65.1 China and 1,951 772 224 1,728 88.5 94.9 84 East Asia South Asia 1,467 291 706 760 51.8 69.7 44.7 Latin America 449 338 45 404 90 98 65.6 Middle East 186 121 41 145 78.1 86.7 61.8 Developing 4,943 1,866 1,569 3,374 68.3 85.2 56.4 countries Transition 1,510 1,090 8 1,501 99.5 100 98.1 economies and OECD World 6,452 2,956 1,577 4,875 75.6 90.4 61.7
Source: International Energy Agency, World Energy Outlook 2006.
270 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf population densities and consumption patterns. A typical As with their larger-scale, grid-connected cousins, small- energy demand profile for a rural community might range scale hydro systems are usually the most economical between 30 kW and 300 kW, depending on various source of off-grid power, followed closely by wind and factors, including the size of the community, the level of then distantly by solar PV. However, all of these sophistication of the consumers and the existing facilities technologies can find appropriate uses in off-grid in the community.4 Rural electrification projects in electrification programs, depending on the electricity developing countries are further challenged by poor policy needs and resources available in the areas served. climates, institutional weaknesses, and limited financing.5 Rural Electrification Needs in Latin America and the Renewables in the Rural Electrification Context Caribbean Region Given the financial constraints associated with grid While many countries in Latin America have made expansion, renewable power is increasingly incorporated significant progress toward improving access to electricity, into rural electrification programs due to its suitability to there remain significant underserved populations in most isolated environments and the scalability of renewable countries. However, there still remains a significant technologies. Among the most commonly used unserved rural population in most countries in the region, renewable technologies for rural electrification are micro- and these off-grid populations can be quite large in some hydro schemes, solar photovoltaic systems, and wind countries. In South America, fewer than 80% of Peruvians power. These technologies can be used separately or in and Bolivians have access to electricity, with coverage of combination, also known as “hybrid” configurations.6 78% and 67%, respectively. In Central America and the Hybrid applications allow renewable technologies to Caribbean, just 55% of Nicaraguans, and only 34% of work in tandem in order to meet demand more Haitians, enjoy access to grid power. consistently and are particularly useful in regions with seasonal variations in wind and solar resources. It is As Table 5.2.6c demonstrates, overall, approximately 45 important to note that some hybrid systems include million people remain without access to electricity service diesel generators in order to handle high peak loads and in Latin America and the Caribbean. ensure year-round power supply.
Small-hydro schemes, solar PV, and wind power can be Use of Renewables for Rural Electrification scaled to the household level or connect to mini-grids in Latin America (usually ranging from 10 – 1,000 kW) to electrify entire communities. As of 2007, there were around 1,000 hybrid Small-Scale Hydro Power solar PV and wind hybrid models worldwide that were Small-scale hydro schemes can be a valuable addition to connected to mini-grids.7 China has taken the lead with the energy matrix of developing countries who strive to this approach, electrifying 1.5 million rural people with deliver many social and economic benefits to isolated electricity from solar PV, wind-solar PV hybrid systems, communities. The geographical areas best suited to and small hydropower systems connected to mini-grids small-scale hydropower are those where steep rivers flow under its “Township Electrification Program.”8 year-round. Thus, these projects are most common in regions near mountain ranges and their foothills, such as While costs can vary widely by context, and while there the Andes and the Himalayas, although islands with moist are little concrete data available, REN21 estimates marine climates and heavy rainfall are also suitable.11 economic costs for off-grid electricity sources, There is a spectrum of small-scale hydro schemes that enumerated in Table 5.2.6b. can be utilized in off-grid environments, depending on energy requirements. Mini-hydro is on the large end of the spectrum, with generating capacities of 100 – 1000 kW. Table 5.2.6b Economic Costs for Off-Grid Electricity Micro-hydro schemes fall in the middle, with a plant Sources capacity of 1 – 100 kW, and pico-hydro systems have the smallest generating capacity, with plant capacities of 0.1 – Technology Capacity US Cents/kWh 1 kW. Small-scale hydro schemes are a mature Mini-hydro 100-1,000 kW 5-10 technology, and China alone currently has more than Micro-hydro 1-100 kW 7-20 Pico-hydro 0.1-1 kW 20-40 85,000 small-scale, electricity producing, hydropower Small wind tubine 3-100 kW 15-25 plants.12 In addition, there are significant numbers of small Household wind turbine 0.1-3 kW 15-35 hydro projects operating in countries such as Nepal, Solar PV home system 20-100 Watts 40-60 Bangladesh, Sri Lanka, Vietnam, and Kenya. Source: REN219
Blueprint for Renewable Power | Section 5 271 Chart 5.2.6a Electricity Coverage in LAC, 2005
Argentina
Barbados
Bolivia
Brazil
Chile
Colombia
Costa Rica
Cuba
Dominican Republic
Ecuador
El Salvador
Grenada
Guatemala
Guyana
Haiti
Honduras
Jamaica
Mexico
Nicaragua
Panama
Paraguay
Peru
Suriname
Trinidad & Tobago
Uruguay
Venezuela
0% 20% 40% 60% 80% 100% Source: OLADE10
272 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.2.6c Electricity Access in 2005: Latin America
Electrification rate (%) Population without Population with Sources electricity (million) electricity (million) Argentina 95.4 1.8 37.1 GNESD (2004), ECLAC (2002) Bolivia 64.4 3.3 5.9 ECLAC (2003), OLADE (2002) Brazil 96.5 6.5 179.7 ECLAC (2003) Chile 98.6 0.2 16.1 APERC, ECLAC (2003) Colombia 86.1 6.3 39.2 ECLAC (2003) Costa Rica 98.5 0.1 4.2 ECLAC (2002) Cuba 95.8 0.5 10.9 OLADE (2002) Dominican Republic 92.5 0.7 8.2 DHS (2002), OLADE (2002) Ecuador 90.3 1.3 11.9 ECLAC (2002) El Salvador 79.5 1.4 5.5 GNESD (2004), ECLAC (2004) Guatemala 78.6 2.7 9.8 ESMAP (1998/1999), DHS, OLADE (2002) Haiti 36.0 5.5 3.1 DHS (2000), Engineers Without Borders (2004) Honduras 61.9 2.7 4.4 ECLAC (2003) Jamaica 87.3 0.3 2.3 OLADE (2002) Netherlands Antilles 99.6 0.0 0.2 IEA estimate Nicaragua 69.3 1.7 3.8 ECLAL (2002), DHS (2001), Global Environment Facility (2001) Panama 85.2 0.5 2.7 OLADE (2000) Paraguay 85.8 0.9 5.2 OLADE (2002) Peru 72.3 7.7 20.2 ECLAC (2004) Trinidad and Tobago 99.1 0.0 1.3 OLADE (1997) Uruguay 95.4 0.2 3.3 US Commercial Service (2005) Venezuela 98.6 0.4 26.1 ECLAC (2003) Other Latin America 87.3 0.4 2.9 IEA estimate Latin America 90.0 44.9 404.3
Source: International Energy Agency, World Energy Outlook 2006.
Small hydro schemes also offer a viable alternative to Electrification program, has constructed four micro-hydro traditional grid electrification in remote regions of Latin schemes benefiting 497 families.17 America and the Caribbean. The Andes Mountains, which stretch through seven South American countries There are also significant, non-government-led, small- (Argentina, Bolivia, Chile, Colombia, Ecuador, Peru, and scale hydro initiatives. Practical Action, an NGO based in Venezuela), form the longest mountain range in the world, the U.K., with community loan assistance from the IDB, and the prospects for small-scale hydro schemes in this installed 47 micro-hydro schemes in the Eastern Andes of area are promising. A 2005 report by the Energy Sector Peru. It is estimated that 5,044 families (around 30,000 Management Assistance Program (ESMAP), a program people) benefit from electricity from theses installations.18 sponsored by the World Bank and the United Nations Nicaragua also has an NGO presence focusing on mini- Development Program, found that approximately half of all hydro development. The Asociacion de Trabajadores de non-electrified rural households in Bolivia, Peru, Ecuador, Desarrollo Rural – Benjamin Linder has been operating in Colombia, and Venezuela could potentially utilize pico- the country for approximately 20 years, bringing hydro power (see Table 5.2.6d).13 hydroelectricity to 7,000 people in three communities.19 They have also identified as many as 25 other potential Small-scale hydro schemes are not new to the region; they micro-hydro sites in the rural Jingotega province in have been around for decades and have seen success in Nicaragua. Argentina, Peru, Bolivia, and Nicaragua. The Secretary of Energy in Argentina lists 17 completed micro-hydro power Solar Home and Community Power projects (120 kW and below) and lists an additional 17 Small solar photovoltaic systems are often the technology projects in various stages of development.15 As part of its of choice for off-grid rural electrification due to their ten-year Rural Electrification Plan enacted in 2006, Peru durability, ease of installation and maintenance, and has outlined the development of 54 additional micro-hydro declining cost. There are two main configurations of PV schemes, which are intended to benefit a population of systems for rural electrification: stand-alone and just over 97,000 people by 2014.16 The Ministry of centralized.20 The stand-alone systems are generally Hydrocarbon and Energy of Bolivia, as part of its Rural referred to as “solar home systems” and are designed to
Blueprint for Renewable Power | Section 5 273 Table 5.2.6d Market Size for Pico-Hydro in the Andean Region
Country Nonelectrified rural households Technical achievable no. of Range of genuine household market based households that could use picohydro on capacity and willingness to pay Bolivia 515,815 355,000 55,000-109,000 Peru 1,462,783 671,000 98,000-197,000 Ecuador 249,199 137,000 16,000-32,000 Colombia 127,343 39,000 7,000-14,000 Venezuela 72,170 28,000 4,500-9,000 Total 2,427,310 1,230,000 180,500-361,000 Source: ESMAP14
serve low electricity demands such as lighting and Small-Scale Wind Power television and generally range in size from 20 to 100 watts. Wind power is also easily scaled to household systems Centralized systems are larger, generally ranging in size and deployed in remote rural communities with reliable from 400 to 1,200 watts, and are intended to supply power wind resources. Household wind systems generally range for community needs. Both configurations typically have a from 100 W to 3 kW. While low winds are not sufficient to rechargeable lead-acid battery component and can be produce power, excessively strong winds can damage backed up by diesel generators to buffer against variations wind turbines. Wind resources become exploitable when in solar resources. In 2007, over 2.5 million households in average annual wind speeds exceed four to five meters developing countries received electricity from distributed per second.28 solar power systems.21 Great potential exists to harness wind power in Latin In 2007, over 2.5 million America and the Caribbean. Trade winds sweep across Southeast Mexico and most Central American and households in developing Caribbean countries, creating predictable, year-round countries received electricity from wind resources. South America also has exploitable wind 22 resources. Argentina, in particular, has had success with distributed solar power systems. small-scale wind systems. In 2006, the World Bank donated $5 million to finance the installation of 1,000 Many regions of Latin America and the Caribbean lie small-scale wind generators in the province of Patagonia. within areas of predictable and reliable solar radiation, The World Bank approved another $7 million loan in particularly in areas near the equator in Central America, August of 2007, geared toward providing small-scale wind the Caribbean, and northern parts of South America, systems for consumers living in dispersed rural zones of making solar energy a suitable choice for rural the Chubut province of Argentina. electrification projects. In fact, many of the world’s first solar systems for residential power, refrigeration, distance The experience of Mexico, despite its sizable endowment education, and hybrid systems were developed for Latin of wind resources, highlights some of the potential America.23 In 1999, a solar PV pilot project was launched challenges related to deploying small-scale wind power to in the Mexican state of Chihuahua under the USAID/DOE rural areas. An assessment of the Mexican government’s Mexican Renewable Energy Program (MREP), managed Mexico Renewable Energy Program, conducted in 2000, by Sandia National Labs. Under this program, 145 PV remarked that although four small-scale wind projects had home lighting systems were installed; six years after their been implemented, the more localized nature of the wind installation, over 90% of the solar home systems were resource made project siting more difficult than for solar performing well.24 More recently, according to 2002 systems, and there was a lack of locally available spare census data, Chile had a total of 2,398 solar installations parts and personnel in rural Mexico to maintain and repair across 13 regions that are utilized for rural electrification.25 the systems.29 In the Dominican Republic, the Association for Solar Energy Development (ADESOL), a local NGO partnered Capacity Building and Economic Benefits with Enersol, a U.S.-based nonprofit organization, and The aforementioned Mexico case illustrates an important PRONATURA, an environmental fund in the Dominican point: the sustainability of these dispersed renewable Republic, enabled 5,000 homes to obtain solar systems.26 power projects, regardless of technology, rests largely Fundación Solar in Guatemala led a program to install with local capacity to operate and maintain these 180 solar home systems in six rural Guatemalan systems, creating both challenges and opportunities. communities in 2002.27 Recognizing that in the past, solar PV projects had failed
274 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf due to a dearth of local capacity, the International Energy and details other relevant information. Data included were Agency (IEA) produced a handbook in 2003, “PV for collected from multiple sources for each. For a list of Rural Electrification in Developing Countries – A Guide to sources, please see associated endnote. Capacity Building Requirements,” to provide a blueprint for necessary capacity-building measures.30 Rural International Financial Institutions electrification projects, when conducted in concert with International financial and regional institutions, such as the local capacity building, can result not only in sustainable World Bank, UNDP, and the Inter-American Development projects but can create rural employment opportunities Bank, play key financial and advisory roles for rural as well. electrification projects. Through loans and grants, these institutions partner with governments and communities to A key feature of the already-mentioned solar project in the finance rural electrification programs. An overview of the Dominican Republic was capacity building at the local rural electrification projects that the World Bank Group has level: ADESOL trained rural residents to run small business financed over the past ten years reveals a significant that sell and service solar systems. They also encouraged increase in the number of those in the Latin America and the formation of the Solar Network, a business association Caribbean region, which has become the largest focus of consisting of 16 micro-enterprises. This network has the Bank by number of projects following a shift away subsequently helped with the installation of more than 150 from projects in South Asia and the Middle East. kW of solar-electric home systems.31 Further, there has also been a marked increase in rural electrification projects utilizing renewable power Main Actors in Rural Electrification Projects technologies such as solar, wind power, and in Latin America hydropower. From 1996–2006, renewable power technologies were utilized in nearly half (46%) of the Rural electrification projects are guided by a variety of rural electrification projects funded by the World Bank, considerations such as cost, social impact, up from 13% of all projects funded from 1980 through environmental suitability, and sustainability. Thus, there 1995.34 A breakdown by region shows that the number are typically many actors involved in launching these of rural electrification projects utilizing renewable power projects. Because most customers are poor, and the technology in Latin America rose from zero in 1980-1995 scale of individual projects is small, most of the financing to 11 in 1996-2006. for rural electrification comes from governments, foreign donors, and international financial institutions.32 Private Partnerships However, NGOs, private partnerships, and community Following the wave of electricity sector reforms of the groups also play a large role in starting and sustaining 1980s and 1990s, private partnerships have become an these projects. important part of electrification efforts. Private participation in the energy sector is needed to help fill the National Governments investment gap and bring technological solutions and National governments play a pivotal role in creating an innovations. However, due to the low profitability of rural enabling environment for rural electrification by setting electrification projects, private participation usually takes priorities and developing policies. Since 1990, rural the form a loan complementing a mix of government electrification in the Latin America and Caribbean region grant/subsidy and local equity capital.36 Private has increasingly featured renewable technologies. Brazil developers may also undertake rural electrifications efforts was an early adopter of rural electrification policies that as a public service endeavor. In Brazil, BP Solar installed incorporated renewable power technologies. In 1992, the solar photovoltaics systems at 1,852 schools in Northeast Brazilian government initiated a pilot project called Brazil, a rural area in which living standards are PRODEEM to install solar home systems; approximately exceptionally poor.37 1,500 solar home systems were installed under this program. Non-Governmental Organizations (NGOs) NGOs also play a key role in project development and More recently, many Latin American and Caribbean sustainability, especially where government leadership or countries have devoted increasing attention and resources capacity are lacking. NGOs can link communities to to rural electrification programs. Throughout the region, international financial institutions by articulating the there are at least 13 government-initiated rural needs of those communities and helping them secure electrification programs enacted since 1994 that much-needed funding. They can also assist in building incorporate renewables. Table 5.2.6e lists these programs the capacity of local communities to manage their
Blueprint for Renewable Power | Section 5 275 Table 5.2.6e Rural Electrification Programs Using Renewable Power in LAC Country Name of Program Technologies Used Goals Impacts Argentina Renewable Energy Project Primarily solar, wind, To electrify 87,000 homes and 2,235 homes and 556 public buildingsbuildings havehave beenbeen electrified in Chaco, Chubut, for the Rural Electricity mini-hydro, and possible 6000 schools, health clinics and Jujuy, electrified Misiones, in Chaco, Neuquén, Chubut, Salta, Jujuy, Santiago Misiones, del Estero, Neuquén, and Tucumán provinces; Market (PERMER) use of fuel cells police stations Salta,electricity Santiago has been del Estero,provided and through Tucumán a decentralized provinces grid to the Valle Colorado electricityarea in Valle has Grande, been provided Jujuy; the through Laguna a Blancadecentralized area of gridBelen, Catamarca; and the toCortaderas the Valle andColorado Las Grutas area inareas Valle of Grande Tinogasta, Catamarca; 2,750 houses and 690 public buildings are currently in progress in the Catamarca, Río Negro, Jujuy, Santi- ago del Estero, Salta, and Tucumán provinces; decentralized grid systems are un- derway in the Jama area of Susques and Capala in Valle Grande, Jujay province.
Bolivia Bolivia’s Rural Solar PV, mini-hydro To increase coverage in The Bolivian governmentgovernment signedsigned two two Agreements Agreements of Financial Support in 2003 and Electrification Plan rural areas from 24% to 45% of2004 Financial with Kreditanstalt Support in 2003Für Wiederaufbau and 2004 with(KfW), Kreditanstalt and the financing was used to (PLABER) 2002 within five years. Fürbuild Wiederaufbau 6 mini hydroelectric (KfW), power and the stations, financing with was 11 usedmore to in the final design stages. build 6 mini hydroelectric power stations, with 11 more in Brazil Light For All 2003 Solar PV, biomass, To provide access to 12 In 2004 1.375 million people were newly connected to the power grid; in 2005, small hydro million people by 2008 and tobenefitted the power 2.15 grid million in 2005, people, benefitted created 2.15 80,000 million jobs, people, and 700,000 electricity secure the electrification of all createdpoles were 80,000 installed; jobs, in and 2006 700,000 3 million electricity were expected poles to benefit; six hydroelectric Brazilian households by 2015. weredams installedare planned; in 2006 three 3 minimillion hydro were plants expected built into Amazonbenefit region with the poten- sixtial hydroelectricto serve 55,000 dams people, are planned generate 7750 jobs, and avoid 1.5 million tCO2 carbon emissions over a 10 year period.
Chile Rural Electrification Solar PV, wind To increase rural electrification N/A Plan (PER) 1994 rate to 90% by 2006
Ecuador National Electrification Plan Small and mini-hydro, N/A Joint project between MinistryMinistry ofof EnergyEnergy andand MinesMines and Ministry of Health installed (PLANER) – ESMAP, PROMEC. Solar PV andPV electricity Ministry ofto Health94 remote installed medical PV electricity clinics in theto 94 Ecuadorian remote Amazon region. Also, CONELEC, the National Electricity medicalfrom 1998-2007, clinics in the FERUM Ecuadorian supplied Amazon electricity region. to 3,240,111 Also, homes and com- Council, oversees all electricity frompleted 1998-2007, 18,878 projects, FERUM but supplieddoes not electricity specify of to what these projects consist. programs, and FERUM (Fund for 3,240,111 homes and completed 18,878 proje Rural and Marginal Urban Electrification) is a part of CONELEC.
Peru National Rural Electrification Small hydro, To increase rural electrification Added 61 hydroelectric generation projects, 207 thermal generators, 4 wind tur- Plan (PNER)2006 – 2015 wind and solar rate from 30% to 75% by 2013. generators,bine projects, 4 wind and turbine 2 solar projects, panel programs. and 2 solar panel programs.
Costa Rica National Rural Electrification Solar PV, mini-hydro To increase the national Identified 329329 sitessites withwith potential potential for for renewable renewable energy of which 178 will be mini Program 2000 electrification rate from energyhydroelectric of which plants 178 of will13 bekW mini each hydroelectric and 151 sites will be PV; this will permit electrifi- 94.9% to 99% by 2010. plantscation of 7,27313 kW rural each homes, and 151 5,159 sites of will which be PVwill this be powered by mini hydroelectric willplants permit (70%), electrification and 2,114 of of 7,273 which willrural be homes, powered 5,159 by individual PV systems. of which will be powered by mini hydroelectric pla Dominican Republic National Rural Mini-hydro, wind Goal for project 2008-2013: N/A Electrification Plan 33 mini hydroelectric plants with a capacity between 5 and 150 kW, a system of wind energy not to exceed 50 kW
El Salvador Rural Electrification 2007 Solar PV, wind, hydro To increase electrification rate Installation of some 950 domestic solasolarr systems and provision of technical assis- in rural areas from 78% to andtance provision for the creationof technical of communal assistance companies for the creation for the administration, operation 97% in 2012. Impacting more ofand communal maintenance companies of the isolated for the administration,systems. than 47,000 households, and operation and maintenance of the isolated systems. nearly 250,000 people.
Guatemala Rural Electrification Solar PV, wind, biogas To provide access to N/A Program (PER) 283,000 new users (equivalent to 1.5 million people).
Honduras National Social Electrification Mini-hydropower To raise rural electrification Information available for projected impacimpactt of electrification in general, specific Plan (PLANES) 2002 rate from 17.4% to 46.3% innumbers general, for specific RET are numbers N/A. Projected for RET Impactare N/A. between Projected 2003 and 2012: 4,148 by 2012. Impactconnected between communities, 2003 and 160,700 2012: 4,148new electricity connected consumers (households) in communities,rural areas, total 160,700 additional new rural electricity population consumers served by 2012: 819,570, total pop- (households)ulation of connected in rural areas,communities total additiona in 2012: 1,365,950. Short Term Program (2003-2005): 1,182 communities connected (total of 42,077 household con- sumers and total population of 127,618 people).
Nicaragua National Rural Electrification Mini-hydropower To raise electrification rate from New Mexico State University and SandiSandiaa Labs (Albuquerque, NM) are working Program (PLANER) 40% to 90% of the country’s (Albuquerque,with the CNE to NM) implement are working PERZA with (GEF the CNEand Worldto implement Bank funding also). In 2005 2004 - 2012 rural areas by the end of 2012. PERZAthey completed (GEF and three World projects: Bank funding adding also).7 PV Instations 2005 tothey provide energy for 300 completedhomes in indigenous three projects: Miskito adding communities 7 PV stations in Waspam; to provide creating 5 MW hydroelec- energytric system for 300to connect homes 1500in indigenous homes toMiskito a mini-grid in El Ayote; and 900 KW hy- droelectric system to connect 2300 homes in El Cua Bocay.
Panama Plan for Rural Electrification Solar, other RET To increase the electrification FIS worked with European commission and PaPanamaniannamanian Education ministry to (PLANER) managed by specifics not available rate up to 95% in the next Educationbring solar ministrypower to to 150,000 bring solar people power between to 2004 and 2008. Oficina de Electrificación 12 years. Also, to bring power 150,000 people between 2004 and 2008. Rural (OER). Panama Social to 30,000 homes. nvestment Fund (FIS) Source: Various International and LAC Government Sources
276 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf resources and facilitate cross-sectoral links among Fundación Solar, a Guatemalan energy, health, and education. NGO, has played a key role in filling
The experiences of Fundación Solar, a Guatemalan NGO, gaps in the capacity of the illustrate the role that NGOs can play in linking government to address rural international institutions and rural communities. electrification as well as Fundación Solar has played a key role in implementing a policymaking needs. large number of rural energy systems in a country that has recently emerged from a 36-year civil war. Its long In 2004, Fundación Solar was contracted to lead a $14 list of collaborators include: USAID, the Global million project entitled “Productive Uses of Renewable Environment Facility, the UNDP, the European Union’s Energy in Guatemala,” which aims to utilize indigenously Proyecto Ixil, Sandia National Laboratories of the U.S. available renewable resources in rural areas to further Department of Energy, the Guatemalan Ministry of environmentally sustainable development and poverty Environment and Resources, the Guatemalan Ministry of reduction.39 According to the University Development Energy and Mines, and the local organization ADIM (the Cooperation, this project, which is funded by the UNDP, Association for Integrated Multiservice Development).38 the Guatemalan Government (particularly the Ministry of It has played a key role in filling gaps in the capacity of Energy and Mines), municipalities, and the private sector, the Guatemalan government to address rural is the first of its kind that has been contracted to an electrification needs as well as policymaking, as NGO.40 The project is authorized for four years and discussed in detail in the Guatemala case study. contains significant capacity-building initiatives including
Chart 5.2.6b World Bank Rural Electrification Projects
Latin America
Middle East
Africa
1996-2006
1980-1995 South Asia
East Asia/Pacific
Europe and Central Asia
0 5 10 15 20 25 30
Source: The World Bank, “The Welfare Impact of Rural Electrification” 2008
Blueprint for Renewable Power | Section 5 277 Table 5.2.6f Number and Percentage of Projects with RET by Period and Region
Number of Projects Percentage Region 1980-95 1996-2000 Total 1980-95 1996-2006 Total Latin America & Caribbean 0 11 11 0 26.2 18.3 Middle East & North Africa 1 1 2 5.6 2.4 3.3 Sub-Saharan Africa 5 13 18 27.8 31 30 South Asia 4 6 10 22.2 14.3 16.7 East Asia & Pacific 8 11 19 44.4 26.2 31.7 Total 18 42 60 100 100.1 100 Note: RET = renewable energy technology Source: World Bank35
developing the skills of new users to install, operate, and technologies have increasingly been touted in a wide maintain new equipment; training in green marketing or range of developed and developing national contexts for identification of trading partners; developing advocacy its potential to create jobs and stimulate more general skills of interest groups on productive use and renewable economic growth. It is currently estimated that 2.3 million energy issues; and developing the capacities of financial people around the world make their living in renewable institutions.41 energy industries (including biofuels).44 While worldwide estimates for renewable job growth are difficult to make for Community Involvement reasons discussed below, the Apollo Alliance, a U.S.- Community involvement in electrification projects is also based labor-environmental partnership, estimates that a growing trend that has led to positive outcomes. investment of $30 billion per year for the next ten years in Community-driven development projects (CDDs) are the U.S. renewable energy industry will create 3.3 million multisectoral projects that give community groups new jobs in the U.S. alone.45 This potential offers great control over planning decisions and resources for local hope to developed and developing economies that are development projects. The underlying assumption is that trying to address energy diversification, economic growth, people are the best judges of how their lives and and unemployment problems simultaneously. livelihoods can be improved, and can organize Furthermore, the promise of green jobs is increasingly themselves to provide for their immediate needs.42 This juxtaposed with the wider dangers of climate change. approach has successfully electrified over 1,500 UNEP executive director Achim Steiner recently claimed communities, reaching 91,000 families, in the Brazilian that “millions of new jobs are among the many silver, if not state of Ceara. According to the World Bank, the gold-plated linings on the cloud of climate change.”46 communities in Ceara were directly involved in However, developing more reliable data and realistic “selecting, preparing, and overseeing the implementation projections in this area remains a challenge. of electrification subprojects, which in turn were executed by private firms contracted by the community Developing more reliable data and associations.”43 realistic projections for the growth The Scale of the Push for Rural Renewables in LAC in renewable energy-related Given the variety of players in rural electrification efforts and a general lack of formal reporting on these projects in employment and other “green” LAC, it is difficult to give concrete dimensions to the jobs remains a challenge. region-wide impacts of renewable rural electrification efforts. However, the formal goals that have been First, it is necessary to define the term “green jobs.” This is established by the thirteen governments, if met, would no easy task. Generally speaking, green jobs, or green- electrify over ten million people in the LAC region by 2015. collar jobs, refer to new jobs being created in sectors dedicated to alleviating environmental threats, whether through renewable energy, energy efficiency, sustainable Green Job Creation transportation, organic agriculture, ecosystem restoration and protection, or other areas.47 The use of the term Defining Green Jobs among environmental professionals dates back to at least While renewables have been incorporated into rural 1992, but its use has become much more widespread in development programs for years, renewable power recent years, due to the rapid expansion of the renewable
278 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf energy and other “green” sectors as well as growing part due to the newness of research in this area and in part concerns over losses of traditional blue- and even white- due to the difficulty of defining exactly which jobs count as collar jobs due to globalization.48 “green.” One important role that governments could play in spurring the development of green jobs would be simply However, there is disagreement among experts regarding to establish and collect data on green jobs, reporting the particular jobs that should be included. For example, categories that capture relevant employment not only in Raquel Pinderhughes, who conducted a study for the new industries but also in established industries, as the Berkeley Office of Energy and Sustainable Development, German government has done.53 However, despite the describes 22 sectors of green-collar jobs, including numerous gaps in the data, it is clear that employment in bicycle-repair mechanics.49 While there new may be new the sector is growing at a very fast pace, and it is likely to jobs in bicycle repair due to an increase in the numbers of accelerate in the years ahead. people using bicycles as a mode of transport to save energy, bicycle repair is not a new field, and not all of the While growth in renewable power jobs is a worldwide jobs in bicycle repair can be qualified as new green jobs. phenomenon, the bulk of these jobs have been located in In order to study green job potential and its contribution to a relatively small number of countries, including Germany, the economy properly, it is important to be more rigorous Japan, China, Brazil, and the United States. In the UNEP- in how the term is used in studies. sponsored report on the state of global green jobs development, the Worldwatch Institute estimates that the Second, it is necessary to delineate the difference 2.3 million jobs in renewable energy (including biofuels) are between green jobs and renewable energy jobs more broken down in Table 5.2.6g (recorded for geographic specifically. Jobs in the renewable energy sector are often areas where sufficient data are available). discussed under the larger rubric of green or green-collar jobs, but it is important to recognize that renewable energy When these estimates are coupled with the amount of jobs are a subset of green jobs. In one of the most recent investment in renewable power and momentum in policy and comprehensive reports to date, the UNEP report titled to expand the industry, they establish strong expectations Green Jobs: Towards Sustainable Work in a Low-Carbon for future growth. While estimates of future employment World, the authors classify four major categories of green growth in solar thermal, hydropower, and geothermal jobs: jobs in alternative and renewable energy, jobs in the sectors are unavailable, projections of worldwide job building sector, jobs in transportation, and jobs in food growth in the wind and solar sectors show the potential for and agriculture.50 more than 8.5 million jobs combined by 2030 under aggressive adoption scenarios. For the purposes of this section, a specific focus on renewable power jobs is merited. Even within the Wind renewable power sector, an extremely wide range of jobs A recent study by the Global Wind Energy Council, is available, including manufacturing, installation, Global Wind Energy Outlook 2006, provides additional scientific research, legal, and financial jobs concerned data on wind industry employment and projections. The with these technologies.51 New job opportunities are report estimates total worldwide employment in the growing in the many renewable power industries, industry at 150,000. Furthermore, the Outlook projects including wind, solar, biomass, hydropower, and estimates for growth at reference, moderate, and geothermal industries. Positions like wind analysts, advanced growth levels, assuming that for every marine surveyors, and biomass-development officers are megawatt of new capacity, the annual market for wind all recent additions to the list of vacancies in renewable energy will create 16 news jobs through manufacture and power jobs. In addition, the growth of the renewable component supply, and five jobs through wind farm power industry, and other green industries, is revitalizing development, installation, and indirect employment. and creating new investment in many existing jobs.52 Due However, the study factors in an expected per-megawatt to the difficulties in defining and measuring renewable decrease in added employment as processes are power job growth, existing statistics are not considered optimised, with numbers in the above-mentioned sectors definitive (especially on a global scale, as some countries falling to 11 and 5, respectively, by 2030. 55 are more thorough and consistent in reporting), but they do reveal a dramatic increase. Based on projections of growth in the reference scenario, the potential for job growth would equal more than 241,000 Global Trends in Renewable Power Jobs jobs by 2010, over 481,000 by 2030, and almost 653,000 by Despite the fast-growing interest in renewable power and 2050. The moderate-growth scenario projects more than green jobs, there are still little robust data on the subject, in 390,000 jobs by 2010, almost 1.1 million by 2030, and then
Blueprint for Renewable Power | Section 5 279 Table 5.2.6g Employment Estimates in the Renewable a leveling off to 1.4 million by 2050. The advanced scenario Energy Sector, Global and Selected Countries (for which projects 2.9 million jobs by 2020 and a slight dip to 2.8 information is available), 2006 million jobs by 2050 due to increased labor efficiency.56 Renewable Energy Source World/Selected Countries Employment Solar Wind World 300,000 Similarly, a report by the European Photovoltaic Industry Solar PV World 115,000 Association and Greenpeace, titled Solar Generation IV – Solar Thermal China, Germany, Italy, USA 624,000+ 2007, has produced some of the most comprehensive Biomass/Biofuels Brazil, USA, China, Germany 1,174,000 estimates regarding job growth in the solar PV industry. This Hydropower Europe, USA 39,000 report bases its projections on three possible scenarios: the Geothermal USA, Germany 25,000 Renewables, Combined 2,277,000 IEA reference scenario (where conventional electricity sources Source: Green Jobs Towards Sustainable Work in a Low-Carbon World, Preliminary Report, 200754 remain dominant for the foreseeable future), a moderate growth scenario, and an advanced growth scenario. The report provides estimates (in Chart 5.2.6h) of worldwide employment in the formal mining sector, including coal as employment in PV-related jobs based on these scenarios. well as other minerals, was approximately 11 million, a figure that represented a decrease of three million from These estimates for both wind and solar PV employment 1995–2000.58 growth must be considered in light of the fact that much depends on future policy and investment trends. However, Drivers of Green Jobs Growth to put these rough figures in perspective, the total Green jobs growth is the result of a combination of drivers, employment of the oil and gas and oil refining sector in some of which are interrelated. Summaries of several key 1999 was just over two million workers, and total drivers are featured in the box on page 282.
Chart 5.2.6c Global Wind Energy Sector Employment Scenarios
3,000,000
2010 2,500,000 2030
2050
2,000,000 Created s 1,500,000 Job
1,000,000
500,000
0 Reference Moderate Advanced Source: GWEC57
280 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Types of Renewable Power Jobs successful efforts to link renewable power with effective As the examples of drivers in the table above illustrate, job creation programs offer a chance to win greater renewable jobs are found at a wide range of companies. political support for their further development by Many of these companies are innovative, dynamic, small- establishing the sector as a positive contributor to and medium-size enterprises, but well-established larger employment growth, creating a virtuous circle. firms, like GE, Google, and Wal-Mart, are also playing a major role in the sector.65 For example, leading A recent report by Roger Bezdek for the American Solar companies in the solar PV sector include start-ups and Energy Society on the jobs created in the U.S. renewables huge consumer electronics firms like Sharp. This industry is one of the most comprehensive to date in combination of enterprises and companies is driving the breaking down green job creation by type, albeit only for development and deployment of renewable power the U.S. market.66 The study uses information from systems and, by extension, is charting the path for jobs in Management Information Sources, Inc. and the American renewable power. Solar Energy Society to tally the numbers of direct and indirect jobs created in various segments of the renewable Jobs in the renewable power industry will require varied energy industry, as detailed in Table 5.2.6i. levels of education, skills, and training along many stages of the development pipeline — from the design of While these numbers are specific to the U.S., they provide renewable power systems to their sale, construction, and concrete examples of the potential for growth in renewable maintenance. These looming requirements represent both energy jobs and the variety of industries that will be a threat and an opportunity for the sector’s development. affected. If the necessary labor fails to materialize on a sufficient scale, the development of renewable power resources Green Jobs in Latin America could become more costly, discouraging new projects and Growth in jobs in renewable power should be of particular slowing the pace of the sector’s growth. In addition, interest in Latin America, although there are virtually no development may suffer as a result of a dearth of data available for the job creation potential of renewable experienced, upper-level employees. At the same time, power technologies, in contrast to the growing body of
Table 5.2.6h Worldwide Employment in PV-Related Jobs Under Solar Generation Scenarios
Scenario, year Installation Production Wholesale Research Supply Total Advanced 2006 48,017 14,375 4,312 1,869 5,390 73,963 2010 178,915 50,828 15,248 6,608 19,060 70,659 2015 530,620 139,821 41,946 18,177 52,433 782,997 2025 2,462,198 532,943 159,883 69,283 199,854 3,424,161 2030 4,716,534 893,283 267,985 116,127 334,981 6,328,910
Moderate 2006 48,017 14,375 4,312 1,869 5,390 73,963 2010 132,718 37,704 11,311 4,902 14,139 200,774 2015 387,526 102,115 30,634 13,275 38,293 571,843 2020 811,805 195,683 58,705 25,439 73,381 1,165,012 2025 1,439,671 311,617 93,485 40,510 116,856 2,002,140 2030 2,208,195 418,219 125,466 54,368 156,832 2,963,080
IEA Reference 2006* 48,017 14,375 4,312 1,869 5,390 73,963 2010 44,407 12,616 3,785 1,640 4,731 67,179 2015 52,713 13,890 4,167 1,806 5,209 77,784 2020 88,545 21,344 6,403 2,775 8,004 127,071 2025 137,988 29,867 8,960 3,883 11,200 191,898 2030 213,791 40,491 12,147 5,264 15,184 286,877
*For 2008 EPIA data is used. For later years the figures are based on extrapolation of EIA data. Source: Solar Generation IV - 2007
Blueprint for Renewable Power | Section 5 281 DRIVERS FOR RENEWABLE ENERGY AND GREEN JOBS GROWTH59
1. Concern for potential costs of not greening. Resource depletion, loss of biodiversity, and the occurrence of storms, floods, and droughts induced by climate change all threaten the long-term viability of many businesses and agricultural jobs in particular. Greening operations not only reduces a company’s role in these damaging long-term trends but also allows them to cut costs by innovating to stay ahead of these trends. For instance, firms as seemingly different as U.S. retail giant Wal-Mart and internet search leader Google are both concerned about their vulnerability to growing energy costs and potential liabilities stemming from their huge carbon footprints, leading them to invest increasingly heavily in the utilization of on-site renewables and energy-efficiency innovations at their facilities.60 61
2. Growing opportunities in green sectors. Companies are increasingly recognizing the enormous interest in the environment from both consumers and investors, inspiring new start-ups as well as established businesses to orient their business toward meeting this demand. The North American and European cleantech sectors received $5.18 billion in venture financing in 2007, up from $3.6 billion in 2006.62 At the other end of the spectrum, the technology conglomerate General Electric (GE), one of the oldest and largest companies in America, has also become the largest producer of wind turbines in North America.63
3. Green policies. Government policies are often indispensable in laying the groundwork for the growth of the green sector, which is generally less competitive than the non-green sector because its environmental benefits are often not accounted for in end-user prices for goods and energy. As discussed in Section 5.2.5, governments have attempted to remedy this problem for renewable power by providing feed-in tariffs or passing renewable power generation mandates. Similar incentives and regulatory measures have been put forth to boost the use of other green goods.
4. Indirect green job creation and network effects. One often overlooked, but increasingly important, driver of the green jobs sector is the growth of the green jobs sector itself. As demand for green products and green energy increases, it trickles down into demand for new green jobs being created throughout the value chain. For example, Wal-Mart’s recent demand for the efficiency of high-energy-use electronics (ranging from computers to hair dryers) to improve by 25% over the next three years will create new demand for green component supplies, product designs, and marketing throughout the company’s far-flung network of suppliers.64
data available on the biofuels industry in Brazil. However, policies and incentives for growth in the industry, as many countries in the region are rich in natural resources discussed throughout this report. as well as other key drivers for the adoption of renewables, which could create the foundation of a robust Given the dependence of most Latin American countries green jobs sector as well. Moreover, the effects of climate on foreign technologies for power generation, it is change may negatively impact employment in many unsurprising that an important early source of renewable sectors, particularly weather-dependent sectors such as jobs in Latin America is likely to be foreign firms. For agriculture and tourism that are key to many developing example, German solar cell maker Q-Cells recently and Latin American and Caribbean economies.67 As the announced a $3.5 billion investment in a new production region embarks on tackling climate change, growth in the plant in Mexico, as discussed in the Mexico case study. renewable power industries could become a way to The plant is expected to create 4,500 jobs for qualified contribute to the immediate goals of reducing emissions Mexican workers.68 Other foreign companies like Gamesa, while also maintaining economic growth. However, in Iberdrola, GE Wind, Enel SpA, and Suez are all looking at order to grow more renewable jobs, governments in Latin additional projects in Latin America. Investments and jobs American countries need to lay the groundwork for doing created by these firms could help plant the seeds for more so — both by creating proper methods of accounting for local entrepreneurial players as experience with these renewable power among green jobs, and by creating technologies grows.
282 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.2.6i Renewable Energy Jobs Generated in the U.S. in 2006 by Selected Occupations there are widespread concerns about the pace at which these new jobs are being added, along with concerns Occupation Number of Jobs Created about the ability of many workers to make the shift to new Accountants and Auditors 5,917 industries. Thus, labor advocates as well as renewable Bookkeeping and Accounting Clerks 7,488 energy advocates are pushing for what the International Biochemists and Biophysicists 1,395 Labor Organization (ILO) calls a “just transition” based on Cashiers 3,631 tripartite social dialogue with affected employers, workers, Chemists 1,747 Civil Engineers 2,851 and governments about the economic and social impacts Computer Software Engineers 2,023 of these changes.70 Computer and IT Managers 1,132 Customer Service Representatives 5,385 Electricians 5,610 Electronics Engineers 1,593 A PATH TO GREEN GROWTH Environmental Engineers 569 Environmental Science Technicians 1,488 Environmental Scientists and Specialists 1,785 If solar power provides 5% of the Executive Secretaries and Administrative Assistants 5,357 region’s electricity by 2030, the Financial Analysts 589 Forest and Conservation Workers 1,266 market will bring in an additional $16 Graphic Designers 1,135 billion in investment annually and Human Resource Specialists 496 HVAC Mechanics and Installers 1,936 create a total of 134,000 jobs in the Industrial Machinery Mechanics 1,105 installation sector alone. Inspectors, Testers, and Sorters 1,997 Janitors and Cleaners 3,247 Machinists 1,349 Management Analysts 2,923 Developing a Green Workforce Marketing Managers 674 The ILO emphasizes that while green jobs have the Mechanical Engineers 1,705 potential to bring broad-based, inclusive, and ecologically Office Clerks 9,723 sustainable economic growth to millions of workers and Pipelayers 542 Plumbers, Pipefitters, and Steamfitters 4,227 businesses around the world, these changes will not Security Guards 1,394 happen “by default.” In addition to government policies to Sheet Metal Workers 1,473 support the development of renewable energy, active labor Stock Clerks 2,345 market policies will be necessary to facilitate a smooth Training Development Specialists 595 transition.71 These policies should include social Truck Drivers 6,601 Welders and Solderers 1,665 protections for workers who have lost jobs as well as adequate retraining and educational opportunities and Source: Management Information Services, Inc. and American Solar Energy Society, 2007. resources for relocation in some cases.
Education and job-training programs are necessary to Net Employment Impacts of a Shift to Renewables build adequate capabilities in R&D, engineering, and The potential gains in employment from the growth in manufacturing of renewable energy technologies, which these renewable energy sectors are often contrasted may be developed in conjunction with trade schools, with studies that indicate an increased likelihood of job universities, on-the-job training, or other arrangements losses in other sectors in the coming years. It is widely that will vary depending on different educational systems. accepted that the transition to a lower-carbon economy Some jobs in the sector will require highly educated and will entail major changes in production and specialized personnel. In the broader category of green consumption patterns and thus labor needs, and this jobs, these are often referred to as “light green.” R&D and may result in job losses in intrinsically high-carbon training for renewable energy technologies specialization industries like mining and resource extraction as well as has progressed to the point where universities are at firms in the automotive and heavy-manufacturing beginning to offer new study fields and majors to industries that are unable to keep pace with accommodate these needs.72 Training for manufacturing increasingly stringent environmental regulations and and other relatively low-skill jobs, sometimes called “blue- higher costs for fossil energy.69 green jobs,” is also important, both to ensure that renewable energy industries do not face a shortage of On balance, the shift to a low-carbon economy is labor as they expand and to connect these green jobs with expected to create more jobs than it will eliminate, but social equity.
Blueprint for Renewable Power | Section 5 283 Conclusion
The study of renewable power jobs is a difficult and dynamic one. As this section has described, the world is just coming to grips with the idea of green jobs. Existing programs to monitor renewable jobs, make accurate projections, and provide adequate training are lacking. The quick take-off of the field and the infusion of recent investment have put the sector in a catch-up mode, where many countries are hurrying to take stock of needs and make plans for the future. The dynamic natures of policy and technological innovation only make the task more complex. And while renewable energy advocates and politicians increasingly espouse this principle of a “just transition” for workers to the green economy, it is still more of an ideal than a reality. However, given the threats posed by global warming to key Latin American industries such as agriculture and tourism, and given the frequent social opposition to traditional energy development projects in the region, the integration of such green labor initiatives with policy incentives for the development of renewable energy has great potential to meet social and economic needs of the population.
284 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.3 Renewable Power work is carried out in a variety of institutions, including universities, government laboratories, private sector Technology Trends firms of various sizes, research consortia (such as the Electric Power Research Institute (EPRI) in the United 5.3.1 RENEWABLE POWER RESEARCH AND States), and independent think tanks and NGOs.3 DEVELOPMENT TRENDS In developed countries, industrial R&D by private sector While the technology overviews earlier in this report firms in all energy-related sectors significantly outweighs attempt to capture both the present and likely future corresponding government expenditures, although trajectories of the most prominent renewable power private sector R&D for renewables is much less technologies, the sector is evolving rapidly. Tracking the established and funded than traditional utility and oil and pace and sources of technological progress in these gas R&D.4 Moreover, assessing the scope of these areas is critical but difficult, characterized as the sector private sector efforts is difficult, as firms rarely disclose is by the emergence of new technologies as well as new disaggregated R&D data, and many larger industry applications for existing technologies. Moreover, the players are heavily diversified.5 While the public sector universe of stakeholders pursuing these developments plays a relatively greater role in developing country R&D, is expanding, including public and private sector entities as discussed below, overall R&D expenditures in these ranging from tiny university labs and start-ups to some countries are generally much lower.6 of the largest integrated energy companies in the world. The contributions of other institutions may also be While this report does not attempt to map out this dense important but have not been systematically researched. innovation ecosystem in detail, it will outline general For example, energy R&D at universities may be critical, trends in research and development, both globally and particularly for renewables and other new technologies, in the LAC region. This will be followed with more in- due to the closer linkages between basic research and depth profiles of several important emerging technology invention in these areas.7 And, while NGO R&D areas that are on the cusp of commercial deployment, activities are generally limited, they may target relatively including low-head hydropower turbines, offshore wind simple technologies that serve the needs of farms, and concentrating solar power (CSP). marginalized groups that are underserved by the market.
The structure and function of energy R&D systems will Renewable Power Research and vary significantly from country to country as well, with Development broad differences due to factors of education, economy, and resource endowments. Most developing Assessing the scope of energy research and countries, in particular, are unable to undertake the development (R&D) in general, and for the relatively new entire range of research activities from basic research field of renewable power in particular, is difficult for a to demonstration and commercialization, and they lack number of reasons. The range of R&D activities that are the resources to set up dedicated energy R&D potentially relevant to the sector is quite broad and infrastructure.8 Thus, countries with small domestic includes basic research (for example, the physics of markets, poor industrial bases, and/or insufficient turbulence) and applied research (improved wind turbine technical capacity and expertise may often limit their designs) and development (wind turbine production R&D activities to later stages such as demonstration methods).1 Some treatments of the topic include not and deployment, leaving basic and applied research to only basic and applied research, technology developed country R&D labs.9 development, and small-scale demonstration, but commercial demonstration, technology transfer, In addition to the challenges of attempting to quantify scaling-up to commercial production, and market- the renewable power R&D that is currently underway, transformation mechanisms as well.2 These activities one should note that an evaluation of the effectiveness are conducted across a wide range of technologies of renewable R&D spending is difficult, if not impossible, and include efforts to develop new technologies as to determine. First, energy R&D is a highly risky, time- well as the adaptation and incremental innovations of consuming, and uncertain activity, and a large portion of existing ones. research funds inevitably go to support research projects that may “fail” in a narrow sense yet provide Delineating which research is included in any consider- valuable negative results that contribute to progress in ation of energy R&D is also complicated because this the longer term. Thus, only a portion of energy R&D is
285 A Blueprint for Green Energy in the Americas 2008 | Garten Rothkopf Blueprint for Renewable Power | Section 5 285 likely to achieve concrete results that can be attributed developed and developing countries have sought to to one particular R&D project, and even in these cases introduce competition to the power sector and increase the impacts of a given project are likely to be private involvement in the generation and/or distribution measurable only years after the research is initiated.10 segments, public funding for R&D has been significantly reduced.12 In the new competitive paradigm, R&D Second, when evaluating public sector spending, there responsibilities have been increasingly shifted to utilities is no way to determine conclusively whether and private firms, who ostensibly have stronger government research is engaging in necessary R&D that incentives to promote innovation in the new context.13 the private sector would not otherwise pursue, or whether it is unnecessarily lowering private sector costs The remainder of this section of the report will focus on or displacing private sector R&D altogether. While how these forces have affected renewable power R&D in public spending should seek to do the former, there is developed, as well as developing, countries and the no way to measure what a private sector firm would LAC region in particular. have done in the hypothetical absence of a government program. In general, it is assumed that basic science is less likely to be funded by the private sector and is thus Global R&D Trends a more appropriate role for government funding, and conversely private sector firms have greater incentives The large majority of energy R&D activities are to fund R&D on problems of applied research and concentrated in developed countries, with public and commercialization.11 private R&D expenditures representing an estimated 80% or more of the world’s total across all energy Despite the difficulty in gathering and evaluating data on sectors, and likely significantly more for newer energy R&D amongst diverse national systems of renewable power technologies.14 Overall, the combined innovation, there are also clear global trends that have total of government and corporate R&D spending on all developed alongside the trends toward electricity renewable energy technologies in 2007 (including market deregulation discussed in Section 5.2.4, biofuels and other non-power technologies) is “Electricity Market Structures.” As governments in both estimated at $16.9 billion, including $9.8 billion in
Chart 5.3.1a OECD Government Renewable R&D and Total Energy R&D 1976-2006 (US$ Millions)
20,000
18,000 Total Energy R&D Renewables R&D 16,000
14,000
12,000 s
10,000 $ Million S
U 8,000
6,000
4,000
2,000
0 1978 1980 1983 1986 1989 1991 1992 1995 1998 2003 2006 1976 1977 1979 1981 1982 1984 1985 1987 1988 1990 1993 1994 1996 1997 1999 2000 2001 2002 2004 2005 Source: IEA20
286 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf corporate R&D and $7.1 billion in government- member countries increased sharply after oil price sponsored R&D. The mix between the two varies shocks in the mid-1970s, and generally peaked in 1980 significantly between regions, with government R&D at $17.6 billion. However, as oil prices declined and dominating in Asia — Japan, China, and India private sector competition in the sector increased accounted for approximately $2 billion among them — through the 1980s, public R&D funding declined to and private sector funding playing a much larger role in roughly 60% of this level, or $10.7 billion, by 1987. the U.S. and EU. The Middle East may be emerging as From 1988 through 2006, energy R&D budgets have a source of significant public-sector spending on remained relatively stable, at an average of $9.7 billion renewables R&D as well, as governments that are flush from 1988–1997 and an average of $9.3 billion from with oil revenues seek to invest their sovereign wealth 1998–2006.17 Within the IEA, public energy R&D funds in a more diverse portfolio of energy sources, spending is highly concentrated, with the U.S., Japan, particularly given their excellent solar resources. In and Germany combining to account for about two- 2006, the Emirate of Abu Dhabi announced plans for thirds of the total.18 Countries surveyed for a recent the Masdar Initiative, which will seek to invest $15 IEA report expect an increase in public sector energy billion in renewables, including $4 billion in equity in the R&D investments between 2008 and 2010, although past year.15 this increase was expected to be modest.19
Public Sector Spending Throughout this period, the proportion of this energy Governments of IEA countries (all of which are also R&D spending directed toward renewable energy OECD countries) collectively spent $353 billion (2006 technologies has remained within a fairly steady range, dollars) from 1976 to 2006 on all forms of energy R&D, beginning at a low of 4.15% in 1976 before increasing with budgets shifting significantly over the years in rapidly to 13.5% in 1980, and then declining again to response to changing economic and regulatory 6.17% in 1986 before increasing again and leveling off, trends.16 Compared to just a combined $9.9 billion in remaining between 8% and 10% between 1992 and 1976, total government energy R&D budgets in IEA 2006.21
Chart 5.3.1b OECD Government Renewable Power R&D 1976-2006 (US$ Millions)
1,800
Small Hydropower (<10 MW) 1,600 Geothermal Energy Ocean Energy 1,400 Wind Energy Solar Thermal Power 1,200 Photovoltaics s 1,000 $ Million S
U 800
600
400
200
0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1989 1990 1992 1993 1994 1997 2000 2003 2004 2005 2006 Source: IEA22 1976 1977 1978 1988 1991 1995 1996 1998 1999 2001 2002
Blueprint for Renewable Power | Section 5 287 Twenty-one billion dollars, or about 68% of the particularly pronounced in the power sector, where renewable energy spending over this period, was broadly similar conventional generation technologies directed toward renewable power generation have dominated for nearly a century. technologies, declining slightly from 71% between 1976 and 1991 to 65% between 1992 and 2006 and Private R&D investments in the power sector are remaining within a band of 50%–80% of the total. estimated at just 0.5% of total turnover, compared to However, there has been a distinct shift in R&D funding 3.3% in the automobile industry, 8% in the electronics priorities within the renewable power sector. From industry, and 15% in the pharmaceutical sector. 1976–1980, 55% of renewable power R&D went to The top 10 private sector investors in power generation geothermal and solar thermal power generation R&D in 2006 accounted for roughly $2.4 billion in technologies, both of which are now regarded as investments in 2006 and for between $2.2 and $2.6 relatively mature (although there has been a resurgence billion in investments every year since 2000. This list is of interest in new solar thermal power technologies in dominated by European and Asian utilities, including the private sector in recent years, as discussed in British Nuclear Fuels, Electricite de France, Union Section 5.3.4). By contrast, between 2002 and 2006, Electrica Fenosa, Enel, Vattenfall, Tokyo Electric Power, these technologies only accounted for 23% of R&D Korea Electric Power, and Taiwan Power.25 funding. Conversely, solar photovoltaics and wind power garnered 36% of total renewable power R&D Global private R&D investments in funding between 1976 and 1980, but this increased to 74% of the total from 2002–2006. Ocean power R&D the power sector are estimated at reached a peak of 11% in 1978 but has generally just 0.5% of total turnover, received about 1%–5% of the total over the entire period. Small hydro has received the least funding of compared to 3.3% in the all, at less than 1% for most of the period and never automobile industry, 8% in the more than 3.5%. However, as discussed in Section electronics industry, and 15% in 5.3.3, there is still significant potential for improvements to small hydro technology, particularly for low-head the pharmaceutical sector. applications.
In addition to these overall international trends, renewable While private firms still account for the majority of power R&D allocations vary significantly from country to renewable power R&D expenditures, the private sector country, with research priorities usually determined by a plays a smaller role in renewable power R&D than in the country’s particular resource endowments. For example, energy industry more generally. Moreover, renewable New Zealand and Turkey, which possess excellent power R&D in the private sector is generally competitive, geothermal resources, spent 88% and 50% of their and not broad-based or collaborative.26 For example, renewable power R&D budgets, respectively, on private sector wind turbine manufacturers generally geothermal R&D over this period. Similarly, wind energy engage in R&D that competes over turbine size, rather research accounts for 76% and 53% of the renewable than collaborating on overarching issues such as power R&D budgets of Denmark and Ireland, respectively. intermittency, storage, and reliability. Similarly, Resource endowments do not always tell the whole story, photovoltaic (PV) industry R&D is focused on the pursuit however; despite its poor solar resources, Germany has of competitive advantages in efficiency and cost, with spent 58% of its renewable power R&D budget on solar little research focused on the development of balance- photovoltaics over the past 30 years in order to establish of-system components. leadership in what it believes will be a key energy industry going forward.23 In 2007, corporate renewable energy R&D (including biofuels and other non-power technologies) was Private Sector Spending estimated by New Energy Finance to be $9.8 billion, Private investments in all types of energy R&D are which was 58% of the global total and an 8% increase estimated at $40-$60 billion per year by the IEA, nearly 4 from its 2006 total of $9.1 billion. The highest spending to 6 times the amount of government R&D, which was from U.S. and European utilities and major energy amounted to roughly $10 billion in 2006.24 However, companies, including GE, United Technologies, BP, private companies in the energy industry invest E.ON, and BASF. However, as noted previously, private proportionately far less in R&D than firms in other sector R&D is difficult to measure, as renewable power technology-based industries. This tendency is budgets are often “hidden” within broader R&D budgets,
288 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf and major energy companies often opt to buy proven organizational forms, and international R&D in general.33 technologies from start-ups rather than developing them Regional energy R&D experts are concerned that this in-house.27 While there have been no recent systematic dependence could lead to a lack of funding for problems international surveys of the subject, anecdotal evidence and/or opportunities specific to developing countries, cited by the International Energy Agency indicates that including the adaptation of existing technologies to private sector renewable power R&D is generally make them more appropriate for developing-country focused on the wind and photovoltaic sectors, as in the markets.34 public sector in recent years.28
Estimates of private sector renewable power R&D Energy R&D in Latin America funding in different countries are hard to find and difficult to compare, with the IEA describing the picture Import Substitution Era — 1940–1980 as “mixed and changing.”29 In the United States, private R&D in the LAC region, and energy and renewable sector spending on wind energy R&D declined from an power R&D by extension, is generally reflective of the estimated $327 million in 1994 to $268 million in 2003. broader developing-country experience. R&D More recently however, estimates indicate nearly $1 expenditures have always been historically lower than in billion poured into the alternative energy sector in industrialized countries. They generally hovered around California alone in 2007, as Silicon Valley has leveraged no more than 0.5% of GDP, even for the region’s largest its status as the home of the venture capital-led dot- countries in the years before reforms.35 In the import- com boom to establish itself as a center for innovation substitution years of 1940–1980, public funding for R&D for solar and other renewable energy companies. accounted for more than 80% of overall R&D spending, Similarly, private sector R&D spending is increasing in with most R&D activities across all sectors taking place Europe and Japan, due in large part to their global in state-owned laboratories, technological institutes, leadership in the wind and solar industries. For public universities, and publicly owned companies. The instance, Denmark’s Vestas, the world’s largest wind public sector also handled nearly all human turbine manufacturer, has doubled its R&D spending resource–training responsibilities, whether in from $56 million in 2001 to $106 million in 2006.30 government-funded primary, secondary, and vocational schools or in national universities. Developing Country R&D Most developing countries have little tradition in R&D The energy sector was emblematic of these trends. investments in general, and in energy R&D investments Assimilating the Keynesian trends of developed in particular. Total national R&D expenditures have countries in this period, many state-owned public historically had a far lower share in developing than in utilities created their own energy and R&D departments developed countries, with a 1994 average of about in order to understand and adapt power generation 0.65% of GDP in developing countries, compared to technologies to the specificity of local demand and about 3% in industrialized countries.31 More recent locally available natural resources.36 These public R&D statistics from individual developing countries seem to and engineering centers, along with national investment confirm that this relationship had endured, although banks, played a leading role in the importation and some leading developing countries are closing the gap. utilization of technologies to design and build large- In 2004, government science and technology R&D scale power generation facilities during this period, expenditures in Argentina, South Africa, India, and China including many of the publicly financed hydropower ranged from 0.5% to 1.5% of national GDP, compared facilities that still comprise the backbone of many LAC to 2% to 3.5% in IEA countries.32 electricity systems.
This disparity between developed- and developing- While these public-sector efforts must be judged a country R&D has been exacerbated by the advent of success in many ways for having established such power sector reforms in developing countries, which major power generation capacities in a timely manner to fundamentally altered the role of public sectors that had fuel regional modernization efforts, they have also been been the major or only supporters of in-country R&D. criticized by regional experts.37 The national innovation Trade liberalization; the introduction of competition; the systems developed during this period were highly creation of smaller, unbundled utilities; and increased fragmented and lacked the connection to the wider ownership by foreign companies have led many economy necessary to provide a true engine for developing countries to rely increasingly on domestic development, with few technological industrialized country technologies, capital goods, achievements managing to flow to the private sector.
Blueprint for Renewable Power | Section 5 289 Ultimately, while public sector R&D during this period markets as national import tariffs were reduced, forcing had clear achievements, it failed to reduce the LAC these SMEs to become more competitive or to fold. A region’s dependence on external technologies in the number of SMEs in the manufacturing sector, though power sector, a trend that, as elsewhere, has been not the energy sector, began to design new products reinforced by privatization.38 and gradually moved into exports, particularly in Argentina, Brazil, Colombia, and Mexico.41 Private sector firms have historically played a less significant role in energy R&D in LAC, but their impacts Post-Liberalization Era — 1980s to the Present are noteworthy and demonstrate the range of R&D In LAC as elsewhere in the developing world, trade strategies that may be adopted by firms of different liberalization has made the importation of capital goods sizes with different priorities. In general, private sector and technologies cheaper, which has resulted in a major R&D efforts in the region can be divided into three broad setback for domestic industries and the closing of local categories: LAC subsidiaries of industrialized-country R&D and engineering departments. In their place, new transnational corporations, major local conglomerates, privatized energy sector players are rapidly modernizing and local small- and medium-sized enterprises (SMEs). utility infrastructure on the basis of imported capital During the import substitution era, as today, each of equipment and engineering know-how from their these types of private sector firms pursued distinctly headquarters in developed countries.42 different technological and R&D strategies. Industrial firms have changed their production Subsidiaries of major foreign corporations arrived in the organization to cut down on the number of parts and region in the second half of the 1950s and throughout components that must be manufactured locally. These the 1960s. In order to utilize domestic raw materials, changes are eliminating the need for in-house design these firms often had to adapt their technologies, capabilities and specially adapted local engineering production routines, and organizational structures to services, emphasizing instead the adoption of idiosyncratic local environments. These efforts led to worldwide standard designs that are more in the nature the creation of local engineering departments and of commodities than locally specific technologies.43 In supplier-development programs, which played a Brazil, for example, imports of technological products by significant role in building local R&D capacity and the electricity sector increased by 50% per year from providing a focus point for the diffusion of industrialized 1995 to 1998, ushering in significant upgrades in country technologies and processes throughout the information technology systems as well as new region. Argentina, Brazil, and Mexico significantly generation technologies such as combined-cycle enhanced their local R&D capabilities through these turbines and co-generation systems.44 This has also programs, as did Colombia, Chile, and Peru to a lesser affected renewable power technologies, particularly extent.39 small hydropower, where a substantial amount of indigenous technological capacity has been lost to In the domestic private sector, large, locally owned foreign engineering companies.45 conglomerates often played major roles in raw material–processing industries, including the energy Industrial sector SMEs have been particularly hard-hit by industry. These firms frequently had to carry out in- economic reforms, as the process of technological house R&D in order to adapt generic international upgrading for these firms has generally been slow, machinery to the idiosyncratic LAC context. However, difficult, and fragmented.46 It takes a significant amount unlike similar industrial commodity producers in of expertise just to understand exactly what needs to be developed countries, these conglomerates did not changed — production technologies, marketing undertake significant R&D efforts to increase domestic strategies, contracting practices — and what a firm’s value added with the aim of moving into more complex main constraints are as it restructures for survival. products and specializations.40 Moreover, once these needs have been identified, SMEs generally face a major challenge in financing, as they are Domestic SMEs, meanwhile, put together highly frequently unable to provide the right kinds of fragmented and ad hoc R&D efforts that initially focused guarantees that regional banks require to provide on copying and adapting versions of foreign necessary loans for upgrades. Despite these technologies in the 1950s and 1960s, with a focus on challenges, SMEs in faster-growing industries have providing substitutes for imported products for local generally had more success in keeping up markets not served by foreign firms. By the late 1960s technologically with larger competitors than SMEs in and early 1970s, imports began to flow into local relatively slow-growth industries, which have
290 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf deteriorated compared to larger competitors.47 This technical obstacles facing the industry, particularly with could bode well for SMEs hoping to compete in the fast- regard to transmission over long distances, and it moving renewables sector, although there has been little originally enjoyed support from state-owned utilities for evidence of this so far. its funding.54 However, power sector reforms in the 1990s brought a sharp cut in public-sector support for Overall, while the technological gap between LAC and CEPEL R&D, potentially endangering the future of the the developed world has been reduced in many ways, program in the same way that many smaller programs in moving the region toward globally converging energy the region were substantially reduced. production and consumption patterns, domestic technological capabilities have diminished.48 Moreover, Unlike other countries in the region, however, Brazil was these low levels of local industrial and technological able to take advantage of the shifting policy framework capacity will ensure that the commercial balance of during the reform years to create new mechanisms for trade with developing countries will continue to worsen R&D funding.55 The Brazilian Ministry of Science and as new technologies of electricity generation, Technology oversaw the creation of several dedicated transmission, distribution, and systems operation are sectoral R&D funds, including a mechanism to provide required and imported49 — a trend that could be regular funding for CEPEL R&D that was financed accelerated with the widespread adoption of new through fixed charges levied on the country’s electricity renewable power technologies, if local R&D capacity in utilities. Generation and transmission companies must this area is not developed. pay 0.5% of their net annual revenues into the fund, and distribution companies must pay 0.375%. Renewable Despite these structural obstacles to the development of generators are exempted from the charges.56 These internationally competitive renewable power R&D charges raise roughly 300 million reais per year, programs in most countries in the region, there are including significant expenditures on hydro, solar, and several initiatives that show promise in its three largest wind technologies in addition to conventional energy economies. technologies, although it should be noted, as elsewhere, that the effectiveness of these investments is unclear.57 CEPEL — Brazil’s Public Energy R&D Funding Mechanism While Brazil’s efforts in energy R&D are unsurpassed in Given all of these challenges facing energy R&D in LAC, the region, the program has not been without its Brazil is the only country in LAC that is currently problems. Although it has provided a stable and pursuing energy-related R&D on a scale comparable to significant flow of research funding, the government has developed countries.50 This is due to several factors, frequently failed to provide a portfolio of projects large some of which are unique to Brazil. Perhaps most enough to utilize all the funding.58 This is largely a significantly, Brazil is by far the largest economy in the human managerial problem, with many political region, and studies of OECD country renewables appointees in charge of managing the funds lacking industries have shown that a stable and sizable home familiarity with the sector. Thus, the actual market is often a pre-requisite to the development of disbursement of these funds can vary significantly from local R&D capacity. A large market, such as Brazil’s, year to year, with as little as 10% of funds being used in gives both local and foreign firms the long-term planning years past, although recent years have seen up to 70% horizon necessary to allow them to make major of these funds being utilized.59 Crucially, however, investments in R&D, product development, and because the program has been legislatively established manufacturing facilities.51 Moreover, Brazil has made and is not dependent on annual government budgets, it significant investments in general R&D capacity building is not subject to the whims of politicians and cannot be over the past 30 years, with a higher concentration of diverted to uses other than energy R&D. internationally regarded expertise in science and engineering than in any country in the region.52 Mexico, the second-largest economy in the region, has attempted to develop a similar energy R&D funding However, beyond these givens, Brazil has in recent mechanism, but little progress has been made.60 While years distinguished itself by establishing the only policy this type of dedicated energy R&D funding program may in LAC that provides a reliable source of R&D funding for be a difficult sell in many of the region’s smaller the power sector, through modifications to a long- countries due to the general constraints on R&D in small running, previously state-funded program.53 CEPEL, the markets noted above, there remains substantial Brazilian Center for Electrical Energy R&D, was created untapped potential for collaborative regional R&D in 1974 to carry out applied research on common efforts. Unlike other developing regions in Africa and
Blueprint for Renewable Power | Section 5 291 parts of Asia, the LAC region has several universities of Atomic Energy Commission and the Province of Rio excellent international reputation, and almost all Negro, has designed its own line of small-scale wind countries in the region have adequate supplies of good turbines of up to 4.5 kW that are designed for use in engineers with experience in conventional electricity remote, off-grid areas of Patagonia, with an ability to technologies.61 While in many cases, these personnel withstand extreme weather conditions, with high and would require new training to work with new renewable extremely variable winds.63 The turbines are reinforced power technologies, Argentina, Mexico, and Colombia for maximum resistance, built with a strong, reliable (as well as Brazil) all possess fairly advanced expertise mechanical design, simple but effective speed control, in relevant science and engineering fields. and silicon-coated blades and other special materials designed to prevent snow and ice from damaging the What is lacking in any of these countries is the critical turbines. INVAP is also working to develop larger, mass of expertise required to develop an internationally utility-scale turbines of 1.5 MW or greater that are competitive R&D program.62 adapted for use in Southern Patagonia’s harsh conditions. However, this research program is Although fundamental constraints of market size may expected to take as long as ten years to produce a limit the opportunities for LAC’s smaller economies to commercial product, a testament to the difficulty of develop their own R&D programs, there is sufficient developing competitive proprietary renewable power capacity on a regional scale as well as a sufficient equipment from scratch, even for an established, well- number of shared research problems to sustain a funded energy R&D center. NRG Patagonia, another collaborative R&D network dedicated to regional issues. wind turbine manufacturer focused on producing turbines for the Southern Patagonia region, has taken a Although fundamental constraints different approach and is focusing on the adaptation of existing turbine designs (using imported components) of market size may limit the to the particular conditions of the area. opportunities for LAC’s smaller With international assistance, Mexico is pursuing a economies to develop their own similar initiative. The Mexican Electrical Research R&D programs, there is sufficient Institute (IIE) is engaged in a joint research project with capacity on a regional scale as UNDP to develop Mexico’s first locally designed and locally manufactured wind turbine, which will be well as a sufficient number of developed specifically for use in the windy conditions of shared research problems to the Tehuantepec Isthmus.64 The turbine could be 1 MW or larger, and is targeted toward the needs of small wind sustain a collaborative R&D farms in Mexico as well as Central America. Multi- network dedicated to regional disciplinary groups began working on the design of turbine components at the end of 2007. The joint initiative issues. between IIE and UNDP, called the Plan de Acción para Eliminar Barreras para el Desarrollo de la Generación In particular, there are opportunities to collaborate on Eoloeléctrica en México, is also building a regional wind biofuels and biomass electricity, as well as hydro and power technology center, called CERTE, in Oaxaca state. small hydro, on a continent-wide scale. CERTE will allow international companies to test their wind turbines up to 5 MW in the strong Oaxaca winds and will Argentina and Mexico — R&D to Adapt Wind Power provide training courses, workshops, and promotion to Local Circumstances forums in support of wind power development. There are also opportunities to design or adapt existing renewable power technologies to special circumstances in Latin America. Most notably, public and private entities in Argentina and Mexico have moved in recent years to adapt existing wind turbine designs to the uniquely powerful winds found in Southern Patagonia and the Tehuantepec Isthmus.
In Argentina, wind turbine manufacturer INVAP, an applied research company owned by the national
292 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.3.2 EMERGING RENEWABLE POWER Table 5.3.2a Benchmarking of Overall Efficiencies TECHNOLOGIES - SMALL-SCALE HYDROPOWER Size of Hydroturbine Benchmark Efficiency Up to 10 kW 50% 10-25 kW 60% Small-Scale Hydropower 25-50 kW 65% > 50 kW 70% Context Source: TERI5 Small hydropower is a technology that has great potential for the whole world, but for developing countries in Table 5.3.2a. With regard to environmental impacts, small- particular. It can be used as either a distributed or remote- scale hydropower now has the ability to significantly generation installation, integrated into existing rural decrease the effect a site has on the surrounding waterworks, or connected to a grid to assist in peak power biosphere. In the past, hydropower schemes were known production. Yet, with all these advantages, there are to destroy fish migration, cause floods, and alter river flow sizable challenges that must be considered. Primarily, it is because the appropriate forethought and precautions were key to realize that small hydropower is not a miniature not taken.6 It is due to these reasons that hydropower is version of large-scale hydropower and that it requires often regarded with a sense of frustration. Yet, through equipment that can satisfy the requirements of simplicity, research and development, the small hydropower industry high output, maximum reliability, and ease of maintenance has discovered various processes and techniques that can by non-specialist individuals.1 This places a substantial help minimize environmental impact, with some locations burden on those who wish to design, manufacture, actually benefiting from the installation of the power plant develop, and utilize small hydropower. through such mechanisms as floating waste removal and increased water oxygen content.7 This is due to a Advantages substantially better understanding of how a river functions There is significant progress being made in the area of in a biological sense and, thus, an increased appreciation small hydropower development that directly relates to its of how to create effective fish-bypass systems and advantages as a renewable energy source. Standardization accommodate natural discharge variability, and river of equipment and reduced costs of materials over the last restructuring.8 Together, this knowledge makes small two decades have made this electricity source hydropower plants far more attractive to local stakeholders economically viable.2 Experts believe that this trend will (as well as the governments that depend on them) and continue as entities within the industry combine research, equipment manufacturers that depend on government. development, and demonstration (RD&D); public policy; and stakeholder acceptance to produce a coherent path Standardization of equipment and for the further development of this technology. reduced cost of materials over the In particular, it is largely designed for application in areas last two decades have made small that do not necessarily have a high difference in elevation, known as “head,” which provides pressure, nor areas of hydropower economically viable. high velocity. An additional advantage of small hydropower is its ease of Current hydro-mechanical research is focused on site- integration into existing water works. For example, in areas specific application of very-low- and low-head turbines to where dams have been built for purposes other than power cater to developing countries, with pico- and micro-scale production, small hydropower can be added to a project turbines designed to meet rural demand and that of small for a nominal additional engineering expense while isolated networks.3 providing electricity that can improve the quality of life for those in the neighboring areas.9 Nevertheless, this Through the use of computational fluid dynamics (CFD) integration of small hydropower into existing dam locations modeling and lab development, the industry expects that still requires research and development funding and these small-scale hydropower units will achieve higher financial assistance to ensure that it will add value and be efficiencies, reduced costs with increased reliability, and an economic move for the local community. environmental integration that is non-invasive.4 Many of Small hydropower installations also have the advantage of these advances are already taking place, especially in the being controlled by personal computers or other digital realm of efficiency. India has found that many of its small user interfaces. They use personal computers to perform hydroturbines obtain relatively high efficiencies, which then the monitoring, local and remote control of the small allow for the benchmarking of efficiencies, as noted in hydropower system, and collection of data from the
Blueprint for Renewable Power | Section 5 293 system.10 In addition to these existing systems, the use of maintenance craft positions.13 These are non-trivial intelligent electronic devices for the operation, closed loop ramifications that can directly infuse new life into small, less- control, protection and monitoring of the system in stable economies. Furthermore, the construction and conjunction with wired or wireless communication offers maintenance of small hydropower installations requires the significant cost-effective benefits.11 With systems such as collaboration of individuals with a wide variety of skill sets these in place, it is realistic to envision a large number of including engineers, electricians, and manufacturers, and small hydropower installations remotely managed from creates jobs in the area of maintenance and monitoring.14 one location, thus decreasing transportation, labor, and The building of small hydropower plants then generates component costs as well as avoiding losses due to taxes and royalties, which a community can use to further unscheduled maintenance requirements. assist itself economically through the purchase of additional infrastructure or the use of hydropower for irrigation Recent trends in certain hydropower-experienced countries systems.15 have shown great advancements in the application of small hydropower technology as well as financial growth in the Developed countries often attach small hydropower plants industry. India, for example, has experienced increased to large grids because small hydropower is a cheap way to placement of small hydropower plants along the side of produce electricity, especially at peak periods of energy irrigation canals; private-sector investment in run-of-river, consumption.16 grid-connected installations; improvements in turbine design; and reduced environmental impacts through Disadvantages devices such as fish passages.12 These progressive steps One disadvantage of small hydropower is that it lacks the empirically demonstrate that all stakeholders find value in unified industry goal that some other renewable energy the expansion of the Indian small hydropower industry, and technologies possess. For example, offshore wind has it is reasonable to assume that this expansion will spill over significant consolidation in terms of technology into other industries and countries as well as propelling the stakeholders (e.g., government, industry, and utilities) such international industry into the next level of efficiency and that there is a symbiotic relationship among these actors effectiveness. and the way they create policy, invest, or produce. Small hydropower research, development, and deployment It is important to realize that just as other renewable (RD&D) does not currently have this luxury. Industry tends energies produce secondary markets, so, too, does small to pursue its own RD&D goals and invest heavily in what it hydropower. The area of component and labor suppliers is a believes will be the future, while utilities attempt to devise perfect example how this can have a direct affect on small their own RD&D initiatives. Government sometimes works economies. In Europe, the majority of the small hydropower with utilities and industry but generally performs its own goods and services suppliers are small- to medium-sized RD&D.17 Table 5.3.2b outlines what the International firms that capitalize on the economic opportunities that are Energy Agency believes are the most pressing priorities in created in the form of new production, installation, and the hydropower industry.
Table 5.3.2b Implementation and Development Needs For Hydropower
Large Hydro Small Hydro Additional Energy at Existing Hydro Plants and Dams • Financing • Financing • Risk Management - innovative financing for developing - private sector financing - understand risks of modernisation countries - cooperative systems • Financing -sharing costs of multi-purpose uses - private sector involvement -understanding the cost of hydropower compared with other energy sources
• Development • Development • Energy from Dams - integration with wind energy - integration (DRD&DG) -innovative technologies - multi-purpose uses - firm energy (energy stoage) - CDM approaches - marketing of premium products - water resource management - non-integrated areas and optimisation - institutional strengthening
• Training and Education • Training and Education • Training and Education Source: IEA18
294 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.3.2b demonstrates that there is a great need for the design procedures, common parts, and other general streamlining of efforts so that tasks can be targeted by the arrangements should be standardized as much as component of the small hydropower industry that has a possible so that the least customization can be performed, comparative advantage in them.19 For example, if the RD&D thus achieving both lower cost and higher efficiency.22 This ideas of the government and utilities were conferred to form of hybrid standardization could provide significant industry, it would free resources for the government to focus advantages to the small hydropower industry, developers, on education while the utilities considered cooperative government purchasers, and other stakeholders. systems. It is felt that large advances in research and development will not necessarily be the solution to the slow Risks growth of small hydropower. Instead, it will be the steady There are a number of risks that must be considered when improvement of technology, creative government strategies evaluating small hydropower and its future (in particular, the to garner public acceptance, and implementation funded by status of the technology in terms of its application). The intelligent public and private finance vehicles.20 conceptual understanding of small hydropower is mature, but the developers have difficulty applying the correct One inherent disadvantage to small hydropower is that technology to specific installations due to the large amount standardization of turbine design can be extremely of designs, layouts, and equipment that are currently in the challenging. In order to take advantage of economies of market, yet have no system of standardization.23 Without scale and reduce costs, turbine manufacturers prefer to consolidation in the market, it will be difficult for a tangible design and field a small number of turbines, yet the nature progression of the industry to occur. of small hydropower installations generally requires a high level of customization and site-specific optimization.21 The Costs industry must focus on favoring cost over optimality, thus Currently, a small set of countries have taken the lead in introducing a certain level of inefficiency throughout the investing in small hydropower with the hopes of bolstering sector. Some suggest that to address this challenge, its research and development. Canada, Switzerland,
Chart 5.3.2a Reported Government Small Hydropower R&D Budgets in IEA Member Countries ,1974–2003 (US$ Millions)
16
14
12
10 s
8 $ Million S U
6
4
2
0 d tria s pain den reece Japan Korea S Au Finlan France G Ireland we rland Turkey Belgium Canada ermany S Denmark G Portugal Source: IEA 25 witze S United Kingdom
Blueprint for Renewable Power | Section 5 295 Finland, Japan, and Spain together account for decrease in unscheduled maintenance costs.30 Additionally, approximately 63% of the small hydropower research and turbine technology itself is expected to advance via the use development funding that comes from International Energy of new materials, standardization, and pre-assembling, Agency member countries.24 Each of these countries has while new turbines are still being designed for specific small seen the value of hydropower and believes that there is a hydropower applications.31 These advances will make small non-trivial future for the technology, as noted in Chart hydropower much more likely to emerge from its current 5.3.2a, which defines the per-country outlays in small stagnation and become a leader among small-scale hydropower funding. renewable energy technologies.
With regard to capital costs, the turbine is by far the most When considering the future of small hydropower in devel- expensive component. Small hydropower turbines oping countries, it is prudent to look at developing generally comprise 15%–30% of the total cost of the small countries that currently lead the industry in hydropower hydropower plant, and this is a cost area that developers utilization. India is a prime example, and it would behoove are constantly looking to reduce.26 This is clearly important developers to observe what the future of small when considering applications of the technology in remote hydropower will be in countries such as India in order to locales or in developing countries. Yet, the cost of small- understand and appreciate the global future of small scale turbines no longer derives from an immature hydropower. Specifically, research and development engineering discipline, but instead from a shift toward trends in India are focusing on the design of turbines that reduction of design and manufacturing costs, turbine produce power in the 500 watt range (also known as maintenance, and increased quality control.27 This is a “pico-hydropower”), improved battery designs, cost positive indicator for the small hydropower industry reductions in engineering and maintenance, use of carbon because it demonstrates that the engineering component components and computational fluid dynamic applications has matured and is now focusing on ways to refine to increase overall efficiency.32 existing designs for optimal performance in various settings. Though many stakeholders use small hydropower for regional development, it is key to initiate this regional Current costs of generation clearly differ among various development in the local context33 in order to ensure turbines, infrastructures, manufacturers, and developers, stakeholder acceptance at the grassroots level. yet it is possible to ascertain what the price of electricity generated by a small hydropower installation should Though some consider hydropower a mature technology, cost. In India, for example, current costs of generation additional investment is required for two main reasons.34 from small hydropower plants are approximately Rs First, a considerable increase in global energy demand 1.5/kWh (US$0.04/kWh).28 In addition, capital costs has created ancillary issues such as pollution that can be depend on the quantity of output desired, as illustrated cheaply and non-invasively mitigated through the use of in Table 5.3.2c. small hydropower with the caveat of additional RD&D.35 This research, development, and demonstration can allow Outlook the industry to exhibit the many advantages of small The future of small hydropower will undoubtedly play a hydropower as well as its potential. Second, the small significant role in the future of developing regions such as hydropower industry is evolving, as are industries and Latin America. Expected advances in the technology materials that can now be applied to small hydropower, include digital controls for the hydropower plant, more thus requiring the continued funding and emphasis of coordinated and real-time communication of power plant research and development so that these internal and status and environmental conditions from the hydropower external advancements can be incorporated into small plant to the remote operators via wireless devices such as hydropower plants.36 Therefore, there is a need to personal data assistants (PDAs), and thus a general continue research and development so that the industry will always utilize the most advanced materials and Table 5.3.2c Capital Costs of Various Small Hydropower methods from both the small hydropower industry and Ratings external industries. Hydropower Rating Capital Costs Pico $4,000/kW Micro $3,000/kW Mini/Small $1,200/kW
Source: TERI29
296 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.3.3 EMERGING RENEWABLE POWER have already been devoted to this niche industry, and it TECHNOLOGIES – OFFSHORE WIND POWER is expected that the period of heightened, transitional risk will be dampened by the level of expertise that exists in the industry today. Offshore Wind Power The migration of wind turbines to Context As the onshore wind energy industry matures over the offshore locations will allow the next decade, significant efforts will be made to move the utilization of generally stronger, less development of increasingly large turbines to offshore fields where energy production conditions are turbulent, more consistent airflow significantly more favorable. that will undoubtedly provide greater generative abilities for the The migration of wind turbines to offshore locations will allow the utilization of generally stronger, less turbulent, new, massive turbines expected to more consistent airflow that will undoubtedly provide move into this environment. greater generative abilities for the new, massive turbines expected to move into this environment. This section looks to determine how the above Similarly, this new environment is going to present considerations will lend the offshore wind industry to the significant challenges, as the sea is far less forgiving than features of Latin America and the Caribbean. With a large most onshore wind farm locations. Developers are going amount of offshore wind and relatively shallow coastal to have to consider the effects of wind, water, and shelves, there is a high likelihood that offshore wind will corrosive salt on structures that have never been gain traction in Latin America. Conversely, the need for designed to endure such elements. Additionally, entirely specialized labor and the distance that installation new forms of installation and construction are going to vessels will need to travel from existing offshore wind be required, as is an ability to work with the limited centers will undoubtedly drive the cost higher. Currently, number of vessels capable of transporting and installing Wobben Windpower of Brazil is the only large-scale wind these mammoth devices, despite the fact that many of turbine manufacturer in Latin America,1 which highlights these vessels exist to support an already overburdened the significant industry gaps that currently exist in Latin international oil and gas industry. America and the Caribbean and will need fortification if a niche such as offshore wind power is to establish itself in The cost of these large-scale offshore wind farms will the LAC region. undoubtedly be more than those used in onshore projects as the levels of size and complication are going Two criteria that exist in areas such as the North Sea and to be greater than ever experienced on land. One of the are necessary for offshore wind installations are highly chief cost drivers is the inherent fact that the turbines sustained winds and shallow water, which allow for high must be placed offshore. With the water depth directly electricity yield and more effective anchoring, not to proportional to the cost of a wind turbine installation, a mention a capacity for large sectoral growth.2 Thus, clear economic threshold emerges that prevents certain locations that exhibit these traits will be able to sustain geographic areas from being economically viable offshore wind energy. The ultimate questions surrounding offshore wind sites. These costs are compounded by the the future of offshore wind energy will involve cost- increased generative capacity of offshore turbines, the benefit analyses of offshore turbine installations. need for specialized crew and vessels, and running electrical cable back to shore. The cost aspect, above all Advantages others, will most likely determine the future of this The advantages of offshore wind turbines are numerous. industry. Not only do these devices derive from an established industry and proven form of energy production, but they Finally, there are the risks associated with these also expand the possibilities of what can be achieved, installations. Having begun as an onshore technology, and they move the industry beyond many of the there is going to be a period of transition in which the limitations found onshore. Perhaps most advantageous environmental, technical, and physical risks are going to are the sheer size of these power plants and the energy be significantly higher than the industry has experienced potential they possess. Whereas most onshore turbines previously. This said, a significant amount of resources are approximately 100 meters tall from ground to vertical
Blueprint for Renewable Power | Section 5 297 blade tip, offshore turbines begin at nearly 120 meters land or communal tolerance for noise. One study tall and have towers that are proportionally bigger as concludes that given the high number of onshore wind well.3 This increase of at least 20% allows most turbine projects versus the low number of offshore projects components to be expanded in size, which directly currently in existence, the desire to avoid noise relates to an increase in generated electricity. Where restrictions favors the creation of more offshore most onshore turbines range from 1-2 MWs installed installations than onshore in the future.7 Though there capacity, many offshore turbines can produce closer to are a number of intricacies in these studies that require 3 MW with 5 MW offshore turbines currently in further investigation, they point to the fact that, though development.4 Thus, these turbines can produce a wind energy is important to individuals, experience with, significant amount of electricity, and many offshore and stories of, noise intrusion have led many to consider wind farms will have between 50 and 100 of these offshore wind installations as a way to avoid public turbines. The use of larger turbines that generate more nuisance issues while still transitioning to renewable electricity is also more cost-effective because, whereas energy sources. onshore installations may be constrained by existing roads and infrastructure limitations due to size, In addition to community support, offshore wind is offshore wind can be transported regardless of quickly gaining political support through both policy and component size and without the same transport funding. The United Kingdom is a perfect example. In hurdles.5 Thus, this aspect of offshore wind logistics January 2008, the British government reinforced its provides an advantage to the continued development desire to make offshore wind a staple of the British of this technology. energy mix by appointing the electricity regular Ofgem as the lead agency for the integration of offshore wind farms Offshore wind farms also allow for larger turbines into existing onshore grids, as well as providing financial without the necessity for expensive and complicated incentives for the construction and cleanup of offshore noise-abatement equipment. By placing wind turbines wind installations.8 This type of public policy and backing offshore, noise irritation in coastal areas can be is beginning to gather momentum across Western significantly reduced, if not removed entirely.6 This is Europe, and many feel that these types of regulatory particularly helpful for facilities that seek to generate improvements by public institutions will play a key role in significant amounts of energy yet have little onshore allowing the offshore wind energy industry to flourish.
Table 5.3.3a Potential Benefits of Offshore Wind Structures for the Marine Environment in the UK
Potential for enhancing fisheries resources Closure of OWF footprint to There is evidence to indicate that juveniles of some species preferentially use rocky reefs as habitat including, potentially, turbine extend protection of nursery bases and associated rock armouring e.g. whiting, crabs (post burrow stage) and lobsters. The beneficial effects of closure and spawning areas could be tested at an existing OWF site where known nursery areas extend into the OWF footprint. It may be easier to enforce closure to fishing activity within an OWF footprint rather than outside; currently and in common with structures like oil platforms in the North Sea, exclusion zones operate at some OWF sites around turbines (50m). Closure to some fishing gears could be negotiated with local fishermen, and implemented by a SFC byelaw (within 6 nm) of ministerial (SI) Statutory Instrument (out to 12 nm).
Closure (partial ‘no-take’) to assist It is very unlikely that all types of fishing gear need to be excluded from OWF footprints for operational reasons – however, in the recovery/enhancement/ measures to exclude particular fishing gears combined with knowledge of habitat preferences of target species might be used management of specific to assist recovery of specific commercially valuable species at some sites, e.g. cod, bass/whiting. There is evidence to suggest commercially important fin that turbines plus reefs may offer direct benefits for these species. This partial closure option does not exclude the possibility fish species of developing for e.g. bass restoration areas to support recreational sea angling at some locations such as in the Thames Estuary. Partial closure of OWFs could be implemented under current byelaws administered by SFCs or negotiated with local fishermen.
Closure of OWF footprint Closure of OWF footprints, as part of a wider strategic network of Marine Protected Areas (MPAs) to support fisheries management, i.e. ‘no-take’ MPA could have significant enhancement/mitigating potential for local fisheries. As yet, to our knowledge, there have been no studies in UK waters which have set out to assess the effects of closing an area of sea space, such as the footprint of an OWF, to all exploitative activity other than those carried out at Lundy, where lobsters are more numerous and larger than before the introduction of the no-take zone. However, there is evidence to suggest that not only will stocks of fish increase within the footprint itself, but there will be enhancement effects in the area surrounding the closed area. The potential benefits of OWF footprint closure to simply allow restoration of indigenous biological communities, thereby improving ecosystem health and resilience, also needs to be evaluated.
Source: Department of Business Enterprise & Regulatory Reform.12
298 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf An additional advantage is the ability to utilize strong, The impressive behemoths of the offshore wind industry more sustained offshore wind flows that are connected can provide significant amounts of electricity leveraging to onshore wind networks so as to offset the inherent technology. This technology has the potential to be intermittency of wind energy production. As noted by expanded significantly as larger, more efficient turbines Archer and Jacobson in the November 2007 Journal of are produced and allowed to flourish in an environment Applied Meteorology and Climatology, wind farms can that has minimal noise and space considerations. be interconnected to take advantage of not only the economies of scale and cost reductions, but also the Disadvantages geographic variance in wind strength that occurs with Though the advantages of offshore wind are many, there the natural ebb and flow of wind.9 are a number of disadvantages associated with the technology. One of the greatest disadvantages is the When considering environmental impacts, offshore wind inherent requirement of placing these turbines in the turbines generally do not drastically increase the risk of ocean. As noted above, the basis of these devices’ erosion and may actually have a positive impact. Most design is grounded in an environment that is offshore installations utilize either steel gravity significantly less harsh than that of offshore wind. In foundations or monopiles. The former are sets of particular, the increase in installation depth directly concrete columns that settle on the seafloor and provide relates to the increase in installation costs, thus quickly a base on which the wind turbine can be installed, reaching a depth threshold beyond which a project is no similar to the foundations utilized in the oil and gas longer economically viable. industry.10 The latter are large, steel cylinders that can be pounded, drilled, or vibrated into the seafloor, Floating platforms would be ideal providing a strong cantilever on which a turbine can be constructed.11 Table 5.3.3a, from a report conducted by for offshore installations in water the British Department for Business Enterprise & over 50 meters deep, as is the Regulatory Reform, outlines the benefits to the biosphere immediately surrounding offshore wind farm case for oil and gas exploration, yet (OWF) monopile towers. such platforms have yet to be researched significantly. The report continues by specifically discussing the advantages that offshore wind towers can provide to marine organisms. In particular, the towers can be One particularly challenging aspect of installing offshore expected to extend the habitats of various plants and wind turbines is the depth and associated wave action. creatures that require solid foundations on which to In addition to requiring added equipment for the secure build their habitats.13 In addition, these towers will placement of a tower in deep water, the increasing water expand the area in which mobile animals such as fishes depth correlates to an increasing wave strength.16 These can exist, with the expectation that reef ecosystems waves could have the potential to seriously affect both would develop at the bases of the towers.14 By the performance and longevity of the turbine facilitating the growth of stationary organisms and superstructure. Some fear that beyond a certain depth, it increasing the size of feeding zones for mobile animals, will make less sense to use sea-floor-anchored supports the introduction of offshore wind turbine towers can and that floating platforms should be employed. actually provide a net benefit to the local environment. These floating platforms would be ideal for offshore Many concerns are expressed regarding the effect these installations in water over 50 meters deep, as is the case towers would have on the soil in these marine for oil and gas exploration, yet such platforms have yet environments. One study specifically investigated these to be researched significantly.17 phenomena and produced intriguing findings. After extensive modeling, the United Kingdom’s Centre for Until additional support is contributed to the Environment, Fisheries & Aquaculture Science found development of stronger shallow-water towers or the that the wave diffraction caused by wave-monopile utilization of deep-water floating platforms, there interaction was not significant enough to have a remains a technical limit beyond which offshore wind substantial influence on coastal erosion at the site it had turbines cannot be built. investigated.15 This is a crucial realization because many locations that are considered for offshore wind sites are In conjunction with the water depth and the harsh also environmentally protected. environment comes the necessity to install, access, and
Blueprint for Renewable Power | Section 5 299 service these devices. This portion of the industry has requirement for equipment manufacturers and one that encountered great delay in its development because stakeholders should seek out when considering an actors in the industry are unsure what the industry offshore installation. With high reliability, all of the standards will be for the transportation of crews to the following risks will be notably reduced. wind farms, into the towers, and up to the nacelles in a safe and economic manner.18 There are currently a The offshore environment is inherently challenging, not number of potential solutions, but many are permutations only for wind turbines, but for the humans who work on of technology and procedures used in the oil and gas the turbines as well. There will only be certain times per sector, and none has taken the lead required to push this year when a weather window will open in a region, during niche of the industry at the pace required. which large-scale repairs and replacements of wind turbine components can be performed. This window will The belabored offshore wind farm supply chain is also a undoubtedly produce a significant scarcity of both labor disadvantage of this technology that is only now beginning and appropriate vessels.23 Since downed turbines directly to be exposed. It will be some time before the industry relate to loss of revenue, the desire to repair them as matures to the extent that just-in-time logistics of quickly as possible will artificially raise the rate of labor, components and labor are available to the offshore wind component, and transport industries in secondary sectors industry.19 The ability to request and move resources in such as maintenance.24 This is why the reliability and this manner is crucial to the vitality of the industry. Some redundancy of offshore turbines will need to be two of the believe that there is potential for parts-and-labor pooling highest priorities for offshore turbine manufacturers. To schemes as well as a range of ownership practices that shorten the mean time between failures (MTBF), involve the leasing or purchase of various large-scale manufacturers will need to conduct yearly preventive components.20 It is further believed that original equipment maintenance on the turbines, which requires strict manufacturers (OEMs) will move to fixed-price contracts adherence to maintenance schedules and plans in order that internalize the cost of total support for clients and to prevent the need for corrective maintenance, which is therefore steady expected maintenance costs.21 generally unscheduled and costly.25
The disadvantages of offshore wind power may be Developers exploring the use of offshore wind power significant, but they are not insurmountable. The industry must consider the use of undersea cables, and the is well aware of the challenges and is moving forward inherent struggles that are encountered with their with various temporary solutions until more sustainable installation and maintenance, to be risks. Submarine options emerge. That said, the above-mentioned cables present two fundamental risks that are separate, disadvantages will challenge this industry logistically, in effect, but intimately tied in their setting. The two risks financially, and technically. are to the environment and the cable functionality. Undersea cables must be heavily reinforced with Risks protective armor, concrete mattresses, and additional In general, the risks associated with offshore wind farms earthen objects (such as rocks) to protect the cable from are relatively higher than those of their onshore human-related damage (such as anchor snagging and counterparts. There are numerous aspects to these risks navigational dredging) or simply abrasion caused by the that apply in nearly every geographic location, thus period motion of the seas.26 This necessary making them relatively universal to the industry. Among reinforcement of undersea cabling will therefore require the various risks are turbine reliability, tower extensive activity in the locale where the cable is to be environmental impacts, and undersea cabling concerns. buried, thus directly affecting the neighboring ecosystem. Of greatest risk to the environment is the Offshore wind turbines are slightly more complex than dislodging of flora and fauna living on seafloor or onshore variants, largely because of their increased size. neighboring coral, the smothering of creatures due to This increased complexity generates fair questions as to displaced sediment, and disturbance to local fishes in offshore turbines’ reliability, as they are sometimes three the form of noise, vibration, and/or electromagnetic field to four times the size of onshore turbines, and because impacts.27 Yet, with all these aspects considered, the there already have been a number of breakdowns in the macroscopic risk is expected to be low in overall offshore industry (though these involved onshore severity, and most impacts are expected to be turbines adapted for an offshore setting).22 With temporary. It has been found that, though the length of questionable reliability comes not only doubt from wind the impacted zone is long, the width of such an impact farm developers, but investors, government, and the corridor is generally 2 to 3 meters, and the disturbances public as well. Thus, turbine reliability is a significant experienced by local sea life would be transitory.28 There
300 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf are clearly considerations to be made in site-specific this is the nature of offshore wind power at this point in evaluations, but it appears that the general consensus its evolution. Significant efforts are being made to bolster considers this overall risk to environment and cabling to and expand the associated margins of the inherent be low. variables, but the technology is still relatively new and will have uncertainties for some time. Finally, there is the consideration of societal risk. Perhaps the most formidable risk that offshore wind power has As discussed above, the risks associated with offshore encountered in this regard is the animosity toward visual wind farms are quite significant when pertaining to intrusion or altered landscapes as a result of offshore operation and maintenance (O&M), and elevated risk wind farm installation. To alleviate this, the United generally translates to elevated cost. The associated Kingdom’s Department for Business Enterprise & costs with mobilizing components, personnel, and Regulatory Reform has recommended that offshore vessels for offshore repairs is considerably higher than developers use the experiences gained from onshore that of centralized, onshore installations, which generally installations such that predetermined, baseline decision- have O&M centers and supply lines.33 One analyst puts making criteria are created by which to evaluate site the cost of offshore power generation at twice that of locations, followed by thorough studies and appropriate onshore, mainly due to O&M expenses.34 Specifically, steps taken to inform the public.29 It is hoped that this industry experts expect the most costly O&M type of approach will make significant headway in requirements will be the constant “drip” of small gaining community acceptance as well as positive mechanical and electrical fixes, after the initial warranty involvement. Similarly, those who wish to promote a “not period, that require crews, equipment, and vessels to in my backyard” (NIMBY) agenda largely overstate the assemble and sail on a frequent, but inconsistent, risk of visual intrusion. One study, mentioned above, schedule.35 This issue of frequent service calls and the found that of over 300 Dutch citizens polled, the opinions costs associated with them offers a significant incentive of those who could see offshore wind farms and those for manufacturers to focus on reliability and redundancy who could not did not differ significantly, with both when producing these devices. Equal onus is placed on favoring the idea of offshore wind development.30 Thus, developers to institutionalize preventive maintenance the societal risks of noise and visual irritation can be schedules. easily mitigated, if not avoided altogether, via education and stakeholder involvement. The costs associated with The risks associated with offshore wind power mobilizing components, development are clear and present, but they can be personnel, and vessels for mitigated. It will take sufficient funding, coupled with healthy competition, to generate the necessary offshore repairs is considerably abatement methods and technologies. Yet, just as the higher than that of centralized, industry has grown knowing its own disadvantages, so onshore installations. too has it grown appreciating the associated risks and learning to accommodate them as they arise. The Dutch University of Delft and the Dutch wind Costs researcher ECN Wind Energy have conducted studies Of the costs associated with offshore wind development, analyzing the current expected costs of offshore wind many believe that the most significant will concern water farms. They consider the need for preventive and depth. The majority of current research has focused on corrective maintenance (corrective costing twice as much installing offshore farms in water that is shallow (20 as preventative) and highlight the cost sensitivity that meters or less) because it is more economically viable, depends on size and reliability of turbines; the method of despite the fact that wind speeds are generally higher access and maintenance chosen; distances (from shore farther offshore.31 This financial depth constraint does and seabed); wind farm size; and wave/wind climate.36 not necessarily relate to the technical depth constraint These studies underscore the fact that if wind energy is to and therefore opens a lucrative opportunity to close the have a significant role in the future of electricity gap between these two limits. Within the complex cost generation, efforts will have to be made to optimize wind models that utilize the variables of water depth, technical farm designs to account for all of these considerations.37 capabilities, and financial risk exposure, many investors, budgetary managers, and decision makers become wary Finally, there are the cost considerations associated with of how sensitive profitability is to these variables.32 Yet, the laying of submarine cable. Though this cost is
Blueprint for Renewable Power | Section 5 301 generally associated with new wind farm installations, one 5.3.4 EMERGING RENEWABLE POWER cost-saving aspect will come from large, undersea cable TECHNOLOGIES – CONCENTRATING SOLAR networks that can be merely tapped by short cable runs POWER as opposed to long sea-to-shore runs. A study conducted by the IEEE found that using high-voltage direct current (HVDC) for a variety of scenarios at distances of 60 Concentrating Solar Power kilometers or less proved significantly more expensive than high-voltage alternating current (HVAC).38 Yet, this Context same study found that a 100 MW wind farm over 90 Concentrating Solar Power (CSP) has the potential to kilometers offshore would actually cost less if HVDC were harness orders of magnitude more power than used, thus highlighting again the necessary sensitivity conventional solar power systems, requiring analyses that consider variables such as distance, cost of policymakers and investors to consider where they cable protection, and performance characteristics of believe CSP will settle in the future of power generation. power electronics.39 Others have said that CSP systems are the “best-suited technologies to achieve global goals of CO2 emission Outlook reduction.”1 Regardless of the motivation, CSP has great The outlook for the offshore wind power industry is potential for the future of many societies, and it is now a optimistic. Though the onshore industry is currently matter of initiating the implementation of this innovative more mature and thus proving more attractive to technology. investors, it is strongly believed that growing political pressure to utilize renewable resources will require the Concentrating solar power systems are based on the use of offshore wind power generation.40 This principle that focusing solar radiation on a single requirement to move wind energy production offshore location using solar tracking mirrors and lenses will will inevitably force the evolution of new, more efficient dramatically increase the temperature at that focal and more effective forms of wind turbines. For example, location. A working fluid transports this high- some analysts close to the offshore wind industry temperature thermal energy from the solar collector to a believe that the traditional three-blade, upwind onshore steam or gas turbine or a Stirling engine,2 where the turbine that has been chosen for its aesthetics and noise heat is converted to electricity. Some of the working reduction, will be replaced offshore by a two-blade, fluids used to transport thermal energy from the downwind turbine that reduces the stress on internal collector to the energy converter include water, oil, and components.41 To this extent, many are expecting molten salt.3 significant leaps in single-turbine installed capacity. Simplicity will be the key for the future of offshore wind, There are two general types of concentrating solar and through this simplicity, one can expect to see collectors: those that focus solar radiation on a single turbines with as much as 7 MW of capacity per turbine, point, and those that focus this radiation on a line. Line- according to some analysts.42 focusing CSP systems utilize relatively simple and inexpensive Fresnel lenses or parabolic troughs to With technical advances will most likely come evolution concentrate 50–100 times the amount of incident solar in societal attitudes. As mentioned above, a survey radiation, achieving temperatures in the range of conducted among over 300 Dutch citizens found that 400–600°C.4 they preferred the idea of offshore wind farm installations over that of onshore, thus encouraging an increasing turn Point-focusing systems are somewhat more technically towards the utilization of offshore resources.43 This is a and economically complicated, requiring centralized significant finding and one that many in the industry hold, towers or sophisticated Stirling engines, yet these though the true establishment of this industry will require devices can collect 500–1,000 times the incident solar more than popular support. Investors appreciate the radiation, thus achieving temperatures of approximately onshore wind industry because it is sufficiently mature, 1,200°C.5 It is key to remember that with all things being but if governments truly hope to meet recently equal, the higher the temperature at the energy announced renewable energy targets, offshore wind converter, the greater output of electricity. Table 5.3.4a power generation will need to comprise a significant illustrates CSP technologies, associated industrial portion of that energy mix.44 history, near-term demonstration efforts, and industry actors.
302 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.3.4a Selected CSP Technologies
Technology Experience Next Step Current Providers/Developers of the Solar Components Parabolic trough reflector with SEGS I-IX, 354MW installed between 50+MW projects under development Solel, Israel (design, absorber), oil-cooled vacuum-isolated absorber 1985 and 1991 in California, since then in Israel and USA Flagsol (germany, reflectors) tube in hybrid steam cycle power plant operating steam generated in oil/steam heat exchangers at 370ºC, 100 bar
Re-designed and upscaled structure 100 & 150 m units of SKAL-EL 2 x 50 MW project under development EuroTrough Consortium, Solarmillennium of oil-cooled parabolic trough for (up-scaled EuroTrough) collector in Southern Spain AG, Flagsol, Schlaich, Bergermann & steam cycle operation integrated to SEGS VI in California since Partner, Schott, Germany (reflectors, April 2003 structure, absorber tube)
Direct steam generating 100m DISS test-loop in Plataforma oncept for a 5MW demo plant under Iberinco, Initec, Ciemat, (Spain) parabolic trough Solar de Almeria, Spain, direct steam Cdevelopment (INDITEP project) Flagsol, DLR, ZSW (Germany) generation demonstrated at 400ºC, 100 bar
Solar tower system with pressurised 240kW gas turbine operatedfirst time 2 x 80 kW gas turbine co-generation DLR (Germany), Esco Solar (Italy) hot-air central receiver for solar gas December 2002 at Plataforma Solar de system for electricity and cooling under turbine and combined cycle operation Almeria, gas turbine operated at 100ºC, construction in Italy 8 bar, (SOLGATE project)
Solar tower system with 3MW thermal TSA project in 1996-1998, Receiver endurance test and concept Solucar, Ciemat (Spain), Heliotech , un-pressurised volumetric steam generated at 550ºC, 100 bar; development for a 2MW prototype (Denmark) DLR, Kraftanlagen München, hot-air receiver new modular ceramic hot-air-receiver plant within German Cosmosol project (Germany) presently tested in the European. Solair Project
Linear Fresnel collector with 100m prototype tested in Liege, Belgium, 200m test loop for superheated steam FhG-ISE, PSE, DLR (Germany) secondary concentrator and direct direct saturated steam generated at 275ºC generation at Plataforma Solar, Spain steam generating absorber tube Compact Linear Fresnel Reflector 1 MWth Design and construction of Solar Heat & Power (Germany) prototype installed in a steam cycle plant in a first 1 MWe pilot plant Liddell in New South Wales, Australia
Only the existing plants in California and selected European main-stream activities are listed, RD&D of CSP technology is also taking place in other parts of the world, mainly USA and Australia (the famous solar tower test facility Solar 2 has been de- activated in the meantime). There is also a parabolic trough development going on in Italy, however, the author had no reliable information on that.
Source: Concentrating Solar Power for the Mediterranean Region6
Advantages power towers and dish Sterling technologies are mainly Concentrating solar power is a proven energy conversion from projected or component efficiencies. The solar technology. Since 1984, parabolic trough plants in efficiencies listed include the conversion of solar energy to Southern California have generated 7 billion kWh of solar heat energy at the solar collector, then heat into electricity electricity, with an increased electrical output of 35% and at the power plant.11 The conversion of heat into electricity a decreased cost of 40% over an 11-year period.7 at the power block portion of the power plant (i.e., the Additionally, CSP systems have been integrated into a turbine and associated components) is still comparable to number of existing power grids, providing utilities with a that of a fuel-fired power block, and with the inclusion of straightforward replacement for fossil fuel.8 an integrated or “combined cycle” gas turbine, power towers can achieve efficiencies near 50%, thanks to the Concentrating solar power systems are highly efficient. tower’s ability to produce gases approaching 1,000°C.12 Solar dish systems that convert energy using devices such as Sterling engines are some of the most efficient solar As mentioned above, concentrating solar power also has conversion techniques in the world, achieving solar-to- the advantage of being coupled with fossil fuel–based electricity efficiencies of over 29%.9 As noted in Table power blocks so that electricity output can be tailored to the 5.3.4a, field-proven parabolic trough and Fresnel lens CSP quantity demanded. The combined generation (“co-gen”) systems have achieved thermal efficiencies of up to 40% adds significant value to the CSP system by increasing the with solar-to-electricity conversions of 10%–15%.10 It is power availability while simultaneously decreasing cost important to note that the figures given in Table 5.3.4a for through more efficient use of the power block.14
Blueprint for Renewable Power | Section 5 303 Researchers at the German Aerospace Center (DLR) industries or “grouped” to create a scaled power believe that power towers with co-generation capabilities station.27 One area on which current development efforts could achieve 25%–35% annual solar-electric conversion focus is providing rural residential and commercial users efficiencies.15 Moreover, concentrating solar plants are in developing countries throughout Asia, Africa, and Latin also highly scaleable in construction. Plants can range America with non-fossil fuel based energy alternatives from 1 kW to several hundred megawatts in capacity,16 that range from 2kW – 25 kW in output and can be used thus making them ideally integrated into a wide variety of to pump water or power villages.28 With grid-extension on- and off-grid applications. costs ranging from $8,000 to $10,000 per kilometer in some developing countries, the integration of off-grid An additional advantage of CSP systems is that energy solar power plants has become essential for those obtained during the day can be stored for energy- communities that are too poor or too distant to justify the production uses after dark. Specifically, solar heat can be expense paid by utilities.29 This off-grid energy potential stored in materials such as concrete or ceramics, and then can have a direct impact on rural societies, as witnessed extracted at night to feed heat energy into the power in Ecuador. There, the men in one village used solar plant.17 In addition to storing the thermal energy in solids, power to construct furniture in a woodworking shop on advanced liquids can be used to power the plant at night. odd-number days, while the women of the village used The melted salt (often sodium or potassium nitrates) that the electricity to assemble handicrafts on even-number flows through the system transporting heat from the solar days. All of their products were sold in local markets.30 collectors to the turbine can also be diverted to storage Other off-grid uses include the powering of rural library vessels that can retain the heat for night or cloudy-day computers, community center lights, and two-way radios electricity generation.18 Storage by these means is far for coordinating emergency aircraft landings.31 Together, more cost-effective than using devices such as flow these capabilities augment the quality of life that these batteries.19 With the assistance of fossil fuels, these communities enjoy. power plants can scale the amount of electricity produced from peak to base load, depending on the quantity Concentrating solar power systems are also beneficial demanded.20 21 to the environment. When operating independently (i.e., not co-generating with a fossil fuel component), CSP In addition to using thermal energy for power production, plants have no emissions of either pollutants or CSP systems can also directly use solar heat for other greenhouse gases.32 Life-cycle greenhouse gas purposes. As an example, it has been suggested in emissions are estimated to be 0.010–0.015 kg/kWh, Australia that the heat and electricity needed for the which is low compared to gas fired combined cycles manufacturing of aluminum could be provided by a CSP (0.500 kg/kWh) or steam/coal power plants (0.900 system, thus allowing the necessary conversion of kg/kWh).33 bauxite to aluminum to be performed closer to the bauxite mining location,22 potentially minimizing Dish CSP installations are transportation costs. This heat could also be used after it has gone through the electricity-generation phase to boil extremely useful for off-grid sea water, thereby adding a desalination component of and distributed generation. the solar power plant.23 A 200 MW co-generation CSP system operating for 7,500 “full load” hours per year Disadvantages could deliver roughly 1.5 billion kWh per year of Perhaps the greatest disadvantage is the initial capital electricity and 60 million m3 per year of freshwater under cost of new concentrating solar power systems. Relative the right economic and meteorological conditions.24 Both to other sources of energy, the cost of building a new water and electricity are essential to economic solar plant is high and all but requires the use of long- development, and both can be produced at a term power-purchase agreements (PPAs), which, until “reasonable and sustainable cost.”25 Though forward- recently, did not exist in deregulated power markets.34 looking, the waste heat could also be used for the Though this form of financing and pricing generates a separation of water into oxygen and hydrogen,26 thus slightly higher cost for electricity over the long run, this allowing the CSP system to contribute directly to a flat-rate price for electricity shields consumers from hydrogen economy. variable prices for electricity as seen in fossil fuel–based power generation.35 Dish CSP installations are also extremely useful for off- grid and distributed generation. Specifically, these Another disadvantage of concentrating solar power is the devices can be installed to supply energy to rural need for solar tracking. Due to the low power density of
304 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf solar radiation, CSP systems must have auto-tracking, Costs highly reflective mirrors that can follow the motion of the Statistics on the cost of CSP systems vary significantly. sun36 to maintain the solar power plant’s efficiency. There One source states that the solar thermal energy are three inherent issues with this requirement. First, equivalent of a barrel of oil is approximately $50, with additional power is required for the operation of these an expectation that this price of CSP-based oil barrel- tracking mirrors, thus decreasing the total efficiency of equivalents will continue to fall to roughly $20 in the the solar power plant. Second, tracking mirrors require future.42 moving joints, assemblies, and motors that all require periodic maintenance, especially in locales that have Concentrating solar power has high, but falling high insolation (the measure of solar radiation energy on generation costs. Some CSP plants can generate a given area over a given time). Finally, if the tracking electricity for $0.12–$0.14/kWh, which is competitive mirrors are not maintained, or if a certain number are with other sources of energy during peak demand offline, the power plant will not be able to generate periods,43 though still approximately twice the price of sufficient heat to convert into electricity. fossil fuel–generated power under regular periods.44 With improved technology and increased use, these Risks rates are expected to drop to $0.04–$0.06/kWh by One substantial risk for concentrating solar power is the 2017.45 It is said that the energy payback period for state of investors and their associated risk tolerance. CSP systems is roughly half a year, while the economic Mainly, investors seem most concerned with the lifetime is at least 25 years.46 One effort by Spectrolabs, intermittency of solar radiation and the projected a subsidiary of Boeing Corporation, looks to reduce the profitability of solar thermal plants.37 This can be largely price of CSP-generated power to as low as $0.07/kWh mitigated by performing extensive historical analysis of by 2015 using advances in technology and a $29.8 the solar radiation in a region as well as conducting a million partnership program with U.S. Department of thorough analysis of the expected economic plant Energy (DOE).47 The U.S. DOE itself expects CSP- performance.38 The former can be obtained from generated electricity costs to be as low as $0.05/kWh partnership projects such as the United Nations by 2018 with independent assessments by the World Environment Program Solar and Wind Energy Resource Bank, ADLittle, the Electric Power Research Institute, Assessment (SWERA), which can provide information and others confirming these projections.48 such as solar irradiation data as well as other vital inputs needed for informed project management Outlook evaluation. The future of CSP is promising. A number of technical evolutions are beginning to emerge from research The requirement of land is also a potential risk factor for facilities around the world that will undoubtedly make a concentrating solar power. Searching for land that can significant impact on not only the technical viability of provide sustainable harvesting of solar resources CSP, but also the economic viability. Specifically, requires not only an investigation of the topography and parabolic trough units that currently utilize heat-transfer ground cover, but also knowledge of whether the land is fluids to convey thermal energy from the collector to the currently utilized in an exclusive manner, such as in a power block for steam generation are being investigated national forest.39 Additionally, there is the consideration to see whether steam generation can occur at the of infrastructure development in constructing and wiring collector site itself.49 Such “direct solar steam the solar plant, as well as the regionally inherent natural generation” has been demonstrated in Spain and is and environmental risks, all of which could amount to expected to reduce cost and increase efficiency by an exclusion of the project or an added cost.40 15%–20%.50 Other research includes a European industrial consortium that is developing a new parabolic Finally, although concentrating solar power technology trough that has an improved mechanical structure as well has advanced significantly, additional resources are as optical and thermal properties, which increases needed to ensure its viability. Specifically, more performance and decreases costs.51 research and development is necessary to make CSP cost-competitive with fossil fuels for everyday power Another European group has focused on improving generation, in areas including improved component parabolic troughs by integrating segmented flat plate design, advanced systems, and stronger markets for reflectors that utilize the Fresnel lens principle to achieve the technology.41 greater performance values.52 Power tower systems are also experiencing a significant amount of development attention. The future of power tower–based CSP systems
Blueprint for Renewable Power | Section 5 305 A PATH TO GREEN GROWTH
The development of a combined 2 GW of CSP plants in areas with strong solar insolation and a near- total lack of cloud cover, such as the Atacama Desert in Chile and the Sonora Desert in Mexico, could draw $9.7bn in investments, and up to 80% of the construction materials could be sourced from within the region.
may include multi-tower solar arrays so that collectors can be pointed in various directions for greater efficiencies throughout the day.53
The topic of energy storage is another area of concentrating solar power that will require research and development. Beyond ceramic and cement storage of energy, serious advances are needed with regard to chemical energy storage54 and the future that it can provide for CSP.
The utilization of concentrating solar power systems is now rapidly spreading across the globe. Parabolic trough and power tower CSP systems are being considered for large-scale deployment in the United States, Crete, Spain, Mexico, Morocco, Egypt, Jordon, Iran, and India.55
As this marked increase in CSP deployment unfolds, it will require significant political and financial stimulation if this technology is to bring about the changes promised by the developments discussed above.
306 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.4 Case Studies system since 2006. However, generation from these plants has been shown to be not only more polluting but 5.4.1 BRAZIL also vulnerable to disruption, following the nationalization of Bolivia’s natural gas supplies in 2006. The subsequent forced renegotiation of Brazil’s gas import contracts, under Introduction which nearly half of its natural gas is supplied, resulted in a price increase of 285%, and import volumes have With its vast area and diverse geography, Brazil is richly frequently dipped below contracted levels due to endowed with renewable resources. This is especially stagnating production.3 4 true for hydro resources, which the country has harnessed for most of its power generation in the form of The government has also worked to spur the development large-scale hydropower, making it one of the largest of alternative renewable sources, including small hydro, producers of renewable power in the world. However, wind, and biomass, which have been developed chiefly despite its abundant water resources, Brazil’s through its PROINFA program. dependence on hydropower has proven to be problematic. The Brazilian electricity crisis of • Small hydro: Brazil has 148 small hydro plants of 30 2001–2002, during which the government was forced to MW or less, with a total of 1.9 GW of installed capacity. institute six months of obligatory rationing, was An additional 72 such plants are being built, and 164 precipitated by severe droughts that devastated the are awaiting authorization for construction, which country’s hydropower generation. As a result, together could contribute as much as 3.6 additional consumers had to reduce their consumption by 20%, GW.5 Small hydro is by far the largest source of non- while private companies considered moving production large hydro renewable power generation in the country, abroad during the emergency.1 Brazil also saw its growth and it is expected to continue growing strongly due to projections and investment grade lowered due to the low costs and the widespread untapped potential that electricity shortfall.2 Brazilian consumers were reminded remains. However, while the addition of more small of such an experience in 2007, when the country again hydro plants may increase energy security to some went through an unusual drought period that strained the degree, simply by virtue of adding more generating national power system. The country’s rapid economic capacity, they do little to diversify the country’s energy growth in recent years has continued to threaten a mix, and these facilities are even more vulnerable to delicate power supply balance, with increased electricity drought-induced shortages due to their lack of storage demand leading to rapidly diminishing reservoirs, should capacity. there be another unusual drought period. • Wind: Brazil has enormous wind power potential, Given the perils of its estimated at over 143 GW, as well as the largest base of installed wind power capacity of any country in LAC, overdependence on hydropower, with 249 MW commissioned as of September 2008. Brazil has attempted to increase its However, this relatively strong growth has been largely due to availability of preferential long-term pricing energy security in recent years with arrangements under Brazil’s PROINFA incentive the creation of a new regulatory program, which has since become fully subscribed. framework for the electricity sector The government is hoping to develop the sector on a more competitive basis by replacing PROINFA with and the diversification of its power renewable power auctions, but uncertainties generation portfolio. surrounding the effectiveness of this system cloud the sector’s future prospects.
Given the perils of its overdependence on hydropower, • Biomass: Brazil’s highly developed and rapidly Brazil has attempted to increase its energy security in expanding sugarcane-based ethanol industry lends a recent years with the creation of a new regulatory significant potential for power generation from biomass. framework for the electricity sector and the diversification In the 2007/2008 harvest, the country produced record of its power generation portfolio. This has mostly taken sugarcane levels, at 489 million metric tons — a 14.2% the form of additions of fossil fuel–fired generators, which increase from the record 428 million metric tons have accounted for two-thirds of the new generation produced in the 2006/2007 crop. As such, power capacity contracted under the country’s revamped auction generation from sugarcane and ethanol mills already
Blueprint for Renewable Power | Section 5 307 account for a significant portion of current thermal technology-specific, fixed prices set at a level high electric plants. According to ANEEL, 254 of the 1041 enough to ensure profitability for investors. While thermal electric plants in Brazil are fueled by biomass, much of the 3.3 GW contracted capacity has yet to be representing 24% of the total. A more in-depth built, PROINFA remains the most proven, successful discussion of cogeneration plants in Brazil is provided renewable power incentive program in Latin America. in Section 6. However, as discussed below, it remains to be seen whether PROINFA’s successor, a system of renewable Key Drivers and Obstacles for Renewables in Brazil power auctions, will provide sufficient incentives for As discussed below, several key drivers have contributed the continued development of the sector. to the increasing development of renewable power projects in Brazil, although significant obstacles remain. • Availability of Financing: The Brazilian Development Bank, BNDES, has played a critical role in financing Drivers the development of Brazil’s renewable power • Diverse, Broadly Distributed Resources: Brazil’s generation, just as it has been a key source of expansive geography has endowed it with plentiful financing for the power sector more generally for over renewable energy resources. While the country has a decade.7 BNDES has covered up to 70% of already harnessed most of its large hydropower investment costs for renewable power projects resources, possibilities exist for generating power from through low-interest loans with annual interest rates its untapped solar, biomass, wind, and small hydro that declined to 6.5% in 2008. The Bank has been the potential. main source of financing for projects in the PROINFA program.8 Its involvement in the program is a factor • Demand Growth: Brazil’s sustained economic growth that significantly sets Brazil’s renewable development in the past decade and social polices aimed at framework apart from those of other countries in LAC, increasing income equality in the country have whose project developers frequently have to source contributed to rising demand for electricity. The funding from equity financing, multilateral institutions, Brazilian economy has consistently grown over the and/or foreign development banks. The strength of past 15 years, growing by 5.4% in 2007, the most the renewables sector in Brazil has led to a growing significant growth rate achieved since 2004, when the interest from public and private equity markets, economy grew by 5.7%.6 With lower interest rates, including plans for one of the first renewable power greater credit availability, and a rural electrification IPOs in Latin America by ERSA, a wind and small program (Luz Para Todos), electricity consumption in hydro developer.9 10 the country has increased steadily and strongly together with Brazil’s sustained economic growth. Obstacles • Uncertainty over Long-Term Renewables • Insecurity of Natural Gas and Hydropower Framework: Although PROINFA has been a critical Supplies: In addition to the massive 2001–2002 incentive for investments in renewables in Brazil, the disruptions to Brazil’s hydropower-dependent power program has reached its 3.3 GW quota, and there are system, Brazil’s thermal generation has also no plans for further expansion of this policy. While experienced growing energy insecurity because of many contracted projects remain to be built, the declining availability of natural gas imports from government intends to move the development of Bolivia, its biggest supplier. With natural gas renewables to a more competitive footing with the traditionally serving as a backup fuel to hydropower development of a system of renewables auctions. for electricity generation, the irregularity of natural gas However, a first auction held for all renewable sources supplies from Bolivia has forced Brazil to increasingly in 2007 failed to contract for any new wind power seek alternative sources of energy, including a greater development, and it remains to be seen whether future use of renewables. auctions will have prices set at sufficiently high levels to attract developers’ interest. • PROINFA: Since 2004, the government has incentivized the development of renewable power • Lack of Local Wind Turbine Manufacturers: Projects projects through PROINFA, a feed-in tariff program developed under PROINFA are required to purchase at with a goal of developing 3.3 GW of wind, small hydro, least 60% of the equipment used from domestic and biomass generation. As with the most successful manufacturers, which has been relatively easy for the European incentive programs, PROINFA has granted long-established hydropower and biomass generation long-term (20-year) PPAs to renewable generators with industries but a major challenge for the much newer
308 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.1c Electricity Demand (TWh) wind power sector. Wobben Windpower (a Brazilian subsidiary of Germany’s Enercon) and Tecsys have 500 been the only domestic manufacturers of wind turbines and components, although companies 450 including Argentina’s IMPSA are planning to begin producing turbines in Brazil soon as well. This has 400 led to significant bottlenecks for project developers in the country, contributing greatly to the low proportion 350 of wind projects that have contracted with PROINFA that have actually been built.11 12 13 300
• Lack of Infrastructure in Remote Areas: Brazil’s 250 vastness, combined with its lack of modern TWh infrastructure in rural areas, has long represented a 200 major challenge and source of extra costs in developing the country’s isolated regions. This 150 problem is particularly significant in the Amazon and 100 the country’s northern and northeastern regions, which are also the source of some of Brazil’s richest 50 and least-utilized hydro and wind power resources.14 0 2002 2003 2004 2005 2006
Source: OLADE22 23 24 25
Chart 5.4.1a Installed Capacity in Brazil vs. Rest of LAC, 2006 (MW) Electricity Supply and Demand
In both global and regional terms, Brazil is a major Brazil 95,202 producer and consumer of electricity. Accounting for 35% of LAC’s total installed capacity as well as approximately 40% of the region’s total consumption, Brazil is not only the regional powerhouse, but is also Rest of LAC 171,465 its biggest consumer of electricity, consuming over twice as much as its neighbors Argentina, Bolivia, Chile, and Uruguay combined.15 Brazil’s demand for power MW makes the country the tenth-largest electricity Source: OLADE17 consumer in the world.16
Despite its huge base of installed capacity, Brazil’s Chart 5.4.1b Electricity Consumption in Brazil vs. Rest of dependency on hydropower for much of its electricity LAC, 2006 (TWh) needs has placed the country in a vulnerable position. Depending on consistent rainfall to fill the country’s reservoirs, Brazil has experienced several energy crises during periods of drought, which were further exacerbated Brazil 460.5 by growing electricity demand prompted by rapid economic growth. Eletrobras, one of Brazil’s largest generators, estimates that electricity consumption has Rest of LAC 715.47 been increasing at more than twice the rate of the economy, with electricity demand rising, on average, by 5.4% per year between 1980 and 2000, while GDP grew TWh by 2.4% in the same time period.19 Source: OLADE18
Blueprint for Renewable Power | Section 5 309 Over the past five years, Brazil’s rapid economic growth As discussed below, a new auction system set up to has continued to drive brisk increases in electricity organize the development of new power plants has consumption, with higher incomes and greater availability succeeded in increasing the share of thermal generating of credit stimulating demand for electronic products, while capacity, with thermal generators accounting for 65.5% the government’s Luz Para Todos (Light for All) program, of the capacity added under this system since 2006. discussed below, has contributed to increasing consumer However, Brazil’s reliance on imports from Bolivia to access to the grid in previously unconnected, remote meet roughly half of its natural gas demand has turned regions of the country.20 According to the government’s this move toward thermal generation into a source of Energy Research Enterprise (EPE), Brazil saw the energy insecurity as well.30 The nationalization of incorporation of an additional 1.7 million residential Bolivia’s gas reserves by President Evo Morales in 2006 consumers to the system in the 12 months since July has created a precarious investment environment that 2006.21 Overall, Brazil’s consumption of 460.5 TWh in 2006 has slowed foreign investment in the country’s gas represented an average annual increase of 4.86% over its sector to a trickle, limiting production and significantly 2002 consumption of 370.51 TWh — a slightly slower raising energy costs for Brazil as well as Argentina, with pace than during the 1980–2000 period, but still robust. renegotiated contract prices that increased 285% to US$4.20 per MMBtu for Brazil and a 47% increase from US$3.40/MMBtu to US$5/MMBtu for Argentina.31 Current Generation Mix Moreover, waning foreign investment and production are already hindering Bolivia’s ability to meet its contracted With abundant water resources, Brazil is heavily reliant on export volumes, a problem that is likely to only worsen.32 hydropower produced from its many rivers and dams. In Due largely to concerns over the reliability of Bolivia’s 2006, this renewable resource generated 91.8% of Brazil’s gas supply, Brazil has invested in the development of an total electricity. The country’s reliance on hydropower is in LNG import terminal, but this fuel, supplied from marked contrast with its use of other sources, such as international markets, will likely be more expensive than conventional thermal, nuclear, wind and biomass, which pipeline supplies.33 together contributed to a modest 8.12% of the country’s total electricity production in 2006, as seen in Chart Overall, despite the government’s intentions to diversify 5.4.1d.26 The skewed production of hydropower reflects its the country’s power supplies, government planning (such predominance in Brazil’s total installed capacity. Chart as the National Energy Plan 2030) indicates that most of 5.4.1e shows that in 2006, Brazil had a total of 95 GW of the system’s expansion in the long term will continue to power plants, from which 76% was hydroelectricity (72 consist of hydropower plants.34 This includes plans for GW), 22% was conventional thermal (21 GW), 2.1% was 6,450 MW of new capacity from two huge plants on the nuclear (2,007 MW), and 0.26% was wind (247 MW).27 Madeira River, the longest tributary of the Amazon.35
Chart 5.4.1d Electricity Production by Source, 2006
Hydropower 92% Conventional Thermal 5% Nuclear 3% Wind < 1%
Source: ONS28
310 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.1e Installed Generation Capacity, 2006
Hydropower 76% Thermal 22% Nuclear 2% Wind < 1%
Source: ONS29
subsystem, the northeast generated the most electricity, Brazil’s National Grid contributing to 61% of the subsystem’s total.
Brazil has one of the largest transmission networks in the Access to Electricity world,36 with 80,000 km of high voltage transmission According to the Ministry of Mines and Energy, over 12 lines.37 Its National Interconnected System (SIN) transmits million Brazilians lack access to electricity, including 10 96.6% of Brazil’s electricity production, with the remaining million in rural areas and two million in urban areas. 3.4% located outside the SIN, mainly in small isolated Respectively 83% and 55% of rural and urban inhabitants systems in the Amazon region,38 which are being without electricity live in the sparsely populated northern progressively integrated to the national grid.39 The system and northeastern regions of the country.48 While many is managed by the national system operator (ONS), which rural communities still lack electricity, major strides have controls and coordinates its generation and transmission been made under the country’s Luz Para Todos program installations.40 Approximately 95% of all Brazilian since 2003. households have access to the grid.41 Two major subsystems feed in to the SIN: the southern subsystem, Table 5.4.1a Percent of Population Lacking Access to the which includes the south and southeast/midwest regions, Grid and the northern subsystem, which includes the north and Region Rural Urban northeast.42 Mid-West 4% 6% North 25% 13% • Southern Subsystem: The largest source of electricity Northeast 58% 42% generation in Brazil, the southern subsystem generated South 5% 9% approximately 75.7% of Brazil’s electricity in 2006.43 Southeast 8% 30% The southern subsystem includes the largest TOTAL 10,091,409 1,932,294 hydroelectric dam in the world, Itaipú,44 which alone Source: Luz Para Todos49 contributed in 2006 to 41.9% of the subsystem’s power generation.45 Between the two regions that are part of this subsystem, the southeast/midwest region Luz Para Todos (Light for All) contributes the most, having in 2006 generated 85.5% Launched in 2003 by the Brazilian government, Luz Para of the subsystem’s total electricity. Todos is a rural electrification plan that has aimed to bring electricity to ten million people in rural areas by the end of • Northern Subsystem: In 2006, this subsystem 2008. It is intended as a socioeconomic and rural generated 24.2% of the total electricity generation in the development tool, as 90% of families without electricity in country.46 Between the two regions comprising this Brazil also have an income below the minimum wage, and
Blueprint for Renewable Power | Section 5 311 Chart 5.4.1f Production per Subsystem47
Southern 77% Northern 23%
Source: ONS
80% of these families live in rural areas. The program is For the first phase of the program, $4.4 billion was coordinated by the Ministry of Mines and Energy, and invested, with 71.5% coming from the federal executed with assistance from Eletrobrás, ANEEL, and government (including grants from CDE, the Energy state governments.50 The government also works with Development Account, and loans from RGR, the Global international partners, including the international non- Reversion Reserve), while the rest comes from state profit Global Village Energy Project (GVEP)51 and the governments (13.7%) and regional utilities (14.7%).53 U.S. National Renewable Energy Laboratory (NREL).52 As of July 2008, the program had nearly achieved its While the program has mainly focused on conventional goal, providing electricity to a total of 8.2 million people, grid extension activities, distributed renewable with 1.3 million people benefiting from the program in the technologies are increasingly playing a role as well, north, four million in the northeast, 1.6 million in the according to the program’s policy of using them southeast, 671,300 in the south, and 571,200 in the “whenever possible.” midwest.55
Chart 5.4.1g Luz Para Todos Program Funding (First Phase)
Federal Government 71% State Governments 14% Regional Utilities 15%
Source: Luz Para Todos54
312 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Consumers who have no access to electricity can sector,64 while the independent operator of the national request installation through the local distributor. The transmission system, ONS, and the sector’s commercial request will be included in the distributor’s work market operator, MAE, (Mercado Atacadista de Energia program, and served according to the priorities Elétrica) were established in 1998.65 established in the Operation Manual of the Program Management Committee and the state.56 Because of With a broader agenda of greater fiscal discipline and high demand, the program has been extended until market deregulation initiatives, the Cardoso 2010.57 administration began to privatize the electricity sector. However, as public investments in the generation The following end users and project types take priority segment declined during this period, new private sector under the program’s manual:58 investments failed to compensate for this decline enough to keep up with increasing demand. A severe • Rural communities with few resources drought in 2001 exacerbated this growing tightness of • Municipalities that are ranked lower than 85% on the supply, affecting approximately 80% of the country’s Household Care Index in the 2000 census reservoirs.66 This situation culminated in one of Brazil’s • Communities affected by dams or hydroelectric plants worst electricity crises, prompting the Cardoso • Projects that focus on integrating the productive use administration to ration 25% of power consumption of electricity and promoting local development between 2001 and 2002.67 • Public schools and health posts • Rural settlements During this rationing period, the government stripped • Projects for the development of family farming or ANEEL of its authority, relegating it to a technical family-based handicraft businesses support role, and created instead an Electricity Crisis • Small- and medium-sized farmers Management Chamber (GCE), responsible for • Populations located in Conservation of Nature Units formulating and implementing measures to overcome • Special communities such as racial minorities, native the short-term crisis and long-term challenges Brazilians, and the remnants of former quilombo preventing the sustainable development of the Brazilian (escaped slave villages) communities electricity sector.68 The first measure adopted by the GCE was the implementation of a rationing program, As the program has continued to connect rural villages to setting monthly electricity savings targets per consumer the grid, the communities that remain isolated are group.69 It also called for the construction of generally those where conventional grid extension thermoelectric plants capable of generating 2,155 MW, projects are most expensive. Distributed renewable which had the collateral effect of adding further costs to sources are thus becoming an increasingly important the system. These costs were later transferred to part of the program’s strategy, as discussed under “Rural consumers, who referred to the measure as the Electrification” later in this section. “blackout insurance.”70 The rationing program significantly altered the consumption patterns of the Brazilian consumer, forcing the adoption of alternative Electricity Market Structure sources of power, more efficient appliances, and a reduction in losses.71 Following the successful rationing Past Reforms and Brazil’s New Model of power consumption between May 2001 and March Privatization Under Cardoso: Brazil’s electricity sector 2002, as well as the return to healthy levels of Brazil’s has recently undergone several important reforms, with reservoirs, ANEEL’s regulatory role was reinstated, and the latest initiatives of the Lula administration traced the Chamber was dismissed. back to President Fernando Henrique Cardoso (1995–2003).59 As part of Cardoso’s neoliberal economic Lula’s New Model: The 2001 power crisis, one of the reforms, the administration sought to restructure Brazil’s worst in Brazil’s history, marked a turning point in the highly centralized electricity sector60 by reducing the direction of the sector’s reforms. With the country’s presence of the state61 and introducing competition in economic growth trajectory threatened, the the generation and distribution of power.62 While state- administration of President Luiz Inácio Lula da Silva owned Eletrobras had traditionally assumed a central sought to adopt a model that would sustain Brazil’s role as the sector’s planner and operator, as well as its development by ensuring consistent power supplies. major financing agent,63 a new, semi-independent Taking office in 2003, a year after the crisis, President federal agency, ANEEL (Agencia Nacional de Energia Lula halted the pending privatizations in the electricity Eletrica), was established in 1996 to oversee the sector,72 adopting instead a new model that emphasized
Blueprint for Renewable Power | Section 5 313 greater state participation in supply expansion.73 Generation Implemented in 2004, Lula’s New Model for the The Brazilian generation sector is highly concentrated, Electricity Sector provides for greater state regulation of with approximately 60% of installed capacity controlled by Brazil’s decentralized and partially privatized system,74 state companies.82 The largest generators in the country with the Ministry of Mines and Energy occupying a are mixed-capital, state-controlled companies, such as central role in policy formulation.75 Eletrobrás, CESP, CEMIG, and COPEL, the last three of which account for 50% of Brazil’s generating capacity.83 Following the power crisis of Private, foreign-owned companies also operate in the sector, with Tractebel, AES, and Duke being the major 2001-2002, Lula’s New Model private generators in Brazil.84 sought to ensure more consistent • Eletrobrás:85 Once the dominant actor in Brazil’s electricity supplies through greater electricity sector, this state-controlled company owns regulation of Brazil’s partially and operates approximately 39% of Brazil’s total privatized system. capacity (37,941 MW in 2006).86 Eletrobrás comprises six subsidiaries: Chesf, Eletrosul, Eletronorte, CGTEE, Furnas, and Eletronuclear. Together, these subsidiaries Despite a greater state role in Brazil’s new model, a operate a total of 29 hydroelectric plants, 15 common thread seen in the Cardoso and Lula thermoelectric plants and two nuclear plants, supplying administrations’ reforms is the goal of attracting long- 51% of Brazilian households and transmitting 40% of term private investment to the sector.76 Thus, the new the country’s total electricity through a grid that covers plan focused on halting the privatization of power 65.9% of the nation’s territory.87 Eletrobrás is also companies and restructuring of wholesale power responsible for operating the Brazilian side of Itaipú markets, while maintaining the structure and regulation of Binacional hydroelectric dam, the world’s largest. the sector’s distribution and transmission systems Eletrobrás also operates a north-south interconnection introduced during the Cardoso administration.77 line, which has linked both regions of Brazil since 1998,88 making the Brazilian transmission system one of Regulation the largest in the world.89 Under Brazil’s New Model, the Ministry of Mines and Energy has been reinstated as the central entity in policy • CESP: The largest generating company in the State of formulation of the electricity sector,78 after playing only a São Paulo, CESP is also Brazil’s third-largest power peripheral role during the Cardoso administration.79 producer and has the country’s fourth-largest installed Under the Ministry’s direction is the quasi-independent capacity (7,456 MW).90 The state of São Paulo is the regulatory agency ANEEL, which is responsible for company’s biggest shareholder, controlling 35.98% of regulating generation, transmission, and distribution of all shares.91 electricity in Brazil, as well as tariffs, installation, and services. ANEEL is also responsible for overseeing ONS • CEMIG: CEMIG is Brazil’s largest utility and CCEE (Câmara de Comercialização de Energia geographically,92 generating power for approximately Eletrica), the latter of which is responsible for 6.2 million consumers in Minas Gerais State, with its administering Brazil’s wholesale electricity market, concession area extending through 96.7% of the state’s having taken over the functions formerly performed by territory. CEMIG operates Latin America’s largest MAE.80 Both ONS and CCEE are private and non-profit distribution system, which comprises more than entitities, although they fall under ANEEL’s direct control 430,000 km of transmission lines.93 The company is and regulation. Under the new plan, two new institutions also active through ventures in other Brazilian states, were created to enhance long-term planning: the Energy such as Santa Catarina, Rio de Janeiro, Espírito Santo, Research Enterprise (EPE) and the Power Sector and Rio Grande do Sul.94 With ambitions to establish Monitoring Committee (CMSE). While the EPE is itself in the international market, CEMIG is currently responsible for carrying out studies used by the Ministry beginning construction of a transmission line to Chile of Energy to offer up power plants and transmission lines that will be operated by the company when it comes in auctions and concessions, the CMSE is responsible online.95 The company is majority-controlled by the for monitoring the system’s supply and demand so as to state of Minas Gerais, which owns 50.96% of the avoid future shortages.81 company’s shares.96
314 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf • COPEL: The largest power utility in the southern state (Camera de Comercializacão de Energía Elétrica).106 of Paraná, COPEL operates in the generation, Distribution companies serve the regulated power transmission, and distribution sectors, although it is also market and are required to contract in advance for up to active in telecommunications.97 COPEL’s generation unit 100% of their projected demand for five years, as comprises 18 generating facilities, which together hold discussed below.107 4,500 MW of installed capacity.98 Through its distribution system, COPEL reaches 98% of the state of Consumers Paraná,99 providing electricity to 100% and 90% of Brazil’s new model distinguishes between two markets for urban and rural households, respectively.100 power consumers: regulated markets (ACR) for small, captive consumers and free markets for large consumers Transmission (ACL).108 The difference between these two categories of Like Brazil’s generation sector, the transmission sector is consumers is based on the amount of electricity dominated by federally- and state-owned companies. consumed from both conventional and alternative energy Under the current regulatory model, the federally-owned resources.109 Migration to the free market is allowed for Eletrobrás owns more than 65% of the country’s total consumers who use above 3 MW of electricity, as well as transmission lines, although 40 transmission companies for “special consumers” who purchase 0.5 MW or more of are under concession. Other federally owned their power from mini-hydro, wind, and/or biomass plants. companies, such as Furnas and Eletrosul, as well as As of July 2008, 65% of the ACL were free consumers, state-owned CEEE (Rio Grande do Sul) and EPTE (São 4% were “special consumers,” and 31% were self- Paulo) are also public companies involved in the producers (large companies generating their own transmission sector.101 Despite the overwhelming electricity, such as mining company Vale, and aluminum presence of state-controlled companies, several foreign producer Alcoa).110 and private companies have been active in the transmission sector, including Italian Intel, Swiss ASA Migration to the free market is Investimentos, and Brazilian Schahin.102 allowed for consumers who use Distribution above 3 MW of electricity, as well Brazil’s distribution system is dominated by the private sector, which controls approximately 63% of the as for “special consumers” who country’s electricity distribution.103 Concessions from purchase 0.5 MW or more of their the Ministry of Mines and Energy and/or ANEEL104 for power from renewable sources. distribution companies are granted on the basis of public auctions,105 which are administered by CCEE
Table 5.4.1b Sectoral Distribution and Consumption of Free Consumers, July 2007
Industry Energy Consumption, Share of Consumption, Energy Consumption, July 2007 (average MW) July 2007 (%) July 2008 (average MW) Share of Consumption Metallurgy 3,119 35.44 3,380 38.23 Chemical 1,442 16.39 1,469 16.62 Non-metallic Minerals 625 7.11 628 7.10 Cellulose 632 7.18 627 7.09 Automobile 519 5.89 488 5.52 Food 423 4.81 387 4.38 Textile 341 3.87 316 3.57 Mineral Extraction 333 3.79 208 2.35 Rubber and Plastic 244 2.77 238 2.69 Transport 180 2.04 192 2.17 Wood 130 1.48 132 1.49 Sanitation 121 1.37 122 1.38 Metal Products 106 1.2 107 1.21 Beverages 66 0.75 59 0.67 Services 33 0.61 72 0.81 Others 467 5.31 416 4.71 Total 8,781 100 8,841 100 Source: CCEE114
Blueprint for Renewable Power | Section 5 315 Free Market – ACL equilibrium, leading to less-significant price differentials in Consumers in the ACL are free to negotiate bilateral the free and regulated markets. As such, growth in the contracts with generators and power management firms. ACL has since stabilized, as seen in Chart 5.4.1h. As of Bilateral contracts differ from consumer to consumer, with July 2008, the free market accounted for 27% of electricity individual contract periods and electricity consumption consumption in Brazil, with the regulated market levels. Regulated distributors, retailers, and large accounting for the remaining 74%. consumers engaging in electricity transactions in Brazil can participate in the spot market, although this market is Regulated Market — ACR and the Auction System designated only as a forum for parties in the free market to Since the restructuring of the Brazilian power sector in sell excess power. To participate in the spot market, all 2004, transactions in the regulated market have been parties must have 100% of their electricity usage and/or carried out via auctions,116 administered by CCEE.117 The sale under contracts. The government also sets the price process begins with a list of power plants authorized by (known as the Price for Liquidating Differences, PLD) in the EPE to participate in the bidding process. This list is then spot market according to hydrological conditions based auctioned, with the lowest price offered per MWh being on mathematical models used by both CCEE and ONS.111 the criteria to determine successful bids. Distribution companies are then provided power at a single price, Since 2005, the free market has been growing with generation companies being paid relative to their consistently, with 676 free consumers migrating as of June bidding prices. Successful bidders are allowed to sell a 2008 — a 59% increase from August 2005. A CCEE limited amount of electricity — known as “assured analysis of the free market from August 2005 to June 2007 energy” — based on hydrological conditions and noted an average rate of 8.58 consumers migrating to the determined by the Ministry of Mines and Energy.118 free market every month.112 The rapid increase in the Auctions have been divided into two subgroups: existing number of consumers moving to the free market was due power and new power. to significantly cheaper electricity prices in the ACL, following the 2001 power sector crisis.113 With lower • Existing Power: These auctions are intended to sell consumption levels brought about the government’s power to distribution companies from Brazil’s current rationing measures and higher levels of hydropower installed capacity,119 which is dominated by generation, a surplus of electricity caused prices to be hydropower plants. As hydroelectricity is significantly significantly lower in the free market, where unregulated less expensive than alternative sources of power, the prices reflected greater supply than demand. This price intent of the government in grouping “old” power in differential caused a growing number of eligible separate auctions is to reduce the overall price of consumers to migrate to the ACL to take advantage of its electricity.120 With a dominant presence of state- significantly lower prices. Table 5.4.1b shows the market’s controlled companies in Brazil’s generation sector, sectoral distribution, with the metallurgy sector comprising these auctions have reflected an overwhelming the biggest share in consumption. participation of federal and provincial generation companies. The first such auction was carried out on As energy consumption in Brazil has since increased, July 12, 2004, with eight-year contracts for the supply and demand have now reached a more balanced following periods: 2005–2012, 2006–2013,
Chart 5.4.1h Number of Free Consumers in the ACL Market
800
600
400
200
0
-06 Aug-05 Oct-05 Dec-05 Feb-06 Apr Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08
Source: CCEE115
316 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.1i Profile of Generation Source in New Power Auctions
3,500
Hydro (average MW)
3,000 Thermal (average MW)
2,500
2,000 MW
1,500
1,000
500
0 1st Auction 2nd Auction 3rd Auction 4th Auction 5th Auction Source: CCEE (Acende Brasil elaboration)124
2007–2014.121 Since then, five additional auctions have First Auction (December 2006): 2008, 2009, 2010 been carried out, most of which extend over a period Second Auction (June 2006): 2009 of eight years. Third Auction (October 2006): 2011 Fourth Auction (July 2007): 2010 • New Power: In an effort to expand Brazil’s installed Fifth Auction (October 2007): 2012 capacity, auctions for new power allow generation companies to bid on concessions to build new power The year 2008 has seen the addition of two new sets of plants.122 While any kind of generation company can auctions, carried out especially to sell renewable and participate, successful bidders have turned out to be reserve electricity to the grid. hydroelectric and thermal electric plants (see Chart 5.4.1i), with the latter comprising 65.5% of the total • Renewable Power: As of September 2008, ANEEL had 9,688 MW of power contracted in the past five carried out one renewable power auction, in June 2007. auctions. This development has led several observers The auction marks the beginning of the second phase to note with concern Brazil’s growing reliance on of PROINFA in order to stimulate installed capacity of polluting and more expensive sources of electricity, alternative sources of power, including wind, biomass, such as oil- and natural gas–based thermal electric and small hydro plants. The government is expected to plants. While contracts for hydroelectric plants last 30 carry out separate auctions for the three kinds of years and are based on the amount of electricity they renewable power projects, with one auction for wind will supply (MWh), contracts for thermal electric plants power expected in early 2009. last 15 years and are based on their ability to provide electricity when needed. Since December 2005, a total • Reserve Power: Intended to avoid future power crises, of five auctions have been carried out, with the auctions for reserve power include plants contracted to following years for the commencement of contracts:123 increase the system’s security during periods of low
Blueprint for Renewable Power | Section 5 317 Table 5.4.1c VETEF Levels, 2004-2007 precipitation. The first such auction was carried out in August 2008 for biomass power, with 2,379.40 MWh Wind Small Hydro Biomass being contracted from 31 biomass plants. 33% 44% Capacity Capacity Sugarcane Wood Year (US$/MWh) (US$/MWh) (US$/MWh) (US$/MWh) (US$/MWh) 2004 110.19 97.16 63.10 50.56 54.65 Renewable Power Development Framework 2005 123.43 108.83 70.68 56.64 61.22 2006 127.74 112.63 73.16 58.62 63.35 Program of Incentives for Alternative Electricity 2007 134.77 118.82 77.17 61.84 68.64 Sources (PROINFA) Source: Ministry of Mines and Energy136 137 Created in 2002 and launched in 2004 by the Ministry of Mines and Energy, PROINFA has been the most effective renewable incentive program in the LAC region over the Tariff Setting: The tariffs paid to PROINFA projects are set past four years.125 Much like Europe’s highly effective at levels designed to ensure long-term revenues sufficient feed-in tariff programs, PROINFA offered wind, small to support the development of each renewable power hydro (<30 MW), and biomass power generation projects technology targeted. These levels are based on a VETEF 20-year power-purchase agreements (PPAs) at fixed, (Economic Value of Specific Technology) index set guaranteed tariff rates designed to ensure profitability for annually between 2004 and 2007, with annual adjustments investors.126 PPAs are signed with Eletrobrás, which also to account for changing estimates of technology costs, as administers the program and may even participate in seen in Table 5.4.1c.135 Wind power prices varied based projects as a minority stakeholder itself.127 In addition to on the estimated capacity factor of the project, with lower this guaranteed tariff, PROINFA projects are eligible to tariffs awarded to projects with a higher capacity, receive low-interest loans covering roughly 70% of project reflecting the fact that tariffs under the program are set costs from the Brazilian National Social and Economic according to the level necessary to support these projects. Development Bank (BNDES), a critical source of domestic Similarly, wood biomass projects are awarded higher debt financing for renewables that is currently unique in tariffs than sugarcane projects. Note that the VETEF levels Latin America.128 For projects to qualify, the program have increased every year, reflecting global trends of requires that 60% of all equipment be produced in Brazil, increasing costs for power projects of all types. with no more than 40% of parts being allowed to be imported tax-free.129 Projects are awarded PPAs with fixed rates based on the VETEF for the year in which the contract is signed, Much like Europe’s highly effective adjusted annually for inflation.138 139 Thus, all PROINFA feed-in tariff programs, PROINFA Table 5.4.1d Distribution of PROINFA Contracts, offered wind, small hydro, and per Energy Source, Region, and Potential Capacity biomass power generation projects Source Total Contracted Total Contracted by Potential 20-year power-purchase (Projects) Region (Projects) Capacity (MW) Small Hydro 63 Mid-west: 25 agreements (PPAs) at fixed, Southeast: 16 guaranteed tariff rates designed to South: 14 North: 5 ensure profitability for investors. Northeast: 3 1,191.24
Biomass 27 Southeast: 11 PROINFA’S goal was to reach agreements with a Mid-west: 6 Northeast: 6 cumulative 3.3 GW of renewable power projects, and this South: 4 target was met in 2007. Projects were selected on the North: 0 685.24 basis of a regional quota, with each state being allowed up to 165 MW of total power generation for small hydro,130 Wind 54 Northeast: 36 220 MW for wind,131 and 220 MW for biomass.132 As South: 16 Southeast: 2 discussed below, although many of the PROINFA projects North: 0 have yet to be built, the government is not planning on Mid-west: 0 1,422.92 awarding further contracts under this program, moving instead to a more competitive, auction-based system.133 134 Total 144 3,299.40
Source: Ministry of Mines and Energy142
318 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Table 5.4.1e Comparison of Average Prices Paid wind projects with a 33% capacity factor that signed at Auction and PROINFA Round PPAs in 2004 will receive US$110.19 per MWh (with annual adjustments for inflation) through 2024, while Auction Average PROINFA Round Average PROINFA wind projects with a 33% capacity factor that Price (US$/MWh) Price, 2005 (US$/MWh) signed PPAs in 2005 will receive US$123.43 per MWh Mini-Hydro 81.74 77.17 Biomass 79.47 61.84 through 2025. Wind --- 126.79
144 Project Development: The program has carried out two Source: Ministry of Mines and Energy rounds in which 144 projects were contracted, representing 3,299.40 MW of capacity. Table 5.4.1d shows the distribution of contracts per project.140 Despite ambitious goals, the first auction has been regarded as a disappointment, with auction prices set too Despite PROINFA’s stated objectives of purchasing 3.3 low to cover investment costs for most projects. Although GW of renewable power by the end of 2008, many of the a total of 87 plants had been authorized to participate in program’s enlisted projects have encountered hurdles the auction, representing 2,803 MW of potential new preventing their full implementation. According to ANEEL, renewable capacity, only 18 plants (638.64 MW) signed as of August 2008, of the 63 and 54 small hydro and wind PPAs. No wind power projects received contracts, despite projects enlisted in the program, only 25 (46%) and 6 the fact that nine wind projects were eligible to participate. (9.5%) were operational, respectively, compared to 70% of The wind sector regards R210 (US$124) per MWh to be contracted biomass projects.141 Thus, installed capacity the minimum price required to meet their investment has reached only 38% of PROINFA’s intended objective, costs, far above the R140 (US$82) price ceiling with 1.27 GW installed so far. The government blames announced by ANEEL. some of the delays in construction on projects that were proposed by entrepreneurs who lacked technical As seen in Table 5.4.1e, auction prices were significantly experience to successfully implement them. Additionally, above prices paid under PROINFA rounds for both several approved projects that have yet to be built have biomass and mini-hydro projects, while the $82 per MWh been sold to other developers for a profit. Several projects ceiling was more than a third lower than the $127 average have also had difficulties in obtaining financing or paid to PROINFA projects in 2005. environmental licenses, while wind power projects have had additional difficulty in obtaining equipment that meets Despite these shortcomings of the first round, the the 60% local-content requirement, as only two government is expected to continue to use the auction manufacturers operate in Brazil. system to contract with new renewable capacity, rather than returning to the feed-in tariff model. The Ministry of Second Phase — Renewable Power Auctions Mines and Energy is currently studying the possibility of PROINFA was intended to be a first step to jump-start the having an auction for wind projects, expected to be development of the renewable power sector in the carried out in early 2009.145 Due to the price requirements country, which it has achieved to some degree. In the for wind projects, this auction is expected to have a longer run, however, the government wants to develop higher ceiling price compared to the first auction, renewables on a more competitive basis. Now that although it remains to be seen whether it will be set PROINFA has reached its goal (in terms of contracts, if not sufficiently high to successfully attract wind project actual installed capacity), an auction system for new developers. As discussed in the case studies and in renewable capacity will be used to meet Brazil’s goal of Section 5.2.5, the effectiveness of competitive tendering deriving 10% of its power supply from wind, small hydro, programs for renewables is frequently hindered by and biomass sources by 2020.143 government caps that are set too low, as with Mexico’s struggle to auction concessions for wind projects in The first auction for renewable power was launched by Oaxaca at an acceptable price. ANEEL in June 2007, with a ceiling price of R140 (US$82) announced 30 days earlier, and the capacity to be procured announced only at the day of the auction to Renewable Power Development Experience avoid collusion and predatory competition. PPAs were signed with successful bidders for 30 years (mini-hydros) Brazil’s unparalleled combination of vast natural resource and 15 years (biomass). Unlike the first phase of endowments and market size have made it the regional PROINFA, there were no geographic quotas in the auction, leader in renewable power development by far, with 247 with the lowest-cost bids selected regardless of location. MW of wind power and 1.9 GW of small hydropower as of
Blueprint for Renewable Power | Section 5 319 September 2008.146 A total of $4.3 billion in asset with high rainfall where the flow rises into the Andes. financings for wind and small hydro plants in Brazil have The second-largest rainfall area is located in the central been completed since 2005 — nearly 93% of the total for Amazon, with precipitation of 2,500 mm per year, while the entire LAC region across all renewable power projects. the third-largest area is located in the eastern Amazon As noted in the discussion of the country’s renewable near Belém, with 2,800 mm per year.147 power development framework, much of the attractiveness of the Brazilian market is due to the The south, southeast, and west-central regions benefit availability of debt finance for renewable power projects, from the presence of the Paraná River and its tributaries, provided through BNDES as part of PROINFA, with much of which has already been harnessed for respectively 9 of the 11 and 25 of the 40 wind and small hydroelectric purposes, including the famous Itaipú Dam. hydro projects that disclosed their financing details having Southern Brazil’s annual precipitation average varies from received debt funding. This section examines Brazil’s 1,250 to 2,000 mm per year, with Santa Catarina and Rio overall renewable power potential and development Grande do Sul receiving averages of above 2,000 mm. experience for small hydro, wind, solar, and geothermal Much of the region is characterized by the open plains of energy. This section also notes the particular advancement the Pampas and the Araucária open pine forests.148 Both in wind and small hydro projects in recent years, southeastern and midwestern Brazil are characterized as examining recent activities related to key projects and transition regions between the hot, humid Amazonian project developers. climate of the north and the more temperate, mid-latitude climate of the south. Precipitation averages between 1,500 and 2,000 mm per year throughout both regions, Small Hydro although the northern state of Minas Gerais does suffer rainfall shortages. Topographically, both regions are Hydroelectric power is one of Brazil’s foremost energy dominated by the Cerrado, which comprises a assets. Gross theoretical hydroelectric capacity is more combination of wooded areas that tend to follow the than 3000 TWh per year, with an economically exploitable course of water, and more open, savannah-like plains, capacity of over 800 TWh per year, 40% of which has populated by sparser arboreal vegetation.149 been harnessed so far. Small-scale hydro projects (less than 30 MW) are estimated to have an economically In contrast to the rest of the country, northeastern Brazil exploitable capacity of approximately 17 TWh per year, of has the smallest hydroelectric potential due to its semi- which 39% is currently in use. As of September 2008, 1.9 arid climate, with rainfall averaging approximately 1,250 GW of small hydro projects were in place, with over 1 GW mm per year. Caatinga, a semi-arid steppe area with of additional projects under construction or planned. The considerable thorn scrub and dry deciduous forests, sector has garnered US$2.3 billion in asset financings comprises most of the region, and it has suffered from since 2005, from a broad range of investors including desertification, erosion, and prolonged droughts in past international developers like Canada’s Brascan, long- years.150 running, family-owned Brazilian conglomerates like Grupo Brennand, state-owned oil producer Petrobras, and ambitious startups seeking international funding like ERSA. Many of these investors and their projects are Chart 5.4.1j Brazil Hydroelectric Potential and Developed profiled below. Capacity, by Region
Potential 120,000 The potential for hydroelectric power is distributed 100,000 throughout the country essentially on the basis of river systems, while the climate and topography of the 80,000 country also contribute significantly to Brazil’s 60,000 Potential hydroelectric potential. Northern Brazil, home to the MW Amazon River — the world’s largest by volume — 40,000 Installed Capacity possesses the highest potential capacity, receiving the greatest annual rainfall in the country, with three 20,000 abundant precipitation centers located within its borders. 0 Northwest of the Amazon, rainfall exceeds 3,000 mm per North Northeast South Southeast year, due to condensation of humid air brought in by Source: Centro Nacional de Refêrencia de PCHs, UFI151 easterly winds from the Intertropical Convergence Zone,
320 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.1k Small Hydro Plants Beginning Operations in Brazil, 2004–2008 (3Q)
450
400
350
300
250 MW
200
150
100
50
0 2004 2005 2006 2007 2008 (3Q)
Source: ANEEL154
Development has been developed since 2004, when the PROINFA Due to Brazil’s abundant hydro resources, extensive program began. Most of this development is occurring in experience with hydropower, and lower costs compared to southern Brazil, especially in the states of Mato Grosso wind or solar power, small hydro plants have been the and Minas Gerais, which together account for 47% of most developed source of renewable power in the country, small hydro capacity in Brazil, as seen in Chart 5.4.1l. with 1.9 GW of installed capacity as of September 2008. While this includes several small hydro facilities built many Robust small hydro development in the south provides a years or even decades ago, over 1 GW of this capacity stark contrast to northern Brazil, where significant
Chart 5.4.1l Small Hydro Capacity in Brazil
Mato Grosso 26% Minas Gerais 20% Rio Grande do Sul 10% Santa Catarina 10% Goiás 6% Mato Grosso Do Sul 5% São Paulo 5% Espírito Santo 4% Tocantins 4% Parana 3% Rio de Janeiro 3% Rondônia 2% Bahia 2% Alegre < 1%
Source: New Energy Finance155
Blueprint for Renewable Power | Section 5 321 Table 5.4.1f Brazilian Small Hydro Development by State installations but increasingly from small hydro projects Region # of Plants Developed Capacity (MW) as well. The country has an estimated potential to South produce 17 TWh of power from small hydro facilities, of Rio Grande do Sul 16 which just 39% has been harnessed. The country’s Santa Catarina 16 northern Amazonian region, in particular, has major Parana 4 untapped potential, as do many isolated rural Total 36 1167.50 communities elsewhere that need reliable power Southeast/Midwest supplies most. São Paulo 10 Espirito Santo 6 • Low Costs: Small hydropower plants are generally less Minas Gerais 34 expensive to build than wind power projects, with Rio de Janeiro 2 average investment costs of $2,100/kW for small hydro Goias 4 projects versus $2,500/kW for wind projects financed in Mato Grosso do Sul 8 Mato Grosso 35 the country since 2005.161 Moreover, since wind Total 89 884.45 projects usually operate with lower capacity factors than small hydro projects, less power is produced per North kilowatt installed, making small hydro the lowest-cost Rondonia 4 renewable source in most cases. These lower costs Tocantins 12 Total 16 6962.25 have helped to insulate the small hydro sector from concerns over the future of the country’s renewable Northeast power framework, because, unlike wind, small hydro Bahia 2 13134.00 plants have been successfully developed under the new auction system. Total Brazil 148 22148.20
Source: New Energy Finance156; Centro Nacional de Refêrencia de PCHs, UFI157 • Broadening Access to Finance: In addition to low- interest loans from BNDES that have been critical to the development of renewable as well as conventional untapped hydropower potential exists, and where isolated power generation projects in Brazil, a widening array of rural communities could benefit significantly from such domestic and international investors are showing renewable sources of power. While hydropower resources interest in the small hydro sector. In June 2008, the in the populous and developed southeast and midwest Bermuda-based private equity firm Tarpon Investments regions of Brazil have been developed at 47.8% and 41% and the Brazilian firm Winbros purchased a combined of their estimated capacity, respectively,152 only 8.9% of 80% stake in Brazilian small hydro project developer northern Brazil’s hydro resources have been explored.153 Poente Energia, which aims to acquire a 1 GW portfolio While the low cost of small hydropower in Brazil has made of small hydro projects by 2015.162 Shortly thereafter, in it increasingly competitive with conventional grid supplies, July 2008, Brazilian developer ERSA, whose project to a significant extent its success has been due to the pipeline consists primarily of small hydro projects, filed PROINFA program, with small hydro projects comprising for an IPO that will be arranged by Banco Bradesco in 50% of all projects commissioned to date.158 These cooperation with Credit Suisse, in what could be one of PROINFA projects account for 509 MW, or roughly half of the first public offerings for a Latin American renewable this new hydro generation and roughly a quarter of the power company.163 country’s overall small hydropower supplies.159 Obstacles In contrast to wind, small hydro has shown itself to be • Vulnerability to Drought: While small hydro plants competitive even after the end of PROINFA, with six help to increase energy security simply by virtue of projects winning contracts in the June 2007 renewable adding more overall capacity to the Brazilian power power auction, totaling 96.74 MW of capacity, while no system, they do not diversify the country’s generation wind projects were successfully bid.160 mix away from its already-overwhelming dependence on hydropower, thus reinforcing the potential volatility Key Drivers and Obstacles in the country’s power supplies. Compared to large, Drivers dammed hydro facilities, small hydro plants are • Abundant Hydro Resources: Brazil’s abundant generally even more vulnerable to drought-induced hydropower resources provide nearly all of its shortages due to their lack of storage capacity. generation needs, primarily from large-scale
322 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.1m Small Hydro Capacity by Owner
500
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300 MW 250
200
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0 c s A s S can s Enel uez) il PCH CPFL S ER Other s Cele ermica Noveli Bra Engevix Brennand Enernova Bra Hidrot Tractebel ( Source: New Energy Finance165
• Lack of Infrastructure in Rural Areas: As explained, project developers and their projects are profiled below. above, Brazil’s inadequate infrastructure, especially in As in countries throughout the region, small hydro remote areas, has long served as a fundamental projects are also increasingly tied to local social, challenge in developing the country’s isolated regions, economic, and environmental initiatives, improving a significant hurdle for the development of small hydro relations with local communities and breaking definitively in the isolated, but highly endowed, Amazon and from the negative impacts of large hydro projects. northern regions.164 Brascan Energética S.A. Projects A subsidiary of the Canadian global asset management The biggest owners of small hydro capacity in the company Brookfield, Brascan Energética operates and country are the Canadian developer Brascan, the family- manages all of the firm’s power generation assets in Brazil, owned Brazilian conglomerate Grupo Brennand, and including 26 hydro stations located on 18 river systems. Petrobras’s small hydro development subsidiary Brasil Founded in 1999, the subsidiary is currently Brazil’s largest PCH. The sector, as a whole, is similarly characterized small hydro generator, managing 29 plants in operation by a diverse range of domestic and international with a total of 411 MW of power generation as of investors, and recent moves by small hydro developers September 2008.166 Currently, five plants totaling over 127 Winbros and ERSA to secure private and public equity MW are expected to be completed by the end of 2009, financing, respectively, is indicative of the sector’s and approximately 700 MW of development projects are broadening investment appeal. A number of these expected to be built within the next five years.167 Brascan
Blueprint for Renewable Power | Section 5 323 has developed many of these projects in recent years operate, and maintain small hydro plants.173 To this end, in under PROINFA and has been a pioneer in utilizing carbon April 2007 the company invested $343.8 million in a small credits for small hydro in the country, having created a hydro project portfolio originally developed by Areva methodology for the calculation and marketing of carbon Koblitz, a Brazilian renewable power project developer that credits in collaboration with the International Finance is owned by France’s Areva. The Koblitz portfolio includes Corporation (IFC). Brascan was the first company to sell nine projects with a combined 215 MW of capacity, all of carbon credits in Brazil and has sold 2.4 million tons of which have contracts under PROINFA. The first four carbon credits generated by its eligible plants to date.168 projects have come online as of September 2008, which amount to 86.5 MW capacity located entirely in Minas In addition to developing new small hydro capacity, Gerais. These projects are noteworthy for the numerous Brascan has been acquiring both built and undeveloped environmental and social-development initiatives that projects to expand its portfolio. In July 2007, the accompany them, as shown in Table 5.4.1g below. company struck a deal with the Brazilian firm Energisa, in which Brookfield, via Brascan, acquired 11 operating Many of these initiatives directly benefit not only hydroelectric stations with a combined generating surrounding communities but the operation of the plant capacity of 45 MW, under a long-term power-purchase itself, including erosion control, water-quality monitoring, agreement. The deal also included a 188 MW pipeline of revegetation, and waste disposal. However, many are also greenfield hydro projects.169 In July 2008, Brookfield focused on producing direct benefits to the community in announced that it planned to invest another $634 million in particular. These social initiatives, along with Brasil PCH’s the Brazilian small hydro sector with a consortium of other prominent feature of them on its website, demonstrate that investors due to increasing power prices, which have Petrobras is aware of the importance of good community made previously unprofitable small hydro projects relations for the sustainability of any energy project, likely viable.170 According to Brookfield, five small hydro plants reflecting its long experience in the oil, gas, and, more are expected to be commissioned by the third quarter of recently, biofuels industries. 2009, including three hydro plants with a combined 62 MW of capacity in Rio Grande do Sul, a 39 MW plant in Energias Renováveis S.A. Brasil (ERSA) Minas Gerais (which technically surpasses the limit of 30 Renewable power developer ERSA was created in late MW on small hydro plants in Brazil), and a 26 MW plant in 2006 by Brazilian capital management firm Patria Santa Catarina.171 Investimentos. It has since garnered the participation of U.S. private equity firm Eaton Park as well as investment Brasil PCH banks Deutsche Investitions und Entwicklungsgesellschaft Motivated by the incentives provided by PROINFA as well (Germany’s DEG) and Brazil’s Bradesco BBI, which own as by the growing profitability of small hydropower 38.26%, 10.81%, and 9.87% of the enterprise, projects in Brazil, state oil company Petrobras — the third respectively, while Patria Investimentos owns the largest company in the Americas by value after remaining 41.06%. ExxonMobil and General Electric — has diversified its business in the energy sector with the creation of Brasil Though recently created, ERSA has already amassed a PCH.172 Through this company, Petrobras (along with substantial portfolio of small (up to 30MW) and medium- partners Araguaia Central Electric SA, BSB Energy SA, sized (up to 200 MW) renewable power plants. Currently, Eletroriver SA, and Jobelpa SA) will develop, build, plan, the company’s project pipeline includes 23 projects
Table 5.4.1g
Bonfante (19 MW) Carangola (15 MW) Funil (22.5 MW) Santa Fe I (30 MW) • Erosion Control • Flora Conservation • Erosion Monitoring • Environmental Management and Supervision • Monitoring of Water Quality • Recomposition Program for Riverbank • Degraded Areas Rehabilitation • Infrastructure Reorganization • Recovery of Degraded Areas Vegetation • Wildlife Rescue • Aquifer Monitoring • Environmental Education • Water Quality Monitoring • Program for Community and • Basin Cleaning Program • Endangered Species Monitoring Public Power • Biodiversity Conservation • Environmental Education Program • Waste Disposal and • Rafting Activities Support • Health Facilities Improvements Composting Plant • Plan for Social Assistance • Hiring of Doctor for Community
Source: Brasil PCH174 175 176 177 178
324 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf totaling 524 MW of potential installed capacity, 21 of with the equivalent of 360 MW of direct heat applications which are small hydro projects.179 ERSA’s portfolio in the agricultural, industrial, recreation, and tourism includes one operational small hydro plant (16.0 MW), sectors.186 eight small hydro plants under construction (121.0 MW), seven small hydro projects authorized by ANEEL (totaling Recent research is drawing 82.5 MW), five such projects awaiting ANEEL authorization (totaling 93 MW), and two wind farm attention to the potential of projects (211.5 MW).180 Engineered Geothermal Systems
ERSA also has two wind farm projects, capable of (EGS), also known as “hot dry generating a total of 211.5 MW, including an August 2008 rock” (HDR) geothermal, in Brazil. acquisition of Iberdrola’s 161.5 MW Macacos wind project, in Rio Grande do Norte.181 For the next five years, according to its business plan, ERSA intends to build a Recent research, however, is drawing attention to the portfolio of renewable power plants in different potential of Engineered Geothermal Systems (EGS), also development stages, with a total installed capacity of known as “hot dry rock” (HDR) geothermal, in Brazil. 2,700 MW. The company is currently surveying These types of geothermal plants are still experimental, approximately 2,000 MW in potential wind power projects but their ability to produce power from “dry” subsurface and around 1,000 MW in small hydropower projects in areas injected with water to produce steam could order to reach this goal.182 significantly expand the universe of potential geothermal projects to areas, such as Brazil, that lack naturally The company has taken advantage of a number of occurring hydrothermal reservoirs. A recent study available incentives at home and abroad, acquiring estimates that the rift basins on the eastern border of projects with PROINFA contracts as well as registering Brazil, primarily around Potiguar, Barreirinhas, Tacutu, projects to receive carbon credits.183 ERSA has also and Taubaté, have high geothermal potential due to their recently filed for an IPO, reflecting the company’s growing locations as flow systems on a regional scale, which are internationalization and the increasing attractiveness of linked to the deep faults found at the flanks of investments in the Brazilian small hydro sector. Although continental rift systems. The study’s extrapolations are no details as to the number of shares to be issued or their based on the Soultz Concept, which has been used to price have been released, the company has stated that it explore HDR geothermal resources in Soultz, France. would seek placements on both the Brazilian and The authors believe that eastern Brazil has similar international markets.184 The move would be one of the geological characteristics, and thus the potential for EGS first IPOs for a renewable power company in Latin generation.187 America.
Wind Geothermal Wind Power Potential Geothermal Power Potential The total wind potential in Brazil is estimated to be Brazil’s current lack of utilization of its geothermal power approximately 143,500 MW, a power generation potential generation reflects the very limited existence of suitable equal to that of ten Itaipú dams, the largest in the world. geothermal resources in the country. In fact, most This resource is strongly underutilized, as current wind analyses of the region’s geothermal potential do not farms produce a total of 247 MW annually. There are mention Brazil due to its lack of geological activity. As currently 14 wind power plants under construction, which discussed in Section 5.2.2, worldwide geothermal are funded by PROINFA and are estimated to provide hotspots with the highest potential tend to be correlated 107.3 MW of future capacity. with the edges of tectonic plates and other hubs of geological activity, which are generally not found in Brazil’s The northeastern, southeastern, and southern regions of vast territory. Research undertaken by the Geothermal the country show the highest potential for wind power Laboratory of the National Observatory indicates that projects, with northeast Brazil having large pockets of high-temperature geothermal heat in the country only land where wind speeds reach an average of 6 m/s, as exists in offshore Atlantic islands.185 Despite this lack of well as areas in southern Bahia where wind speeds reach high-temperature resources suitable for generating power, an average of 8 m/s. The coastal regions of the northeast there are significant low-enthalpy resources being utilized, are also potentially profitable, with wind speeds reaching
Blueprint for Renewable Power | Section 5 325 up to 9 m/s along the northern coast.188 The country’s this bottleneck, it is unclear how long it will take for southeastern region has similarly high potential. Large domestic production to reach a level sufficient to develop portions of land, especially in the southeast region of São these projects, or whether developers will still be Paulo, have average wind speeds of 6.5 m/s, with areas interested in building the projects once the turbines reaching speeds of up to 9 m/s in northern Minas Gerais become available. 192 193 194 and along the coast.189 The southern region of Brazil has arguably the most potential for consistent wind power Moreover, the high costs of wind generation compared to production. Large swaths of 6.5 m/s speeds cover the conventional as well as other renewable power sources region, and the southeastern region of Rio Grande do has made its development highly dependent on the Sul has a large, consistent pocket of 7.5 m/s winds.190 availability of adequate government incentives. PROINFA’s tariffs were set according to the costs of each technology, Wind Power Development Experience ensuring wind developers an adequate payback. Brazil has established itself as Latin America’s largest However, as the government moves to a system of wind power producer thanks to the incentives provided competitive wind auctions for the development of new by the PROINFA program, with 218 MW installed projects, it is unclear whether bidding caps will be set capacity in 2008.191 However, of the three kinds of sufficiently high to encourage new investments in the alternative electricity projects supported under sector. A first auction, held in June 2007, set prices at a PROINFA, construction of wind power plants has maximum of R140 (US$82) — one-third less than the advanced the least. Only 11% of wind projects R210 (US$124) that wind developers estimate is the contracted with PROINFA have been built, compared to minimum required to make these projects profitable. 70% and 40% of biomass and small hydro plants, respectively. The government blames some of the Projects delays in construction on projects that were proposed Osorio Project by entrepreneurs who lacked technical experience to The biggest wind park in Latin America, the Osorio project implement them successfully, as well as the sale of in southern Brazil’s Rio Grande do Sul State, is some projects to other developers for a profit instead of responsible for 63% of wind power production in the actually building them. country. With 75 wind towers, each 98 meters high and weighing 810 metric tons, the Osorio wind farm has an Only 11% of wind projects installed capacity of 150 MW, distributed equally among its three wind parks: Osorio, Sangradouro, and Indios. The contracted with PROINFA have Osorio project is managed by Ventos do Sul, a company been built, compared to 70% and created by owners Enerfin/Enervento — a subsidiary of Spain’s Grupo Elecnor — and wind turbine manufacturer 40% of biomass and small hydro Wobben — a subsidiary of Germany’s Enercom. plants, respectively. Operational since 2006, the project required an investment of $361.29 million, 69% ($250.75 million) of which was financed by BNDES, while the rest was financed by Grupo However, a major reason for the delay in the Elecnor. development of these projects has been the 60% local- content requirement under PROINFA, which has been Despite the obstacles facing the development of wind much more difficult to satisfy for the country’s nascent power projects in Brazil, Grupo Elecnor has plans to wind manufacturing sector, compared to the long- double the installed capacity of the Osório wind farm to established hydro and biomass sectors. The only 300 MW, an investment that would require $431.40 Brazilian wind power manufacturers have been Wobben million. The group also intends to invest in solar projects Windpower — a Brazilian subsidiary of Germany’s in Brazil with local partnerships, under the Luz Para Enercon, and the only domestic manufacturer to build Todos program, although the group has not disclosed complete wind turbines — and Tecsis, a producer of locations or partnerships where and with which it intends several key turbine components. The limited number of to implement such projects. national manufacturers has led to significant bottlenecks for project developers in the country, contributing greatly Rio do Fogo Project to the low proportion of PROINFA-contracted wind Known as the “City of the Dunes,” the capital of Rio projects that have actually been built. While the planned Grande do Norte State, Natal, is home to Brazil’s second opening of manufacturing plants this year by Argentina’s largest wind farm. Located between the ocean shoreline IMPSA and Germany’s Fuhrländer should help to ease and the coastal highway 60 miles away from the capital,
326 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf the Rio do Fogo project has 49.3 MW of installed Solar Power capacity generated from 62 Wobben turbines, each capable of producing 800 kW. Operational since 2006, The United Nations Environment Program recently the project was developed by Enerbrasil, a Rio de undertook an extensive GIS mapping project in order to Janeiro–based subsidiary of Spain’s Iberdrola determine solar and wind energy endowments for regions Renovables, the world’s largest renewable and wind throughout the world, known as the Solar and Wind power developer. Financed under PROINFA, most of the Energy Resource Assessment (SWERA). The program project’s equipment was built in Brazil, with only the began in 2001 and mapped the energy potential of 13 control systems installed in the machines being imported developing countries, including Brazil.200 SWERA’s from Germany, which represents 0.5% of the total value extensive mapping of Brazil’s solar potential has of the turbine. The remaining equipment was made in determined that Brazil’s potential for solar power Brazil,195 with the blades and concrete towers generation ranges from 5 to 6.5 kWh/m2/day, with the manufactured in Pecém, Ceará, and the wind turbine sunniest areas in the central-eastern region of the machines in Sorocaba, São Paulo.196 country.
Solar photovoltaic (PV) power has the potential to be Because rainy and windy seasons highly effective in Brazil. Particularly for remote rural communities that are not connected to the grid, PV can be generally alternate, wind power in a very cost-effective way to receive power.201 Under the Brazil can complement PRODEEM rural electrification program discussed below, a total of 5.8 MW of solar photovoltaics have been hydropower generation, bringing installed for off-grid applications, and the Ministry of Mines increased security to Brazil’s and Energy estimates that there is potential for as much as energy portfolio. 100 MW of these types of projects. However, the costs of solar power are too high to be a The project’s impact on the socio-environmental welfare competitive source of power generation without major of local communities has been considered generally subsidies, as evidenced by its lack of grid-connected positive. A series of seven public meetings were held in development outside of the U.S. and EU. Additionally, 2005 to inform the public about the project, take solar power was not included in the PROINFA program, questions and concerns from the community, and doubtlessly due to the much higher subsidies that would consult with landowners affected by the project’s be required, compared to wind, small hydro, or biomass, transmission lines.197 Positive impacts of the project and there are no plans to incorporate solar into future include the creation of 500 direct and 250 indirect jobs renewable power auctions. The development of a during construction, ISS tax revenues on services from separate framework, including a feed-in tariff or the project, and improvement of local infrastructure comparable incentive, will likely be necessary to spur the through the construction of roads for project access. development of this huge potential resource for at least Observers expect that the novelty of the wind project will the near term, although solar costs are expected to drop attract tourists, increasing tourism opportunities in the substantially over the next decade. area, as curiosity over the project could increase tourist use of local beaches and more investment in the area’s food and hospitality industries. The project is also Rural Electrification serving to help the state become a net exporter of power, as well as providing poor families with electricity. Energy Development of States and Municipalities Environmental impacts are considered to be strongly (PRODEEM) positive as well. According to current estimates, the Established in 1994, PRODEEM focused on promoting the project is projected to reduce CO2 emissions by 15,091 electrification of poor rural communities lacking access to tons each year, for a total of 105,635 total tons the national grid. Coordinated by the National Energy eliminated in 2014.198 It is also expected to complement Development Department, under the Ministry of Mines and hydropower resources, as the rainy and windy seasons Energy, PRODEEM had four objectives:202 alternate, bringing increased security to Brazil’s energy portfolio.199 • Facilitate the installation of microsystems for local electricity production and use in poor, isolated rural communities
Blueprint for Renewable Power | Section 5 327 • Promote the use of decentralized electricity generated close to being met in southern and southeastern Brazil, by small producers while in the north and northeast they were expected to be • Complement the supply of conventional energy completed by the end of 2008. The Ministry has also been resources with renewables catologuing technical data from all PRODEEM projects, • Promote the development of human resources and which are expected to become publicly available soon.207 technology in the energy sector Renewables in Luz Para Todos The program promoted rural electrification through the While the Luz Para Todos rural electrification program has use of photovoltaic (PV), wind, and fossil fuels, although mainly focused on conventional grid-extension activities, the focus was mainly on PV systems. Such systems were distributed renewable technologies are increasingly implemented with the goal of improving the playing a role as well, according to the program’s policy of communities’ quality of life and therefore were not using them “whenever possible.” As of 2006, Luz Para intended for private use. As such, three types of PV Todos had installed a total of 38 pilot projects in isolated systems were used under the program: PV electricity communities in the Amazon region using renewable generation systems, PV water pumping systems, and PV energy sources. Of these projects, five came from public lighting systems.203 The program has installed a biomass, five from vegetable oil biomass, five from total of 5.8 MW in solar capacity,204 with most of the gasified biomass, five from hybrid systems, five from equipment installed occurring in the north and northeast biodiesel, one from photovoltaics, one from fuel cells, and regions of Brazil.205 eleven from hydroelectric systems.208 Recommendations by the program director note that PV systems are most A 2002 PRODEEM evaluation by the Brazilian Court of effective for isolated houses, that mini-grid hybrid power is Audit (TCU) identified three major difficulties for the most effective for isolated communities, and that solar and program.206 The first issue identified was the lack of diesel power are most effective for more dispersed control over equipment, as the program lacked a indigenous villages.209 registration system outlining their status and location, with several PV systems not accounted for. Secondly, The Luz Para Todos program has the evaluation noted a lack of integration with other government programs, which could increase the socio- found that PV systems are most economic benefits associated with electrification. For effective for supplying power to example, the study noted that several PV systems had been installed in areas that already had access to the isolated houses, that mini-grid national grid, revealing the project’s lack of integrated hybrid power is most effective for planning. Thirdly, the TCU evaluation pointed to the isolated communities, and that program’s strong reliance on foreign technology, which contradicts one of the program’s main objectives of solar and diesel power are most developing national technologies and industries. effective for more dispersed
In an effort to address the issues raised by the TCU indigenous villages. evaluation, the government adopted a plan in 2003 to reassess and reformulate the program. Known as the In 2007, Winrock International and the Renewable Energy Revitalization and Empowerment Plan (PRC-PRODEEM), & Energy Efficiency Partnership (REEEP) worked together the plan is operationalized by four Eletrobrás to develop a pilot micro-hydro project in the Amazonian subsidiaries: Eletronorte, Furnas, CHESF, and Eletrosul. state of Pará.210 In terms of renewable power, it is Its operational aspects focus on (a) revitalizing the estimated that the use of approximately 130,000 PV systems installed by the program, by either reinstalling systems is the most economically efficient option for systems that need repair or removing those in areas about 17,500 localities with small populations in the covered by the Luz Para Todos program; and (b) Amazon territory. A further 2,300 villages with about empowering communities by training local technicians to 110,000 buildings could be equipped with a mini-grid operate and repair PV equipment. based on photovoltaics or biomass sources. In addition, 680 medium-sized communities could be supplied on PRODEEM has been incorporated into the Luz Para Todos the basis of hybrid systems, and 10 larger communities program, although its revitalization plan is being carried could be provided with power generation based on out, in practice, as a separate program. According to the conventional diesel generators or hybrid systems. By the Ministry of Mines and Energy, the plan’s objectives are end of 2006, six applications for schemes using
328 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf renewable resources had already been approved within potential will play a key role in not only providing for the program, all of them solar home systems (SHS), greater energy security, but also expanding the country’s amounting to 3,071 installations.211 economic growth potential. While Brazil boasts one of the largest transmission networks in the world, with approximately 95% of all Brazilian households having Conclusions access to the grid, over 12 million Brazilians lack reliable connections to the grid, 10 million of whom are located in Although Brazil possesses formidable hydropower remote rural areas. The ambitious Luz Para Todos program resources, this abundant availability of a cheap renewable has made major strides, providing electricity to 8.2 million resource has traditionally contributed to the country’s people since its inception in 2003. Such programs help to neglect of other potential sources of renewable electricity. achieve concurrent goals of energy security and economic As a continental country, Brazil holds significant solar, development, and their continuation and potential wind, biomass, and small hydro potential, and until expansion will be critical to pursuing these objectives. recently, these resources have been largely underutilized. Brazil’s growing realization of the perils associated with an overdependence on hydropower has served to reorient the government’s focus toward alternative renewable power sources only recently. This reorientation has brought about the creation of a unique feed-in tariff program that has incentivized a wave of investments in renewables, particularly in small hydro and biomass projects, creating an environment conducive to the development of Brazil’s alternative energy resources.
Despite these significant achievements, barriers remain that could stymie the development and adoption of renewables in Brazil. With the government increasingly focusing on auctions to stimulate investments and efficiency in these sectors, it is yet to be seen whether this will result in a competitive and efficient renewable power sector, or whether this focus on low-cost bids will lead to the gradual abandonment of investments in such areas. Solar and wind power projects are unable to compete with lower-cost small hydro and biomass projects, as ceiling prices at public auctions do not adequately reflect the current costs of wind power development, and as solar power development currently lacks government support. So far, an auction system focusing on low-cost bids has barred wind projects from establishing contracts with distributors, despite significant government incentives. The government has already signaled a structural change in the auction system by carrying out a separate tender for renewable power, although a further breakdown is needed, with separate auctions for each of the renewable power sectors, adequately reflecting start-up costs. While the Ministry of Mines and Energy is discussing the possibility of carrying out a separate auction system for wind in 2009, it remains to be seen whether such an auction will occur, and whether auction prices will match cost expectations in the wind power sector.
As Brazil begins to focus increasingly on alternative sources of energy beyond its massive hydropower plants, harnessing the full spectrum of its renewable power
Blueprint for Renewable Power | Section 5 329 5.4.2 MEXICO that are rivaled in Latin America only by those of Argentina’s Southern Patagonia region. Although as of early 2009 there were just two CFE-owned wind farms Introduction with a combined 85 MW of capacity, there is a pipeline of 2 GW of potential wind projects under development in Mexico is the largest Spanish-speaking country in the Oaxaca alone by the private sector under self-supply world, with over 100 million people, and it is the second arrangements with industrial and other large consumers largest economy in Latin America behind Brazil and the over the next few years. There is also a unique only Latin American country that is a member of the opportunity to export to U.S. markets in the Baja OECD. It is also the last major country in Latin America California area, where 1.2 GW of export projects are with an electricity sector run by a single, vertically planned. integrated, regulated state utility, the Comisión Federal de Electricidad (CFE).1 As with Pemex, the state oil and gas • Solar: High levels of solar insolation, with countrywide monopoly, the huge and growing costs of financing CFE’s average of 5 kWh per square meter per day, and many sprawling and inefficient operations are beginning to areas with over 7 kWh, have also made Mexico an early hamper its ability to make needed investments in regional leader in the development of solar energy. At maintenance and the development of new capacity, the beginning of 2008, it had an estimated 19 MW of impacting service quality and leading to growing questions solar photovoltaic generation and 840,000 m2 of about its ability to meet long-term demand growth. installed rooftop solar water heaters, both of which lead all of Latin America. In 2007, it became the first Latin Renewable power is increasingly being looked to as an American country to pass a net metering law. Solar important resource to harness for this future growth as power will also be the focus of its first rural electrification well as an opportunity to facilitate greater private program dedicated to renewable power, which began in participation in the energy sector and improve its early 2008 and will focus on the southern states of environmental performance. While it is widely known as a Veracruz, Guerrero, Oaxaca, and Chiapas. major oil and gas producer and a key source of U.S. energy imports, Mexico also possesses enormous These first steps toward harnessing Mexico’s renewable renewable resources, including wind, geothermal, solar, resources have been made despite minimal policy support and small hydro. in recent years, although this situation may be changing. In December 2005, the lower chamber of Congress passed • Small Hydro: Although Mexico is less dependent on what would have been Mexico’s first renewable energy bill, hydropower resources than many countries in Latin the Renewable Energy Utilization Law (LAFRE), which America due to its plentiful fossil fuels resources, it still sought to provide a new legal framework and incentives for utilizes large hydro for 11 GW of generating capacity, renewable power that would increase the share of non- about 23% of the country’s total. It has an estimated large hydro renewables in the national generation mix from 3.3 GW of potential capacity for small hydropower 2% to 8% by 2012.2 However, the Senate never took up plants, but this has seen little development outside a the legislation in its original form, and in November 2008 a handful of projects developed utilizing existing irrigation revamped Law for the Use of Renewable Energy and channel infrastructure. However, a new initiative being Financing the Energy Transition was finally passed, which undertaken in Oaxaca is seeking to develop hundreds will require the Energy Ministry to create new rules and of megawatts of small hydro projects for the supply of incentives for renewables over the course of 2009.3 The off-grid communities and small businesses. legislation also calls for the creation of a fund providing $220 million in support for renewables annually for each of • Geothermal: CFE has been developing the country’s the next three years. While this establishes a promising considerable geothermal power resources since 1973, outline for a new renewable power development and its 960 MW of capacity today ranks third in the framework, the actual implementing regulations will not be world and first in Latin America by a considerable published until at least mid-2009, making it difficult to margin. CFE estimates that there is potential for at least assess how effective the new policies are likely to be. another 2.4 GW, and it is in the process of tendering an additional 100 MW. The development of Mexico’s potential in this area is also stifled by its regulated electricity sector, which currently • Wind: The state of Oaxaca, in Mexico’s south, is home offers only limited avenues of participation for the private to some of the strongest wind resource sites in the sector.4 Private sector participation in the Mexican market world, with incredibly strong and steady class 7+ winds must be channeled through either self-supply
330 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf arrangements (under which project developers must find of the country that receive 7 kWh per square meter per private sector off-takers for their entire output), day of solar energy; an estimated 2.4 GW of potential independent power producer (IPP) contracts with CFE, or geothermal capacity; and an estimated 3.3 GW of under small producer agreements applicable to projects of potential small hydro capacity. 30 MW or smaller. While this could present a range of opportunities, in reality, the prices CFE is allowed to pay • Rising Power Prices: Power generating costs in under the last two options are restricted by its least-cost Mexico are rising with the steady growth of natural mandate, which has proven an uneconomical basis for the gas–fired generation, and these costs are increasingly development of any renewable power so far. All private being borne by large industrial, commercial, and sector development is thus currently directed toward self- municipal users, whose high tariff levels cross-subsidize supply arrangements or exports to the U.S. New rules the consumption of residential and agricultural users. governing the purchase of power from renewable These users are thus increasingly exploring the potential generators as well as self-supply projects by CFE are being for hedging against these rising costs by contracting for planned for 2009, but until the details of these new policies renewable power from private producers under self- are published it will be difficult to assess whether they will supply arrangements. substantially expand private participation in the sector. • Increasing Natural Gas Imports: The surge in new First steps toward harnessing natural gas–fired capacity over the past decade has led to a growing dependence in Mexico on imported gas Mexico’s considerable renewable supplies, which have contributed to rising generating resources are being made, despite cost. Planned additions of LNG receiving terminals will continue this trend toward increasing imports and the minimal policy support given to associated exposure to the volatility of international their development thus far. markets, which are vulnerable to price spikes and supply interruptions. Concerns about high prices as Moreover, highly and inefficiently subsidized power tariffs well as security of supply will make renewables for residential customers in particular limit the usefulness increasingly appealing, and the steps being taken by of the net metering law in encouraging photovoltaic large, private sector users to secure wind power generation, with the payback time for a home solar supplies are being made in anticipation of this long- generating system for an average Mexican household term reality. estimated at 67 years at current prices. These subsidized tariffs have also forced CFE to run continued operating • Self-Supply Generation Framework: While private shortfalls that, as with Pemex’s budget, have become a sector generators may not freely participate in the growing drain on national finances and present a limit on generation of electricity for public service, which is the availability of funds for new investments as well as limited to plants built by CFE or by independent power potential renewable power incentives. producer (IPP) concessionaires, private companies may build plants for other private sector users under the self- Thus, while plans are underway for significant additions of supply framework established by the 1992 Electricity renewable generation capacity, including both public and Law. Although lining up off-takers for a plant’s entire private projects, the sector’s full development is still notably output can be an arduous task, it has provided an constrained. Changes to make the existing framework important avenue for private renewables developers. In more viable for renewables could be made under the new addition to 52 MW of self-supply small hydro capacity renewable energy law, but it remains to be seen how far developed by the Comexhidros group, there are 2 GW these initiatives will go in making more fundamental of self-supply wind power projects being developed in reforms to the sector. Oaxaca alone — equal to nearly a third of all the self- supply generation projects developed previously, most of which have been gas-fired thermal plants. Key Drivers and Obstacles for Renewable Power in Mexico • U.S. Export Opportunities: Mexico also enjoys a unique opportunity to export power to the U.S. from the Drivers Baja California grid, which is connected to the grid of • Broad Renewable Resource Base: Mexico has an California and is isolated from the rest of the national impressive range of renewable resources, with some of CFE network. Private generators may freely participate the world’s best wind sites in Oaxaca; areas in the north in export projects, and three 400 MW wind farms are
Blueprint for Renewable Power | Section 5 331 being developed in the La Rumorosa mountains to take including targets for renewables as a portion of overall advantage of the area’s strong winds and the high generation, standard contracts for the purchase of prices and guaranteed demand provided by California’s renewable power by CFE, and new rules for the renewable portfolio standard (RPS). Moreover, the purchase of surplus energy from renewable self-supply proximity of the huge California solar market has lured and cogeneration projects. It also sets aside $220 top photovoltaics manufacturers Q-Cells and Kyocera million annually from 2009-2011 to promote to locate production facilities for thin-film solar cells renewables, potentially through means including loans, and solar modules, respectively, in Baja California. loan guarantees, grants, and other incentives. However, while this establishes a promising outline for • Public Sector Support for Solar: Mexico has been a new renewable power development framework, the pro-active in supporting solar energy in particular, and actual implementing regulations will not be published in 2007 it passed Latin America’s first interconnection until at least mid-2009, making it difficult to assess rule providing for net metering and established how effective the new policies are likely to be. PROCALSOL, the most ambitious solar water heating program in the region. With assistance from the World • Limited Private Sector Participation: Although Bank and GEF, in the first half of 2008, Mexico also several avenues for private sector participation were began a new rural electrification program that aims to provided for by the 1992 Electricity Law, these use solar to bring power to remote communities in the frameworks are all less flexible and more challenging country’s south. A technical cooperation initiative of for project developers than deregulated markets in the Inter-American Development Bank and the which private power producers may freely connect to Japanese Trust Fund for Consultancy Services that will the grid and sell power under long-term bilateral provide solar photovoltaic panels to low- and medium- contracts and/or sell power into a competitive income households in Baja California is also under wholesale market at its marginal generation cost. development. Public funds are also being directed Moreover, the private sector is effectively prevented toward the development of concentrating solar from participating in the development of geothermal thermal power (CSP), with an attempt to concession a power by laws giving CFE the exclusive right to hybrid combined-cycle/CSP plant as an IPP and the develop subsoil hot water and steam resources. establishment of a new CSP research center at the University of Sonora. • CFE’s Least-Cost Mandate: CFE is required by law to pursue power for the public sector at the lowest • Environmental Degradation: Mexico suffers from possible cost, and it has interpreted this mandate increasingly serious air pollution problems owing to rapid strictly, focusing its efforts to develop new capacity economic and population growth. While the levels of almost entirely on combined-cycle natural gas IPP renewable power growth currently being contemplated plants. This mandate has hindered CFE’s ability to would not make a significant impact on overall pollution concession wind power under the IPP framework, as levels in the country, a more widespread, longer-term its attempt to tender the La Venta III project in 2007 transition to renewables for power generation could failed because no developer could build the project at eventually halt and reverse these trends. As home to or below CFE’s threshold cost, despite the offer of one fifth of the country’s population and its highest subsidies of up to 1.5 cents per kWh from the World concentration of pollution, Mexico City presents a Bank. This mandate also sets the price CFE pays for particularly compelling target for a strong push toward surplus power from self-supply projects or small renewables and could be well-suited to the development power producer projects, which is generally set by the of urban solar energy programs. short-term marginal cost of CFE’s gas-fired plants.
Obstacles Although the least-cost standard rose in 2007 and • Absence of National Renewable Power Policy: early 2008 with higher gas prices, it was still generally Despite efforts to enact wide-ranging renewable too low to make up for the higher costs of current energy incentives as early as 2005, Mexico struggled renewable power technologies. The November 2008 to pass legislation to support the sector’s renewable energy law may help remedy this with the development until November 2008, when the Law for development of new accounting methodologies to the Use of Renewable Energy and Financing the more fully incorporate the positive externalities Energy Transition was signed by President Calderon. associated with renewable energy generation, as well The legislation directs SENER and CRE to establish a as new rules for CFE’s purchasing of surplus power number of new regulations to support renewables, from renewable self-supply and cogeneration
332 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf projects. However, until the implementing regulations Electricity Supply and Demand are published, it is impossible to say whether these changes will be sufficient to encourage significantly A Growing Dependence on Natural Gas greater development of renewables. By the end of December 2007, Mexico’s public service electricity sector had 51 GW of power generating capacity, • Subsidized Power Tariffs: Mexico’s highly and including 23.2 GW of oil- and gas-fired thermal capacity inefficiently subsidized power tariffs are a burden on operated by CFE and 11.5 GW of thermal capacity the entire sector and directly and indirectly impact the operated by IPPs; 11.3 GW of hydro plants; 2.6 GW of development of renewables. Their largest direct coal; 1.4 GW of nuclear; 960 MW of geothermal; and 85 impact is on the development of the photovoltaic MW of wind power.5 Almost all of the new capacity added sector, where net metering rules could encourage over the past decade has been combined-cycle natural greater use of this type of generation but are undercut gas plants, which increased their share of the national by artificially low tariffs for grid-based electricity. This generating mix from 7% in 1996 to 47% in 2007, reducing results in extraordinarily long payback times for solar the share of conventional thermal and hydro plants from power systems — 67 years for average residential 70% to 30% over the same period.6 consumers and 43 years for commercial consumers. Three-quarters of all new capacity additions over this Indirectly, CFE’s growing subsidies, along with more period have come from plants developed as IPPs by general inefficiencies in the power sector, have resulted private sector investors, in a clear sign of how important in increasing budget shortfalls, which have placed a this framework has been for keeping up with growing growing burden on public finances. This has resulted in power demand despite limited CFE investment budgets. inadequate investments in maintenance and new investments in the power network as well as a potential However, in their emphasis on meeting this demand with barrier to the development of new government support low-cost generation from combined-cycle natural gas programs for renewables. plants, these projects have also substantially increased
Chart 5.4.2a Installed Power Generation in Mexico (MW)
60,000
50,000
40,000 Wind Geothermal MW 30,000 Nuclear Coal Thermal (IPP) 20,000 Thermal (CFE) Hydro
10,000
0 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: SENER7
Blueprint for Renewable Power | Section 5 333 Chart 5.4.2b Power Generation in Mexico, January – June 2008
Fossil Fuel Mix
CFE Fossil Fuel 47% Fuel Oil 41% IPP (Gas Turbines) 32% Diesel 1% Nuclear 5% Coal 24% Geothermal 3% Natural Gas 34% Wind < 1% Hydro 13%
Source: SENER10
Mexico’s demand for natural gas, which has resulted in In its most recent set of projections for the sector, SENER growing imports due to stagnating gas production from projects that public service power consumption will Pemex. Gas imports accounted for 20% of the country’s increase at a rate of 4.9% through 2016, a slightly faster total gas consumption in 2006, and this dependence is pace than the 4.3% it grew on average between 1996 and projected to increase to 25% while overall gas use in the 2006. Self-service supplies, meanwhile, will grow at a power sector increases five-fold through 2020.8 As plans slower rate of 2.7% per year, reflecting a slowing of move ahead for LNG import terminals, these gas imports demand due to the expected increase in public sector will be increasingly costly as well. projects.11
Mexico has also seen a growing number of projects 60% of these new capacity additions, or about 12 GW, are being developed by private sector companies under self- expected to come from new thermal plants, including supply frameworks, discussed in more detail below. A nearly two-thirds of all public sector plants. Continuing the total of 6 GW of self-supply capacity was installed at the trend of the past decade, most this new thermal end of 2006, including 1.5 GW for Pemex alone, 3.4 GW development is expected to come from natural gas–fueled for heavy industry, and 1.1 GW for agricultural, municipal, combined-cycle plants. By contrast, wind power projects and service sector use.9 As with recent additions under in Oaxaca are expected to make up the majority of new the IPP program, these plants are mostly gas-fired self-supply projects, with 2 GW comprising 70% of the thermal plants. total of new additions.13
Overall, these trends have left the Mexican power sector Inefficiently Subsidized Tariffs heavily dependent on natural gas as well as fuel oil and CFE and Luz y Fuerza Central (LFC), the state-owned coal in CFE-owned thermal plants, which combined to distributors for the Mexico City area, are required to account for nearly 80% of Mexico’s electricity supply in the provide electricity at the regulated rates, which are first half of 2008. Of this fossil fuel generation, a total of characterized by significant differentiation among 34% came from natural gas, 42% from fuel oil and diesel, categories and high levels of subsidization for residential and 24% from coal. and agricultural users. Tariffs are set by the revenue sub-
334 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.2c Past and Projected Power Consumption (TWh)
350
300
250
200 Self-Supply TWh
150 Public
100
50
0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: SENER12
Chart 5.4.2d Projected New Capacity Additions (MW)
1,400
1,200
1,000
8,000
MW Self-Supply
6,000 Public
4,000
2,000
0
Coal Hydro Wind Thermal eothermal Source: SENER14 G
Blueprint for Renewable Power | Section 5 335 Chart 5.4.1e Average Retail Electricity Prices by User
$0.25 Residential
$0.20 Commercial
$0.15 Service
Agriculture $/kWh
S $0.10 U Medium-Sized $0.05 Enterprises Large $0.00 Industrial 1 2
1999 2000 200 200 2003 2004 2005 2006 2007
Source: SENER19 secretariat of the economics ministry (SHCP — Secretaría over 90% of the subsidies benefit groups above the de Hacienda y Crédito Público) and include separate poverty line.21 This encourages inefficient consumption tariffs for households, commercial users, services, and requires CFE to subsidize users who otherwise would agricultural users, medium-sized industrial users, and large be able to pay for their own power in the absence of industrial users. These tariffs generally vary by region, subsidies. season, and climate.15 Despite several adjustments to the tariff scheme in recent However, the ways in which the tariffs are ultimately set years that have disproportionately increased prices for vary significantly across these sectors. Industrial users commercial, service-sector, and medium-size business pay tariffs set by technically sophisticated schedules that consumers, overall tariff levels are still insufficient to meet provide a relatively high degree of cost recovery, with fees rising generating costs. Altogether, in 2005, the revenues varying hourly and taking into account interruptibility, received by CFE and LFC covered only 67% of generating peak-load demand, and other factors.16 Industrial user costs, requiring 93 billion pesos, or US$7.5 billion, from the tariffs are thus higher on average than in OECD countries national budget to compensate.22 Two-thirds of this and have grown from an average of 3.4 cents per kWh in shortfall was accounted for by low household tariffs. 1999 to 8.7 cents per kWh in 2007 (compared to average U.S. industrial-user tariffs that averaged 6.36 cents per These subsidies are not actually paid to CFE by the kWh in 2007).17 18 Moreover, electricity tariffs during peak government; instead, CFE is allowed to cover the costs of demand hours are more than four times the costs of these subsidies through nonpayment of the statutorily producing electricity on-site from diesel generators, required rate of return of about 8% of the value of its assets, leading an increasing number of industrial users to called aprovechamientos. However, since 2000, due to the develop self-supply projects, as discussed below under rising costs noted above, the required subsidies for the Electricity Market Structure. sector have exceeded the aprovechamientos, forcing CFE to eat into its own capital to pay for the subsidies, including Smaller users’ tariffs, by contrast, are heavily politicized, steps to cut investments in new equipment and avoiding with residential and agricultural users accustomed to the full replacement of depreciated equipment.23 This has paying rates substantially below cost-recovery level, which further weakened the service quality of the sector, and the are subsidized in part by higher tariffs for commercial and growing gap between CFE’s revenues and the subsidization service sector users, who have the highest average tariffs of tariffs required is making it increasingly difficult to make and greatest recent increases of all consumers.20 Mexico’s up for these needed investments. residential subsidies are particularly problematic because they are highly regressive. Residential power tariffs are not Poor Service Quality differentiated by user income, and power consumption Service quality of the CFE network is generally poor, tends to increase with income. Thus, upper-middle- lagging behind international performance standards as well income households receive the majority of the subsidy, and as the average for Latin American countries. Despite
336 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.2f Annual Interruptions per Electricity Connection
300
) CFE s Peru Edelnor 200 Brazil (in Minute s ElectroPaulo
100 Argentina Edenor
Interruption Argentina Edesur 0 1995 1996 1997 1998 1999 2000 2001
Source: World Bank26
significant improvements in the number of interruptions in worker.30 As with service quality, Mexico has not seen a service, CFE’s performance on this metric is still far worse significant increase in the number of electrical connections than its counterparts’ in other countries in the region. per worker in the distribution segment since 1995, unlike Average distribution losses of 11% are closer to regional other Latin American countries that have liberalized their averages, but unlike many of its deregulated counterparts, power sectors. CFE has made virtually no progress toward lowering this number.24 LFC’s network, which covers the Mexico City Financing for the needed investments in the country’s area, experiences distribution losses of 30% due to poor power infrastructure is constrained by growing and infrastructure quality as well as considerable theft.25 This inefficient subsidization of tariffs for residential customers, high level of system losses enhances the case for the more as discussed above. This also limits available funding for widespread use of on-site, distributed solar generation in other potential energy policies, including renewable power Mexico City in particular. incentives.
The low quality of CFE’s performance is owed, in large part, to insufficient investments in grid maintenance and Electricity Market Structure modernization efforts, which is, in turn, due to the strain imposed on CFE’s resources by large and growing Mexico is the last large Latin American country with a budget shortfalls due to highly subsidized residential and regulated electricity sector dominated by a vertically agricultural tariffs, as discussed above. CFE executives integrated, state-owned utility, although reforms passed have estimated that the approved budgetary resources between 1992 and 1995 and the creation of a smaller for the maintenance, repair, and refurbishment of assets state-owned utility to serve the Mexico City region (LFC, are 30% lower than the level required for proper discussed below) have allowed limited participation from upkeep.27 This problem has been exacerbated by the old other players.31 While CFE is working to develop age of most of CFE’s assets, which results in greater renewable resources itself, the proliferation of private operations and maintenance costs.28 The grid’s reliance initiatives under alternative arrangements, particularly for on thermal generation, discussed above, has also led to wind energy, demonstrates the wider demand for steadily increasing costs for natural gas and oil in recent renewable generation beyond the public service sector. years, due to international trends as well as declining investments in domestic oil and gas production due to State-Owned Utilities — CFE and LFC similar difficulties posed by a lack of private sector Article 27 of the Mexican Constitution asserts that participation.29 “Generation, transmission, transformation, distribution, and supply of electric energy, as a public service, are reserved Costs are also driven up by increasing pension obligations to the State,” responsibilities that were given to the and a strongly unionized labor force that results in larger- Comisión Federal de Electricidad (CFE) upon its creation in than-necessary payrolls and lower productivity per 1937 and have been largely kept to this day.32 Today, CFE
Blueprint for Renewable Power | Section 5 337 Diagram 5.4.2a Frameworks for Private-Sector controls nearly 50 GW of the 51 GW of national generating Participation in the Mexican Power Sector capacity, although over 11 GW, or roughly 20% of generation, is owned by private developers operating 33 under Independent Power Producer (IPP) contracts. It Self-Supply IPP Concession serves roughly 23 million end-users, or slightly more than 80% of the power customers in the country. CFE is the second-largest company in Mexico behind the state oil and gas company Pemex, and as of 2006 it had $67 billion in Frameworks for assets and $20 billion in sales.34 Private Sector Participation in the Mexican CFE also controls the national transmission network Power Sector outside of the Mexico City region, or 96% of the country’s grid. In contrast to deregulated systems in which an Cogeneration Small independent system operator (ISO) is in charge of Producers operating the transmission system and dispatching Import/Export Projects generators according to least cost, grid operations and generator dispatch are entirely under the control of CFE, through its department CENACE (Centro Nacional de the flexibility of this mechanism, most non-IPP private Control de Energía).35 generation in Mexico is developed under this scheme, including renewables. In Oaxaca, 2 GW of self-supply In 1994, a second state-owned utility, Luz y Fuerza del wind power projects are currently under development, as Centro (LFC), was created to handle electricity discussed later in this section. transmission and distribution in Mexico City and the central region of the country.36 Thus, while it owns only 4% of the Self-supply generators may not sell power to third parties national transmission network, it serves 5 million end- from the private sector, but they may sell surplus power users, or nearly a fifth of the country’s total.37 LFC’s to CFE at reduced and generally unprofitable rates based network experiences much higher transmission losses than on the marginal cost of generation on the grid, which is other areas of the country, with losses of over 30% in 2005, most typically set by natural gas–fired plants.43 They compared to a national average of 17.8%, a difference that also may use the CFE network for a charge if the is largely attributed to non-technical losses, primarily from consuming parties are located far from the generation, power theft. LFC also owns the remaining 1 GW of public although this is at CFE’s discretion, and such use may sector generating capacity, and this limited generation not affect the rights of others or the reliability of the requires it to purchase most of its power from CFE.38 system. As discussed below under “Renewable Power Development Experience,” these types of arrangements Private Sector Participation are particularly necessary for self-supply projects located Amendments made to the Public Service Electricity Law in the far reaches of Oaxaca. (Ley del Servicio Público de la Energía Eléctrica) in 1992 opened the power generation segment to private sector II. Cogeneration (Cogeneración): Essentially a specific participation under limited circumstances falling under five type of self-supply project, cogeneration plants combine categories, which are outlined in Article 36 and discussed on-site power generation with the capture of waste heat in detail below.39 40 Even this limited framework for private for the production of steam or other uses for self- sector participation has been subject to ongoing consumption. The overall efficiency of the system (i.e., opposition from anti-privatization politicians, who have electricity as well as useful thermal energy divided by the challenged the constitutionality of the reforms in recent energy inputs) must be higher than power and heat years and created a degree of uncertainty over the produced independently. The ownership structure of sector’s future direction.41 42 cogeneration facilities and the rules for sales of power to CFE are the same as with self-supply projects. Most I. Self-Supply (Autoabastecimiento): Under this cogeneration projects in Mexico have been developed by arrangement, the producer generates power for its own the oil and gas industry.44 consumption. Because there are no limits on the ownership of the shares of the production company, a III. Independent Power Production (Producción single generating partner may join in a specific-purpose Independiente): IPPs are large generation projects company with a number of consumption partners that sponsored by CFE for which the developer designs, may own only small, largely symbolic, shares. Because of builds, and operates the generation assets. IPP projects
338 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf must be included in CFE’s planning program, which independent regulator, CFE and LFC are subject only to significantly limits the flexibility of private-sector the regulation and supervision of the government.50 The involvement under these arrangements. However, Secretary of Energy is the President of the CFE board, investors have found this mechanism attractive because and the budget and financing program must be approved risks are also very limited: All of the power is sold to CFE as part of the federal budget every year by the House of at a fixed price under a guaranteed, long-term PPA Representatives.51 (typically of 20–25 years), and CFE takes care of necessary permitting for the plant itself as well as Other actors within the government also have a required transmission lines.45 46 significant influence over the development of the sector:
Since 2000, over 11 GW of generating capacity has been SENER, the Ministry of Energy, is responsible for setting developed under IPP arrangements, almost all of which national energy policy within the constitutional has been combined-cycle natural gas plants. CFE is framework, with the goals of ensuring competitive, high- also using the IPP system to tender concessions for quality, affordable, and environmentally sustainable several wind power projects, as discussed below under energy.52 As part of its agenda-setting role, it publishes “Renewable Power Development Experience.” However, annual five-year strategies and ten-year projections for it remains to be seen how effective a mechanism this will the power sector. be under the current framework, as CFE is required by law to pursue the lowest-cost energy sources, and it did CRE, the Energy Regulatory Commission, is primarily not bid the La Venta III wind power project successfully responsible for the regulation of the oil and natural gas on its first attempt because no developer could build the industries but also grants permits for private power project at a low enough cost. producers, approves contracts for energy provision, and provides methodologies for the determination of IV. Small Energy Producers (Pequeña producción): applicable tariffs for private energy suppliers. These are power plants smaller than 30 MW, located in specific areas determined by SENER, whose production SEMARNAT, the Ministry of Environment and Natural must be sold to CFE. In addition, generation projects of Resources, sets up national policies on environmental less than 1 MW in rural communities that do not have protection and helps to coordinate activities related to access to the national grid can be permitted under this the commitments of Mexico to the United Nations scheme. While this arrangement was designed to Framework Convention on Climate Change. encourage the development of small-scale renewables, in the absence of other incentives these types of projects have seen little development, given the low Renewable Power Development Framework prices paid by CFE, which again are equal to the short- term marginal cost of generation on the entire grid and Slow Progress Towards Renewable Power Incentives thus too low to support relatively high-priced renewable While Mexico has taken steps in recent years to develop sources.47 48 a dedicated framework for the development of renewable power as well as incentives to encourage growth in this V. Import or Export: Projects to import or export area, it has been limited by its highly-regulated electricity electricity from other countries are also permitted. sector. As discussed below under “Renewable Power Mexico has several transmission interchanges with Development Experience,” most of the new renewable California, Texas, and Arizona, as well as a link to Belize power projects under development are wind power in the south. A connection to Guatemala is also projects built by the private sector under self-supply planned.49 As discussed below under “Renewable arrangements, indicating a clear and more urgent Power Development Experience,” this type of demand for renewables than the CFE-dominated public arrangement is being utilized to build wind power plants service sector is providing. in Baja California for the export of power to California, which offers higher electricity prices as well as assured CFE is required by law to pursue the lowest-cost power, demand for renewables due to the state’s renewable with no methodology to account for the environmental, portfolio standard (RPS). social, and economic benefits of renewables, nor any mechanism to pay a premium for these power sources.53 Regulation 54 Thus, while it is trying to begin developing renewable Unlike liberalized power markets in which various power power projects as concessions, its current attempt to sector actors are subject to oversight from an tender the 101 MW La Venta III wind project is
Blueprint for Renewable Power | Section 5 339 dependent on a dedicated World Bank grant to pay the details of their implementation to be worked out over the incentives required to make it economically feasible, and course of 2009.62 Although it is impossible to say how the failure of its first round of bidding may indicate that effective these new policies will be until more specifics are even these incentives won’t be enough. published, the broad range of instruments called for provides a real opportunity to create a more favorable CFE is required by law to pursue environment for the development of Mexico’s considerable renewable resources. the lowest-cost power, with no methodology to account for the Key measures in each chapter of the legislation include:63 environmental, social, and Chapter 2 - New Powers economic benefits of renewables. • New powers for SENER, which will set goals for specific levels of renewable power generation, facilitate the development of new transmission capacity for Despite this institutional barrier to the provision of renewable power projects, and develop strategies to renewable power incentives, there has been a growing promote the use of renewables in off-grid communities. recognition by public- as well as private-sector • Directions for SENER to pursue agreements with state stakeholders in the sector that the country’s renewable and municipal goverments to help facilitate access to resources need to be developed, and that new policies geographic areas with high potential for renewable will be necessary to facilitate this. In 2005, a new power development, potentially including the creation of provision was added to the Federal Tax law to allow for new land use regulations and efforts to simplify 100% depreciation on capital expenses in the first year administrative procedures for obtaining permits and for all renewable power investments.55 While this licenses. incentive is generally considered a positive, it is viewed • Improved methodologies to account for the positive by some project developers as having limited usefulness (and negative) externalities of renewable power due to the complexity of dealing with the tax code.56 development, which will be developed by SENER in conjunction with the Ministries of Finance, Health, and In December 2005, the lower chamber of Congress the Environment. passed a new bill, the Renewable Energy Utilization Law (LAFRE), which sought to provide a more comprehensive Chapter 3 - Planning and Regulation legal framework for the promotion of renewable power • Requirements for CFE and LFC to offer standard development in Mexico.57 LAFRE sought to establish a contracts to renewable power generators according to goal for the sector of providing 8% of all electricity in the rules developed by CRE, which may be differentiated by country from renewable sources (not including large- technology and geographic location. scale hydro) by 2012, including both public and private • New regulations by CRE to govern the purchase of sector self-supply projects.58 To help facilitate the surplus electricity from renewable self-supply and achievement of this goal, LAFRE would have also cogeneration projects by CFE and LFC for public established legal grounds for changes to CFE’s power service sector supply. procurement rules and the creation of new incentives for renewables. However, the legislation was never brought Chapter 4 - The National Strategy for the Energy to the Senate floor for a vote, and in June 2008 Transition and the Sustainable Use of Energy information on LAFRE was finally removed from the • The development of an overarching, annually-updated SENER website.59 60 Strategy for the Energy Transition and the Sustainable Use of Energy by SENER. November 2008 Renewable Energy Law • The creation of a Fund for the Energy Transition and the In November 2008, President Calderon signed into law Sustainable Use of Energy to support the Strategy. This seven major pieces of new energy legislation, including a support may take a variety of forms, potentially Law for the Use of Renewable Energy and Financing the including loans, loan guarantees, grants, and other Energy Transition that will seek to promote the use of incentives. The Fund will have a budget of 3 billion renewable power using an array of policy measures.61 pesos (US$220 million) annually for 2009, 2010, and While the law potentially marks a major turning point for 2011 and will continue to have its allocations set on a the establishment of a viable framework for renewables triannual basis in the future. development in Mexico, it only outlines the types of new • The design and implementation of policies to facilitate regulations and incentives to be created, leaving the the development of CDM projects in Mexico.
340 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Other Sources of Support for Renewables Renewable Power Development Experience World Bank Incentives: In the absence of the renewable power incentives initially proposed by LAFRE, the World Mexico has long been a global leader in geothermal Bank has stepped in to try and assist CFE in the power, and there is burgeoning interest in the development development of renewables through its own of its small hydro, wind, and solar resources as well. supplementary incentive under the Large-Scale However, its regulated power sector threatens to stifle the Renewable Energy Development Project program. Under development of the renewables segment just as it has this initiative, the World Bank has pledged $20 million to slowed the development of the country's fossil fuel pay for incentives up to 1.5 cents per kWh to the resources. developers of the La Venta III project, a 101 MW wind farm that CFE is attempting to develop as an IPP.65 This incentive is meant to help offset the difference between Small Hydro CFE’s baseline price and actual generating costs for wind, and a second phase of the project backed by $45 million While Mexico is relatively less dependent on hydropower in grants could help fund future renewables projects at than many Latin American countries due to its substantial similar or lower levels. (although declining) domestic oil and gas production, there is substantial untapped potential for hydropower Solar Interconnection and Net Metering Rules: Beyond development, particularly small hydro. Mexico has an these sector-wide initiatives, solar photovoltaics have seen estimated 3,250 MW of small hydro potential, but this has recent targeted policy support, with the passage of new seen little development outside of the 52 MW of capacity interconnection laws in June 2007. As discussed below, across three stations built by the Mexican firm these rule changes will allow residential users with solar Comexhidro, which utilize existing irrigation channels to photovoltaic systems of up to 10 kW in size and achieve lower-than-usual project costs of $1,300 per kW.68 commercial systems of up to 30 kW in size to connect to The average cost of small hydro installations is roughly the grid under a simplified interconnection rule and sell $1,600 per installed kW, although the relatively low their power into the grid via net metering. capacity factor of small hydro facilities compared to fossil fuel or geothermal plants yields a projected generating cost Banobras Loans: Banobras, the Mexican development of 11.5 cents per kW, making them uncompetitive for CFE bank, has been exploring the potential for supporting the to pursue from the perspective of wholesale power costs.69 development of renewable power projects in the country since 2005 due to growing concerns about global However, small hydro plants can be competitive with retail warming and the growing interest in self-supply projects power prices in some cases, leading a growing number of from the private sector and municipalities due to rising large industrial and municipal customers to consider them fossil fuel power prices. It is close to securing financing as an attractive option to diversify their power supplies in for its first renewable power project, a 20 MW wind farm response to rising tariffs and poor service from CFE. for the supply of Santa Catarina municipality being Comexhidro lined up a wide range of off-takers for its developed by U.S.-based Econergy, and it is currently in relatively low-cost small hydro projects, including Cemex, the process of evaluating four more wind energy projects, General Motors, and chemical companies, a process that two hydroelectric projects, one geothermal project, three took several years.70 Mining firm Grupo Ferromiento is biogas projects, and one biofuels project.66 building a 30 MW hydro project in Puebla to provide power for its local mineral-processing plants.71 In January Banobras expects to play a pioneering role in the financing 2008, 17 permits for the development of new, small of renewables in Mexico by providing an example of the hydropower plants across the country were granted, viability of the sector for commercial banks, which have including five in Jalisco, five in Veracruz, two in Guerrero, only recently begun to consider these types of projects. two in Puebla, and one each in Nayarit, Oaxaca, and The bank envisions providing renewable power projects Hidalgo, although it remains to be seen how many will assistance in financial structuring and the securing of ultimately be built.72 third-party loans as well as the provision of its own preferential-rate loans and even risk capital in some cases. More ambitious than any of these initiatives is a new plan In addition to its own resources, Banobras is looking to being advanced by the Oaxaca government to promote collaborate with international sources of development the development of a pipeline of over 5.2 GW of small finance, and it is working to partner with the North hydro capacity in the province by 2020, more than the American Development Bank to provide as much as half officially estimated economically developable capacity in of the financing for the Santa Catarina project.67 the country.73 The projects plan to focus on 1 MW and
Blueprint for Renewable Power | Section 5 341 Chart 5.4.2i Small Hydro Development Proposal for Oaxaca State
6,000
5,000
4,000
Grijalva
3,000 Coatzacoalcos Coast Papaloapam 2,000 MW capacity
1,000
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Fundación para el Desarrollo del Corredor Eólico del Istmo y Las Energías Renovables 74 greater projects to supply power for off-grid communities those being promoted by the Oaxaca state government, and small businesses in the region, in contrast to the may also offer significant potential given the higher costs gigawatts of wind power being planned for the state that of providing power for off-grid areas, but these will likely are being built to supply large industrial and commercial require significant support from international sources of users in other areas of the country connected to the finance, given limited resources for project development national grid. Geographically, the projects are distributed in these rural areas. across the four main hydrological systems of the state, although most of the planned capacity is targeted for the Drivers coastal and Papaloapam areas, as shown in the chart • Opportunities for Projects Utilizing Irrigation above. While these projects are in early development Channels and Existing Water Infrastructure: As in stages, they could provide a powerful illustration of the other countries such as Chile, the early development ability of relatively low-cost, low-tech small hydro plants of small hydro has been focused on projects that to meet rural-development needs on the megawatt scale. utilize irrigation channels or other types of water infrastructure, as these projects enjoy lower costs and Key Drivers and Obstacles higher reliability due to the existing civil works and the While Mexico has fewer hydro resources than many use of regulating dams on many of these waterways. other Latin American countries, it still has potential for Comexhidro built its first three small hydro projects on new large, as well as small, hydro projects. As in other irrigation channels at a cost of about $1,300 per kW, areas, irrigation channel projects have been an early significantly less than estimated average potential focus due to their low cost and more reliable water flows. small hydro project costs of $1,600 per kW.75 76 However, further development of this resource for on-grid projects beyond such limited, “low-hanging fruit” • Self-Supply and Small Producers Frameworks: opportunities may require additional incentives to Although the self-supply framework requires projects to become feasible, as current payments offered by CFE secure their own off-takers, a process that can take under its small producer framework are based on the years, it at least provides a viable framework for private marginal cost of the grid’s gas-fired plants, which are still sector participation. Moreover, changes proposed by significantly less expensive. Off-grid projects, such as the new renewable power legislation could improve the
342 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf terms under which self-supply projects can sell excess the cost of serving these populations is often higher power into the grid, potentially making this framework than their ability to pay. Thus, the success of these more flexible. Similarly, although the small-producer projects, particularly of those on the ambitious scale framework for private sector participation has yet to be planned by the Oaxaca state government, frequently utilized due to the low prices paid for power by CFE, depends on the availability of financing assistance from changes proposed by the new legislation could also international donors, as is hoped for the initiative’s first make these contracts more viable. In both cases, the round of feasibility studies. specifics of these changes will not be decided upon until mid-to-late 2009. Projects Comexhidro (52 MW combined) • Local Economic Development Benefits: Oaxaca, one The most active player in this sector in the country so far of the poorest states in Mexico as well as home to most has been Comexhidro, a consortium of Mexican of its large-scale wind power projects, is also looking to professionals with extensive experience in a range of develop thousands of megawatts of small hydro infrastructure sectors that is leveraging its expertise to projects to serve local communities and businesses. develop highly targeted small hydro projects as part of The relatively simple technologies used in small hydro existing irrigation and other water-supply infrastructure.79 projects are well-suited for local installation and Comexhidro already has several self-supply small hydro maintenance crews, and require relatively little in the projects of this type and has been able to develop them way of specialized training. profitably, thanks to several factors:
Obstacles 1 The use of existing infrastructure minimizes costs as • Low Prices Paid by CFE: Until the prices paid to well as social and ecological impacts. renewables projects are increased as part of the new 2 Knowledge of the country’s hydraulic infrastructure allows renewable power legislation or through other incentives, the most promising sites to be identified and selected. the prices paid by CFE under the current framework will 3 Irrigation channels and other sites with operating dam be inadequate to support the private sector storage are targeted, ensuring more reliable flows than a development of these projects and will force free-flowing river. developers to find self-supply offtakers to cover the 4 Sites close to existing CFE transmission infrastructure plant’s entire output. are also targeted, minimizing the need for the construction of new lines. • Distance of Irrigation Channels from Transmission: 5 CDM certification is pursued, giving the plants an The viability of many potential irrigation channel projects additional revenue stream through the sale of carbon is challenged by the fact that these channels are credits. frequently located in rural areas of the country, far from transmission connections. These transmission needs Comexhidro’s tightly targeted and well-developed strategy can significantly increase project costs, making many has already enabled it to develop 52 MW of capacity smaller projects uneconomical. across three projects, Los Trojes (8 MW), Chilatán (14 MW), and El Gallo (30 MW), for a total investment of $68.2 • Permitting Time: As in virtually every country, small million — a cost of just over $1,300 per kilowatt. All of the hydro projects face extensive permitting hurdles that plants have been certified as CDM projects, and the 2003 are similar to those faced by large hydropower Los Trojes project was the first small hydro project in Latin projects with much more dramatic environmental America to receive carbon credits.80 Two more small impacts, making the development of these projects hydro plants with 20 MW of additional capacity are in the potentially difficult for players lacking experience in the planning stage, including Benito Juárez (15 MW) and El sector.77 In addition to the standard generating and Guineo (5 MW).81 82 interconnection permits required of any power project, small hydro projects must acquire a water-use The low risks and low costs of these projects have made it concession, a land-use concession, and project possible to secure private financing for these projects. approval from the National Water Commission (CNA) Conduit Capital Partners, a New York–based private equity before they are built.78 firm focused on the development of power projects of all kinds in Latin America, invested in a 70% stake in the first • Limited Access to Finance in Rural Areas: While three projects in a partnership with Comexhidro as part of there is substantial demand for reliable power Conduit’s 2001 Latin Power II portfolio.83 These projects generation from off-grid communities and businesses, earned $122 million in total proceeds for a quarterly IRR of
Blueprint for Renewable Power | Section 5 343 42% between 2001 and its liquidation of its stake in 2007 Mexico’s 960 MW of geothermal in a sale to Italy’s Enel, an impressive return that capacity is the highest of any Latin surpassed any of the other projects in the portfolio, save for the Termocabo diesel generation project in Brazil. American country and the third- Conduit is also considering investing in a 70% stake in the highest in the world, behind the Benito Juárez project, although construction has been delayed by unrelated political disputes within the Oaxaca U.S. and the Philippines. state government.84 85 The country’s geothermal history stretches back in time Oaxaca State Projects long before that, however, and includes the oldest Oaxaca, while known primarily for its world-class wind historical reference to geothermal energy, when Spanish resources, also possesses excellent small hydro potential, explorer Melchor Díaz described the fumaroles, hot and this resource has recently become a focus for springs and mud volcanoes of Cerro Prieto’s Laguna development by the state government. While large-scale Volcano in 1540. Geothermal exploration for power in wind projects in Oaxaca are generally being built for self- the country dates back to the founding of CFE in 1937, supply for large industrial and commercial users in other and the subsequent decades included a number of areas of the country, the smaller scale of small hydro geohydrological studies, test drillings, and the installation plants makes them viable for energy supply for local of the first geothermal plant in the western hemisphere, a communities and businesses. In March 2008, the 3.5 MW pilot plant imported from Italy’s Larderello Fundación Para El Desarrollo del Corredor Eólico del Geothermal Field and installed in the Ixtlán de Los Istmo y Las Energías Renovables unveiled a new Hervores Geothermal Field in Mexico in 1959.90 development plan for Oaxaca’s small hydro resources that CFE was granted the legal rights to the extraction of hot would see the development of 5.2 GW of generating groundwater and steam for power generation in 1956 capacity by 2020 — more than previous estimates of small and has been solely responsible for the development of hydro potential for the entire country.86 the country’s geothermal capacity since.92 The Cerro Prieto field has been steadily expanded to its current 720 The plan would focus on the construction of small hydro MW capacity, providing more than 50% of the power plants of several types, including cooperative projects of requirements for the isolated Baja California grid, and up to 1 MW for off-grid communities as well as grid- CFE has issued a tender for the construction of an connected self-supply projects for local businesses and additional 100 MW stage. Another 188 MW capacity is municipalities. These types of projects are expected to installed in the Los Azufres field in central Mexico, near bring economic-development benefits, not only from the the San Andrés volcano, along with 40 MW in the Los provision of reliable, relatively low-priced renewable power Humeros field in central Mexico and 10 MW in the Las but from their utilization of local labor and development of Tres Vírgenes field in Baja California Sur. With local expertise with small hydro technology. The initiative investment costs of $1,400 per kW and generation costs aims to develop technical- and financial-feasibility studies for 75 projects in the state and to seek sponsorships from national governments, potentially including the U.S., Map 5.4.2a Geothermal Sites in Mexico Canada, and Finland.87
Geothermal
Geothermal power is the largest source of renewable power aside from large hydro in Mexico, and the country’s 960 MW of geothermal capacity is the highest of any Latin American country and the third-highest in the world behind the U.S. and the Philippines.88 Geothermal power development in the country dates back to 1973, when the first 37.5 MW plant came online at the Cerro Prieto Geothermal field in northern Baja, a field that has continued to lead the country in geothermal generation.89
Source: CFE, via GRC Bulletin91
344 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.2h Geothermal Plants in Mexico: Installed and Planned
Cerro Prieto
Los Azufres Installed Los Humeros Planned Las Tres Vírgenes
Cerritos Colorados
0 200 400 600 800 1000 Capacity (MW) Source: SENER and GTZ94
of 4 cents per kWh in many cases, these plants are very three decades in Mexico. CFE has a long track record competitive with fossil fuel power plants in the country. in the development and operation of these types of projects, reducing development risks significantly. Given the well-established nature of the technology in Mexico and its low costs, CFE plans to continue building • Low Cost: Although geothermal has high up-front geothermal plants in the future, and estimates that it risks and exploration costs, it has very low operating there is potential to develop 2.4 GW of additional costs, generating power at the equivalent of as low as capacity.93 In addition to a tender for an additional 100 4 cents per kWh. This makes it competitive with fossil MW of capacity at Cerro Prieto, CFE plans to auction the fuel–fired generation, making it a viable choice for CFE rights to build an additional 51 MW capacity in Los to pursue as part of its lowest-cost mandate. Humeros and potentially 25 MW of capacity at the undeveloped Cerritos Colorados site. The Cerritos Obstacles Colorados development was originally planned to be 75 • Lack of Private Sector IPPs: Although CFE is moving MW, but concerns about environmental impacts of the forward with the development of geothermal power in plant’s construction and operation on the nearby Bosque Mexico, the country’s strong geothermal potential and de la Primavera ecological preserve have caused CFE to growing demand for power generation could be lower its goal. developed even more widely and more efficiently by private sector firms. However, Mexico’s land rights Key Drivers and Obstacles system only permits geothermal power plants to be Geothermal power has a strong track record and an developed by the private sector for self-supply, unlike extensive resource base in Mexico, making its thermal and wind power plants, which may also be development an ongoing priority for CFE. However, developed as IPPs.95 Given the exploration risks and unlike other sectors, there are no opportunities for permitting challenges that often face geothermal private-sector development of Mexico’s geothermal plants, the IPP model, in which CFE offers resources, as CFE owns the legal rights to the concessions to prime sites with long-term PPAs and exploitation of underground sources of hot water and all permitting requirements taken care of, could be steam. particularly well suited to these projects.
Drivers • Environmental Concerns: The Cerritos Colorados • Strong Resource Potential: Mexico is the third- geothermal field demonstrated significant potential largest producer of geothermal power in the world, from test drillings in the 1970s and 1980s, but it has with 960 MW of capacity installed, and it has an yet to be developed due to concerns about the estimated potential for an additional 2.4 GW. project’s potential impact on the nearby Bosque de la Primavera ecological reserve. Original plans to tender • Established Technology: As compared to the case of the development of 75 MW capacity have been scaled Chile, another Latin American country with excellent down to 25 MW, and it remains to be seen whether geothermal potential but no experience with this even this reduced project will be deemed too technology, geothermal generation dates back over disruptive to this sensitive area.
Blueprint for Renewable Power | Section 5 345 Projects Los Humeros (35 MW) Cerro Prieto (720 MW) The Los Humeros field is also located in the volcanic area The Cerro Prieto geothermal field is named after the of central Mexico, and it derives its heat from a magma nearby Cerro Prieto volcano, a 260-meter-tall, isolated chamber below the surface. CFE built its first 5 MW volcano located in the arid Mexicali Valley of Baja generating unit in the area in 1990 and by 2002 had California. The geothermal field covers an area of 15 km2 developed seven such units for a total of 35 MW in and is home to the largest concentration of geothermal generating capacity.101 Further development of the area is power in the country, with 720 MW of capacity. There are planned, with CFE planning to bid a concession for 13 power generating units ranging from 25 MW to 110 another 51 MW capacity that could come online as early MW in size and aggregated in four powerhouses, known as 2010.102 as Cerro Prieto I – IV. As noted above, the first stage of the field’s development in 1973 included 37.5 MW of Las Tres Vírgenes (10 MW) capacity, and the Cerro Prieto IV installation, the most The Las Tres Vírgenes field is located in the northern part recent phase, came online in 2000 with 100 MW of of Baja California Sur, and lies between the three capacity.96 volcanoes that give the area its name. The heat source of the field is the magma chamber of the La Virgen Volcano, The Cerro Prieto plants generate the youngest and most southern of the three. After geothermal surveys were taken, and exploration wells more than 50% of the power drilled, in the 1980s, two 5 MW power units were installed required for the Baja California in 2001.103 region of Mexico, which is isolated La Primavera, or Cerritos Colorados from the national grid, and in the The La Primavera geothermal field, also known as Cerritos past excess power was exported Colorados, is located on the western portion of Mexico’s volcanic belt in Jalisco state, in the ecological reserve of to California. Bosque de la Primavera.104 While the field was explored and several successful test holes were drilled in the late The Cerro Prieto plants generate more than 50% of the 1970s and 1980s, CFE suspended its activities in the area power required for the Baja California region of in 1989 at the request of the local government due to Mexico, which is isolated from the national grid, and in environmental concerns.105 CFE subsequently undertook the past excess power was exported to California.97 a major ecological restoration project to ameliorate the CFE has plans to develop another 100 MW at a Cerro effects of the test drilling, planting 220,000 trees, Prieto V plant, and launched a tender for its revegatating 42 hectares in affected areas, and building construction in March 2008, which it hopes to award stormwater runoff works to reduce erosion between 1990 by the end of the year and complete the project in 2.5 and 2004.106 years.98 In July 2008, CFE successfully bid on a contract for the drilling of 20 new geothermal wells to CFE’s interest in developing the site has since returned maintain adequate steam levels in its existing plants in anew. While up to three 25 MW plants were originally Cerro Prieto, a project that has been rebid considered feasible, CFE is now just hoping to tender unsuccessfully several times before.99 one 25 MW unit due to environmental concerns.107 However, even this reduced proposal has been met with Los Azufres (188 MW) scrutiny by the environmental regulator SEMARNAT, Los Azufres was one of the first geothermal power sites to which has requested additional information in a number come online after Cerro Prieto, with its first 50 MW unit of areas of CFE’s environmental assessment, including installed in 1982, and it is the second-largest geothermal CFE’s plans for preventing surface water pollution, field in terms of power produced. In sharp contrast to protecting native species, and carrying out further Cerro Prieto, the field is located 2,800 meters above sea reforestation activities.108 level and is surrounded by pine forests in Michoacán State in central Mexico. Its source is likely the San Andrés volcano, which is part of the Mexican Volcanic Belt. The Wind field’s current capacity is 188 MW, including seven 5 MW units and two 1.5 MW units built in addition to the first 50 Mexico has excellent wind power potential, rivaled in Latin MW unit, and four 25 MW units, called Los Azufres II, America only by Argentina. Studies by the Mexican Wind which were installed in 2003.100 Energy Association AMDEE and IIE in Mexico as well as
346 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf the U.S. National Renewable Energy Laboratory (NREL) have identified Mexican wind power potential in excess of AMDEE 40 GW, led by the Tehuantepec Isthmus in the state of AMDEE was founded in 2005 and is the main non- Oaxaca and the Yucatan and Baja California peninsulas.109 governmental organization involved in the promotion NREL has estimated that there are roughly 6,600 km2 of of the wind power sector in Mexico. It includes proj- windy land with good-to-excellent winds (Classes 4 to 7) in ect developers, international turbine manufacturers, Oaxaca, enough to support an estimated 33,000 MW of equipment suppliers, plant operators, and other potential wind power installations. The windiest (Class 7) stakeholders.114 AMDEE is a source of information areas comprise 1,200 km2 of the territory, and this area for and about the industry and provides a common alone could support 6,000 MW of wind power.110 These voice for its concerns, as illustrated by its advocacy Class 7 and 7+ sites on the Tehuantepec Isthmus in the for the construction of additional transmission eastern part of the state are among the best in the world, capacity from Oaxaca, discussed below. with average wind speeds of over 8.5 m/s. Maximum wind speeds in the region have been measured at as high as 15 m/s, and load factors of over 50% have been recorded.111 Oaxaca state is rivaled in Latin America only by Southern these avoided costs are generally lower than wind Patagonia in Argentina in terms of wind resources, and it is generation costs, these projects would be uneconomical if home to Mexico’s first large-scale wind farm, the 83 MW La they were wholly dependent on CFE prices. Venta II. An additional 2.5 GW of public and private sector projects are planned through 2010. Difficulties in attracting acceptable Elsewhere in the country, the best zones are located in bids on the unsuccessful first Baja California, in the Rumorosa and San Pedro Mártir tender of the La Venta III wind farm mountain ranges, where Class 6 and 7 winds and up to 2.5 GW of wind power potential has been identified.112 113 in 2007 illustrate the challenges The Yucatan Peninsula is rich in wind power as well, with posed by CFE’s current lowest- up to 2 GW of potential capacity according to CFE cost power-purchasing estimates. The Mazatlán, Zacatecas, and Veracruz regions are estimated to have up to 1.5 GW of potential wind requirement. power capacity each. However, under the Large-Scale Renewable Energy Public Sector Development Project agreement, the World Bank has Characteristically for its strongly public sector–oriented agreed to finance a “Green Fund” to pay incentives of up energy sector, the development of Mexico’s wind power to 1.5 cents per kWh to potential wind power IPP potential has been led by CFE thus far, with the generators to compensate for the gap between wind construction of the 1.575 MW La Venta I demonstration generation costs and avoided natural gas power costs project in Oaxaca in 1994 and the 2007 construction of for the first five years of operation.115 This funding the much larger La Venta II, an 83.3 MW expansion of the includes $20 million for the first stage, focused on the first project built by Iberdrola and Gamesa under a turnkey development of La Venta III, and $45 million for arrangement for CFE. The project was financed by CFE subsequent projects, potentially including Oaxaca I–IV as debt as well as assistance from the Spanish International well as other renewable IPP developers. Although this Bank for Reconstruction and Development (IBRD). incentive fund will undoubtedly be helpful, difficulties in attracting acceptable bids on the unsuccessful first CFE is working to develop subsequent wind power tender of La Venta III in 2007, despite the interest of projects under IPP agreements, through the tendering of leading global wind power developer Iberdrola the 101 MW La Venta III project and subsequent tenders (discussed in detail under Projects, below), illustrate the of the Oaxaca I–IV projects for an additional 406 MW of challenges posed by CFE’s current lowest-cost power- aggregate capacity. As discussed above under “Electricity purchasing requirement. Market Structure,” because CFE is required by law to purchase electricity at lowest cost, it can only offer Private Sector contracts to IPPs paying the utility’s avoided costs, which Beyond CFE’s interest in increasing wind power are usually represented by the natural gas–fueled generation generation, Mexico’s immense wind resources have been that constitutes the marginal cost on the CFE grid. Because the focus of even greater interest for domestic and
Blueprint for Renewable Power | Section 5 347 international private sector developers, with nearly 2 GW Beyond Oaxaca, several international wind project in projects planned for Oaxaca and 1.2 GW of projects developers, including U.S.-based firms, are planning the planned for Baja California handily outstripping CFE’s development of as much as 1.2 GW of wind power plans for approximately 500 MW of capacity, discussed capacity in Baja California. These three 400 MW wind above. The projects in Oaxaca are being built by a range power projects, located in the La Rumorosa mountain of major international developers including Iberdrola, range, are all oriented toward export to the California EDF Energy Nouvelles, and Gamesa, and they are being market, which offers higher power prices and a developed under self-supply arrangements for a wide guaranteed demand for wind power due to the state’s range of off-takers, including the state cement company renewable portfolio standard (RPS). Cemex, Walmex (Wal-Mart de Mexico), and self-service chain Soriana. Additionally, municipalities and other large consumers in other regions of the country offer potential markets for Nearly 1.5 GW of this capacity will be built under the wind power development, with two 20 MW wind farms “open season” model of transmission development planned by U.S. developer Econergy under self-supply off- administered by CFE, under which private sector self- take agreements with the municipalities of Santa Catarina suppliers will pool financing commitments to pay for the and Loreto Bay. Municipal users in particular are expected transmission capacity additions required to connect to be a growing market for these types of projects, as they these new wind power generators to the CFE grid. have even higher power costs than industrial users.118 AMDEE claims that additional private sector developers have expressed interest in the development of a further 3 Manufacturing and R&D GW of wind power for self-supply in the state, which Mexico is also home to growing manufacturing and R&D would require a second “open season.” capacity associated with the wind power industry,
Chart 5.4.2g Oaxaca Wind Power Pipeline Construction begins in 2010 Stage 3, 1897 MW Construction begins in 2009 Stage 2, 431 MW Construction begins in 2008 Stage 1, 165.5 MW
EDF-Walmart 41% Acciona-Cemex 58% Fuerza Eolica del Istmo 30% Iberdrola 19% Preneal-Soriana 22% Eolitec del Istmo 13% CFE - La Venta III 23% Gamesa Energía 16% Gamesa-CISA 16% Unión Fenosa Generación México 12% Desarrollos Eólicos Mexicanos 12% Eoliatec del Pacífico 8% Eoliatec del Istmo 7% Fuerza Eólica 3% CFE/Oaxaca I 5% CFE/Oaxaca II 5% CFE/Oaxaca III 5% CFE/Oaxaca IV 5% Source, New Energy Finance, via Reforma,116 AMDEE117
348 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf although only a portion of these efforts is directed toward much progress with its attempt to develop wind power domestic markets. Much like the opportunity presented for the public sector. The 500 MW of wind power by the California power market to developers in Baja capacity planned as part of La Venta III and the Oaxaca California, Mexico more generally has a unique I–IV projects has the potential to provide the same long- opportunity to manufacture wind turbine components for term hedge against rising natural gas costs that is U.S.-based manufacturers, including Potencia Industrial’s driving the private sector’s adoption of wind power, but business that produces wind power generators for Clipper CFE’s present adherence to its least-cost mandate is Windpower and VienTek’s business that produces turbine focused solely on short-term marginal costs, making blades for Mitsubishi’s U.S. wind parks. these projects difficult to develop as IPPs, even with incentives being offered by the World Bank of up to 1.5 In addition to these U.S.-focused component manufacturers, cents per kWh. Mexico is home to the wind power R&D center CERTE, a joint venture between the Mexican IIE and UNDP to Drivers encourage the development of turbines suitable for Oaxaca’s • Excellent Resource Potential: Oaxaca is one of the Class 7 and 7+ winds, in a recently begun effort to facilitate most promising wind power–development sites in the the domestic development of turbines for the Mexican world and is rivaled in Latin America by only market (see side box, “Wind Turbines and Wind Power R&D Argentina’s Southern Patagonia region. Baja California in Oaxaca.” DYNKO, a firm with aspirations to design and has very strong winds as well, and several other areas manufacture turbines for the Mexican and wider Latin of the country are considered to be suitable for wind American market, is also working to develop its business in power development. Mexico, although this effort is in its early stages as well. • High Power Prices for Large Commercial, Key Drivers and Obstacles Industrial, and Service-Sector Users: Large Mexico has two areas of world-class wind potential, one commercial and industrial users in Mexico, as well as of which is located far from the CFE grid, in Oaxaca, and municipal service sector users, pay some of the most one of which is located off the CFE grid but close to expensive tariffs of any of their counterparts in Latin connections to the California grid, in Baja California. Both America, as these tariffs heavily subsidize the very low of these resources are in the process of being developed levels of residential users’ fees. Moreover, generating on a large scale, with 2 GW planned in Oaxaca under the costs are expected to continue to rise as CFE private sector self-supply framework and 1.2 GW planned continues to focus on the development of more and in Baja California for export to the U.S. CFE’s “open more gas-fired capacity, which will be increasingly season” for transmission capacity will play a key role in fueled by expensive gas and LNG imports. Large making the Oaxaca projects viable, providing a model for users are thus increasingly securing their own wind the connection of similarly distant wind resources, power supplies under self-supply arrangements to potentially including Argentina’s distant Southern hedge against these rising costs. These projects Patagonia region. Also like wind projects in Southern comprise roughly two of the 2.5 GW of wind power Patagonia, Oaxaca’s extreme Class 7+ winds place high capacity being developed in Oaxaca. demands on turbines, driving the development of local R&D capabilities to test existing models and design • U.S. Export Opportunity for Baja California: With specially made turbines for use in this area. several transmission connections to the California power market, which pays much higher prices and Oaxaca’s extreme Class 7+ winds offers guaranteed demand due to the state’s renewable portfolio standard, the Baja California area place high demands on turbines, has a uniquely compelling export opportunity for wind driving the development of local project developers. Moreover, the La Rumorosa mountain range includes Class 7 wind power sites that R&D capabilities to test existing rival those found in Oaxaca, leading to interest from models and design specially made three developers in the construction of 400 MW wind turbines for use in this area. farms, larger than any of the other Oaxacan projects under consideration.
While the development of these projects will make • “Open Season” Model for Transmission Mexico a leader in wind power in Latin America, it Development: Although limited high-voltage remains to be seen whether CFE will be able to make as transmission capacity between Oaxaca and the CFE
Blueprint for Renewable Power | Section 5 349 grid could limit the development of gigawatts of new • Lack of CFE Incentives for Renewable IPPs: As wind-powered generating capacity in the region, CFE is discussed above under “Renewable Power working to ameliorate the problem with the Development Framework,” CFE is currently required by development of new transmission lines under the open law to tender IPP projects at the lowest possible cost, season model under which private self-supply preventing it from paying the premium required to developers commit to funding required capacity cover the gap in costs between renewable and additions collectively. The bidding and construction of conventional generators. While the World Bank has a new long-distance transmission line for the first open stepped in to fill this gap with financing to cover season is already underway, with nearly 2 GW of limited, five-year incentive payments for IPP projects, potential generating capacity committed, and a further it is unclear whether this will be sufficient to make 3 GW capacity could be built under a second open these projects viable for private sector developers. In season transmission project currently being proposed the longer term, the development of renewables by the by AMDEE. public sector will require either a change in the law to allow for renewable power subsidies, or a decrease in • Potential for Local R&D and Manufacturing: costs for renewables so that they can compete with Mexico’s strong manufacturing base and proximity to Mexico’s combined-cycle natural gas plants on a cost key U.S. markets has spurred the development of local basis.120 wind turbine–component manufacturers, and its links to Latin American markets could facilitate its development • Special Turbine Requirements: Oaxaca’s Class 7 as a key regional source for the production of whole and 7+ winds represent some of the most challenging turbines. While these and other manufacturing and conditions for wind power development in the world, R&D initiatives along these lines could eventually lead to and the limited number of turbine models proven to the development of a domestic supply of low-cost perform reliably under these conditions represents a turbines geared toward the special needs of projects in potential bottleneck for projects in the region, Oaxaca and other extremely windy areas, these particularly given the currently tight supplies for activities are still in their very early stages, and it international wind power projects in general. While remains to be seen whether they will be able to scale up CERTE’s provision of testing facilities for Oaxacan successfully. winds for international turbine developers could eventually help to ameliorate this obstacle, current • World Bank “Green Fund” Support: The World Bank’s projects must rely on established track records, which commitment to funding $20 million in per-kWh generally limit developers to Gamesa’s 850 kW turbine incentives to the developer of CFE’s La Venta III project and potentially the 1.5 MW Acciona model being and up to $45 million for the Oaxaca I–IV project could employed by the Cemex-backed Eurus project, play a significant role in narrowing the gap between discussed below. CFE’s regulated prices and the actual generating costs of wind power, although they failed to encourage a Projects viable bid in the first tender of La Venta III. Oaxaca Projects Oaxaca’s wind resources are unsurpassed in Mexico and Obstacles are among the best in the world. The state has a • Limited Private Sector Participation: While the self- mountainous topography that levels off at the point supply and export project frameworks are allowing for where the land mass tapers down and into the narrow limited private sector participation in the development Tehuantepec Isthmus, creating a natural wind tunnel for of renewables, this highly regulated framework is still a air between the Gulf of Mexico and the Pacific Ocean.126 significant constraint on the overall development of the Given its superior wind resources, the state has been the sector. Small- and large-scale developers alike would focus for the development of wind power in Mexico, with benefit from a system under which projects could be as many as 2.5 GW of large private and public projects built without having to line up off-takers for their entire planned through 2014.127 These projects will include output and could instead sell some or all of their power more than $3.5 billion in investments, including the wind into a competitive wholesale market that reflected farms as well as the necessary transmission lines.128 generators’ costs more closely. Although there are an While CFE has taken the lead in developing the first impressive number of projects already being developed large-scale wind power project in the country, La Venta II, under the current framework, this interest indicates that the majority of projects currently planned for Oaxaca are even more, and more efficient, projects could be being developed under private sector self-supply developed in a reformed sector.119 arrangements, as discussed below.
350 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf WIND TURBINES AND WIND POWER R&D IN OAXACA Wind farm developers are hesitant to use turbines that have not been tested under such extreme conditions as those found on the Tehuantepec Isthmus (wind developers in the Patagonia region of Argentina face a similar dilemma, as discussed in the Argentina case study), exacerbating the supply tightness in global wind turbine markets by narrowing the range of acceptable models. Currently, the 850 kW Gamesa turbine, used in both the La Venta II and La Ventosa projects discussed below, is the only turbine with an established track record under these conditions. The utilization by the Eurus project of Acciona’s 1.5 MW turbines, as discussed below, will provide an opportunity to expand the universe of reliable turbines for project developers in the region.121
Additionally, the Mexican Electrical Research Institute (IIE) is engaged in a joint research project with UNDP to develop Mexico’s first locally designed and locally manufactured wind turbine, which will be developed specifically for use in the windy conditions of the Tehuantepec Isthmus.122 The turbine could be 1 MW in size or larger and is targeted toward the needs of small wind farms in Mexico as well as Central America. Multi- disciplinary groups began working on the design of turbine components at the end of 2007, and the Institute hopes that the turbine will be completed within three years.
The joint initiative between IIE and UNDP, called the “Plan de Acción para Eliminar Barreras para el Desarrollo de la Generación Eoloeléctrica en México,” is also building a regional wind power technology center, called CERTE, in Oaxaca state. CERTE will allow international companies to test their wind turbines up to 5 MW in size in the strong Oaxaca winds and will provide training courses, workshops, and promotion forums in support of wind power development. Although construction of the center was delayed by floods in the area, the $1.89 million project, funded by UNDP, was completed at the end of March 2008.123 The center had already begun teaching training courses and awarded its first diplomas in January and February 2008, and in July 2008 it announced that it had signed its first contract with an undisclosed partner to install a specially adapted version of an established turbine design for testing by mid-2009.124 125
For all their opportunity, it should be noted that the winds development of the La Venta III project, as discussed of Oaxaca also present a challenge to potential project below, and the time required to administer CFE’s developers and to the reliable operation of the national auctions has further helped to ensure that private sector grid. The national grid operator CENACE claims that La self-supply projects will take the lead in development of Venta II goes out of service an average of twice a month wind power in the coming years, as discussed below. due to winds that exceed 24 m/s, which causes its turbines to shut down automatically as a safety measure, At the same time, wind projects developed as CFE which can reduce the wind farm’s overall output and concessions enjoy certain distinct advantages compared make its operations more difficult to coordinate with the to self-supply projects. CFE offers 20-year PPAs for grid.129 Thus, CENACE announced plans in March 2008 winning bidders, providing certainty for future revenues. to study the potential impact of planned increases in Moreover, the concession includes land and transmission Oaxaca wind power installations on the national grid, as rights, which are acquired from local landowners by CFE well as to examine the potential for improving beforehand, and CFE also provides environmental coordination between the region’s wind and hydro studies, site studies, and interconnection rights for these generation. projects, all of which can save wind developers significant time and money.130 CFE Wind Power Projects As the dominant player in the Mexican power sector, La Venta I and II (85 MW combined) CFE has unsurprisingly taken the lead in wind power CFE has developed its own wind power projects, called development, with the construction of the pilot La Venta I La Venta, in Oaxaca state. The first project, La Venta I, project in 1994 and the much larger La Venta II was a 1.575 MW demonstration wind farm built in 1994, installation in 2007, the only large-scale wind farm which was the largest wind farm in the country until the currently operating in the country. However, the 2007 construction of La Venta II.131 The only other wind restrictions imposed by CFE’s mandate to develop power farm of significant size had been the 0.6 MW off-grid at the lowest cost have been an obstacle to the Guerrero Negro project in Baja California.
Blueprint for Renewable Power | Section 5 351 The La Venta II project, built by a partnership between Despite these difficulties in the first round of bidding, the Ibedrola’s engineering subsidiary Iberinco and Gamesa, La Venta project could still offer considerable potential is currently the country’s largest wind power project by advantages for a project developer if prices are raised. far, at 83.3 MW.132 It includes 98 Gamesa 850 kW wind CFE has secured land for the wind farm as well as the turbines, one of the few models proven to be suitable for required transmission to connect it to the national grid, a use in areas with such strong winds, at an initially process that took a year and a half and was only estimated cost of $104 million. The project was financed completed in the first quarter of 2008.138 Moreover, the through CFE debt, including loans from the Spanish World Bank has pledged $20.4 million to supply a “Green International Bank for Reconstruction and Development Fund” that will pay a 1.1-cent per kWh incentive to the (IBRD). Given a load factor of 42%, the plant will project for its first five years of operation. produce an average of 308 GWh per year.133 Oaxaca I–IV (406 MW combined) The La Venta II project, built by a CFE plans to tender several more wind power plants on the Tehuantepec Isthmus in the coming years. Four wind partnership between Ibedrola’s farms, called Oaxaca 1, 2, 3, and 4, with a total of 406 MW, engineering subsidiary Iberinco will be bid, with the first expected to begin commercial operations in August 2010.139 140 The projects are expected and Gamesa, is currently Mexico’s to require a combined investment of at least $650 million, largest wind power project by far, and CFE launched the tender for the development of at 83.3 MW. Oaxaca I in August of 2008.141 Iberdrola has already expressed an interest in bidding on these projects in addition to its participation in the rebidding of La Venta III.142 The project occupies nearly 1,000 hectares of land in the Juchitán de Zaragoza municipality, and the local Self-Supply Projects community of Ejido La Venta was consulted throughout the In addition to CFE’s wind power sites, a wide range of project’s development. CFE and representatives of the private developers are planning on developing nearly 2 community signed an agreement in 2005 that established GW of wind power projects in Oaxaca under self-supply an acceptable project design and committed CFE to arrangements, making this the most significant source of opening a trust of $783,400 to pursue a range of social new wind power development in the near term. Four projects in the area, including investments in local schools, private sector self-supply projects with 165.5 MW capacity the paving of a major street, and the construction of offices are expected to be built by the end of 2009. They will for community meetings. The project also employed five to utilize CFE’s existing transmission capacity from the 250 local laborers at any given time during its construction Juchitán II substation.143 These include the Eléctrica del in 2006 and 2007 and will require several permanent Valle de México project, a 67.5 MW joint venture between workers to operate and maintain the installation.134 EDF of France and Wal-Mart of Mexico, and the Bii Nee Stipa project being developed by Gamesa in collaboration La Venta III (101 MW) with Mexican construction firm CISA. The largest La Venta project, La Venta III, will be a 101 MW plant, and CFE made its first attempt to auction IPP This first stage will be followed by a second stage concessions for the project’s construction and operation including two large self-supply projects expected to come last year. However, only one company — Spain’s online in 2009, the 80 MW Iberdrola-backed Parques Iberdrola, the largest wind power developer in the world Eólicos de México (PEM) project, and the 250 MW Eurus — made a bid that was deemed technically wind farm that will supply Cemex, which will also utilize acceptable.135 Moreover, Iberdrola’s bid of $205.58 existing transmission lines but will require their million was substantially higher than CFE’s ceiling of reinforcement to handle the increased load.144 La Venta III $151 million, a figure that was not made public until CFE is also expected to come online during this announced its decision to reject the bid. CFE plans to “modernization” phase for the region’s transmission. rebid the concession, but it remains to be seen whether These projects will be followed by a third and largest stage developers will be able to build the project at an of projects projected to begin construction in 2010. These acceptable cost, particularly given the shortage of will include nearly 1.5 GW of wind farms being developed turbines capable of operating reliably in Oaxaca.136 While under an “open season” scheme, according to which CFE five firms attended a site visit for the project in early will develop the required new transmission capacity with August 2008, only one company, Iberdrola Renovables, funding by commitments from private wind farm had purchased the bidding rules.137 developers.145 Land for the transmission line’s
352 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf construction has already been purchased. The largest of August 2008, EDF EN announced that it had signed a these projects, the 396 MW Preneal Mexico project, will long-term contract with Clipper Windpower, a U.S.-based supply off-takers including the self-service chain wind turbine manufacturer, that would provide 27 of its 2.5 Soriana.146 The Oaxaca I–IV projects will also utilize this MW units for the project.153 new transmission line.147 La Ventosa (80 MW) AMDEE has also received letters of interest from a number Although its bid to develop the La Venta III plant as a of firms looking to develop 2,950 MW of additional wind CFE concession failed, Iberdrola will be entering the power in Oaxaca, which would require the construction of Mexican wind sector through the development of the 80 additional transmission capacity.148 AMDEE plans to MW La Ventosa wind farm, which is being built by its submit a request to SENER, CFE, and CRE to study the Mexican subsidiary Parques Eólicos de México (PEM).154 feasibility of developing a second new transmission line for The project is being developed for self-supply, and PEM the region under the “open season” model, which would has signed long-term PPAs with undisclosed off- potentially bring the cumulative capacity of wind power in takers.155 The project is located near the town of La Oaxaca to 5 GW. Ventosa in Juchitan de Zarogoza municipality in Oaxaca and will utilize the same model of Gamesa 850 kW Eléctrica del Valle de México (67.5 MW) turbines used in the La Venta II project. Construction The largest wind power plant being built for the first stage costs have been estimated at $110 million, and in of wind power in Oaxaca is the 67.5 MW Eléctrica del Valle January 2008 the project was registered as a CDM de México project, which is being developed by French project eligible to sell carbon credits.156 Construction on utility EDF’s Energy Nouvelles (EDF EN) in collaboration the project began in April 2008, and it began operations with Wal-Mart de Mexico, also known as Walmex.151 EDF in January 2009.157 EN will soon invest $140 million in the construction of the plant. It is expected to come online in the summer of During the construction phase, workers, mostly local 2009, and Walmex will purchase its entire output. The residents, will be hired and trained by Iberdrola, acquiring project is expected to generate enough power to meet skills that can be transferred to other wind power 34% of the consumption of Wal-Mart’s 350 stores in the projects being developed in the area. Fifty workers are central region, saving up to $2.5 million annually in power to be hired in first month, and groups of 100 more each costs due to the high level of commercial tariffs.152 In additional month until the workforce reaches 350 employees. Once the wind farm is operational, an Table 5.4.2a operations and maintenance crew of 10 to 20 people will be trained and hired on a more permanent basis.158 Project Capacity (MW) 2008 – Stage 1 Eurus (250 MW) Eléctrica del Valle de México (EDF) 67.5 Cemex, one of the leading cement producers in the Fuerza Eólica del Istmo 50 world and one of the largest energy consumers in Eolitec del Istmo 22 Mexico, has formed a joint venture called Eurus with Bii Nee Stipa (Gamesa-CISA) 26 TOTAL 165.5 Spanish wind company Acciona to build a 250 MW wind farm in Oaxaca, which could be completed by the end of 2009 – Stage 2 2008.159 The project is being developed for self-supply Eurus (Acciona-Cemex) 250 and will cost an estimated $430 million. Cemex will Parques Eólicos de México (Iberdrola) 80 purchase all of the power produced by the wind farm.160 La Venta III (CFE) 101 TOTAL 431 Cemex is pursuing the project primarily to reduce its vulnerability to high oil and gas prices as well as to 2010 – Stage 3 secure carbon credit offsets that are required for their Preneal México 400 European operations.161 Gamesa Energía 288 Unión Fenosa Generación México 230 Like the La Venta and La Ventosa projects, the Eurus Desarrollos Eólicos Mexicanos 221 Eoliatec del Pacífico 160 wind farm will be located in the area of strongest winds, Eoliatec del Istmo 142 the Tehuantepec Isthmus, in Juchitan de Zaragoza Fuerza Eólica 50 municipality. The region’s strong winds will give the Oaxaca I-IV (CFE) 406 project a capacity factor of 45%, giving it an expected TOTAL 1,897 average annual production of 985 GWh per year.162 TOTAL STAGES 1-3 2,493.5 Source, New Energy Finance, via Reforma,149 AMDEE150 Unlike the La Venta and La Ventosa projects, however,
Blueprint for Renewable Power | Section 5 353 Eurus will utilize 1.5 MW Acciona turbines, rather than Rumorosa, for a total potential capacity of 1.2 GW wind the smaller, 850 kW Gamesa models. As the Gamesa power for export.167 turbines are currently the only turbines proven to work reliably in such strong wind conditions, the success of Municipal Supply Projects — Santa Catarina and this project would both expand the universe of suppliers Lorento Bay for future planned Oaxaca wind projects as well as Municipalities pay higher power tariffs than all user increase the potential economies of scale for these categories other than commercial users, and they are projects.163 expected to be a fast-growing off-take market.168 U.S.- based renewable energy independent power producer Cemex, one of the leading cement (IPP) Econergy is planning to target these municipal off- takers in the process of establishing itself in the Mexican producers in the world and one of wind power sector, with a pair of 20 MW wind farms being the largest energy consumers in developed to supply municipal off-takers in Santa Mexico, has formed a joint venture Catarina, outside Monterrey, and Loreto Bay.169 with Spanish wind company Econergy has secured off-take agreements with both Acciona to build a 250 MW wind municipalities and is working to secure off-take agreements with other large industrial users before closing financing farm in Oaxaca. and ordering turbines.170 Seventy percent of project financing needs are expected to be met by loans from Beyond Oaxaca Banobras, the Mexican development bank, and Econergy While Oaxaca is the clear focus of wind power anticipates being able to achieve financial close soon and development in Mexico, there are a number of major begin construction this year.171 wind power export projects being developed in Baja California, as well as a growing interest in the Wind Power Manufacturing development of smaller projects geared toward Components municipal off-takers elsewhere in the country. Due to its proximity to U.S. wind turbine manufacturers, Mexico has unique opportunities for the production of Baja California wind turbine components for export. The Mexican The Baja California peninsula offers wind potential electric motor and generator manufacturer Potencia surpassed in Mexico only by the La Venta area of Industrial, a subsidiary of U.S.-based Clipper Windpower, Oaxaca, and enjoys a unique opportunity in Latin produces 660 kW wind power generators, primarily for America: the ability to sell power over existing use in the production of the 2.5 MW Clipper Liberty wind interchanges to utilities in California, which must meet turbine and similar models.172 Thus, 90% of its the targets set by a state renewable portfolio standard generators are exported to Canada and the U.S. Recent (RPS) that will require 20% of their energy to come from growing demand in these markets has led the firm to renewable sources by 2010.164 The Baja California region increase its output of generators from 27 per week in is already home to two combined-cycle gas plants selling January 2008 to 40 per week in March 2008. power to the California market, and the area is isolated from the rest of the CFE grid. Due to its proximity to U.S. wind San Diego–based power plant developer Sempra Energy turbine manufacturers, Mexico has is planning to build a 400 MW wind farm in the La Rumorosa area, along the eastern ridge of the Sierra unique opportunities for the Juarez Mountains, in a joint venture with San Diego’s production of wind turbine Cannon Power. The project, which will cost an estimated components for export. $400 million, signed a 20-year power-purchasing agreement with Southern California Edison in July 2007.165 Spanish utility Union Fenosa is also reportedly VienTek, a turbine blade–producing joint venture between considering the development of a 400 MW wind farm in Japan’s Mitsubishi and local manufacturer TPI collaboration with the Mexican firm Zemer in the La Composites, is another major component manufacturer in Rumorosa area.166 AMDEE reports that the Sempra wind Mexico geared toward exports.173 Established in 2002 in farm may also grow to 400 MW in size and that Fuerza Ciudad Juárez, Chihuahua state, the VienTek plant initially Eólica is also considering a 400 MW plant in La produced a weekly output of 25 29-meter blades and five
354 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 45-meter blades for Mitsubishi’s MWT92 and MWT95 applications and photovoltaics. Its 840,000 m2 of solar turbines, and in October 2007 it opened a second plant heaters and 19.4 MW of photovoltaic capacity are the that has tripled that output. The plant’s production will go most of any country in the region, and the government is to the assembly of turbines for U.S. wind parks. actively working to accelerate the adoption of these technologies. In 2007, the national energy efficiency and Wind Turbine Sales and Production conservation agency CONAE established an ambitious The Mexican firm Dynamik Kontroll, or DYNKO, is aiming to new national solar heating promotion program, become a pioneer in the manufacturing of wind turbines in PROCALSOL. The program is one of the most wide- Mexico and Latin America more generally, and has recently ranging efforts of its kind in Latin America and aims to shifted from a strategy focused on the distribution of increase the total area of solar heaters installed in the turbines manufactured by international suppliers to a country to 1.8 m2 by 2012 through the development of strategy based on the assembly of its own turbine designs standards, the training of technicians and installers, the using imported components.174 175 The firm announced in provision of funding for green mortgages and other sector- December 2007 that it would have Class II wind turbines specific financing tools, and other initiatives. from U.S.-based manufacturer DeWind with a capacity of 2 MW on sale for the Mexican and other Latin American Currently, Mexico’s photovoltaic generating capacity is countries beginning in the second quarter of 2008, and overwhelmingly concentrated in off-grid applications such Class I turbines by the end of 2009, offering potentially the as lighting systems, water pumping, and communications shortest delivery time available for turbines in the region.176 stations for rural users. However, the country has begun However, the distribution agreement with DeWind fell laying the groundwork for more widespread utilization of through for undisclosed reasons, and DYNKO is now solar power for grid-connected users in residential, working to develop its own turbine designs, with hopes of commercial, and industrial sectors, which only account for beginning manufacturing in 2009.177 400 kW, or 2%, of current photovoltaic capacity. In 2007, the government passed a new interconnection rule DYNKO enjoys several potential strategic advantages in guaranteeing grid access and net metering for solar the Latin American market, including the location of its photovoltaic systems of up to 10 kW for residential future Guanajuato, Mexico, manufacturing facility near the customers and 30 kW for commercial customers, making Pan-American Highway, which runs from Canada to Chile, it the first country in Latin America to offer net metering. as well as a shared language and time zones.178 Moreover, DYNKO’s leadership has excellent relationships with the However, researchers at Monterrey Technological University local and regional wind power industry, as president expect the net metering law to have little effect on solar Fernando Tejeda is the president and co-founder of the uptake at first because of long payback times, which are Latin America Wind Energy Association (LAWEA), and vice- due not only to the high up-front costs of the technology, president Oscar Galindo is the former vice-president of but also to heavily subsidized power tariffs. A 10 kW AMDEE and is the current chairman of Eoliatec del Istmo, a residential solar system would take the average household firm planning a 142 MW wind farm in Oaxaca noted over 67 years to pay back its initial investment in energy above.179 180 These contacts have helped the company savings, compared to more than 42 years for commercial access potential partners in the region, and DYNKO has users and 25 years for high-consumption households. already received substantial interest in ordering turbines.181 Although the currently high costs of solar power, compared to end-user tariffs, may limit the incentive provided by this Solar law, particularly for heavily subsidized residential users, this framework could become increasingly valuable as solar Mexico also has very good solar resources, with an costs drop and power generation costs from natural gas average solar insolation across its territory of 5 kWh per and oil rise. ERDM Solar, a Mexican-German solar square meter per day, making it one of the sunniest module–manufacturing venture that began productions of countries in the world.182 The richest solar resources are 120 W panels utilizing solar cells produced by Q-Cells in available in the northern and western areas of the country, early 2008, estimates that increasing grid power prices and with the states of Baja California, Sonora, and Chihuahua decreasing photovoltaics costs could allow solar to reach receiving over 7 kWh per square meter per day over much grid parity as early as 2010.185 of their territory.183 Q-Cells, the world’s leading solar manufacturer, is planning Mexico has thus been a leader in Latin America in the to move into the production of solar cells within Mexico as adoption of solar energy sources, including solar heating well. In May 2008, it announced an agreement with the
Blueprint for Renewable Power | Section 5 355 Chart 5.4.2j Years to Recoup Solar PV Costs
Commercial User 42.7 6,307 kWh/mo High-Consumption Household 25 562 kWh/mo
Average Household 67.1 187 kWh/mo 0 20406080 Years Source: Monterrey Technological University via Reforma184
federal government, the government of Baja California, and to developing CSP plants as well as a new CSP research Silicon Border Development — a developer of industrial and development initiative. However, as in other areas of parks for high tech companies — to build a production the world, the costs of solar are still generally too high to complex in Mexicali for the manufacture of thin-film be competitive without special incentives. CFE’s photovoltaics. Q-Cells will invest up to $3.5 billion in the inefficiently subsidized tariffs for residential customers development of the complex, which will be located close to further weaken the competitiveness of photovoltaics, and the U.S. border.186 While the decision to locate in Mexicali the 30 kW limit on commercial installations under the rule is primarily due to Q-Cells’s desire for access to the U.S. limits its usefulness for the class of customers who might market, it will be the first facility of its kind in Latin America have a stronger interest due to their higher tariffs. and could become an important source of supplies for the Mexican and regional Latin American markets. Drivers • Strong Solar Resource Base: Mexico has excellent Mexico is also exploring the potential for the development solar resources, with average solar insolation of 5 kWh of concentrating solar power (CSP) plants, particularly in per square meter per day, making it one of the Sonora, one of the sunniest areas of the country. In 2007, sunniest countries in the world. The northern states of CFE tendered a concession for the construction of a Baja California, Sonora, and Chihuahua are the hybrid combined-cycle natural gas and solar thermal sunniest, receiving over 7 kWh per square meter per plant in Sonora that would have a total of 536 MW day over much of their territory.187 generating capacity, at least 24 MW of which would come from the solar thermal component. While this first • High Power Prices: As with other renewables, rising attempt to tender the project failed, CFE is reviewing the costs for natural gas and oil-based generation are project’s bidding rules and plans to rebid the project. In driving increased interest in the development of solar December 2007, the University of Sonora and the Center power from both CFE and private sector end users. for Energy Research at UNAM announced a joint research Photovoltaic applications could be particularly attractive initiative to explore the potential development of CSP to commercial users, who pay the highest power tariffs. plants in the area, called the National laboratory for Concentrating Solar Systems and Solar Chemistry. • Decreasing Costs for Solar Photovoltaics: While solar photovoltaic power still costs significantly more The primary non-governmental association that publishes than conventional generating sources, this gap is information about, and advocates for, the industry is the expected to narrow significantly as global silicon Asociación Nacional de Energía Solar (ANES), which plays supplies expand, and it could be closed in as little as key agenda-setting roles and is collaborating with the two years according to local solar module government on the development of its solar heating and manufacturer ERDM. solar photovoltaics initiatives. • Public Sector Support: Solar has enjoyed significant Key Drivers and Obstacles boosts from various public sector actors in recent Mexico is rich in solar energy resources, and the public years, with the PROCALSOL solar heating program sector has taken several steps to encourage its and the net metering law being the two most development, including PROCALSOL for solar heating, the prominent examples. CFE is also working to new net metering rule for photovoltaics, and commitments concession the country’s first solar thermal power
356 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf plant as an IPP, and the government is funding the Projects creation of a new research program at the University of Solar Heating Sonora to promote the use of this technology in Mexico consumes an estimated 230 gigajoules of energy Mexico. CONAE and the state government of Baja for water heating, equal to 6% of all final energy use in California are also collaborating with the IDBand the the country, making for a potentially huge market for Japanese Trust Fund for Consultancy Services to solar water heaters. The replacement of deriving develop pilot solar photovoltaic projects for selected Mexico’s entire water-heating demand from solar energy grid-connected households in Mexicali. would entail 70 million square meters of solar water heaters and would have the effect of reducing CO2 • Proximity to U.S. Market: As with wind power emissions by four million tons and saving $4.7 billion manufacturing as well as generation, proximity to the annually in fuel costs.188 However, just 840,000 m2 of U.S. market (and California in particular, across the heaters are currently in use in the country. Baja California border) presents Mexico with unique domestic solar manufacturing opportunities. Kyocera, While current levels of use may represent only a small one of the world’s largest producers of photovoltaics, fraction of its potential, Mexico is a leader in the Latin has recently opened a solar module–manufacturing American region in the adoption of this technology, in plant in Baja California, and Q-Cells, the world’s terms of both sheer numbers and institutional largest, is planning to invest as much as $3.5 billion in development. A number of incentives for their building a state-of-the-art thin-film solar manufacturing development have been developed in recent years, and complex in the state capital of Mexicali. While the U.S. the new PROCALSOL program promises to accelerate market is the primary target of these facilities, Q-Cells this trend further. is planning on selling at least a significant portion of its eventual 400–600 MW in production capacity to the There are over 50 small and Mexican and Latin American markets. micro-sized companies involved Obstacles in the manufacturing, marketing, • High Costs of Solar Energy Technologies: While solar power generation costs are decreasing, they are and importation of solar water- currently too high to make their use economical heating systems in Mexico, without incentives in most cases. A recent study by including 20 companies in the Monterrey Technological University estimates that payback times for a solar photovoltaic system for the Mexico City area alone. average Mexican household is 67 years, and 43 years for commercial users. The high cost and unproven Solar heating systems are employed in Mexico for a wide nature of CSP technology prevented CFE from range of applications including homes, swimming pools, successfully tendering the Agua Prieta II combined- sports clubs, hotels, industrial processes, and the cycle gas/CSP hybrid plant last year, and it remains to agricultural sector. The use of these systems has grown be seen whether future bids for the project will be able steadily, from nearly 200,000 m2 of installed solar heaters to offer sufficiently attractive terms. in 1993 to 839,686 m2 in 2006.189 190 There are over 50 companies of mostly small- and micro-size (10 • Limited Applicability of Interconnection and Net employees or less) involved in the manufacturing, Metering Rules: In addition to the lack of incentives marketing, and importation (largely from Europe, Israel, available for solar generation, the usefulness of the net and China) of solar water-heating systems, including 20 metering law may be limited by its ceiling of 10 kW for companies in the Mexico City area alone.191 192 residential installations and 30 kW for commercial installations. The ceiling for commercial applications While this represents one of the highest levels of use of in particular limits the potential of large-scale projects solar water-heating systems in Latin America, it trails far by major consumers, which could utilize economies of behind global leaders in the sector in terms of market scale to lower costs and make these types of projects penetration — Israel, Cyprus, Greece, Austria, Turkey, more feasible. As noted above, commercial users and Japan each have over 100 m2 of hot water heaters have a strong incentive to develop their own for every 1,000 inhabitants, compared to 8 m2 for every photovoltaic generation because of their much higher 1,000 inhabitants of Mexico.193 Heating in the residential tariff rates, which help subsidize residential and sector is still dominated by liquefied petroleum gas agricultural sector tariffs. (LPG) and wood, while industrial users also use
Blueprint for Renewable Power | Section 5 357 predominantly fossil fuels, including LPG, natural gas, estimated 19.4 MW of capacity installed nationwide as fuel oil, and diesel.194 Barriers to further uptake include of May 2008.202 ANES projects that this could increase high up-front equipment costs, high interest rates, to as much as 27.8 MW by 2012, as the annual rate of limited access to financing, a lack of experience with new capacity additions grows from 1 MW in 2006 and and confidence in these technologies, and a limited 2007 to over 2 MW per year by 2010.203 base of technicians with the training to install and/or repair the equipment. Currently, these installations are overwhelmingly concentrated on off-grid applications, with 19 MW, or Although up-front costs for these systems remain higher 98% of the overall PV capacity, compared to just 400 than alternatives, solar water heating has become kW, or 2% for grid-connected applications.206 In terms increasingly economical due to prices for LPG and natural of end uses, these installations are unsurprisingly gas that increased by 52% and 74%, respectively, focused on providing power for a range of specialized between 2002 and 2006.195 Payback times for solar water rural applications, with 80% of PV by capacity going heaters are now between three and five years and are toward rural lighting, refrigeration, communications, and less expensive per unit of water heated than LPG water-pumping systems, including 1 MW of solar- alternatives. Moreover, in the past three years, this sector powered water pumps installed through a program has benefited from the development of a number of operated by FIRCO, the Mexican irrigation trust fund.207 initiatives by the Mexican government, including: A further 19% of PV capacity is dedicated to powering • Accelerated depreciation for renewable power commercial and industrial needs in both on- and off-grid equipment passed in 2005, as noted above under applications, with the remaining 1% going to residential “Renewable Power Development Framework” users, including 220 homes with 1 kW grid-connected photovoltaic systems in Mexicali.208 Solar power has • The establishment and promotion of a voluntary also played a role in urban-restoration projects in system of performance and quality standards by Mexico City, such as an October 2007 initiative to install ANES 83 solar-powered lighting systems as part of a wider environmental development project in the Ampliación • The development of a laboratory-certification Michoacana community, which suffers one of the program, underway since September 2006, in a joint highest crime rates in the city.209 venture between the National Council of Science and Technology and the University of Guanajuato The use of photovoltaics in Mexico enjoys growing policy support. In June 2007, a new interconnection rule • A pilot project by the National Commission for for photovoltaics, including provisions for net metering, Housing Promotion (CONAFOVI) to promote the use was passed, the first of its kind in Latin America.210 The of solar heaters in five new housing developments new regulations guarantee access to the CFE and LFC grids for residential installations of up to 10 kW in size • The Risk-Sharing Trust of the Secretariat of and commercial installations of up to 30 kW in size, and Agriculture, Livestock Development, Rural Fisheries, net metering will allow meters to run backward when and Food (FIRCO) to promote the installation of power is generated, lowering users’ electricity bills water-heating systems for agro-industrial companies accordingly.211
A law mandating the development of new regulations While these interconnection rules will make these types requiring a range of buildings owned by the federal of projects easier to develop, they do not provide government in the capital to utilize solar hot water preferential pricing for solar power, which will limit its heaters for at least 30% of their heating needs is also in ability to significantly increase the adoption of this the process of being implemented. Given the high technology, given the currently high costs for potential of solar water heating systems in Mexico, in photovoltaics. A study conducted shortly after the 2007 CONAE took the further step of creating an passage of the law by the Center for Energy Studies at integrated, overarching program to promote the growth Monterrey Technological University estimates that solar of these applications, called PROCALSOL. capacity in Mexico costs between $5,600 and $7,400 per kilowatt installed, and that investments in a system Photovoltaics covering just 13% of the average household power Mexico has also installed one of the largest bases of needs of 187 kWh per month would have a payback solar photovoltaic generation in Latin America, with an time of 67 years.212 Payback times can be lowered to 25
358 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.2k Procalsol Goals for Solar Water Heater Installation in Mexico (M2)
2,000,000 Annual 1,500,000 Cumulative
2 1,000,000 M
500,000
0 Source: SENER197 2008 2009 2010 2011 2012
PROCALSOL One of the most wide-ranging initiatives in the promotion of the use of solar heating systems in Latin America is PROCASOL, which is overseen by CONAE, the energy conservation agency of SENER. PROCASOL aims to increase the uptake of solar water heaters in the residential, commercial, industrial, and agricultural sectors, as well as to promote the development of domestic manufacturers, distributors, and installers. Through the strengthening of existing support programs and the development of new initiatives, PROCALSOL aims to accelerate the rate of solar water heating installations from a projected 155,485 in 2008 to 538,645 in 2012, when it will reach a total of 1.8 m2 cumulative capacity.196
Eighty-one percent of this capacity will come from new construction, mostly in new homes, which will account for 72% of overall installations over the next five years.198 199
PROCALSOL will work toward these goals with a number of actions in different areas over the next five years:200
• Promote and facilitate the creation of official standards and certification processes in order to build confidence in the sector • Expand the above-mentioned federal environmental requirements for 30% of heating to come from solar energy to cover all public buildings across the country • Establish a training and certification program for the training of technicians in the design, installation, operation, and maintenance of heating systems • Increase awareness of the accelerated depreciation tax schedule for solar heaters, and work with SENER and the economic ministry to study potential new incentive programs • Provide funding for preferential mortgage rates for new homes built with solar water heaters • Collaborate with development banks on programs to provide soft loans and loan guarantees for the installation of these systems for productive applications in the industrial, services, and agribusiness sectors • Promote small- and medium-size enterprises (SMEs, or PYMEs in Spanish) in the sector through collaboration with the economic ministry • Improve awareness of solar heating’s benefits and the tax-depreciation incentive through publicity campaigns and a website
The first year of the program, which ended in July 2008, focused on the creation of working groups among various stakeholders and collaborating agencies to develop operational plans, including meetings with Conavi, FIRCO, ANES, and GTZ. Other key near-term goals included the creation of certification criteria, increasing capacity-building efforts and the development of training courses at UNAM, and the establishment of a green mortgage program with Infonavit, the housing credit agency of the Mexican government.201
Blueprint for Renewable Power | Section 5 359 Chart 5.4.2l Solar PV Capacity in Mexico: Historic and Projected, 2004–2012
30
20 Annual talled s Cumulative 10 MW In
0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: ANES204 205
years in the case of households that consume more claiming to be the first in Latin America to produce solar than 500 kWh per month, or to 43 years for commercial panels using high-quality U.S. and European users, but these are still not generally considered components.215 216 The plant will utilize photovoltaic cells economical. from parent firm Q-Cells, the largest PV manufacturer in the world, for units of 40 W to 180 W in size.217 ANES has argued that further steps need to be taken to Production at the $17.5 million facility has begun with increase the development of these types of solar 120 W modules, and the company plans to add the installations, including a preferential tariff for solar production of 210 W modules by the end of 2009.218 219 generation, special financing programs to reduce the Overall, the plant currently has an annual production up-front costs of solar installations, and an increase of capacity of 16 MW, and it plans to expand to 110 MW if the 30 kW maximum for commercial installations.213 the necessary capital can be secured.220 Until such targeted support policies are developed, public sector initiatives may play an important role in ERDM’s primary customer currently is the Mexican driving early experience with grid-connected government, which has a supply contract for 70 MW of photovoltaics in Mexico. The IDB is working with solar panels over the next three years, but it plans to CONAE, the Baja California state government, and the serve residential, commercial, and industrial markets as Japanese Trust Fund for Consultancy Services to well.221 It also plans on targeting customers in other implement a new technical cooperation program for the Central American and Caribbean markets, including supply of photovoltaic panels to grid-connected Nicaragua, Guatemala, Honduras, Costa Rica, and households in the city of Mexicali. The program will Panama, although these are not expected to be major target low- and medium-income households and markets in the near term. support pilot projects to demonstrate the ability of solar panels to significantly reduce residential power bills in Kyocera: Kyocera, the second-largest photovoltaic Mexicali and potentially other communities. This producer in Japan, has also begun producing solar initiative will also work to develop new standards and modules in Mexico, at a manufacturing plant located in regulations to facilitate private sector investments in Tijuana, near the U.S. border. The facility began photovoltaics.214 production in June 2008 with an annual production capacity of 36 MW per year, with plans to expand to 150 Solar Manufacturing MW per year by the end of March 2011 and possibly The great potential of the Mexican solar market, as well beyond that. Output from the plant is expected to be as its relatively low labor costs and established sold across the border to the California market, where manufacturing industry, is leading to a growing interest demand is expected to boom in the wake of governor in the production of solar modules domestically. Arnold Schwarzenegger’s “Million Solar Roofs Plan,” which will offer nearly $3 billion in incentives to help ERDM: The Mexican–German joint venture ERDM encourage the development of 3 GW of solar capacity (Energía Renovable de México) Solar opened a solar through 2018.222 module manufacturing plant in Veracruz in early 2008,
360 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Q-Cells: Q-Cells is itself planning to build its first the last question-and-answer session before the closing photovoltaic manufacturing plant in the Americas in of the tender in July 2007, including Iberdrola’s Iberinco northern Mexico, also in Baja California. In May 2008, it subsidiary, Abener Mexico, Dragados Proyectos announced an agreement with the federal government, Industriales, Man Ferostaal Mexico, and Cobra the government of Baja California, and Silicon Border Instalaciones y Servicios. Moreover, the World Bank has Development — a developer of industrial parks for high already approved $49.35 million in loans at preferential tech companies — to build a production complex in rates for the project.226 Despite this interest, there were Mexicali for the manufacture of thin-film photovoltaics. ultimately no bids for the project. CFE is reviewing the Q-Cells will invest up to $3.5 billion in the development project’s bidding rules and plans to relaunch the tender. of the complex, which will be located close to the U.S. border.223 The investment is thought to be the largest The University of Sonora and the Center for Energy private investment in Mexico this year, and construction Research at UNAM are also working to encourage the on the first phase of the facility will be completed in development of CSP generation in Sonora and Mexico 2009 and produce 20–25 MW of thin-film cells, primarily more generally through a recently announced joint for the U.S. market. However, by 2010, the facility is research initiative, the National Laboratory for expected to produce between 400 and 600 MW of Concentrating Solar Systems and Solar Chemistry.227 photovoltaics, much of which could be sold in the The partnership, announced in December 2007, will Mexican and Latin American markets.224 have $3.7 million in funding, half of which will come from the National Council for Science and Technology Concentrating Solar Power (CSP) (Conacyt), and half from the university. CFE is hoping to build the first utility-scale concentrating solar power (CSP) plant in Mexico as part of an IPP tender for a hybrid combined-cycle natural gas Rural Electrification and solar thermal power plant in Sonora state, one of the richest areas of Mexico in solar resources. The More than three million Mexicans in 75,000 rural concession, called Agua Prieta II, calls for 536 MW total communities, or about 3% of the overall population, generating capacity, with the solar thermal component remain without a grid connection.228 229 Of these three accounting for at least 24 MW.225 Sixteen firms million, roughly 75% live in communities of 2,500 people registered to participate in the tender, and five attended or less, and 60% are indigenous Mexicans.230 Most of
Chart 5.4.2m Rural Electrification with Renewable Energy in Southern Mexico Program Funding
World Bank Loans 30% GEF Grants 45% Other Bank Loans 15% State and Municipal Governments 10%
Source: Notimex228
Blueprint for Renewable Power | Section 5 361 these communities are located in remote, isolated trained in this phase will help with the training of teams regions of the country, frequently making conventional in other communities, increasing the participatory grid-extension programs economically unfeasible. aspect of the initiative. The communities benefiting from Indeed, the unelectrified population is expected to the program will be selected by local governments, and increase by as much as 25% through 2015 as the federal government will carry out necessary populations in these areas grow, while CFE’s technical studies.240 connection rates continue to decline, as they have every year since 1995. As in other developing Drivers countries, a lack of electricity often precludes the • Lack of Electricity Service in Rural Areas: Three availability of basic healthcare, clean water, percent of Mexico’s total population, or about three telecommunications, and adequate educational million people, lack modern electricity services, and facilities, making alternative means of providing this figure is expected to increase by as much as 25% electricity for these communities an important social by 2015, due to growing populations in these areas goal for the government. and declining investments in grid extensions by CFE. Many of these communities are located in remote and In the 1990s, the government and donors, including the geographically isolated areas of the country, making World Bank, developed a program for decentralized extension of the grid prohibitively expensive, which rural electrification, which generally relied on fossil increases the utility of small-scale renewables. fuel–fired thermal generators. However, this effort was regarded as unsuccessful, as it was completely reliant • Concentration of Demand in Indigenous on subsidies, which proved unsustainable in terms of Communities: Of the three million people who funding as well as service quality and prevented the currently lack electricity services in the country, 60% initiative from scaling up.231 are from indigenous communities, whose economic development is an important social priority for the The growing use of renewables in rural electrification government. Thus, SENER’s new rural-electrification projects offers an alternative path, and in 2005 SENER initiative is focused on Mexico’s southern states of announced a new, $100 million program called Rural Oaxaca, Veracruz, Guerrero, and Chiapas, which Electrification with Renewable Energy in Southern include the highest indigenous populations in the Mexico in collaboration with the World Bank and the country. GEF.232 233 This program, which began operations in January 2008, will target Oaxaca, Veracruz, Guerrero, • Strong Renewable Resource Base: Guerrero and and Chiapas, the four states in Mexico with the largest Oaxaca in particular have strong solar resources, underserved populations and the highest numbers of ranging from 5 to 7 kWh per square meter per day. localities living in conditions of extreme poverty.234 Three of these regions also have the largest indigenous • Availability of Development Aid: Support from the populations in the country. The program will last five World Bank and GEF covers roughly 75% of the years, and it aims to provide renewable power for 50,000 budget for the Rural Electrification with Renewable households with solar power in the first year alone.235 Energy in Southern Mexico program, and the Wind and small hydro may also be considered.236 World willingness of international donors to provide this Bank–backed loans will provide $30 million in funding, assistance is critical, given the high costs of these $45 million will come from GEF grants, $15 million from technologies and the low ability to pay for them other bank loans, and the remaining $10 million from among target populations. International support for state and municipal governments.237 rural electrification programs is founded on their importance for the achievement of development The program will be further distinguished from previous goals, given the numerous positive impacts on rural efforts by a job-training component, as local workers in businesses, communications, health and health care, these communities will be trained to install and maintain education, and other areas from the introduction of the solar panels.239 This step aims to avoid problems of modern electricity services. past efforts by ensuring ongoing maintenance for the installations as well as providing benefits for local • Participatory Development Model: While it has yet economic development. to be implemented, the SENER/World Bank program has the potential to avoid maintenadnce problems Twenty-five pilot communities were selected to begin faced by other rural electrification programs (such as the program in February 2008, and solar installers Argentina’s PERMER, as discussed in Section 5.4.3)
362 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf and boost local economic development by training Changes called for in Mexico’s new local workers in the installation and maintenance of renewable energy law could these systems. Moreover, since these local maintenance groups from initial stages of the project potentially provide a strong new will be used to train subsequent communities, the framework for the sector’s participatory aspect of these projects is increased and their sustainability enhanced. development.
Obstacles Mexico’s heavily cross-subsidized tariffs pose another • High Costs and Low Ability to Pay: The renewable structural obstacle to the efficient development of the power technologies used in these programs are still power sector generally as well as to renewables, costly, and targeted populations lack the ability to particularly solar power. While Mexico recently finance them without substantial government established the first net metering law in Latin America, subsidies. the incentive for residential users to take advantage of it will be limited so long as their power costs remain heavily subsidized. Thus, although Mexico’s 19.4 MW of Conclusions solar photovoltaic generating capacity is the most in the region, it remains miniscule compared to the country’s As with its oil and gas sectors, Mexico possesses enormous potential in this area, and this situation is immense renewable resources, including world-class unlikely to change dramatically without politically wind and solar resources, but its development of them challenging tariff reforms or targeted incentives for the has been stymied both directly and indirectly by historic sector, which could be provided under the new political opposition to private participation in the energy renewable energy law or future legislation. sector. However, despite the limits imposed by its highly centralized and inefficient power sector, reform- Mexico City could provide a compelling focus for minded politicians and private sector companies have incentives for photovoltaics, in keeping with a growing succeeded in creating avenues for the development of trend toward municipal-level incentives for solar energy renewables that could see 3.2 GW of privately in cities around the world. The city is the largest in the developed wind power projects constructed in Oaxaca Western Hemisphere, representing a huge potential and Baja California alone over the next six years for self- market, and suffers from very high levels of air pollution supply and export projects, respectively. due to its large population, intense economic activity, and geographic location in a broad basin surrounded by While these efforts could fuel impressive growth in the tall mountains, which can block air movements that country’s renewable generation in the coming years, could clear out pollution.241 While most pollution there the more efficient development of the sector in the long comes from transportation and industrial users, the term will require continued reforms. Changes called for wider development of solar power could begin to make in the country’s new renewable energy law could inroads into the problem and demonstrate a larger potentially provide a strong new framework for the commitment to environmental progress in the city.243 sector's development with a broad array of support measures, although the likely efficacy of these new Moreover, distribution loss on the LFC-operated Mexico policies will not be clear until implementing regulations City network is close to 30%, much of which is are published later in 2009. SENER and CRE are attributed to theft, making on-site solar power directed to take a number of potentially important generation even more appealing as a way to avoid this steps over the course of the year, including the system loss as well as to reach underserved urban creation of new targets for renewable energy utilization, populations. The recent initiative in the Ampliación standard contracts for renewable generators, Michoacana community in Mexico City to develop a revamped rules for the purchase of surplus renewable participatory program for the installation of solar- electricity from self-supply and cogeneration projects powered lighting systems demonstrates the potential for by CFE, and other new initiatives. These new policies, solar power technologies to be wedded to important supported by as much as $220 million in government social goals in urban as well as rural areas. A wide range funds annually over the next three years, could help of municipal policies to support solar photovoltaics are open up the development of the renewables sector to being developed in cities in the U.S., Europe, and Asia, expanded investment from a more diverse array of including the development of community investment stakeholders. funds for solar power in several cities in Japan, long-
Blueprint for Renewable Power | Section 5 363 term financing options for solar power in Berkeley, California, and other approaches that could be considered for Mexico City or other Mexican municipalities.
Renewables can also play a key role in providing power for underserved populations in Mexico’s rural areas, particularly in the country’s southern states with large indigenous populations. While Oaxaca is perhaps best- known for its huge wind energy potential and plans for gigawatts of large-scale wind farms, it also has great potential for small hydro plants geared to serve the needs of local communities and businesses that often lack grid connections. The ambitious plans of the Fundación Para El Desarrollo del Corredor Eólico del Istmo y Las Energías Renovables could dramatically transform the region’s power sector with the widespread development of small hydro plants, although these projects will require substantial financing assistance.
Moreover, the southern states of Veracruz, Guerrero, Chiapas, and Oaxaca are the focus of Mexico’s recently begun solar power rural electrification program, which, if successful, could provide a model for participatory renewable power development programs throughout the region. By tying them to the achievement of important social objectives, Mexico can help to clear a path for the wider development of renewable power sources despite the historic politicization of the energy sector.
364 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.4.3 ARGENTINA develop projects in the generation sector. The politicization of the sector is also exemplified by Argentina’s growing dependence on subsidized diesel and fuel oil exports from Introduction Venezuela, which continues to hinder the development of renewable energy sources.2 Argentina simultaneously has some of the biggest opportunities and the biggest challenges for renewable Thus, the renewable power sector is currently power development in Latin America. The country has an characterized by a striking mix of ambition and uncertainty. immense wind resource base, including sites in the While project developers are considering hundreds of Southern Patagonia region that have some of the strongest megawatts in potential future wind projects, and and steadiest winds measured anywhere in the world, as manufacturers aspire to make Argentina a world-class well as very good winds in the metropolitan Buenos Aires player in the global wind industry, the outlook is generally region. This potential resource and the large Argentine pessimistic in the short term, despite minor increases in market have spurred the development of a collection of tariffs for large residential users enacted in July 2008. As wind energy manufacturers and R&D innovators, non-profit the first such increase allowed in seven years, the move is advocates, and national as well as local policies to support a positive step, but it is a small one that is not expected to wind power development that is unsurpassed in the region. change the profitability of generation projects in the country There is also a substantial base of small hydro capacity fundamentally. However, if tariffs are ultimately restored to installed as a legacy of 1950s and 1960s development cost-recovery levels — and most of the public and private projects, and potentially significant solar and geothermal sector experts interviewed for this report believed that they resources that have yet to be explored. will be, although few would say when — the sector has all the pieces in place for very rapid changes to this relatively Despite all of these advantages, however, the development stagnant status quo. Argentina’s liberalized power sector of wind power and other renewables in the country has was one of the most dynamic in the world in the 1990s, been stymied by serious political risks surrounding the and this competitive framework, along with support from electricity sector, with no existing wind projects aside from domestic and international institutions, policymakers, and small, cooperative-operated wind farms built in the 1990s investors, could allow the country to rejoin the cutting edge and no projects in advanced stages of development aside of global energy trends quickly. from an initiative by the state oil and gas company ENARSA. Industrial users are increasingly considering self- Key Drivers and Obstacles for Renewables generation projects, potentially including renewables, due in Argentina to long-term questions over power supply reliability, but Drivers these projects are likely to be small. Given the steps the • Renewable Resource Potential: Argentina’s wind government has taken in the aftermath of the 2001––2002 power resources are rivaled only by Mexico in Latin economic crisis, including a freezing of residential power America, and its potential in this area has been the focus tariffs, private sector investors are currently leery of of political and private sector interest in renewables. developing large power projects in the country, renewable Moreover, the country possesses significant potential for or otherwise, due to low profitability and uncertainty small hydro, geothermal, and solar power, giving it a regarding the government’s plans for the future.1 diverse and substantially unexploited renewable resource base. The development of wind power • Strong Growth of Electricity Demand: Argentina is in and other renewables in Argentina the midst of a torrid period of economic growth following has been stymied by serious the fiscal crisis of 1999–2002, with GDP growth of at least 8% per year since 2003. This has fueled power political risks surrounding the demand growth at a similar pace, ranging from 6% to electricity sector. 10% per year.
These concerns have been exacerbated by government • High Prices and Increasing Government Debt from participation in the energy sector that has only increased, Power Subsidies: Given volatile fossil fuel prices and a including the control of tariffs as well as public financing of lack of new generation capacity due to frozen tariffs, the new power projects through mandated contributions from Argentine government has had to go increasingly deep private generators and the development of a new state- into debt in order to subsidize thermal generators’ fuel owned energy company, ENARSA, that is moving to prices and to purchase power from Brazil at up to $130
Blueprint for Renewable Power | Section 5 365 per MWh. Accrued debts between 2003 and 2007 were generation virtually impossible to build for the private estimated at over $4 billion, including $1.7 billion in sector, leaving state energy company ENARSA to take 2007 alone. the lead on both gas-fired and wind power plant development. While there is a general consensus that These prices would make wind power and potentially this tariff regime is unsustainable in the long term, there other renewables competitive if they were reflected in is no indication of any willingness by the government to the wholesale power market, and the steadily growing make significant changes in the near term. debt from these subsidies gives the government a strong incentive to allow prices to rise toward actual • Country Risk: Beyond the problems in the power generation costs. sector, private investors are generally cautious about investments in Argentina due to growing questions over • Demand from Industrial Users: As discussed below, the future of the country’s economy. Increasing industrial users’ tariffs are much less heavily subsidized government intervention and growing suspicions over than those of residential users, and power-rationing the accuracy of official economic statistics are efforts have been targeted toward this sector as well. exacerbating the uncertainties that have plagued the Thus, many industrial users have begun exploring the private sector since the economic crisis. potential for developing their own generation supplies, which could include biomass and wind power along with conventional thermal sources. Electricity Supply and Demand
• Liberalized Power Sector: Although frozen tariffs have A Rebounding Economy Meets a Stagnant stifled the power sector’s growth, reforms undertaken in Power Sector the early 1990s still provide the legal framework for a Argentina, the wealthiest country in Latin America on a per competitive, private sector–led power sector. These capita basis,6 is in the midst of a period of extraordinarily rules allow large industrial users to contract for their strong, sustained economic growth following the own power, providing a potential avenue for renewable recession and fiscal crisis of 1999–2002. After devaluing power development for self-supply. If tariffs are the peso and defaulting on its loans to the IMF in 2002, ultimately raised to cost-recovery levels, this legal the export-led Argentine economy has recovered strongly, framework would also facilitate the rapid influx of with GDP growing at a rate of more than 8% per year private sector investments in wind power that many every year since 2003, including 8.7% in 2007.7 Although wind advocates and project developers anticipate. many economists are skeptical about the sustainability of this growth due to concerns over rampant inflation and • Potential for New Feed-In Tariffs: The Ministry of increasing government participation in the economy, the Planning has developed a system of incentives that new presidency of Cristina Fernández Kirchner has shown would pay feed-in tariffs to grid-connected renewables, no inclination to deviate from her predecessor and with differentiated tariff levels in line with the differing husband Nestor Kirchner’s economic policies.8 costs of renewable power technologies, ranging from $5 per MWh for wind to $30 per MWh for solar. This economic growth, combined with residential power However, it remains to be seen whether these incentives tariffs that have been kept at artificially low levels through will be implemented, given the fast-mounting government subsidies (as discussed below), has resulted government debt from power subsidies, and even at in steady growth in electricity demanded, increasing by these levels it is unlikely that these extra payments between 6% and 10% per year between 2003 and 2007, would compensate for the country’s frozen power including 6.6% in 2007.10 11 This trend was continued and tariffs. accelerated in early 2008 by record high temperatures, which pushed demand in January 2008 to a record 9.13 Obstacles GWh.12 As with other areas of the Argentine economy, the • Low Prices: Compared to an estimated generation cost center of power demand in the country is Buenos Aires, of $100 per MWh of wind energy in the country, and which accounts for 60% of all consumption.13 higher costs for other renewables, developers can currently expect to receive only $65–$70 from Current Generation Mix distribution companies, making these projects On the supply side, Argentina’s power sector includes unprofitable even with the incentives currently being roughly 24 GW of installed capacity, including 13 GW of considered under Law 26,190, discussed below.3 4 5 thermal generation, 10 GW of hydropower, and 1 GW of These costs are making even conventional thermal nuclear capacity.15 However, in sharp contrast to strong
366 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.3a Power Demand in Argentina
10,000 20,000
8,000
wh) 15,000 G 6,000 10,000 4,000 5,000 Demand ( 2,000 Max Demand (MW) 0 0 Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov 01 01 02 02 03 03 03 04 04 05 05 06 06 06
Demand (GWh) Max Demand (MW)
Source: CAMMESA9
demand growth, Argentina has seen virtually no As a result, in 2006 — the most recent year for which development of new generating capacity in recent years. CAMMESA has statistics — Argentina generated 51% of After adding nearly 6,000 MW of thermal, mostly gas-fired its power from thermal sources, over 80% of which was generation during the post-privatization years of the fueled by increasingly limited natural gas supplies. 1990s, 16 the economic crisis and the measures taken in its aftermath caused private sector investment to vanish in Crisis Response — Freezing Tariffs recent years. In response to the crisis, in 2002 power tariffs were
Chart 5.4.3b Total Installed Power Capacity, Argentina
14,000
Thermal 12,000 Hydro Nuclear
10,000
8,000 talled Power (MW) s 6,000 Total In Total
4,000
2,000
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20032004 2005 2006 Source: CAMMESA14
Blueprint for Renewable Power | Section 5 367 Chart 5.4.3c Power Generation in Argentina, 2006
Hydro 41% Thermal 51% Nuclear 7% Imports 1%
Thermal (Fossil Fuel)
Fuel Oil 15% Natural Gas 82% Coal 3%
Source: CAMMESA17 18
converted from dollars to pesos and frozen for the customers, they will only be sufficient to allow utilities to federally regulated utilities in the Buenos Aires make necessary maintenance and infrastructure metropolitan area (including Edenor, Edelap, and Edesur), investments, and they are not expected make the sector which accounts for the majority of the country’s profitable enough to spur investments in new capacity. 23 24 consumption. Although tariffs for industrial users were allowed to rise slightly in 2005, residential tariffs were held Mounting Public Debt at their 2001 level until a limited increase was permitted at The cost of maintaining Argentina’s fragile power system the end of July 2008.19 This has resulted in residential has fallen on the wholesale electricity market administrator tariffs in the Buenos Aires region that were 83% lower than CAMMESA, which uses government funds to subsidize in the rest of the country as of February 2008.20 The lack the fuel purchases of thermal generators so that they can of cost-recovery tariff levels in the country has virtually sell power to distributors at artificially low, regulated eliminated private sector investments in new power prices.25 These costs have been exacerbated by a generation despite steadily rising demand, resulting in growing dependence on diesel and fuel oil imports to run increased imports of electricity from Brazil, mandatory thermal generators, as domestic natural gas production power rationing for industrial users, and growing risks of has stagnated as well, due to declining private sector power outages.21 investment, and hydropower supplies have suffered from low rainfall in recent years.26 These imports, which are The first sign of hope came on July 31, 2008, when the procured largely through a bilateral arrangement with government announced its first wide-ranging tariff Venezuela, reached 1.9 million metric tons of fuel oil and increase in seven years, increasing residential tariffs from 626,000 cubic meters of diesel in 2007 and are expected 0% to 30% depending on consumption level and raising to reach two million cubic meters of fuel oil and 1.4 million industrial and commercial tariffs by 10% each. Residential cubic meters of diesel in 2008.27 Operating these customers using less than 650 kW of power — previously gas-fired generators with oil has resulted in approximately four million users, or 76% of the total in the lower efficiencies, higher pollution, and steadily rising metropolitan area — will see no increase, while those marginal costs. CAMMESA has also had to import using 651–800 kW will have tariffs increased by 10% and increasing power supplies from Brazil at prices of $130 per users more than 800 kW having a 30% rate increase.22 MWh or higher to make up for shortfalls, further driving up costs.28 29 Thus, while this move has been welcomed as a necessary and long-overdue step by analysts and industry officials, The cumulative debts accruing to CAMMESA since 2004 these parties have also stressed that the increase is only a have been estimated at $4 billion or higher at the first step. Because the increases are far from beginning of 2008, including $1.7 billion in 2007 alone, commensurate with the huge increases in power posing a growing risk to government finances.30 Due to generation costs over the past seven years and because continued increases in oil prices as well as soaring they will only apply to a small portion of residential inflation, 2008 subsidies are projected to reach as much
368 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.3d CAMMESA Subsidies for Fuel Costs
$1.7bn $6.6bn $100m 2007 2008 Projected Savings July 2008 Tariff
Sources: Business News Americas, Dow Jones International News32 33
as $6.6 billion. While reducing these subsidy outlays was consumption by 7% by 2016, according to Argentina’s a primary goal of the July 2008 increase in tariffs, the energy ministry.40 $100 million in savings expected to be created by this move will hardly begin to address the problem.31 On the supply side, the government is financing the development of two 800 MW thermal power plants While most observers believe that the problem will only through FONINVEMEM, a trust fund financed by a ultimately be solved by the establishment of tariffs that mandated share of the profits of current power generators reliably provide recovery of generating costs, the in exchange for proportional shares of the plants’ future government has been extremely reluctant to even pursue revenues.41 These plants are expected to come online the limited tariff increases enacted in July.34 35 A change in later this year, but they will suffer from the same gas- this stance is not expected anytime soon, as a sudden supply problems as Argentina’s existing thermal rise in residential energy costs could stoke inflation and generators, which are expected to continue after be costly in the government’s negotiations with unions President Kirchner’s recent failure to convince her over wages.36 37 The private sector has grown increasingly Brazilian counterpart, Luis Inacio Lula da Silva, to allow wary of making investments in the power sector due to a Argentina to purchase a portion of Brazil’s gas imports lack of trust in the government, making financing projects from Bolivia.42 Growing imports of electricity from Brazil extremely difficult.38 and Uruguay, as well as increased imports of gas from Bolivia, if available, are also likely.43 In the longer term, Public Sector Steps in to Address the Crisis the government is hoping to develop as many as five Given the lack of private sector interest in the sector, the binational hydropower plants with a total of 10 GW of government’s proposed course of action is focused on capacity in collaboration with Brazil and Bolivia. The reducing demand growth through new energy efficiency government has also expressed a desire to increase programs and power rationing in the industrial sector on generation from other renewables and is working to one hand, and major new public investments in create a regulatory framework to facilitate the generating capacity on the other. In December 2007, the development of enough renewable generation to meet new Fernández administration launched a new energy 8% of the country’s demand in the next ten years, as efficiency plan, the “Plan de Uso Racional y Eficiente de discussed below.44 Energía” (PRONUREE), which marks not only the government’s fourth major conservation initiative in as Large Users Search for Their Own Solutions many years but its most ambitious one so far.39 The plan Large industrial users, who have suffered the most from includes mandatory replacements of inefficient light problems in the power sector in recent years, are bulbs, the elimination of ornamental lighting, and limits on increasingly looking to make their own power supply air conditioning use in public buildings, a program to arrangements to reduce their risks. Industrial users have provide free low-energy light bulbs for residential users seen their power rates rise and their usage rationed in and loans for more energy-efficient equipment to order to maintain service at subsidized costs for businesses, and a shift in the country’s time zone forward residential users, including government-ordered power one hour. These initiatives could help reduce electricity restrictions adding up to 1.2 GW for 88 industrial users
Blueprint for Renewable Power | Section 5 369 between May and July 2007.45 Industrial users paid as competition, selection of concessionaires and monitoring much as $150 per MWh for power during peak hours in of their compliance, adjudication of disputes, and ensuring 2007, which was five times the tariff paid by residential of compliance with environmental and public safety consumers.46 standards.53 End-user tariffs are to be set according to a formula based on a full pass-through of energy costs in These power cuts and high rates are expected to have an the wholesale market, in addition to transmission and impact on the country’s economic growth if they continue.47 distribution costs, although this has not been the case Industrial users concerned about the potential for electricity since the freezing of rates, as discussed above.54 55 shortages going forward are increasingly seeking to develop their own generation projects, which are likely to be largely Generation: The Act established free entry into a based on conventional fossil fuel generation but may also competitive generating segment, with no concessions include wind power and biomass-fired projects.48 49 required to develop power plants aside from large hydropower and nuclear plants, which remained under state control.56 Throughout the 1990s, private investments Electricity Market Structure from both domestic and foreign sources poured into the sector, eventually accounting for more than half of total A Leading Reformer in the 1990s generating capacity.57 In addition to the capacity owned Along with Chile, Argentina was a pioneer in power sector and operated by large, private sector generators, liberalization in Latin America. Prior to reforms, four Argentina has 33 generating installations with a total of government-owned utilities owned 88% of the Argentine 167 MW of mostly grid-connected capacity that are electricity sector’s generation and transmission capacity, owned and operated by electricity cooperatives in 11 excepting only a number of small provincial cooperatives provinces as well as Buenos Aires, a total that includes and a pair of large hydroelectric facilities co-owned by the 27.7 MW of wind power, as discussed below under governments of Paraguay and Uruguay.50 As was the “Renewable Power Development Experience.”58 case with many state-owned sectors, electricity suffered from chronic underinvestment and was plagued by Generators must sell power to frequent supply interruptions as a result. The power sector was liberalized as part of a series of privatization distributors in the federally initiatives pursued by the Carlos Menem government in regulated Buenos Aires province at the 1990s, but unlike the privatizations of the telecom and transportation sectors, the electricity sector reforms were regulated rates, which were frozen widely regarded as one of the most well-considered and for seven years until a slight successful in the region.51 increase for large, residential users While the operation of the market has been severely in July 2008. distorted by the steps taken in the aftermath of the economic crisis, its openness to independent producers According to the Act, generators are to be paid according and its facilitation of direct supply contracts between large to the specifications of their long-term contracts for users and generators still serve to provide opportunities power sold into the term market and according to their for potential new renewable generators and would likely marginal cost of generation plus a capacity fee on the facilitate a rapid development of wind power in particular if spot market. 59 As discussed above, due to the tariffs were unfrozen. emergency laws still in effect since the economic crisis of 1999–2002, generators must sell power to distributors in The Electricity Act of 1992, Law 24,065, unbundled the the federally regulated Buenos Aires province at regulated electricity sector and established a new framework for its rates, which were frozen for seven years until the slight operation. The generation, transmission, and distribution increase for large, residential users in July 2008. Since segments were unbundled, with no cross-ownership the marginal costs of generation have increased allowed.52 Under this law, the state withdrew from substantially due to much higher gas and oil prices as participation in the sector, selling its assets to private well as soaring inflation, CAMMESA has stepped in to operators and assuming a purely regulatory role. subsidize the generators for the difference, which has amounted to over $4 billion in government debt since Regulation: The Act created the Ente Nacional Regulator 2004. Subsidies could reach more than $6 billion in 2008 de Electricidad (ENRE) to supervise and regulate the alone, and the recent tariff increase is only expected to industry, with responsibilities including the promotion of reduce subsidies by $100 million.
370 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Diagram 5.4.3a Categories of Electricity Consumers
GUMA Regulated GUPA GUME 1+ MW, Users 30-100 kW 30 kW - 2 MW 4380 MWh Annually
Source: CAMMESA66
Transmission: Transmission was preserved as a series of Consumers: The Electricity Act also established rules for regionally organized natural monopolies, with a competitive electricity market, in which large consumers, concessionaires paid through fixed connection and including distributors, large industrial users, and individual transport capacity fees as well as variable costs for actual customers, can either enter into long-term bilateral power transported.60 The rights to operate the national contracts with generators and/or purchase electricity on high-voltage grid company, Transener, and four of the five the wholesale spot market.65 The act established several regional transmission companies accounting for 90% of categories of users eligible to purchase power on the transmission in the country have been auctioned off as 95- long-term market, opening the market to a broader range year concessions.61 The auction process ensures a of users than in most countries pursuing similar reforms in measure of competition in the provision of transmission the region. services, with opportunities every 10 or 15 years for other companies to come up with lower bids to win the Large users are divided into three categories based on concession from the original concessionaire. their consumption, with different requirements for each:67
Distribution: Distributors are also regulated monopolies, • GUMA (Grandes Usarios Mayores): Includes large operating in regions where they are obligated to serve all users with demand for power of at least 1 MW and customers in their area that have access to the grid.62 In annual generation needs of at least 4,380 MWh. GUMA return, distributors buy and sell power at regulated must have long-term contracts, for a period of one year rates. Unlike the transmission companies, most of the or more, covering at least 50% of their demand, and distributors are under the control of provincial they may purchase remaining demand on the spot governments and not the federal government, and thus market. have not been sold. 63 However, the Buenos Aires metropolitan region, accounting for nearly 60% of • GUME (Grandes Usarios Menores): Includes users Argentine power consumption, was served by the state- with demand of at least 30 kW and less than 2 MW. All owned integrated utility SEGBA, which has been of their demand must be contracted for on the long- auctioned off as a federally regulated 95-year term market, with contracts extending at least two concession in three pieces (Edesur, Edenor, and quarterly periods of consumption. GUME must also Edelap).64 As noted above, tariffs have been frozen have no outstanding debts to their regional distributor. since 2002 for residential rates for these federally regulated distributors, while tariffs have been allowed to • GUPA (Grandes Usarios Particulares): Includes large, rise for large commercial and industrial users, although individual users with demand of at least 30 kW and less more slowly than the rate of inflation. than 100 kW. GUPA must contract for 100% of their
Blueprint for Renewable Power | Section 5 371 power needs on the long-term market, with contracts country and one of the first in the region.71 It awarded covering at least four quarterly periods of consumption. incentives of 10 pesos per MWh (equivalent to US$3.15 in 2008) for renewable power, equivalent to nearly 40% Unlike these large users, most residential users must of the market value of electricity at the time. However, purchase power from their regional distributor; in the by the time the bill was finally passed in December 1999 Buenos Aires area, which accounts for the majority of the and the specific mechanisms for the incentive’s country’s consumption, users’ rates have not risen since application were set in 2001, the country was deep in 2002. Large users may purchase power at higher the throes of its economic crisis, and the funds set aside regulated prices, which have been allowed to rise in recent to pay for the incentives were depleted in order to make years, on the spot market, where the price of electricity is partial payments to the IMF.72 set by the marginal cost of generation, or the term market, where users and generators may freely negotiate bilateral Chubut — Provincial Law 4,389: Chubut’s 1998 wind contracts.68 energy law, Provincial Law 4,389, offers a variety of incentives for the local development of wind power.73 In 2006, CAMMESA created the new Energy Plus program, Businesses that produce wind power equipment within which seeks to encourage greater efficiency and/or self- the province are exempt from provincial taxes for ten generation for industrial users by limiting the amount of years. Generators of wind power receive a payment of 5 power that can be purchased at regulated prices. The pesos (US$1.5) per MWh, which comes from the program sets a baseline for these users at their 2005 level regional rate compensation fund, although to qualify of power consumption, and then requires that all power they must utilize components produced in the province purchased beyond this level be purchased on the spot — 10% by 1999, 30% by 2001, 60% by 2003, 80% by market, which is significantly more expensive than the 2005, and 100% by 2007. While these incentives were regulated rate.69 In addition to encouraging generation helpful in the early years of the policy, they have been through efficient distributed generators such as diesel- or much less so since the freezing of tariffs, as the gap gas-fired combined heat and power units, the program between generating costs for wind and the tariff level is could encourage the development of renewable generation roughly $35 per MWh.74 sources by large users. Buenos Aires — Provincial law 12,603: The 2001 wind power law passed for Buenos Aires exempts land used Renewable Power Development Framework for renewable power generation from real estate taxes for ten years.75 It also pays renewable generation an Argentina has long recognized the potential of its extra 10 pesos per MWh (US$3.15), which is paid out of enormous wind resources, and was a leader in the 1990s the national fund that pays to level out differences in in supporting their development with policies at both the regional power tariffs. It also directs the Banco de la federal and provincial levels. While the first federal law to Provincia de Buenos Aires to provide special credit lines support renewable power had little effect, provincial level with long-term financing and low interest rates for laws were effective in the years before the crisis in renewables. As with the Chubut law, the amount of assisting with the development of wind power in the incentive given is insufficient to compensate for the Patagonian province of Chubut as well as Buenos Aires, frozen tariffs. which together are home to the large majority of Argentina’s existing, mostly small-scale wind capacity (as National Law 26,190: More recently, Law 26,190 of discussed under “Renewable Power Development January 2007 declared the development of renewable Experience”). power generation to be in the national interest and established a federal policy to achieve 8% generation Today, Argentina is working to implement new incentives from renewable sources over the next 10 years.76 The for renewables that would supersede both the previous statute outlines the types of renewables eligible for federal and the provincial laws, but it is unlikely that these support, including small hydro projects up to 30 MW in incentives will be sufficient to spur development of these size as well as wind, solar, geothermal, tidal, and technologies in the absence of more general reforms to biomass, and provides grounds for the creation of the tariff system.70 investment tax credits for renewable power equipment and feed-in tariffs for renewable generation to support Law 25,019: The 1998 Law 25,019, the “Régimen these goals.77 New incentives passed by the law would Nacional de Energía Eólica y Solar,” was the first policy replace the inoperative Law 25,019 and supersede the instrument to support renewables development in the regional laws noted above.
372 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.3d Operational Small Hydro Capacity in Argentina These new incentives have yet to be put into effect, 2007 although the Ministry of Planning has developed a plan that would include incentive payments of feed-in tariffs distinguished by the type and cost of each renewable Plant 162.68 MW Number of technology, including 15 pesos (about US$5), per MWh for Size Plants = 35 wind power, 30 pesos (about US$10) per MWh for small 10-30 hydro, and up to 90 pesos (about US$30) per MWh for MW 9 43.88 MW solar. These rates would be adjusted quarterly, and the law may also include a rebate on VAT taxes.78 1-10 MW 10
Some project developers have expressed skepticism that 1.5 MW 0.1-1 federal incentives will be implemented in the near future, MW 7 given the growing debt already accruing to CAMMESA,79 and both project developers as well as SENER 1-100 9 representatives have acknowledged that the incentive will kW likely not be sufficient to make up for the currently low tariff levels.80 81 82 83 Wind projects, which are expected to 0.23 MW be the lowest-cost renewable source, face production costs of around $100 per MWh compared to prices of just $65 per MWh, leaving them with a potential shortfall of Total Installed Capacity: 208.32 MW $35 per MWh. Source: CAMMESA87
Renewable Power Development Experience these plants were built in the 1950s and 1960s by the Although Argentina was an early renewable power leader Argentine federal government before being transferred to in the region with a number of small wind farms in the late provinces and cooperatives.86 1990s and early 2000s, this development largely ground to a halt in the aftermath of the 2001-2002 economic crisis. In general, the smaller plants of 1 MW or smaller were However, its diverse renewable resource base gives it usually isolated systems with no connection to the MEM enormous untapped potential for new projects, and there grid in the Chubut and Neuquen provinces of Patagonia is growing interest in the sector from both domestic and or the mountainous areas of Jujuy and Mendoza. international developers. Several of these projects have been developed by the private sector for the specific needs of off-grid users, supplying power for small businesses such as sawmills, Small Hydro grain mills, and wineries.88 89 A number of plants from 1 to 10 MW in size, including six plants from the Rio Negro Argentina has an estimated 130,000 GWh/year of province, utilize the MEM grid but are similarly hydropower potential, only 25% of which is harnessed by dispatched by private companies or cooperative its 10 GW of mostly large hydro facilities. However, these operators and are not part of the public electricity system hydrological resources are very unevenly distributed, and operated by CAMMESA.90 By contrast, almost all of the nearly two-thirds of the country’s territory receives 500 plants of 10 MW or larger are MEM-dispatched and thus mm or less per year of precipitation, particularly in the part of the public electricity markets.91 These plants Andean and Patagonian regions.84 were generally built by the public sector with federal or provincial funding. In addition to its substantial large hydro generation base, a review of a comprehensive database maintained by The survey also identified 40 sites at which hydropower CAMMESA demonstrates that Argentina has significant facilities of various types had been built over the years small hydro capacity in place as well as potential for the but were no longer operational.92 A 2006 study of a wide development of significantly more. CAMMESA has range of small hydro sites conducted by Proinsa, in identified 259 sites suitable for hydropower installations of conjunction with this survey, identified the abandonment 30 MW or smaller, of which 35 had projects built and of small hydro facilities in the country as the most operating. The 34 plants for which data were available significant negative environmental effect associated with accounted for 208 MW of installed capacity.85 Most of their development, as abandoned civil works may
Blueprint for Renewable Power | Section 5 373 eventually lead to the pollution of waterways, vandalism, • Abandoned Generators and Existing Infrastructure: and other undesirable impacts.93 Many facilities Proinsa has also identified at least 40 small hydro plants constructed in years past were built without long-term that have been built in decades past but are no longer plans for operations and maintenance, and in many operational. The refurbishment of these abandoned cases a lack of proper maintenance may lead to a projects from the 1950s and 1960s may represent an reduction of generating capacity and the eventual opportunity to ameliorate the environmental impacts at shutdown of the plant. In other cases, plants in isolated these sites from degraded infrastructure as well as a areas have been closed down immediately due to the chance to take advantage of existing civil works, arrival of new medium- or high-voltage connections to potentially reducing project costs. the national grid.94 • Industrial and Commercial Demand: Small-scale Key Drivers and Obstacles businesses and manufacturers in off-grid areas, The November 2006 review of 116 of the 259 sites by the including sawmills, grain mills, and wineries, have found engineering firm Proinsa sought to identify the main mini- and micro-scale hydro generators to be a reliable barriers toward engaging the private sector in the and cost-effective alternative to diesel generators or renewed development of commercial small hydro plants waiting for the extension of grid access. to feed into the national grid.95 Major barriers identified included factors that have prevented the development of Obstacles new power generation projects in all sectors, such as low • Low Power Prices: In most cases, the new small hydro tariffs and limited access to financing, as well as sector- projects are simply uneconomical to carry out in specific issues due to a lack of hydrological information Buenos Aires and many other areas of the country given and regulatory barriers to the interconnection of small currently low levels of tariffs and the lack of incentives generators. for this type of generation, although a better economic case can be made for plants in isolated, off-grid areas. Argentine engineering firm While proposed feed-in tariffs for small hydro could add incentive payments of up to $10 per MWh, this alone Proinsa estimates that 100 MW of would not be sufficient to make these projects small hydro capacity could be competitive. developed commercially in the • Financing (Country Risk): As with other types of power country over the next ten years. plants in the country, renewable and otherwise, access to financing has also been a major obstacle since 2002, However, if changes were made to reduce these barriers, with private sector investors remaining leery of investing including adequate tariff incentives, tax exemptions, in the country given the uncertainties surrounding the guaranteed loans, and policies establishing free access to sector and the economy more generally. transmission, Proinsa estimates that 100 MW of small hydro capacity could be developed commercially over the • Information Barriers: Basic hydrological and next 10 years. Despite this potential, the lack of cost- geological information on many potential sites is recovery tariffs and the attendant lack of financing for lacking, forcing potential project developers to conduct small hydro make it unlikely that the sector will see much their own measurements and research.97 In most cases, further development in the near term.96 it is desirable to have hydrological records going back at least 20 years, and acquiring these data can pose a Drivers significant challenge. This lack of information has also • Resource Potential: Argentina’s 10 GW of hydropower had a negative impact on the operations of existing plants harness roughly a quarter of the country’s plants due to unexpected fluctuations in flows. estimated technically feasible capacity, with substantial untapped large as well as small hydro resources. • Regulatory Barriers: Small-scale renewable generators Although Argentina’s hydrological resources are are not guaranteed access to the MEM network, making unevenly distributed throughout the country, it has interconnection a potentially lengthy and difficult potential for significant new small hydro generation in process.98 Moreover, provincial laws in some areas some areas, particularly in the south. In its 2006 survey, restrict the use of water resources for private, Argentine engineering firm Proinsa estimates that as commercial generation projects. Environmental much as 100 MW of small hydro capacity could be permitting requirements have also become stricter for economically developed over the next 10 years. new projects.
374 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Geothermal be an insurmountable barrier to many companies as well as lenders, particularly given the lack of existing The geological features of the western coast of South exploration data in the sector. America — large, young mountain ranges on the continental edge with intense volcanic and seismic • Remote Resources: Many of Argentina’s most activity — would indicate significant potential for promising geothermal sites, like Copahue, are located geothermal resources in Argentina. Accordingly, the in remote areas in the Andes. The sparse population government has been funding research into this in these areas as well as the lack of transmission potential since 1972.99 Mining expeditions in the infrastructure would likely raise the costs of any Copahue region in the mid-1970s revealed promising geothermal project in these areas significantly. thermal gradients, and in 1979 the government established a geothermal exploration program that Projects identified seven regions to assess for areas of possible Copahue geothermal potential, ultimately identifying 20 areas of Copahue is a volcano in the Andes mountains near the probable interest. border with Chile, which was active between the Pliocene and Quaternary Periods. The area includes a 1.2 km2 While these geothermal resources have been tapped in geothermal field located at the western end of a caldera many areas for direct use applications such as health 15–20 km in diameter that is thought to have potential to spas and home heating, including 134 systems across be developed for power production at feasible cost. Three the country with 25.7 MW equivalent of thermal exploration wells have been drilled, revealing temperatures capacity, these resources have yet to be harnessed for of more than 230 degrees Celsius at depths of 600–800 power generation beyond a 670 kW combined heat and meters, with a vapor-dominated reservoir below that power generating system at a tourist resort in maintains a constant temperature of 230–240 degrees.103 Copahue.100 Development has been limited by the high costs of exploration and development in these remote A tourist resort at Copahue is home to the only geothermal areas, as well as a relative lack of information on the power generation in Argentina, a 670 kW binary cycle location and extent of the country’s geothermal plant built as part of a system to provide heat for the resources. However, while there are currently no major facility. The generator was deployed largely because of geothermal projects under development, according to the low costs of adding power generation capacity to the May 2008 reports in the Argentine media, the Icelandic heating system, and it is not intended for commercial geothermal and hydropower company Enex has generation.104 However, in May 2008, the Icelandic expressed interest in building a geothermal power plant geothermal and hydropower company Enex reportedly in Copahue.101 expressed interest in building a geothermal power plant in Copahue, although no details on any potential plans for Drivers development have been forthcoming.105 • Resource Potential: Argentina’s geography as well as limited research performed in the 1970s indicates Direct Use the potential for geothermal in the country, particularly There are 134 direct use geothermal systems in use in in the Copahue region, which has seen the most Argentina with a total equivalent of 25.7 MW of thermal exploration by the government and the most interest energy capacity. These systems are used for a wide range from the private sector. of purposes, including therapeutic spas, domestic uses, home heating, greenhouses, aquaculture, industrial Obstacles applications, and snow melting. Spas make up the largest • Lack of Information: The exploration of Argentina’s share by far, with 112 systems accounting for over 50% of geothermal resources has never been a major priority total direct use geothermal capacity.106 for the government, and there is a lack of useful data on geothermal potential, public or otherwise. Wind • High Exploration Costs: The primary barrier to geothermal development in virtually any context is the Argentina has enormous wind power potential, although high level of up-front project risks. Before a plant can the ongoing freeze on power tariffs has prevented this be developed, exploratory wells must be drilled, from being exploited, aside from 27.7 MW of wind requiring investments of $2 million to $3 million just to capacity built, largely during the 1990s, by small electricity investigate whether a site has potential.102 This can cooperatives. Southern Patagonia, with hundreds of miles
Blueprint for Renewable Power | Section 5 375 Chart 5.4.3e Direct Use Geothermal Applications
Spas 53% Domestic Use 25% Home Heating 5% Greenhouses 4% Aquaculture 1% Industrial 7% Snow Melting 5%
Source: Secretary of Energy107
of mostly deserted Atlantic coastline, has the greatest concentration of wind resources in South America and the Map 5.4.3a Wind Speeds in Argentina world, with numerous sites with Class 6, 7, and 7+ winds.108 109 Wind speeds reach 9–11.2 m/s in the southern areas of Santa Cruz and Chubut, and they are also incredibly steady, with a load factor of 42%, compared to 30%–35% considered suitable for wind power in most areas of the world.110 The Centro Regional de Energía Eólico (CREE) of Chubut has estimated the theoretical wind-generating potential of Patagonia alone at 500 GW, more than 15 times current national generating capacity.111
However, these southern areas are also very distant from Buenos Aires and other population centers in the country, requiring major investments in new high-voltage transmission lines to connect substantial quantities to the main national grid. While this was considered to present a major obstacle to large-scale wind development in years past, this transmission bottleneck has recently begun to be eliminated. As discussed in the side box, “Línea Patagónica,” the national power grid was finally extended to connect to the Patagonian grid in 2006 via Chubut, and further south into Santa Cruz in 2008. A third tranche is planned to reach the southernmost reaches of Santa Cruz, but it is unclear when this will be completed and how much of this capacity will be available for wind projects. As discussed below, the remoteness of the resource has caused some project developers hoping to utilize these winds to consider producing more easily-transportable hydrogen instead of electricity. Source: Journal of Geophysical Researc112
376 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf LÍNEA PATAGÓNICA
In contrast to the halt in generation development since the crisis, the government has pushed ahead with construction of new transmission in recent years, reviving pursuit of the Federal Plan for 500 kV Transport laid out by CFE before the crisis. New construction started up in April 2004 on the first tranche of the Linea Patagonia, a high-voltage transmission line connecting the previously isolated Southern Patagonia grid to the national electricity system.113
The first tranche of the Patagonian interconnection is a 354 km, 500 kV line built between Choele Choel in Rio Negro (in Northern Patagonia) and Puerto Madryn in Chubut. The line was completed in March 2006 at a cost of 350 million pesos, funded mainly by the government Federal Trust Fund for Electricity Transport (Fondo Fiduciario Para El Trasnporte Electrico Federal) and a consortium led by the owners of the Futaleufu large hydro plant in Chubut. A second, 543 km tranche of the Patagonian interconnection was completed in April 2008, extending from Puerto Madryn to Pico Truncado, in Santa Cruz.114 A planned third tranche will extend even farther, to Rio Gallegos, in the far south of Santa Cruz — an area that includes some of the strongest wind sites in the world — but plans have yet to be made for its construction.115
The connection of Patagonia to the much larger national electricity market will significantly enhance the appeal of developing large-scale wind farms in this region.116 However, much of the capacity currently being built is expected to be used to transmit energy from planned thermal plants in the region, which is also home to much of Argentina’s oil, natural gas, and coal reserves.117 Moreover, it is unclear who will ultimately finance the final tranche of the Patagonian line, which will reach the windiest areas of the country. Law 24,065 directs that new transmission be financed by the “beneficiaries,” making it likely that large wind farms in the area would have to contribute funding.118
The extreme speeds of the Patagonian winds also limit the the few countries in the region with a domestic wind availability of appropriate turbines, as only a few large power manufacturing industry, with three major wind turbine models have been proven to operate reliably under power manufacturers, IMPSA, INVAP, and NRG Patagonia such challenging conditions (a challenge also faced by producing turbines from the kW scale to 1.5 MW in size. It wind power projects in Mexico’s Oaxaca region, as also has two non-governmental organizations dedicated discussed in the Mexico case study).119 to the sector, including the Asociación Argentina de Energía Eólica (AAEE) and Chubut’s Centro Regional de While the world-class winds of Patagonia are more well- Energía Eólico (CREE). known, the Atlantic coast of the Buenos Aires region also has strong and steady but more moderate winds, which With all of these advantages, Argentina was one of the blow at 7.2–7.8 m/s in Buenos Aires and northern earliest adopters of wind power in the region, as a number Patagonia.120 Although its wind resources are not as great, of cooperatives took the lead in developing several small some project developers regard the Buenos Aires area as wind farms in the 1990s in Chubut as well as Buenos a more promising choice for nearer-term development Aires, developing 27.7 MW in total, as discussed below.124 than Patagonia, due to much easier access to However, these efforts were crippled by the economic transmission lines as well as proximity to large industrial crisis, and although several companies have been users that are increasingly looking to develop their own considering the development of the country’s wind generation.121 122 resources in recent years, ongoing uncertainties over the profitability of investments in the power sector are In addition to its superior wind resources, Argentina enjoys preventing project developers from moving forward.125 126 other potential advantages for wind power. Argentina has one of the most skilled and well-educated workforces in Given the apprehensions of private sector developers, the the region, and has numerous professionals and scientists government is taking the lead in the development of the who have conducted research, published technical country’s wind resources, as it has in the development of papers, and worked in a wide range of wind energy new thermal generation. In 2005, the newly–created, initiatives over the years.123 Moreover, Argentina is one of state-owned oil and gas company ENARSA signed letters
Blueprint for Renewable Power | Section 5 377 Diagram 5.4.3b Cooperative-Operated Wind Farms in Argentina 2002
General Acha 2 MW Pico Truncado 2 MW
Claromecó Darregueira 0.75 MW 1994 0.75 MW Comodoro Mayor Buratovich Rivadavia Punta Alta 1 MW 17 MW 2 MW Rada Tilly 0.4 MW Tandil 108 MW Cutral Có 0.4 MW
Source: CADEGE127
of intent for the development of 300 MW of wind farms development of the 300 MW wind plan would create 6,000 throughout the country with the Regional Centre for Wind direct jobs and 48,000 indirect jobs, and 2.1 GW implies Energy (CREE) of Chubut, the Ministry of Federal Planning, the creation of 42,000 direct jobs and 336,000 indirect and provincial governments.128 The first project will be a 60 jobs. MW wind farm in Chubut called Vientos de Patagonia I, discussed below. Key Drivers and Obstacles As in other conventional and renewable power sectors, the Future projects pursued by ENARSA could include development of wind power by private sector actors has another 60 MW Vientos de Patagonia II wind farm in Santa been rendered almost completely stagnant by the ongoing Cruz and a 100 MW wind farm in Buenos Aires, with the freeze on power tariffs, which has made thermal remaining 80 MW in the plan to be distributed in other generators dependent on CAMMESA-subsidized fuel provinces according to results of the national wind survey purchases to break even, and rendered new projects noted below. While ENARSA believes that the example of impossible to finance. While there is a general consensus Vientos de Patagonia will help spur the development of that the current pricing regime cannot last forever, given more projects, it also expects to take the lead in the Argentina’s need for private sector investment to meet development of wind power in Argentina so long as tariffs long-term power demand growth, there is little expectation remain frozen.129 The only other major project moving for change in the near term and widespread uncertainty forward in the country currently is a combined natural gas over how and when the sector might actually be moved to and wind power production complex in Chubut that is a more sustainable cost basis. being developed by state-owned gas company Emgasud and the government of the Chubut province. While the If Argentina can move beyond its plant’s design has yet to be finalized, it is expected to include 400-500 MW of thermal capacity and 100 MW of current power sector problems, it wind power.130 is widely regarded as having
Overall, Argentina could add a projected 2.1 GW of wind potential to be a regional or even power to the national grid without affecting its reliable global leader in the development of functioning, according to the Asociación Argentina de wind power. Energía Eólica (AAEE).131 The AAEE, an important advocate and information source for the development of wind power in Argentina, also estimates that each MW of However, if Argentina can move beyond its current installed wind power creates 20 direct jobs and 160 problems, it is widely regarded as having potential to be a indirect jobs in professional, technical, skilled, and regional or even global leader in the development of wind unskilled labor. Thus, according to the AAEE, the eventual power. ENARSA believes that the country will see a huge
378 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf number of new wind power projects if tariffs are AAEE as well as the Regional Center for Wind Energy eventually freed, as a number of companies (such as (CREE) in Chubut. CREE, in particular, has taken on a Sowitec, discussed below) are working to study and claim far wider range of activities than most wind advocacy the best areas for wind development already.132 Domestic organizations and provides wind turbine–certification turbine producers NRG and IMPSA are also working on services, assists in the technical design of wind the Vientos de Patagonia project with the hope of projects both in Argentina and abroad, and is helping developing a competitive advantage for future private to develop ENARSA’s 300 MW wind-development plan, sector wind farms, and IMPSA envisions Argentina among other activities discussed in the side box becoming a global center of wind power development as “CREE” on the following page. well as manufacturing.133 • Local Turbine Manufacturing and R&D: Similarly, Drivers Argentina’s enormous wind resources, along with its • Very Strong Wind Resources: Argentina’s wind large potential domestic market and its high level of resources are some of the most extensive in the world skilled scientists and other professionals, are spurring and are rivaled only by Mexico in Latin America. the development of several wind turbine Southern Patagonia has extremely strong and steady manufacturers, a rarity in the region outside of Brazil. winds, which present a huge potential development The state-owned applied research company INVAP, opportunity. The Buenos Aires area has more whose primary work has been in atomic energy, has moderate but still relatively strong winds as well, and been studying wind power since 1981 and has enjoys the advantage of easy interconnection with the developed a line of small-scale turbines of up to 4.5 MEM grid and proximity to numerous large industrial kW in size, suitable for use by off-grid communities in consumers. areas of extreme winds in Southern Patagonia. INVAP is also working to develop and commercialize large- • New Southern Patagonia Transmission scale turbines of 1.5 MW or greater that will also be Interconnections: While the distance of Southern suitable for use in Patagonia, and it plans to spend Patagonia’s immense wind resources from the national $13.3 million on a research and development program grid (and thus access to major demand centers like through 2017. Buenos Aires) has been considered a major impediment to its development for years, new A pair of private sector developers, IMPSA and NRG transmission developments have helped to remove this Patagonia, are also developing large-scale turbine obstacle in recent years. The first, 354 km tranche of designs. IMPSA is a major large-scale hydropower the Linea Patagonica connecting the national grid to turbine manufacturer for plants throughout South northern Chubut at Puerto Madryn was completed in America, and it has begun producing 1.5 MW wind March 2006, and a second, 543 km tranche extending turbines primarily for the booming Brazilian wind power this line into Santa Cruz via Pico Truncado was market. NRG, meanwhile, is a smaller company that completed in April 2008. A final segment of the line is has focused primarily on the adaptation of third-party planned to reach Rio Gallegos in the far south of Santa turbine components and designs to the special needs Cruz, but this project has yet to be concessioned. of the Southern Patagonian winds. It has also designed a 1.5 MW turbine, and IMPSA and NRG will • Institutional Support: Interest in developing each supply half of the 40 1.5 MW turbines required for Argentina’s superior wind resources date back over a the first 60 MW Vientos de Patagonia project. decade, and the sector has enjoyed strong support from the government as well as non-governmental • Interest from Cooperatives: Cooperatives in Chubut organizations and academics. As discussed above and Buenos Aires led the development of wind power under “Renewable Power Development Framework,” in the country in the 1990s and early 2000s, and a new renewables and wind power in particular enjoyed initiative by the Argentine Federation of Electricity support from federal as well as provincial incentives in Cooperatives (FACE) is seeking to develop 15–25 MW Chubut and Buenos Aires developed during the 1990s, of wind as well as biomass power in every region of the and the new incentives being developed under Law country. Higher power prices outside the federally 26,190 are also expected to benefit wind power. regulated Buenos Aires metropolitan area give a stronger incentive for cooperatives in more remote Argentina is also home to two non-governmental regions of the country to develop independent organizations dedicated to the promotion of wind generation sources, and thermal power plants may be energy in the country, including the above-mentioned too large or otherwise inappropriate investments.
Blueprint for Renewable Power | Section 5 379 • Industrial Demand: As discussed above under These costs are making even conventional thermal “Electricity Supply & Demand,” industrial users’ tariffs generation virtually impossible to build for the private are less heavily subsidized than those of residential sector, leaving state energy company ENARSA to take users, and power-rationing efforts have been targeted the lead on both gas-fired and wind power plant toward this sector as well. Thus, many industrial users development. While in July 2008 the government have begun exploring the potential for developing their allowed for the first increase in residential tariffs in own generation supplies, which could include wind seven years, the increase is of 30% or less and was power. Mining company Barrick Gold has installed a 2 limited to less than a quarter of the population, which MW wind turbine at its Veladero mine in the Andes, will not significantly enhance the profitability of and a number of private developers, such as the generation projects in the country. German firm Sowitec discussed below, have begun studying potential sites for projects in the Buenos • Country Risk: Beyond the problems in the power Aires area in particular, with potential industrial off- sector, private investors are generally cautious about takers in mind, although no major projects have been investments in Argentina due to growing questions announced yet. over the future of the country’s economy. Increasing government intervention and growing suspicions over Obstacles the accuracy of official economic statistics are • Artificially Low Power Prices: Compared to an exacerbating the uncertainties that have plagued the estimated generation cost of $100 or more per MWh private sector since the economic crisis. Anecdotal of wind energy in the country, project developers can reports indicate that wind power developers are currently expect to receive only $65–$70 from requiring returns of as much as 30% to develop distribution companies, making these projects projects in Argentina, which in part reflects this risk unprofitable even with the $5 per MWh incentives premium.141 currently being considered under Law 26,190.138 139 140
CREE: A REGIONAL WIND POWER CENTER WITH INTERNATIONAL REACH The Chubut-based CREE is another key non-governmental organization assisting in the development of wind power in the country’s south, providing technical expertise in a number of important areas. CREE was founded in 1985 as a joint project of Chubut province, the National University of Patagonia, and SENER with the goal of developing a local knowledge base for wind power through international professional and scientific exchanges, and to provide local assistance and technical advice for regional projects.134 Today, CREE provides wind turbine certification for small-scale turbines ranging from 300 W to 5.2 kW in size, as well as assistance in the feasibility, design, and technical implementation of small-scale installations.135 Moreover, it has played an important role in providing information and guidance for Patagonian wind energy projects, including the 300 MW Vientos de Patagonia wind power pipeline discussed above.
In addition to its regional services, CREE has begun exporting its expertise, providing assistance in the design of wind farms in Brazil, Uruguay, Guatemala, Costa Rica, and Spain.136 CREE has also organized workshops for the maintenance and operation of wind turbines, and it is working with the Ministry of Planning to develop more accurate wind maps of the region.
MAPPING THE RESOURCE CREE and the Federal Ministry of Planning are utilizing National Weather Service wind databases, NASA satellite data, and the open-source MapServer tool to build a national wind map that will be accessible by the web, which is hoped to go online soon.137 The map will also display information on transmission lines in each region, making it easier for potential project developers to determine whether sufficient capacity is available. It is hoped that the project will not only assist the development of wind power in the country but also enhance efforts to give wind power greater visibility.
380 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Anecdotal reports indicate that network, with some delivering excess power to regional wind power developers are distribution grids. requiring returns of as much as A new initiative by the Argentine Federation of Electricity 30% to develop projects in Cooperatives (FACE) is seeking to increase the development of renewable generation from cooperatives, Argentina, which in part reflects with a goal of adding 15–25 MW of wind as well as hydro the political risk premium. and biomass projects to cooperatives in each region of the country.144 • Competition from Fossil Fuel Generation: In addition to being home to some of the richest wind resources in Table 5.4.3a Wind Farms in Argentina the world, Southern Patagonia is home to most of Name Year Connected Capacity (MW) Argentina’s oil, gas, and coal resources, and thermal generation projects have historically dominated Comodoro Rivadavia 1994 17 Cutral Có 1994 0.4 development in the region. The new extension of the Punta Alta 1995 2 Línea Patagónica is expected to largely support the Tandil 1995 0.8 development of new coal plants in the area, and it is Rada Tilly 1996 0.4 unclear how much transmission capacity will be Darregueira 1997 0.75 available for potential wind farms.142 Mayor Buratovich 1997 1 Claromecó 1999 0.75 Pico Truncado 2001 2 • Need for Specially Designed Turbines: A very limited General Acha 2002 2 number of large-scale turbine models are proven to Source: CADEGE145 work reliably under the kinds of harsh conditions prevailing in Southern Patagonia, which could exacerbate the problems that many projects currently Sociedad Cooperativa Popular Limitada de Comodoro have securing turbines in the fast-growing, highly Rivadavia (SCPLCR) (17 MW) competitive international market. While IMPSA, Sociedad Cooperativa Popular Limitada de Comodoro INVAP, and NRG Patagonia are developing turbines Rivadavia (SCPLCR) distributes power purchased from for use in projects in the region, beginning with the the Patagonia grid to its members. Cooperative Vientos de Patagonia project, they have yet to be membership increased dramatically in the late 1990s, proven in the field. and this growing demand for power has led SCPL to search for ways to reduce its power expenses.146 After Projects establishing a small-scale pilot project in 1994 following While the wind power sector in Argentina has seen the the first UN summit on climate change in Rio de Janeiro, development of very few projects compared to its SCPL expanded the wind farm in 1997 and again in immense potential, details of existing small-scale projects 2000, with 26 660 kW wind turbines for a total of 17 MW as well as information on projects in various stages of capacity.147 development illustrate the opportunities and challenges faced by the sector. Despite the region’s excellent wind resources, the cooperative’s experience in developing the project Small-Scale, Cooperative-Operated Wind Farms illustrates the difficulties that wind power can face As previously noted, the only wind farms currently competing with conventional generation sources. The operating in Argentina are the nine small-scale wind farms Patagonia grid, which until the extension of the Linea operated by electricity cooperatives and one operated by Patagonica transmission line in 2006 was isolated from a municipality.143 The farms have a combined capacity of the national grid, is largely supplied by generators fueled 27.7 MW, with the Comodoro Rivadavia wind farm in by the regional’s plentiful natural gas resources. The Chubut, discussed in more detail below, accounting for ready availability of gas in the region generally makes it over 60% of the total with 17 MW. Four other wind farms difficult for wind power to compete on a cost basis, have capacities ranging from 1.2 to 2.4 MW, and the despite the subsidies and tax exemptions granted at the remaining five have capacities of 400–800 kW. Two, national level and the Chubut provincial incentive.148 including Comodoro Rivadavia, are located in Chubut, with five in Buenos Aires and one each in Neuquen, La However, the scale of an economically efficient natural Pampa, and Santa Cruz provinces. All of the projects are gas plant is much larger than the needs of the geared primarily toward providing electricity for the local cooperative, or the cooperative’s ability to secure capital.
Blueprint for Renewable Power | Section 5 381 Wind power was thus considered a more appropriate The first large-scale wind power choice, but prior to the project’s implementation, IRR project planned for construction in was estimated at 6.2%, lower than the interest rate of 7.5%. The expansion was made financially feasible only Argentina is the Vientos de by the prospect of future sales of carbon credits Patagonia I project, a 60 MW wind generated by the project. A deal with Japan Carbon Finance, a Japanese consortium of public and private farm that will be developed by the entities aiming to purchase emissions credits from state energy company ENARSA in developing countries, brought $1.2 million in additional collaboration with CREE and the revenue to the cooperative in 2007.149 provincial government of Chubut. Veladero Mine (2 MW) Canadian mining company Barrick has installed a small, One of the core goals included in the project’s solicitation 2 MW turbine to provide power for its Veladero mine, at in 2006, reflecting the goals of the 300 MW wind plan, is to Alta Montaña, San Juan, high in the Andes mountains. develop the projects with the highest-possible percentage At 4,100 meters above sea level, the $8.5 million project of local manufacture of turbines. Thus, Argentine turbine has the distinction of being the highest wind turbine in producers IMPSA and NRG Patagonia will be the two the world.150 The turbine is installed on top of a 52-meter suppliers for the contract, which is for 40 1.5 MW tower and will serve as a pilot project to test the turbines.155 Both companies have installed their first test equipment’s performance under the Veladero area’s turbines, and ENARSA expects the turbine supply for the extreme conditions, which include very strong, steady project to be split evenly between IMPSA and NRG.156 winds but also extreme cold and heavy snows. The Early testing results demonstrated the technical difficulty turbine design also had to be modified to compensate of developing wind farms in such a windy environment, as for low air density due to the altitude, and it is designed one of IMPSA’s towers fell due to strong winds, hurting no for use at speeds of 14 m/s and higher. If successful, the one but teaching both IMPSA and NRG important lessons. turbine will provide 20% of the power requirements of If the results of the remainder of the testing period are the site.151 successful, the wind farm could be built and operational by the second half of 2009. The project was developed in conjunction with UK-based Seawind, and the two companies are also collaborating Emgasud — Ingentis (100 MW) on the development of a 20 MW wind farm in Chile’s In June 2007, Argentine gas distributor Emgasud signed an Region IV to supply Barrick’s mining operations there. agreement with Chubut province to establish a new joint While Barrick is primarily interested in the project as a company called Ingentis to build a combined-cycle natural part of its corporate and social responsibility (CSR) gas plant and an associated 100 MW wind power plant in agenda as well as a hedge against rising power costs, Paraje Boca Toma, at an estimated cost of $500 million.157 Seawind has wider aspirations in the country and wants Emgasud will own 61%, and the state government 39%. The to position itself for future growth in the event that tariffs natural gas plant will be 400–500 MW in size and could begin are lifted.152 operations by the second half of 2009. Wind measurements are still being taken for the wind farm portion of the project, Vientos de Patagonia I (60 MW) but pending the results of these tests, the plant could be The first large-scale wind power project scheduled for tendered in 2009 and begin operations by the end of 2010.158 construction in Argentina, for which an agreement was Almost the entire plant’s capacity has already been sold to also signed in 2005 in conjunction with the development industrial off-takers for terms of five to 15 years.159 of the 300 MW wind plan, is the Vientos de Patagonia I project, a 60 MW wind farm located near the city of Private Sector Developer — SoWiTec Comodoro Rivadavia that will be developed by the state German wind energy developer SoWiTec, which is looking energy company ENARSA in collaboration with CREE to develop wind projects in several Latin American and the provincial government of Chubut.153 Eighty countries after developing a number of wind farms in percent of project funding will come from the federal Germany, is evaluating a pipeline of projects in Argentina, government, and 20% will come from the provincial representing as much as 2,500 MW in potential government.154 ENARSA has also received interest from capacity.160 It has secured the rights to several thousand several financial institutions regarding the purchase of hectares of potential sites across the country and is in the carbon credits that will be generated by the project. process of measuring winds and examining available transmission capacity in each of these areas.161
382 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf While it views these projects as a strictly medium-term stated that if the project were to proceed, it would have proposition, given the currently uncertain investment input and backing from the Japanese government and environment, SoWiTec believes that the country’s need for other Japanese firms. power and the potential represented by its winds will make the development of this resource necessary, and it wants Wind Turbine Manufacturing and R&D to secure and prepare the best sites before larger Due to its large potential market and high levels of developers move in.162 Although it is examining projects engineering and scientific expertise, Argentina is one of in both Patagonia and the Buenos Aires region, SoWiTec the only Latin American countries with significant activity believes that the plants near Buenos Aires may provide a from domestic firms in wind turbine manufacturing and better near-term opportunity, given the region’s superior R&D. In addition to domestic production of small, kW- access to transmission capacity and the proximity to scale models for use in rural and off-grid applications, potential industrial off-takers. there are multiple efforts underway to develop Argentine capacity for the production of MW-scale turbines.168 Capsa Capex and Wind-to-Hydrogen Projects The immense potential of the Patagonian winds, In addition to domestic production combined with the major obstacle to their full development posed by a lack of transmission capacity in the region, has of small, kW-scale models for use led some investors to consider building wind farms that in rural and off-grid applications, would convert the wind’s energy to more easily transportable hydrogen for use in domestic and overseas there are multiple efforts underway markets. to develop Argentine capacity for the production of MW-scale Since 2005, the Argentine gas and power company Capsa Capex, partly-owned by Shell, has been turbines. conducting feasibility studies in northwest Patagonia for the development of an enormous, 16 GW, 1,600 km2 wind IMPSA: Argentine manufacturing company IMPSA, which farm that would produce 13.3 million cubic meters of is a major exporter of large-scale hydropower turbines liquid hydrogen per year.163 Electricity generated by the throughout South America, has also begun producing wind turbines would be used to electrolyze water, wind turbines and components in recent years. Its producing gaseous hydrogen that would be liquefied and Mendoza-based manufacturing facility, which is geared then shipped to fuel a potential fleet of 38,500 taxis and primarily toward the production of hydropower turbines, is 14,300 buses in Buenos Aires, with large quantities of also capable of producing 50 turbines of 1.5 or 2 MW in surplus production exported.164 Given its unprecedented size per year, and employs 50 engineers for wind turbine nature and the scale of the project, as well as its production full-time.169 However, despite Argentina’s estimated $19 billion cost, Capsa Capex has cautioned domestic potential for wind, its near-term plans are largely that moving forward with the plant would require major focused on Brazil due to higher levels of current partnerships with other companies interested in the investment and greater policy support. development of hydrogen technology, including automobile manufacturers and local and international off- In December 2007, IMPSA secured a $50 million loan from takers.165 However, in late 2007, the firm announced the Andean Development Corporation (CAF) to help it plans to begin developing a wind farm of undisclosed size build a new wind turbine factory in Pernambuco, Brazil, in Chubut that would open in the second quarter of 2009, which will initially focus on the production of turbine leading to speculation that it could be a pilot project for components to satisfy Brazil’s wind turbine localization this ambitious plan.166 requirements.170 171 When complete, the plant will be capable of producing 200 1.5 MW turbines per year, and A similar, if smaller, project is being considered by a IMPSA is developing a 3 MW model as well. The plant will Japanese consortium. A business group from Japan cost an estimated $81.5 million to construct and will visited Chubut in January 2007 to analyze the feasibility of create a projected 1,500 jobs once the plant reaches its developing a potential project that would include 200 full capacity. turbines with a total of 600 MW capacity.167 While some generation would be fed into the local Patagonian grid, IMPSA is already planning on building a second plant of much would be used to produce hydrogen for export to similar size in Brazil, and it is also moving to develop its Japan. The delegation included scientists, industrialists, own wind farms in the country.172 While it would also like and financial institutions led by the Bank of Tokyo and to develop wind farms in Argentina, the lack of tariffs
Blueprint for Renewable Power | Section 5 383 providing an adequate level of cost recovery makes this others, and integrating the whole in Patagonia, NRG has unprofitable, even if a premium for renewables were to be spent the past two years designing a 1.5 MW turbine implemented. Moreover, projects in Argentina would have suitable for use in extreme winds, and it will use these to be developed entirely with IMPSA’s own equity due to a turbines in the construction of the Vientos de Patagonia lack of access to capital, while in Brazil there are project discussed above. numerous options for financing, including national development banks and private equity and venture capital NRG’s first test turbine has been installed at the project firms. site, and if tests are successful, it could begin production of up to 40 turbines per year. If the Vientos de Patagonia Despite difficulties faced by project development efforts in project is successful, NRG could also begin producing Argentina, IMPSA’s long-term ambition is to establish turbines for projects elsewhere in Latin America, and it has Argentina as a leader throughout all segments of the wind received interest from project developers in Ecuador, industry, with world-class R&D programs, extensive Uruguay, and Venezuela. While the firm may produce production capacity, widespread development of both entire turbines itself eventually, the currently limited size of domestic and export markets, and increased opportunities the Argentine market makes this uneconomical.179 for wind-related employment.173 To this end, IMPSA has invested $20 million over the past four years in wind energy R&D across all stages of production, which has Solar gone to the construction of new R&D facilities, international training programs and consultant work, and In addition to its challenging, mountainous geography, joint ventures with Argentine universities including INTI Argentina’s northern area has some of the highest solar and the University of Comahue. irradiation rates in the world, reaching up to 7.5 kWh per m2 per day during summer months, making it a natural INVAP: INVAP, an applied research company owned by candidate for solar power.180 However, due to the high the Atomic Energy Commission and the Province of Rio costs of solar power generation systems and the low level Negro, has been studying the potential of wind power in of economic development in the region, the only Argentina since 1978.174 Systematic studies began in development of this resource has been through the 1981 with the development of a wind map of the PERMER program, which provides subsidized PV Comahue region and other parts of Patagonia, as well as generation systems for off-grid users, as discussed areas of the Río Negro province, Neuquén, and Chubut. below.181 PERMER has focused its efforts on the Jujuy and Tucuman provinces in the north182 and has installed 6,500 INVAP has developed a line of small-scale wind turbines household solar systems in remote areas of the country, up to 4.5 kW in size, called the IVS series, which are as well as 1,800 solar systems for public buildings, mostly specifically designed for use in remote, off-grid areas of rural schools.183 Patagonia, with an ability to withstand extreme weather conditions, with high and extremely variable winds.175 The Due to its sunny, dry climate and turbines are reinforced for maximum resistance, built with a strong, reliable mechanical design, simple but effective lack of cloud cover, northern speed control, and silicon-coated blades and other special Argentina offers some of the LAC materials designed to prevent snow and ice from damaging the turbine. region’s most promising sites for concentrating solar power (CSP) INVAP is also backing a long-term research project on the plants, although this potential has development and commercialization of high-powered turbines with capacities of 1.5 MW and greater, and wind- yet to be explored. diesel hybrid systems by its subsidiary EOLIS, which will last ten years (2007–2017) and cost $13.3 million.176 Initial Due to its sunny, dry climate and lack of cloud cover, prototypes of 1.5 MW and 2 MW turbines were developed northern Argentina also offers some of the region’s most in the first half of 2008 under this program.177 promising sites for concentrating solar power (CSP) plants, although this potential has yet to be explored.184 NRG Patagonia: Turbine company NRG Patagonia has focused on the adaptation of third-party components and Key Drivers and Obstacles designs to the demanding winds of Southern Patagonia.178 Despite good solar energy resources in the country’s Purchasing some parts from domestic suppliers, importing north, this is one of the areas of lowest demand in the
384 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf country. The high cost of solar photovoltaic generation operating costs were desirable, the high up-front capital currently makes it suitable only for subsidized off-grid costs were not affordable, and they required a long-term, applications, and the development of more cost-effective, subsidized financing option. Subsidies were preferable to but less-proven, CSP plants could be challenging given outright donations of the systems in order to encourage the already high risks of power sector development in the participation from the private sector.187 Overall, the country. program aims to electrify as many as 140,000 homes and 2,000 schools, healthcare centers, police stations, and Drivers other public buildings with renewable power.188 • Resource Potential: Argentina’s northern regions have excellent solar resources, making all types of solar The PERMER program’s structure is designed to energy applications more cost-effective than in many maximize the sustainability of the project by sharing areas of the world. financing responsibilities among all stakeholders, including the national government, provincial Obstacles governments, private sector concessionaires, and end- • High Costs: Solar photovoltaics have higher up-front users.189 The Secretary of Energy directs financing from costs than most other renewable power technologies World Bank loans and GEF grants that account for 70% and are not competitive with grid-supplied electricity, of PERMER’s budget, the Ministry of Education provides even if Argentina’s prices were to reflect actual 4% of the program’s budget to fund the electrification of generation costs. Although costs for photovoltaics are rural schools, and provincial governments provide 9% of expected to drop significantly in the near-to-medium the funds, which are largely derived from the provincial term, they are currently not an economical option given shares of the federal Special Fund for Electricity low tariffs, even with the generous feed-in subsidies Development in the Interior (FEDEI). Concessionaires, being considered under Law 26,190. who are required to provide renewable power generating equipment and installation services for rural users under CSP plants are currently less expensive and potentially the terms of their 15-year concessions, provide 17% of more competitive with grid power, but their lack of a initial investments, which are repaid in part through recent track record makes them a risky choice, residential connection fees as well as monthly tariffs.190 particularly given the uncertainties already plaguing the power sector’s development. Overall, $58.2 million has been invested in this joint program so far, making it one of the world’s largest rural • Low Levels of Grid Access: The best spots in the electrification programs dedicated solely to renewable country for solar development are also the least- power.192 In June 2008, the Argentine government populated areas that have relatively low levels of grid submitted a request to the World Bank for $50 million in access, potentially requiring major transmission additional financing for the program. This next round of expenses to connect large-scale solar power to the PERMER funding will support the installation of 13,726 MEM grid. residential solar systems, 21 mini-grids, 138 solar thermal heating systems, 606 solar PV systems for rural schools and public services, 30 solar-powered water pumps, and Rural Electrification two biomass generation projects, all of which are expected to be completed by the end of 2011.193 While Argentina’s overall rate of electrification is quite high (95%), 30% of the rural population, or 1.6 million Key Drivers and Obstacles people, lack access to electricity services.185 In 1995, the Drivers energy ministry founded the Program to Supply Electricity • Lack of Electricity Service in Rural Areas: A total of to the Rural Population of Argentina (PAEPRA) to provide 1.6 million people, 30% of Argentina’s rural population, off-grid electricity to dispersed rural populations. Under lack modern electricity services. Many of these the umbrella of this program, the PERMER (Renewable communities are located in remote and geographically Energy Project for the Rural Electricity Market) project, a isolated areas of the country, making extension of the joint initiative among the Argentine government, the World grid prohibitively expensive, which increases the utility Bank (WB), and the Global Environment Facility (GEF), of small-scale renewables. has been operating since 1999 and includes participants in 15 provinces and five private concessionaires.186 The • Renewable Resources in Remote Areas: Some of program was designed to subsidize customer purchases Argentina’s most remote and hard-to-electrify areas are of renewable power systems because, while their low located in areas with strong renewable resources.
Blueprint for Renewable Power | Section 5 385 Chart 5.4.3f PERMER Program Funding
World Bank/GEF 70% Ministry of Education 4% Provincial Governments (FEDEI) 9% Concessionaires 17%
Source: PERMER191
Chubut’s unsurpassed wind resources are discussed concessionaires, reflecting the relatively low quality of above under “Wind,” and wind power from both grid- the equipment often used in these programs as well as connected and small-scale off-grid installations already the lack of technical capabilities in targeted regions. accounts for 13% of the province’s energy. Argentina’s northern region has the best solar resources in the Projects country and includes the provinces of Jujuy and The program is divided into two main areas, which provide Tucuman, which have been the focus of solar renewable power systems for rural residential and small electrification efforts. business users and rural schools, respectively:
• Availability of Development Aid: Support from the Residential and Small Businesses: Seventy percent of World Bank and GEF covers 70% of PERMER’s budget, funding for these projects comes from the national and the willingness of international donors to provide PERMER program, which is financed through World Bank assistance to the program is critical to its ongoing loans and GEF grants, and provincial governments will operation, given the high costs of these technologies provide an additional 9% of funding.194 19% of program and low ability to pay for them among target funds will come from regional concessionaires, who will populations. International support for rural electrification recover these costs through monthly user fees as well as programs is founded on their importance to the funding from provincial electricity-compensation funds, achievement of development goals, given the numerous which are federally provided funds distributed to provinces positive impacts on rural businesses, communications, to compensate for differences in electricity tariffs among health and health care, education, and other areas from regions. One-time user connection fees will provide the the introduction of modern electricity services. remaining 2% of funding.
Obstacles Rural Schools: Renewable power systems provided for • High Costs and Low Ability to Pay: The renewable educational facilities in rural areas are funded by World power technologies used in these programs are still Bank loans as well as funds from the Ministry of costly, and targeted populations lack the ability to Education, with 80% provided by the Bank and the finance them without substantial government subsidies. remaining 20% by the Ministry.195
• Ongoing Maintenance Needs: Sixty-one percent of Technologies Used the customers in Jujuy province’s solar electrification Wind: With Argentina’s excellent wind resources, small- program had maintenance issues with their solar panels scale wind power systems, including both on- and that required technical assistance from project off-grid generators, already contribute 13% of Chubut
386 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf province’s total power needs, and PERMER and the generators. Thus, while the further increase of tariffs for World Bank are working to increase the use of wind residential users toward cost-recovery levels will power in off-grid applications throughout Patagonia.196 undoubtedly be a political challenge, it is the only way to Under the PERMER program, 115 residential wind establish a framework for the sector that will be power generators have already been installed, and a sustainable in the long term, and the only way to allow for bidding process is underway for 1,500 more.197 In the full utilization of its immense renewable power August 2007, $7 million in new World Bank loans were potential. approved to finance these wind applications specifically for Chubut.198 While the government is
Solar: As noted above, Argentina’s poorer northern attempting to fill the investment regions have excellent solar resources, with sunlight gap in the power sector with providing 7.5 kWh/m2/day during the summer months.199 PERMER has focused its efforts on the Jujuy and publicly-funded projects, it is Tucuman provinces200 and has installed 6,500 household unclear how successful or solar systems in remote areas of the country, as well as sustainable this strategy will be. 1,800 solar systems for public buildings, mostly rural schools.201 A case study of the program’s results in Jujuy showed that nearly 80% of customers considered Although no one interviewed for this report would the program’s impacts to be positive or very positive, speculate as to when or how tariffs might be raised to although 61% also reported having technical difficulties cost-recovery levels, private sector wind farm developers that required assistance to fix, indicating the potential as well as turbine manufacturers are working hard to difficulties faced by both users and concessionaires in position themselves to take advantage of such an operating these systems.202 opening, which most believe will come eventually. Wind farm developers, including major Argentine energy companies like Emgasud, as well as smaller, foreign Conclusion companies like SoWiTec, are surveying sites and conducting feasibility studies, and turbine manufacturers In the short term, private development of Argentina’s IMPSA, INVAP, and NRG Patagonia are all developing considerable wind energy resources, as well as other turbines designed especially for use in the world-class renewable and non-renewable energy sources, is clearly winds of Southern Patagonia. being paralyzed by the lack of cost recovery–level tariffs and the wider political risks surrounding the While wind energy is the clear focus of both private and government’s management of the energy sector. These public sector renewable power advocates in Argentina, the frozen tariffs were cited as the most significant obstacle country has significant potential for other renewables that to the sector’s development by virtually every source should not be neglected. Argentina’s substantial consulted for this report, including both private and hydrological resources offer hundreds of megawatts of public sector stakeholders as well as wind energy potential small hydro projects, including dozens of sites advocates. Although industrial users and cooperatives where small hydro plants were built during the 1950s and in more remote provinces of the country are beginning 1960s and subsequently abandoned. In some cases, the to show an interest in the development of their own wind refurbishment of these plants could enable the power supplies due to the higher prices they face development of new small hydro capacity at relatively compared to metropolitan Buenos Aires users, these low cost while simultaneously addressing the negative projects are likely to be small, and it is unclear how environmental impacts that these abandoned structures competitive they will be relative to conventional fossil can have, offering potential for low-hanging fruit that fuel–fired on-site generation without additional support should be studied. The development of small hydro from incentives or preferential financing. plants on existing irrigation channels is another opportunity for low-cost small hydro that has led the While the government is attempting to step into the breach development of this sector in Chile and Mexico and with publicly funded projects, including the Vientos de could offer similar potential in Argentina. Patagonia wind project, it is unclear how successful or sustainable this strategy will be, particularly given the Moreover, Argentina is thought to possess substantial, growing stress being put on public finances due to the but largely unexplored, solar and geothermal resources. need to subsidize fossil fuel purchases by thermal The country’s arid, sparsely populated north receives
Blueprint for Renewable Power | Section 5 387 some of the best sunlight in Latin America and offers an excellent potential for the expanded use of photovoltaics to provide power to off-grid communities as well as the potential for larger, grid-connected concentrating solar power (CSP) plants in the longer term. The development of detailed solar maps of the region could help fuel greater interest in these types of applications, but resources dedicated to solar power in the country in general are limited. Similarly, the country’s geography and basic studies conducted by the government in the 1970s indicate strong potential for geothermal power, but the further exploration of this resource has been neglected by both the public and private sectors in recent decades.
The combination of a large power market, increasingly tight power supplies, world-class winds, and a robust group of wind power R&D and manufacturing companies positions Argentina as a potential leader in renewable power development in Latin America—if political risks are surmounted.
With its combination of a large power market, increasingly tight power supplies, world-class winds and other renewable resources, and a robust group of wind power R&D and manufacturing companies, Argentina could very rapidly become a leader in the development of renewable power in Latin America. One need only look to the 1990s, during which Argentina became a model for developing and developed countries alike with its deregulated power sector and rapid growth in combined-cycle natural gas plants, to see the potential dynamism of the Argentine power sector when its incentives are properly aligned.
388 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.4.4 CHILE • Solar: Interest in tapping Chile’s excellent solar resources also grew in 2008. In October, the government proposed legislation to create tax credits Introduction for residential solar water heating systems, and Codelco is considering utilizing the excellent solar heating Despite its steady growth, macroeconomic stability, resources of the Atacama to provide hot water and and well-regarded power sector reforms, Chile has process heat for its mining operations. suffered from repeated power crises over the past decade, beginning with a shortage of hydropower • Wave: In April 2008, a comprehensive study of Chile’s capacity due to droughts in the late 1990s, followed by wave power potential by engineering consultancy Baird a shortage of natural gas imports caused by the concluded that the country has the world’s greatest ongoing fallout from Argentina’s economic crisis of potential for wave power. Given its unsurpassed 2001-2002, followed in recent years by a combination coastline and the confluence of waves originating from of the two compounded by a subsequent need for the north as well as the far south Pacific, Chile has an increasing generation from high-priced diesel and fuel estimated 240 GW of potential wave capacity, and oil imports. Wholesale power prices spiked to levels could feasibly develop 2 GW along 110 km of coastline above $100 per MWh in 2008, and there is growing in the country’s populous central region. IDB and concern that these high prices and the ongoing risk of Chile’s development agency CORFO are also shortages could slow the torrid growth of Chile’s conducting an independent study of the country’s relatively energy-intensive mining industry, the linchpin marine power potential. of the country’s economy. • Policy: 2007-2008 also saw the development of the Private investors in Chile’s highly competitive power sector country’s new renewable portfolio standard (RPS), are developing new fossil fueled power generation which will require that power marketers derive 5% of resources of all kinds, including diesel generators in the their electricity supplies from renewable sources short term and coal and LNG facilities in the medium term. (excluding hydro installations of more than 40 MW in However, the deregulated sector is also providing new size) beginning in 2010. This RPS, passed in March avenues for the development of renewables, allowing 2008, is the first in the region. small producers to enter the generation market and sell power on the spot market and permitting large consumers Given the costly reminders in recent years of the risks to contract directly with renewables generators or even posed by Chile’s near-total dependence on imported fossil develop their own capacity. There has thus been an fuels, both the private and public sector are increasingly explosion of interest in the country’s nascent renewable recognizing that tapping into the country’s plentiful power sector in recent years, including a number of renewable resources offer the best potential for reliable promising new developments across all major renewable long-term electricity supplies. Although the development technologies in 2007 and 2008: of the sector is still at a very early stage and projects face the normal barriers stemming from high costs, financing • Small Hydro: The first two small hydro projects utilizing difficulties, and a general lack of experience with these irrigations channels in the country were developed, and technologies, these barriers are shared by most countries. a new government study identified 772 MW of potential Unlike many countries in the region, Chile is moving projects of this type nationwide. rapidly to overcome them. As a result, the country’s energy commission expects Chile’s renewable power generating • Wind Power: Endesa’s 18.15 MW Canela wind farm, capacity to reach 600 MW by the end of 2009, compared the first connected to the country’s central power grid, to 286 MW at the beginning of 2006.1 began operations, and hundreds of MW of potential new wind power projects are being explored. Key Drivers and Obstacles for Renewables in Chile Drivers • Geothermal: State oil and gas company ENAP • Diverse, Broadly-Distributed Renewable Resources: announced several new geothermal development Chile’s unique geography has blessed it with a number partnerships and received the country’s first geothermal of excellent renewable energy resources spread exploitation concession, which could lead to the throughout its unsurpassed length. Chile is home to development of the El Tatio geothermal field, regarded 10% of all the active volcanoes in the world, and its as one of the largest untapped geothermal resources in northern region has some of the world’s largest the world. unexploited geothermal sites. The northern areas also
Blueprint for Renewable Power | Section 5 389 receive excellent solar insolation, and the central and projects and other independent private generators, who especially southern regions are rich in potential for small can sell power under long term contracts to industrial hydro generation. Good wind resources are found in offtakers and other large users. Renewable generators many regions of the country, although comprehensive under 20 MW also enjoy special grid interconnection wind maps are lacking. Chile’s world-class wave power privileges and low transmission rates, ensuring easy resources are similarly distributed across the country’s access for small project developers. length, with the central region offering the best combination of wave strength and steadiness. The number of private Chilean renewable power- focused project development companies that have • Stable and Growing Economy: With the region’s most been formed in the wind and small hydro sectors, liberalized and consistently-managed economy and including Hidromaule, Inversiones BEC, Ecopower, and booming global demand for its key mining exports, Ecoingenieros, reflects the sector’s dynamism. Chile has seen strong and steady economic growth. Electricity consumption, which is also led by the energy- • Government Support: Chile’s new non-conventional intense mining sector, has been rising at a rate of 7% renewable energy (ERNC) law is the first renewable per year and is expected to grow at a rate of 5-6% per portfolio standard (RPS) in Latin America, and will year in the long term. require 5% of power sold by Chilean marketers to come from renewable sources by 2010. Like other RPS • Insecurity of Natural Gas and Hydropower Supplies: policies it will encourage the development of Chile’s electricity generation is based almost entirely on renewables on a competitive basis, which should hydropower and thermal plants, and the power sector benefit small hydro and wind projects, although high- has been strained in recent years due to a combination cost renewables like solar are unlikely to be included in of droughts and cuts in natural gas imports from compliance plans at current prices. CORFO, the state neighboring Argentina due to its own energy and development agency, has also been an important economic crisis (as discussed in Section 5.4.3). Thus, source of support for these projects since it began renewable power technologies offer Chile the administering its renewable power sector programs in opportunity to diversify its electricity sector to take 2005. It provides funding for feasibility and technical advantage of secure domestic energy resources. assistance studies, soft loans, and “matchmaking” between project developers and potential financiers. • High Electricity Prices: The need to substitute cheap Argentine natural gas with expensive (and more The growing number of private polluting) diesel and fuel oil imports has raised the marginal cost of generation in the competitive Chilean Chilean renewable power project power markets, resulting in growing prices for end- developers focused on wind and users and industrial users in particular. These prices make many lower-cost renewable generation projects small hydro technologies reflects competitive, including small hydro, geothermal, and the sector’s dynamism. wind. LNG imports will begin arriving when LNG receiving terminals are completed in 2009, but these imports from international markets will also be Obstacles significantly more expensive than Argentine gas, • High Costs for Renewables: As in other contexts, making it likely that high prices will persist at least until renewable power technologies are characterized by the construction of the new large-scale Aysén hydro high up-front costs and long payback times, making facility in 2014. them difficult to finance in many cases. Although Chilean projects enjoy better access to finance than • Deregulated Power Sector: Chile was the first country their Latin American counterparts, securing financing in Latin America to liberalize its electricity markets, and can still be difficult, especially for less well-established it remains a leader in this area with one of the most technologies like wind and geothermal. competitive and private sector-friendly power sectors in the region. The competitive environment means that • Lack of Per kWh Incentives: While Chile’s ERNC policy renewables must compete with conventional generating will ensure that a specified proportion of renewable sources (although this will be changed somewhat by the electricity will be included in the national mix, it provides ERNC law, described below), but it also provides no generation incentives to help these technologies relatively easy market access for new renewable power compete with generation from conventional sources.
390 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Although this policy is consistent with the free market programs to promote small-scale demonstration projects orientation of Chile’s economy, it is unlikely to provide the of promising renewable power technologies, but its necessary support and guarantees to incent investment in investment funds are limited and the government is less mature technologies with high potential, such as solar generally resistant to subsidy programs due to its strongly power, to contribute to Chile’s energy security over the competitive ideology.3 long term. • Environmental Permitting Requirements: Chile has • Insufficient Funding for CORFO to Support some of the strictest environmental permitting Long-Term Technologies: The operation of CORFO’s requirements in the region, which can result in longer renewable power support programs similarly reflect the project development times for both renewable and non- government’s strong commitment to competitive renewable power technologies alike.4 5 Small project principles, with technical assistance grants and soft loan developers may find this especially challenging, as many programs explicitly directed towards technologies lack experience in the sector as well as the legal demonstrating the greatest near-term viability. Accordingly, resources necessary to navigate the process.6 wind, small hydro, and biomass projects have been the primary beneficiaries of CORFO’s programs. The country However, it should be noted that these permitting may be missing an opportunity to lead in the development requirements are less strict than those found in most of less-established, more expensive technologies like developed countries, which could give Chile a potential concentrating solar power (CSP) and wave power, both of competitive advantage in attracting companies looking to which represent substantial resources for renewable test new technologies, particularly wave power, whose generating capacity over the long term. development has been slowed by cumbersome marine permitting hurdles in the US and Europe. Renewable demonstration projects could potentially receive funding under CORFO’s INNOVA program, which provides matching grants to promote innovation and Electricity Supply and Demand entrepreneurship within Chilean companies and technology centers. Current grants are focused on a range Successful Economic and Energy Reforms Fuel of sectors including ICT, biotechnology (including a recent Demand Growth grant for a second-generation biofuels project), mining, Chile’s sound macroeconomic fundamentals and stable agriculture, and aquaculture, and INNOVA planned to institutions have created an economy that is widely distribute $70 million in funding in 2006 to projects in which recognized as the soundest in Latin America.7 Chile is ranked private sector partners contributed 55% of overall first among Latin American countries in the World Economic financing.2 CORFO is hoping to develop dedicated Forum’s World Competitiveness Index and first among Latin
Chart 5.4.4a Maximum Demand
9,000
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0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: CNE12 SING SIC AYSEN MAGALLANES
Blueprint for Renewable Power | Section 5 391 Chart 5.4.4b Electricity Consumption
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20,000
10,000
0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: CNE12 SING SIC AYSEN MAGALLANES
American countries in the Economist Intelligence Unit’s list of gas due to the gas export cuts from Argentina discussed Best Places to Do Business.8 This long record of economic below. This generation is spread across the region’s four stability as well as booming commodity prices for the grids, a division necessitated by Chile’s unique geography. products of the country’s mining sector – Chile supplies 30% of the world’s copper – has spurred an average GDP growth Chile has historically been heavily dependent on rate of 5% over the past 5 years.9 hydropower, which is fueled by rivers flowing west from the Andes. However, severe droughts crippled the Chile’s economic growth and its power demand have been power sector from late 1997 through 1999, with rolling growing strongly since the 1980s, when the power sector blackouts in Santiago from November 1998 through May was unbundled and privatized, an effort which served as a 1999. This spurred a move away from hydropower and model for similar privatization efforts in the region and towards natural gas, imported via seven pipelines around the world in the 1990s. Electricity consumption has between Chile and Argentina according to a 1996 thus been rising at a rate of 7% annually, with long-term agreement.14 New thermal plants, mostly combined- growth projections of 5-6%.10 It is projected that 800 MW cycle natural gas plants, have come to dominate growth per year of new capacity will be necessary to meet this in the generation sector, nearly quadrupling from 2 GW in growing demand.11 1994 to 7.9 GW today.15
Despite Chile’s unsurpassed business environment and However, the energy crisis in Argentina has caused gas openness to private sector participation, however, the imports from that country to fluctuate between 20% and effects of neighboring Argentina’s energy crisis (as 50% below contracted levels since 2004, and cease discussed in Section 5.4.3) as well as recent shortfalls in altogether for brief periods in the winters of 2006 and hydropower capacity have conspired to prevent Chilean 2007.16 The replacement of this missing gas with diesel- supply from keeping pace, resulting in rising power costs fired generation has meant much higher electricity costs and the increasing risk of shortages. due to high oil prices, and this rise in electricity prices, along with rising food prices, have stoked fears of Current Generation Mix inflation.17 The effects of the shortage have been Currently, the Chilean grid has a combined 12,849 MW of particularly harsh for Chile’s mining industry, which generating capacity, including 7,922 MW of thermal accounts for nearly 80% of electricity demand in the generation, 4,907 MW of hydro generation, and 20 MW of country’s north.18 The grid that serves these companies is wind power capacity, most of which was added in 2007.13 highly dependent on natural gas for generation, all of Of its thermal generation, in 2007 Chile derived 43% of its which comes from Argentina (Chile produces only a small power from coal, 37% from oil, 18% from natural gas, and amount of natural gas itself, which is used for local power 2% from biomass, with an unusually low share for natural generation in Region XII).19
392 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.4c National Generation Capacity by Source
Thermal 62% Hydro 38% Wind <1%
Source: CNE20
Chart 5.4.4d Total Installed Capacity by Grid
SING SIC Thermal 99.6% Thermal 46.3% Hydro 0.04% Hydro 53.5% Wind 0.2%
SING 71% Aysen SIC 28% Magallanes Magallanes 0.6% Thermal 54% Thermal 100% Aysen 0.4% Hydro 42% Wind 4% Source: CNE22
Blueprint for Renewable Power | Section 5 393 Chile’s Regional Grids Gas Cuts and Droughts Lead to Soaring Power Prices Due to its uniquely long and narrow geography, there are Increased reliance on diesel generation and a 40% shortfall four main grids in Chile, with no interconnections between in reservoirs for large hydro plants have had a notable them.21 These areas are characterized by a range of impact on electricity spot market prices. Spot prices natural resources, customer bases, and existing spiked to $246 per MWh in January 2008, compared to generation mixes that present distinctly different $57 per MWh in January 2007, a more than 300% increase opportunities for renewable power development. that corresponded to a drop in natural gas exports from 15.6 million cubic meters per day to 1.2 million cubic • Great Northern Interconnected System (SING): meters per day.25 Measured according to the four-month Primarily supplies the mining industry, which comprises averages reported by CNE (which smooth out relatively roughly 80% of power demand, and is based almost shorter term spikes), power prices have increased from $60 entirely (99.6%) on thermal generation. While SING in 2006 to $100 or more since November 2007.28 29 While accounts for 28% of total power capacity, just 6% of these price increases have not been directly felt by the country’s population lives there.23 regulated consumers (including residential users), they have had a major impact on the bottom lines of distributors • Central Interconnected System (SIC): Extends from as well as large industrial users that have opted to procure Taltal in the north to the island of Chiloé in the south.24 some or all of their power on the market.30 However, as The SIC includes 71% of Chile’s total generation capacity discussed below, these prices have also presented an and serves 92.3% of the country’s population, supplied opportunity for new non-conventional renewables mostly by hydro (53.5%) and thermal (46.3%) generation. developers, who can be very competitive selling power into the spot market at these prices.31 32 • Aysén System: A small, isolated grid in the country’s south comprising less than 1% of the country’s power Continuing Challenges and Future Plans capacity, served by hydro, thermal, and wind generation. The ongoing threat of power shortages has spurred the government to develop a range of new countermeasures to • Magallanes System: Another small, isolated system improve efficiency and decrease use.33 The government in the south with less than 1% of Chile’s total capacity, has instructed distributors to reduce the voltage on their Magallanes is home to much of Chile’s meager transmission lines 10%, which would not affect service to domestic fossil fuels production and is entirely reliant residential clients. Daylight savings time will also be on thermal plants fired by local gas. extended until the last Saturday of March, the month in
Chart 5.4.4e Average Power Market Prices (By Month Reported)
120
100
80
60 $ per MWh S U 40
20
0 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08
Source: CNE26 27 SING SIC
394 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf which the government predicts power consumption to the country’s south remain vertically integrated and run by peak. Hydro resources will be managed "flexibly" to their own utility companies (EDELAYSEN and EDELMAG, increase reservoir levels, and generators will be allowed to respectively).42 Thus, the sector is nearly 100% privately provide incentives for energy efficiency to end-users operated, with 31 separate generation companies, 5 through local distributors. The efficiency of the country’s transmission companies, and 36 distribution companies.43 diesel distribution network will also be improved. The generation and transmission sectors are dominated by European players, particularly Endesa from Spain. Tightness in the market is expected to persist at least Other major foreign investors present in the sector include until the second quarter of 2009, when a new LNG Iberdrola (Spain), Suez (France), AES (US), Tractebel receiving terminal in Region V, the first in Latin America, (Belgium), Repsol-YPF (Spain-Argentina), Pacific Hydro will begin operating.36 The project will include a (Australia), and SN Power (Norway). regasification facility with an output of up to 3.5 million cubic meters/day, to be expanded to 10 cubic Chile’s deregulated power sector meter/day. While this will improve reliability significantly, LNG imports will be more expensive than provides a clear framework for the gas imported via pipeline from Argentina and are small-scale developers of unlikely to reduce power prices significantly.37 The development of a projected 800 MW of new large hydro renewables to sell electricity capacity by 2015 could significantly reduce power through bilateral contracts or on prices, but these large hydro facilities are facing the spot market. increasing opposition due to environmental concerns, and the Washington, DC-based International Rivers Network recently launched an international campaign Regulation: After the unbundling of state-owned utilities, against the massive HidroAysén project.38 the Comisión Nacional de Energía (CNE) became the Development of coal-fired plants are also being main government entity overseeing the sector, and is in encouraged, and CNE projects 2,000 MW of new coal- charge of regulation, policy, and pricing in regulated fired capacity by 2015.39 segments. CNE is headed by the energy minister.44 The National Commission for the Environment (CONAMA) is In addition to these conventional power sources, the another important regulator, and is responsible for government is working to increase the country’s supplies of coordinating the evaluations of the environmental impact non-conventional renewable power sources, with a non- assessments of projects in the electricity sector in binding goal of ensuring that 15% of new installed capacity accordance with Law 19,300 of 1994 and for issuing is from such sources by 2010.40 Policies and projects that environmental permits. All power generating projects in are working towards this goal are detailed below. Chile must file environmental impact assessments with CONAMA, which stores environmental information for each project on its website (www.e-seia.cl). The Electricity Market Structure country’s environmental regulations are regarded as some of the strictest in the region.45 A Model of Power Sector Liberalization As with other liberalized power markets, Chile’s Generation: Open competition in power generation and reformed sector presents both challenges and guaranteed grid access were established by 1982 Law opportunities for renewables. While it forces them to No. 1, although these provisions did not apply to compete with large, established conventional generators of less than 9 MW in size until the subsequent generators, it also provides a clear framework for new passage of Short Laws I and II in 2004 and 2005 and small-scale developers to build plants and sell (discussed below). In each interconnected system, a power, and has made it possible to sell power directly to load dispatch center (CDEC) coordinates and dispatches large users who may be willing to pay a premium for generation based on economic merit order, as mandated increased reliability and diversity of supply. by the Law.46 Power producers can sell their electricity under long-term contracts to distributors or large Chile was the first country in Latin America and one of the consumers in bilateral contracts or sell their power to the first in the world to deregulate and privatize its electricity grid on the spot market at marginal costs.47 Generators sector. Its 1982 Decree Law No. 1 unbundled the SING that choose to sell some or all of their power under long- and SIC systems into separate generation, transmission, term contracts are classified as marketers and distribution companies.41 The two isolated grids in (comercializadores), and will be required to derive a
Blueprint for Renewable Power | Section 5 395 Diagram 5.4.4a Categories of Electricity Consumers
Small Users Medium Users Large users <2 MW 500 kW - 2 MW 2+ MW Regulated Choose Either Unregulated
Source: CNE52 portion of their power supplies from renewable sources greater revenue security to producers and spurred (either through their own renewable generation or investment in generation. through the purchase of renewable energy from independent generators) beginning in 2010 under Chile’s Consumers: There are three categories of consumers in new ERNC law, as discussed in this chapter under the Chilean system, determined by the consumer’s “Renewable Power Development Framework.” maximum power demand, or load:51
90% of installed generating capacity in the country is • Small, regulated consumers, with loads of less than 2 privately owned, with most of the remaining 10% in the MW. These consumers have no choice of supplier and hands of state-owned copper company Codelco. The purchase power from their local distributor at regulated largest power producer in the country, with a market share rates. These rates are established by CNE and set at of nearly 40%, is Spain’s Endesa (Empresa Nacional de individual nodes of the grid, and are based on average Electricidad), which operates almost all the hydropower distributor purchase prices in the area along with stations in the country and owns the distribution company investment and operating costs required for the grid. Chilena de Electricidad (Chilectra), which operates in the metropolitan capital region, serving 1.35 million customers • Large, unregulated or “free” consumers, with loads or about 45% of the regional market. The second largest of more than 2 MW. These users may buy power producer is US-owned AESGener, with a market share of directly from producers or distributors at unregulated, nearly 30%. The third largest producer is Colbún, which is freely negotiated prices. mostly Chilean-owned. • Medium-sized consumers between 500 kW and 2 Transmission: Operation of transmission, including fees, MW may opt for either the regulated rate or the “free” is open but regulated. Any private company may develop regime, but once they choose they must spend a transmission lines, so long as they allow for the minimum of four years in a system before they may transmission of electricity for wheeling to consumers or switch. This category was created by Short Law I, Law for sale on the spot market at regulated transmission 19,940, of March 2004, discussed below. rates.48 Transmission is operated by Centers of Economic Load Dispatch (CDED), which are privately-owned The profile of users in Chile’s two main systems are sharply segments of the operations of the transmission grid different. Large, unregulated customers account for over owners, with no legal identity of their own.49 90% of power sales in SING, due to the prevalence of large mining operations. Meanwhile, the SIC’s 4 million clients Distribution: Distribution is regulated as a local are mostly small, regulated users that account for 60% of monopoly, with distributors bidding for concession sales.53 Overall, 54% of power supplied to the Chilean licenses from the Ministry of Economics.50 In exchange, system is purchased by unregulated consumers.54 As the distributors are obligated to supply electricity to all discussed below, demand for bilateral contracts for customers in their area at regulated rates. An reliable, long-term renewable power from these large amendment to the electricity law passed in May 2005 unregulated customers, particularly mining companies in requires distributors to go through public tendering the country’s north, could help drive the development of processes to acquire power under long term contracts for several renewable power technologies. the supply of regulated consumers, which has provided
396 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Renewable Power Development Framework kW and 2 MW the option of joining the unregulated, “free” system if they wish and thus contracting directly with Chile has passed several laws in recent years to improve power providers.57 access and supply incentives for renewable power development. This shift has been fueled not only by the The follow-up “Short Law II,” Law 20,018, was enacted in power crisis of the past few years but by more gradual May 2005 and established the right of generators to use changes in the political climate that have come with the renewable power sources for up to 5% of their supplies to country’s emergence from military dictatorship, including distributors, so long as these supplies from renewables demand for more public spending on education, health were sold at prices similar to those from conventional care, and environmental protection, as well as a more generation. This right has since been superseded by the inclusive approach to economic development.55 ERNC law, discussed below, which introduces a mandatory 5% renewables requirement for power As with the energy sector more broadly, CNE is in charge of marketers beginning in 2010. Moreover, it directed CORFO, developing policies and long-term strategies for the the Chilean Economic Development Corporation, to renewable energy sector. Moreover, given the wide range of provide a series of financial and technical support renewable energy-related initiatives underway within the programs for investors and entrepreneurs working on government, CNE works closely with a number of other renewable power projects.58 relevant government institutions to coordinate and implement plans to facilitate the development of renewables. For CORFO Programs instance, CORFO is the agency responsible for implementing CORFO was established in 1939 as the state policies to encourage private sector investment, the National organization in charge of promoting economic Geology and Mining Service (SERNAGEOMIN) is responsible development,59 and currently has a net worth of more for disseminating information on the geothermal sector, and than $3.6 billion.60 Its main role for much of the 20th the National Irrigation Commission (CNR) helps to identify century had been to administer a variety of state-owned opportunities for small hydro development. enterprises, but following the privatizations of the 1990s, CORFO shifted its mission to the promotion of While specific laws have addressed hydropower and development through the provision of technical and geothermal resources, as discussed later in this section, financial assistance to Chilean businesses, Chile’s renewable power development framework is more entrepreneurs, and innovators.61 Since 2005, it has broadly established by the Short Law, passed in 2004, carried out a variety of services in support of the and the Non-Conventional Renewable Energy (ERNC) development of the country’s renewable power sector. Law of 2008. • Feasibility Studies: One of CORFO’s most important Short Laws programs to promote non-conventional renewables is On March 13, 2004, the government passed a major its provision of pre-investment technical assistance update to 1982’s Decree Law No. 1. Law No. 19,940, also and specialized financial consulting support for known as the Electric Short Law, introduced a variety of renewable power projects of 20 MW or less. For amendments to the original law, including important selected applicants, CORFO will contribute up to modifications geared towards the development of 50% of the cost of feasibility studies and up to 2% of renewables and distributed generation:56 the estimated investment costs, up to a maximum of $60,000. Since December 2008, CORFO has also • Projects with capacities below 9 MW are exempt from offered support for later-stage engineering studies for transmission fees, and projects from 9-20 MW pay renewables projects with favorable preinvestment reduced rates. studies, with grants equal to 5% of estimated • Small-scale generators of 9 MW or less are guaranteed investment costs, up to a maximum of $160,000.61 access to the grid. From 2005-2007, CORFO has held three competitive • Small-scale generators of 9 MW or less may sell power tenders for feasibility studies which have awarded to the grid at the regulated node prices, providing more grants to 140 projects totaling $4.55 million,63 and stable revenues than the spot market (as noted above, CORFO is now assessing projects on an ‘open the node prices are set according to spot market prices window’ basis, where applications will be reviewed as that are averaged over periods of several months). they are received.64
The law also created the medium-sized consumer category noted above, allowing consumers with loads between 500
Blueprint for Renewable Power | Section 5 397 Chart 5.4.4f Chile RPS Requirements
12%
10%
s 8%
uirement 6% q Re S 4% RP
2%
0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: Santiago Times75 Year
Since 2005, Chile’s economic financing international business enterprise missions.67 The Hidromaule project, discussed below, draws development agency CORFO has substantial finance from IFC loans that it secured supported the renewable power following an international meeting for project developers sector through funding for and investors held by CORFO in 2005.68 A recent CORFO survey indicates that at least 18 projects have feasibility studies and financial successfully found financing through these meetings. “match-making,” in addition to • Soft Loans: After jointly administering a soft loan broad-based programs offering soft program for a wide range of environmental loans and equity investment funds investments, in December 2008 CORFO and the for environmental technologies. German development bank KfW announced a new long-term, low-interest loan program dedicated specifically to the support of renewable energy These feasibility studies have been conducted for a wide projects. The program will include $120 million in KfW variety of players illustrating the breadth of interest in funding along with $30 million from CORFO, for a renewable generation, including international renewable total of $150 million in loan funds.69 Loans given power producers, mining companies looking for self- under the program will have terms of 12 years, supply, irrigation channel management associations, beginning with a three-year grace period, and will forestry associations, and other players that previously have an upper limit of $15 million.70 had no involvement in power generation and would likely not have been able to afford to develop or hire the • Equity Funds Formation: CORFO offers financial necessary expertise to develop these studies support to investment funds registered in Chile for the themselves.65 Roughly 20 projects with feasibility financing of renewable power projects, leveraging private studies funded under this program are either in contributions on a 1 to 3 rate.71 These investment funds advanced financing stages or are already under can also obtain CORFO credit lines covering up to 300% construction, and the Puclaro small hydro project, of the capital at Libor interest rates. discussed below, became the first project to begin generating in April 2008.66 • New Initiatives in 2009: CNE and CORFO are planning several important new initiatives to further encourage the • Matchmaking: CORFO also provides financial “match- development of renewable power sources, all of which making” services to help attract international will be implemented in 2009. These will include a investment, seeking out foreign counterparts and co- government-backed loan guarantee program for
398 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf renewables, a program to encourage the cooperative renewable sources.76 At the same time, large hydro development of transmission lines to connect multiple developers in the country claimed that the limit is renewable power projects to the grid, and an instrument arbitrary, and that it would create inefficiencies in many to reduce exploration risks for geothermal developers.72 projects by encouraging them to be built at less-than- optimal sizes to qualify under the law; for instance, a site Renewable Energy Law – Renewable Portfolio Standard that could produce up to 30 MW would be built to only 20 In March 2008, the Chilean Chamber of Deputies MW.77 Ultimately, a compromise was reached that raised unanimously passed the new Renewable Energy Law, the limit to 40 MW but only granted full credit for the first creating a renewable portfolio standard (RPS) which will 20 MW of capacity, with capacity beyond that point require that 5% of all the electricity sold by marketers in the credited on a scale that decreases steadily from 100% at country be generated from non-conventional renewable 20 MW to zero at 40 MW.78 sources by 2010. This will then begin increasing 0.5% per year beginning in 2015, reaching 10% in 2024. Renewable Financing for renewables in Chile is energy credits would be tradable among marketers, who would face fines for every MWh they fail to accredit to often dependent on developers’ renewable sources.73 The Non-Conventional Renewable equity, loans given under favorable Energy (NCRE, or ERNC in Spanish) sources under the law include wind, solar, geothermal, and hydro projects smaller conditions by CORFO or than 20 MW, although hydro projects of 20-40 MW will be international or multilateral banks, eligible for partial credits.74 and/or the existence of additional The small hydro requirement was a source of substantial international revenue streams from debate in the months leading up to the legislation. The carbon credits. energy commission initially proposed an upper limit of 20 MW, fearing that without a limit on the size of eligible hydro projects, utilities would simply meet their entire Barriers Remain renewables obligation with large hydro projects, Despite a generally favorable regulatory and market effectively perpetuating the status quo for renewables environment and Chile’s sophisticated financial sector, development in the country and failing to provide renewable power projects face familiar challenges. incentives for newer, more environmentally-friendly These projects have high perceived risks, significant up-
EXPECTED IMPACTS OF CHILE’S RPS AND THE POTENTIAL FOR FUTURE INCENTIVES Many analysts have praised the renewable energy law, the first RPS policy in Latin America, for establishing competition between renewables projects to ensure that they are developed efficiently. Especially since many of the most promising and profitable renewables sites are already under development, new renewables projects hoping to fetch a premium from the quota will have to be highly competitive.79 The relatively low levels of renewables required by the law have been criticized by Chilean environmental groups but will also help to ensure vigorous competition.80
Given the competitive nature of the RPS policy, it is expected to mostly benefit small hydro and, to a lesser extent, wind power generators, both of which are already profitable with current spot market prices.81 In the current environment, most of these projects would likely be built regardless.82 83 The development of more expensive renewables like solar or future technologies like tidal power would likely require additional, targeted incentives.
This need for generating incentives, whether based on a feed-in tariff or a production tax credit model, will become more acute for all non-conventional renewables once Aysén and other large-scale hydro projects come online, which could reduce spot market prices and challenge the profitability of renewables.84 85 86 However, even in a best-case scenario, Aysén is not expected to come online until 2014 or 2015, and given widespread opposition to the project it could take even longer, giving non-conventional sources a large window of opportunity to establish themselves under highly favorable conditions in the interim.87
Blueprint for Renewable Power | Section 5 399 front costs, and are often built at relatively small scales, Small Hydro qualities which make debt financing difficult to secure.88 89 Financing is thus often dependent on developers’ Chile’s mountainous geography and plentiful rainfall give it equity, loans given under favorable conditions by CORFO excellent hydrological resources that have enabled the or international or multilateral banks, and/or the country to rely on large hydropower stations for over half of existence of additional international revenue streams its installed power generating capacity, and small hydro is from carbon credits. Fossil fuel sector policies such as a considered by project developers, investors, and CORFO to stabilization fund designed to reduce the impacts of oil be one of the most promising renewable power sources in price volatility on consumers may have the unintended the near term.97 98 99 The country’s central and southern consequence of reducing the urgency of the drive for regions (some of which receive annual rainfall of over 1,000 renewables.90 As in most Latin American countries, the Chilean market is too small to develop domestic manufacturing and R&D capacity for renewable power technologies, making it reliant on imported equipment for Irrigation Channel Projects all but the simplest, off-grid micro-hydro and wind Small hydro projects in existing irrigation systems technologies.91 92 are particularly promising, and a joint study by CNE and the Comisión Nacional de Riego surveyed Other general barriers include a lack of relevant potential project sites in Regions III through IX, information as well as a lack of project development where 97% of the irrigated land in the country is experience on the part of many potential small project located.102 The study, released in October 2007, developers.93 CNE and CORFO are working to alleviate identifies a total of 290 suitable sites capable of information barriers in several ways, including detailed generating 866.2 MW of power, which are divided guides for project developers of wind, biomass, biogas, into four categories. All of these projects save a 94 and waste wood projects, as well as guides for the MW potential project on the Punilla irrigation dam development of CDM projects published by CNE.94 are below the 40 MW limit for small hydro projects CORFO also publishes a guide to the sector geared set by the ERNC law, for a total of 772.2 MW of towards potential investors in multiple languages, which small hydro projects in irrigation canals. includes information on the sector’s structure as well as a directory of projects currently under development.95 Single Channel: Generation from irrigation channels using water rights managed by only one Local opposition and perceived technology risks from organization of farmers. 181 sites with 357.2 MW local communities can also be a barrier in some cases, potential. particularly for geothermal power, as illustrated by the case of the development of the El Tatio geothermal field, Multiple Channels with Organized Distribution: discussed below. Generation from the unified intake works of irrigation channels with an organized distribution of water rights. 13 sites with 162 MW potential. Renewable Power Development Experience Multiple Channels without Organized Chile’s central grid, serving the central and southern Distribution: Generation from the unified intake regions of the country, has the greatest potential for the works of irrigation channels that lack organization development of geothermal, wind power, and small hydro, of water rights holders. 80 sites with 124.3 MW while the northern region has potential for geothermal, potential. wind, and solar.96 While these resources are all at very early stages of development, interest in all of them grew Irrigation Dams: Generation from irrigation dams. rapidly in 2007 and 2008. With the country’s record of 16 sites with 222.7 MW potential. sustained growth, its short and long-term power needs, and its unsurpassed macroeconomic and political stability, Region VII has the greatest potential, with its 226.9 a wide range of domestic as well as international project MW of capacity across all four categories developers are exploring a wide range of projects in each accounting for nearly a third of the total. Regions area, as detailed below. VI and VIII also account for 179.6 MW and 171.6 MW, respectively, combining for nearly 50% of the remaining potential.
400 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.4g Small Hydro Potential in Irrigation Systems by Type
Single Channel 46% Multiple Channel (Organized Distribution) 21% Multiple Channel (No Distribution Organization) 16% Dams 17%
Source: CNE and National Rivers Commission 102
mm) have significant untapped potential, and CNE projects on free-flowing rivers. An October 2007 study by the CNE as much as 4,000-5,000 MW of potential hydro projects of and the National Irrigation Commission identified 772 MW 20 MW or smaller in the country, of which 1,000-2,000 MW of potential small hydro project sites on existing irrigation are likely to be able to be feasibly developed when economic channels (see sidebox, “Irrigation Channel Projects,”) and and transmission restrictions are taken into account.100 101 many small hydro plants coming online this year will take advantage of these applications. As in many countries, projects utilizing existing infrastructure are a key focus for the early stages of the As illustrated in the Lircay and Puclaro projects described sector’s development, as these projects tend to have lower below, these types of projects use small hydro resources costs and higher hydrological reliability than projects built while largely avoiding the difficulties involved in developing
Chart 5.4.4h Small Hydro Potential in Irrigation Systems by Region
III Single Channel Multiple Channel (Organized Distribution) IV Multiple Channel (No Distribution Organization) Dams V
VI
VII Region
VIII
IX
Metropolitan Region
0 50 100 150 200 250 MW Source: CNE and National Rivers Commission103
Blueprint for Renewable Power | Section 5 401 new sites. The revenues accruing to irrigation associations devolution of application review from federal to from renting their water rights can be used to improve regional governments has accelerated the process canal infrastructure. Moreover, irrigation channels often (see side box, “Water Rights Reforms”). have dam storage or other means of regulating flows, giving these projects more reliable water flows than free- • Opportunities for Irrigation System Projects: flowing rivers and mitigating the hydrological risks faced Projects built on existing irrigation canal by small hydro projects lacking storage dams.104 infrastructure can reduce costs for civil works, lower environmental impacts, and ensure more reliable Key Drivers and Obstacles water flows, making them a focus for small hydro In addition to the high electricity prices that are driving power development in many countries. In Chile, these generating projects of every kind, the small hydro sector projects also have the advantage of yielding rents for enjoys strong support from the government, which has irrigation cooperatives, giving them a needed source modified water rights laws, published a wide-ranging study of revenues for improvements to infrastructure in of potential project sites utilizing existing irrigation channels, many cases. The National Commission of Rivers and offered substantial technical and financing assistance published a study in October 2007 identifying 772 from CORFO. Small hydro is also expected to be one of the MW of potential in irrigation systems, which will primary beneficiaries of the recently-passed ERNC law, assist in the further development of these types of which, as a renewable portfolio standard (RPS) policy will small hydro projects. reward only the most cost-competitive technologies. • CORFO Support: Small hydro projects have been the While small hydro projects still face financing challenges and most frequent beneficiary of CORFO’s renewable power permitting delays, the sector is well-positioned for substantial development programs since these efforts began in 2005, growth in the near term. Several new projects will come primarily through funding of technical studies and online in 2009 and a growing number are being planned. assistance in locating financing. CORFO has funded 40 feasibility studies for such plants with a combined Drivers potential of more than 220 MW, which would require more • High Power Prices: High power prices due to tight than $300 million in financing.107 Most of these projects supplies and increasing thermal generation are making are being proposed by existing water rights owners and small hydro projects very profitable, with spot market irrigation associations. The first two projects to benefit prices topping $100 per MWh in 2008. This highly from CORFO technical study support to come online will favorable price environment is expected to persist at be the small hydro projects of Lircay and Puclaro, the least until the large-scale Aysén hydro project comes former of which also secured critical IFC financing brought online in 2014-2015. about by a meeting arranged by CORFO.
• ERNC/Renewable Portfolio Standard Obligations: Obstacles Small hydro is a relatively plentiful and low-cost • Environmental Permitting: Although its environmental renewable power source and will be the first choice of permitting requirements may be somewhat relaxed by many marketers to fulfill their requirements under the the standards of many developed countries, Chile has new ERNC law, as demonstrated by Colbún’s decision some of the most rigorous requirements of any country to develop small hydro plants to supply RECs for its in LAC. While small hydro projects face a relatively less marketing arm.105 106 arduous environmental permitting process than large hydro projects, these requirements have still posed • Interconnection Rights via Short Laws: difficulties to some developers, who have complained Interconnection and transmission hurdles to renewable of delays.112 These permitting obstacles can be projects of up to 20 MW have been lowered or removed particularly challenging for small project developers who in many cases by the Short Law of 2004 and 2005. Most lack experience in this area.113 small hydro projects fall under this range, and the new rules have made it relatively easy for these generators to Projects connect to and sell power to the wholesale market, The wide range of projects and the limited information taking advantage of high spot market prices. available on micro-scale, off-grid installations make generalizations about the overall development of the • Improved Water Rights Regulations: Water rights sector difficult, but the following discussion illustrates the reforms are forcing rights holders to develop projects types of opportunities and obstacles that project or eventually lose their claim. Moreover, the developers frequently encounter.
402 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf The plant’s design includes a diversion structure on Water Rights Reforms the Maule Norte Bajo canal, a 3 km canal to bring the Until recently, the Ministry of Public Works diverted water to a point over the powerhouse, a 520 (Ministerio de Obras Públicas) issued water rights m long penstock pipe to the powerhouse, and a under principles set out by the water legislation of powerhouse equipped with two Francis-type turbines 1981. Limited-term usage rights were assigned to with 9.7 MW capacity each.119 Turbines will be each private person or company, usually free of imported from the Italian company VATech, which was charge. However, there was no obligation to make able to provide the turbines more quickly than major use of these rights, and Endesa in particular has regional manufacturers such as Alstom in Brazil or acquired water rights to large areas without any Impsa in Argentina, who are currently fully booked.120 plans to utilize them.108 The company will also construct a 25 km transmission line to the Maulte Substation in San Clemente.121 Amendments to the water rights code in 2005 forced rights holders to utilize their resource within Lircay is expected to generate an average of 130 GWh a certain period of time or suffer increasing fines, per year, which will be fed into the SIC system.122 The potentially culminating in the loss of their claim company will sell the entire output of the project under altogether.109 The process of acquiring or leasing long-term contracts.123 The project will cost water rights has also been accelerated by allowing approximately $25 million, 40% of which will be regional government approvals instead of relying covered by equity and 60% by loans from the IFC, on the frequently backlogged General Directorate which were required due to the difficulty of acquiring of Water (DGA). These changes are expected to loans for startups carrying out small projects like this.124 encourage the development of many more small- Hidromaule is also working to register Lircay as a CDM scale hydro projects 1 MW in size and greater in project, further improving its returns.125 central and southern regions.110 The Maule Canal Association will receive rents of 10% of the Lircay Mini- and Micro-Scale Projects (< 100 kW) project’s income, which will There are an estimated 110 mini and micro-hydro stations in operation between regions VIII and XI, mostly contribute to the reduction of for the provision of electricity for rural families and annual irrigation costs and improve telecommunications facilities.114 These systems the quality of services. generally have capacities of less than 100 kW and have a combined total capacity of 3.3 MW. While the contribution of these micro-scale projects to the The project is located in a rural, low-income area with country’s overall generation is small, they provide high levels of unemployment and will create needed valuable access to electricity for rural, off-grid areas, jobs, including 200 laborers during the year-long and are generally built by local turbine manufacturers.115 construction period and 5-10 permanent workers for the plant’s operation and maintenance.126 Small-Scale Projects (100 kW-20 MW) • Lircay (20 MW) Rights to the water resource are owned by the Canal Lircay is a small hydropower project being developed Maule Association, an irrigation group including 2,200 by Hidromaule, a start-up hydropower generation shareholders, most of whom are small and medium company established in 2007 as a joint venture farmers. One of the project’s chief benefits will be the between the Italian hydropower firm Sorgent and the improvement of the condition of the irrigation channel, Chilean company Empresa Austral Andina (EAA), a which has lacked necessary maintenance group of Chilean professionals with many years of investments.127 Over the 40-year operation period of experience in the sector.116 117 The new company aims the project, the Maule Canal Association will receive to develop several projects on irrigation channels in rents of 10% of the project’s income, which will Chile’s Region VII, starting with Lircay, a 20 MW facility contribute to the reduction of annual irrigation costs and located at the confluence of the Corel and Lircay improve the quality of services.128 rivers, approximately 30 km northeast of Talca. Construction began in late 2007, and the project came Due to the Association’s irrigation needs, water is online in the second half of 2008.118 available only to the extent that the flow exceeds
Blueprint for Renewable Power | Section 5 403 irrigation requirements during the irrigation season potentially positive overall. Project construction will only from mid-September through mid-April. Hidromaule affect 2 hectares of the 3,000 hectares in the project was thus careful in designing the plant, using a 40- area, in addition to a 1.5 km road that will be constructed year record of river flows to optimize the development to make the project site accessible from existing roads, of the plant for year round operation, with a design and impacts on local aquatic and terrestrial species will flow of 22 m3/s and a 100 m head.129 be limited. Moreover, a survey of local flora and fauna was carried out to ensure that no threatened or • Ojos de Aguas (9 MW): endangered species were located in the affected area. The Ojos de Agua Hydroelectric Project is a 9 MW The project developers will also create a new protected capacity run-of-river hydro plant that is currently area near the site, which will be chosen from Endesa- being developed by Endesa Eco, a subsidiary of owned land in the area that demonstrates suitably high Endesa.130 The project is located on the Cipreses levels of biodiversity and abundance of flora and fauna. River in the eastern part of Chile’s Region VII, close to The protected area will be made accessible to students the Argentine border. It is a sparsely populated area, and scientists, and research in the area may be included with just the small community of Los Álamos located in a study produced by Endesa on the impacts of its 5 km away and the city of Talca located 100 km away. biodiversity initiatives in Chile. The project is Endesa’s first small-scale hydro project in the country since 1959, although as discussed later • Puclaro (5.8 MW): in this section, it has also begun operations at a 18.15 The Puclaro project is a 5.8 MW hydropower plant in MW wind farm. Region IV, Coquimbo, in the Elqui Valley, and it will utilize water released by the Puclaro irrigation reservoir.131 The The project design will utilize a 2 m high, 5 m wide, plant is operated by Hidroeléctrica Puclaro S.A., a joint and 30 m long diversion dam that will divert water venture between the Elqui River Surveillance Board and from the river and into a funnel leading into a 350 m Chilean power developer GPE S.A. It required an collecting channel, which runs along the river’s west estimated $6 million investment to build, which was bank. Two other intakes will be added on the Ojos de financed through bank loans acquired with assistance Agua Creek and the Green Lagoon, which will be from CORFO, which also provided feasibility study connected to the collector channel along the river funding. Operations at the plant began in 2008.132 bank for a combined flow of 13.3 m3/s of water. This Operations are expected to begin in May 2008. The water will enter a second, 650 m long collector project was registered as a clean development channel, which leads to a 200 m long siphon and a mechanism (CDM) project in September 2007, and the 1800 m long intake tunnel, ultimately providing a net sales of these carbon credits will help make the project head of 71.5 m at the powerhouse. Within the financially viable.133 powerhouse, one horizontal 9 MW Francis turbine will generate power to be dispatched to the SIC before the The plant is located 40 km east of La Serena and 16 km water exits the powerhouse and returns to the southwest of the town of Vicuña, alongside route 41, Cipreses River. which connects La Serena and the Agua Negra frontier pass to Argentina. The project will install two Francis The project is expected to produce 48 GWh per year, turbines with capacities of 2.883 MW each in the for an average cost per MWh of $57.70, which is existing machine house downstream of the dam, and it significantly higher than the average $48.45 per MWh will use the existing discharge pipe from the irrigation average of Endesa’s last six large-scale hydro plants. system. Use of preexisting civil works will eliminate the Moreover, the facility bears higher hydrological risks need for major new construction, which will reduce because it lacks a storage dam to control for costs and minimize environmental impacts.134 variability in rainfall. The Cipreses River basin receives approximately 1,444 mm of annual rainfall, Use of preexisting civil works from but this has varied significantly during times of drought. The watershed only received 400 mm of the Puclaro dam and irrigation rainfall in 1998, for example. system will eliminate the need for
The project will yield local economic benefits, including major new construction, which will an estimated 136 jobs for laborers from throughout the reduce costs and minimize Talca region during its 2-year construction phase. environmental impacts. Environmental impacts are expected to be minimal, or
404 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf The Puclaro reservoir is used to irrigate 12,000 By providing a steady source of hectares of land for agricultural purposes, and is low-cost renewable generation and designed to retain thaw waters from ice reserves in the Andes in the summer months (December through eliminating dependence on volatile March) to prevent water shortages in dry years. While fossil fuel prices, the Cuchildeo it also retains rainwater, this is only a small part of the reservoir’s overall supply. The reservoir has a 80 m project will reduce power costs for high dam and can store up to 200 m cubic meters of the off-grid Hualaihué municipality. water. Water flows from the reservoir are regulated entirely by the Surveillance Board of Elqui River, an There was an attempt to develop a small hydropower association of irrigators in the region, and it makes plant on the Cuchildeo project site previously, but the decisions to release water based solely on demand unfinished project was abandoned in 2000 due to a lack from local landowners in the Elqui Valley. The power of funding and hydroelectric engineering capabilities.140 plant operator has no control over the reservoir flows Thus, the project developer will replace the technological and thus no control over the amount of power components of the previous plant and recondition the produced by the plant, making its operation similar to a civil works, including a 2 m high, 18.5 m wide, and 8 m run-of-river power plant and subject to the same long diversion wall running along the river. The wall hydrological risks.135 diverts water from the river into a 584 m long collecting channel, which will bring 11 m3/s of water to a 15 m long Historical records of releases from the reservoir dating intake canal, for a gross head of 9.66 m into the back to 1960 show flows with a high degree of powerhouse. After spinning a single 0.8 MW S-turbine seasonal and multiyear variability, with a range in the powerhouse, the water exits a 350 m tailrace between zero and nearly 60 GWh per year and a channel before returning to the Cuchiledo River. standard deviation of 16.75 GWh per year. The project developers used these records to project the likely Despite Chile’s generally good access to financial average annual generation for the project, projecting services, local banks are geared toward large scale an average load factor of just 48%. This would electric projects with short pay-off periods and translate into an average power production of 24 GWh attractive rates of return, making it especially difficult for per year, which will be sold into the SIC grid. While very small-scale projects with high up-front costs such the project cost is quite low per MW due to the as this to obtain credit. Thus, Inversiones BEC invested minimal new construction required, this low load factor $1.5 million in equity to build the project, which will makes it less attractive, and the project’s successful restore and improve the existing civil works and registration as a CDM project was needed to make it purchasing new equipment for the plant. Carbon financially viable.136 credits, brokered through EcoSecurities, will be required to give the project a viable return, increasing its IRR • Cuchildeo Hydroelectric Project (800 kW): from an estimated 6.6% to 17.6%. The Cuchildeo Hydroelectric Project is a small-scale, 800 kW micro-hydro project in the southeast of Chile’s One of the primary benefits of the project is economic. The remote Region X in the Los Lagos area. It provides village of 1,500 households has no connection to the SIC power to users in the nearby municipality of Hualaihué, grid and pays an average of $0.68 per kWh for power from which does not currently have a connection to the diesel generators compared to $0.17 per kWh for the grid- SIC.137 Thus, while it is small compared to the MW- connected households of Puerto Montt, 100 km away. A scale projects described above, it is significantly larger political arrangement reached in 2005 has begun than most off-grid small hydro plants. Located on the subsidizing prices in Hualaihué through an increase in rates Cuchildeo River, the plant generates an estimated 6.1 for Puerto Montt, but this is not considered to be a GWh of power annually for the local low-voltage grid, sustainable solution, and it has not reduced the actual and is being developed by the local Chilean company costs of generation or the emissions of the diesel Inversiones BEC.138 The company was formed by the generators. While the national government has periodically owner and manager of a 2,000 acre ranch in Los Lagos discussed the possibility of connecting the municipality to to build this small hydropower plant on its own SIC, there has been little progress. By providing a steady property, which was completed in early 2008. The source of low-cost renewable generation and eliminating company plans to develop as many as five additional dependence on volatile fossil fuel prices, the project will small hydro projects with capacities between 3 MW reduce power costs for the municipality without having to and 7 MW over the next several years.139 wait for a grid connection. Additionally, the plant will
Blueprint for Renewable Power | Section 5 405 employ 20 local laborers during the 6-7 month construction the metropolitan region’s San José de Maipo. The project period and three full-time technicians (which will be trained would require an investment of $17.4 million and connect as part of the project) during ongoing operations. to the central SIC grid, and would be the first small hydro plant in the country to include facilities for guided tours, The project is also expected to yield human health and which could be used to promote tourism in the Maipo environmental benefits. By reducing the need for diesel canyon close to Santiago.144 generation, the village will reduce a significant source of pollution, including particulate matter, sulfur dioxide, nitrogen dioxide, and diesel residues. The reclamation Wind of the abandoned canal works and powerhouse, which had been left to rust and deteriorate along the river, will Chile’s long coastline gives it strong potential for wind also benefit the immediate area. As part of its power, particularly in Regions IV, VII, VIII, XI, and XII. environmental management plan, the project developer While there have been no comprehensive evaluations of has also committed to reforesting the surrounding the country’s wind potential, a compilation of existing hillsides, particularly along the areas bordering the wind measurements by researchers at the University of canals, which will remediate the degradation caused by Chile’s Department of Geophysics in 1992 identifies sites the original, abandoned project. with winds measured as fast as 9.1 m/s in the north and center regions and as fast as 10.5 m/s in the far south of As with most other run-of-river hydro projects, the the country.145 project’s main risk is hydrological, since it has no storage dam to ensure continued flows during periods A 2003 study by CNE worked to update previous partial of limited rainfall. While the region normally has plentiful measurements at sties the regions of Atacama and Los water supplies, with an average of 3,500 mm per year of Lagos. The study has also developed a preliminary rainfall, a long-term hydrological study of the watershed assessment of the wind power potential between Regions indicates a 12.5% chance of drought in any given year, I and IX based on available information from existing or an average of one drought every eight years. This mesoscale meteorological models.147 Despite this lack of increases the project’s financial risk and necessitates complete information, Chile’s potential for wind power additional income streams, particularly in the short term, has been estimated at as much as 10,000 MW,148 an to make the project’s rate of return viable. estimated 3,000 to 5,000 MW of which could be economically developed.149 More detailed wind studies Other Projects are being conducted by a growing number of private The Chilean family Wachholtz is a significant holder of investors in the sector, who can benefit from CORFO water rights, is reportedly planning to develop its own subsidies of up to $20,000 for a single study (or $30,000 small hydropower projects. According to the Chilean for two). newspaper El Mercurio, two plants with a total of 10 MW capacity are being developed in San Jose De Maipu Before 2007, only one 2 MW wind farm was operating in (Puente Alto) for a potential investment of $16 million, and the country, connected to the remote Aysén system, and they could be built as soon as 2011.141 11 projects (of mostly 20 MW or smaller) were being evaluated according to CORFO.150 The sector began to In September 2007 Colbún, the third-largest power generator move much more rapidly in 2007, when utility-scale wind in Chile and the operator of a number of thermal and large power debuted on the SIC grid via Endesa’s 18.5 MW hydro plants, received environmental approval to build a 6 Canela project. The number of projects undergoing MW small hydro facility in San Clemente, which is expected feasibility studies doubled, with 23 in the feasibility study to be operational in 2009.142 In all, Colbún is studying 3-4 phase through August 2007.151 There was also an potential sites for small hydro projects, all on irrigation explosion of new interest in wind power projects from channels with regulated water flows between Region VI and applicants to CORFO’s feasibility study funding program, Region VIII. The company claims that the ERNC law is a which saw 29 of 53 approved projects come from the primary motivation for the projects, since it is also a power wind sector.152 marketer and the small hydro sites represent a relatively low- cost opportunity to help fulfill its obligations, although it is also Chilean and international developers also announced in studying potential wind and biomass projects.143 2007 and 2008 hundreds of megawatts of potential projects. Region IV has been a particular focus, due to its There are also reports that Chilean generator Energía mountainous geography, strong winds, strong demand Coyanco plans to develop a 10.4 MW run-of-river plant in from both mining and agricultural industries, access to
406 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Map 5.4.4a Wind Speeds in Chile industry. German developer SoWiTec has identified one of the largest pipelines of potential projects with 1.8 GW of possible sites in Regions I-IV, and is eyeing the industrial users market. In addition to Barrick Gold and Seawind’s collaboration in Region IV, BHP Billiton and Pacific Hydro recently formed a partnership to explore the viability of up to 100 MW of wind farms in unspecified northern areas.
Although Chile’s southern regions lack the robust industrial demand of the north, there has been significant interest in developing smaller scale wind projects in these areas as well. Ecopower, a new company formed by a group of Chilean, Swedish, and Spanish professionals, is examining the potential for a $200 million, 140 MW wind farm in Region VIII, as well as a 60 MW wind farm in Chiloé in Region X.155 Another early leader in exploring projects in the south has been Ecoingenieros, a firm with backgrounds in the Chilean electricity industry as well as the Chinese government, is studying 32 MW of potential projects in regions VII, VIII, and X.156
Wind is perhaps the most widely available of Chile’s renewable resources, with strong resources in the north, central, and southern regions of the country.
Key Drivers and Obstacles Interest in wind power in Chile is booming for economic, Source: University of Chile146 policy, and geographical reasons. Demand is very high for new power generation in Chile due to tight supplies, high prices, and the country’s record of strong, stable demand growth. The mining industry in particular is a strong source power infrastructure, and good ports and logistics.153 As of potential demand for these projects. Wind has lower of March 2008, at least $290 million in additional costs than most other renewable power technologies (with potential investments with 144 MW of wind capacity the exception of small hydro and potentially geothermal) were under consideration in addition to a potential 70 and will benefit from the ERNC’s competitive orientation. MW expansion of the Canela wind farm.154 These Wind is also perhaps the most widely available of Chile’s investments include a $100 million, 50 MW wind farm renewable resources, with strong resources in the north, being developed by SN Power subsidiary Norwind, central, and southern regions of the country. which is the farthest advanced, along with a $40 million, 20 MW plant planned by Barrick mining company in The inauguration of the new large hydro Aysén project in Punta Colorada in collaboration with Seawind UK and a 2014 or 2015 may eventually alter the competitive $150 million, 74 MW Monte Redondo project planned by landscape, but wind will likely benefit from continued Seawind alone in Ovalle. supply tightness for at least the near term. Growing competition from other renewable resources could be a In addition to these projects in Region IV, wind challenge in the longer term, particularly in the measurement and feasibility studies are being conducted geothermal and solar-rich north, but these other throughout the country, including for potential projects in technologies also face substantially higher up-front northern regions to provide power for the mining costs and risks.
Blueprint for Renewable Power | Section 5 407 Drivers greater financing challenge for project developers, • High Power Prices: As with other renewable as well particularly if long transmission lines are needed.163 164 as non-renewable electricity sources, tight supplies and high power prices are providing a favorable • Intermittency: As discussed, wind’s intermittent supply environment for project development. Like small may not fit the mining industry’s relatively constant hydro, wind is a relatively low-cost source of demand. By contrast, geothermal power generally has renewable power and it is very competitive with prices an availability of more than 90%, higher than most fossil at their current levels, which are expected to persist at fuel or even nuclear power plants, and the northern least until the 2014-2015 construction of the large- region has some of the most promising geothermal scale Aysén hydro facility. sites in the world. Concentrating solar power (CSP) plants could also provide reliable power if equipped • Mining Industry Demand: The particularly high prices with thermal storage capability to allow for power on the SING grid have led Chile’s mining companies to production even when the sun isn’t shining. Given seek their own power supplies to hedge against high these advantages, geothermal and/or CSP plants may grid prices and the risk of outages. Most mining emerge as the renewable generating source of choice operations are located in the arid northern regions of the for mining companies. country, limiting the potential for small hydro and leading to a focus on wind, geothermal, and, potentially Projects concentrating solar power (CSP) options. Although the wide range of projects as well as a lack of information on small-scale, off-grid installations makes While wind’s intermittency is a poor fit with the fairly generalizations about the overall development of the sector constant demand profile of mining operations (see below, difficult, the following discussions of projects illustrate the “Obstacles”), wind power offers less risk and faster types of opportunities as well as challenges that are startup times than geothermal, which requires time frequently faced by project developers. consuming, expensive and risky exploratory drilling before projects can commence. Similarly, CSP has seen a surge Alto Baguales (2 MW) in worldwide interest but is still a generally unproven and Until 2007, the country’s only wind generation came from a expensive technology. Thus, a number of wind power 2 MW project in Baguales, Coyaique that is connected to developers are actively targeting projects in the northern and owned by the Aysén system.167 The Alto Baguales regions with an eye on mining industry demand.157 158 159 wind farm is situated 5 km from Coyhaique and includes three 660 kW turbines. It has been in operation since • ERNC/Renewable Portfolio Standard Obligations: November 2001, and accounts for nearly 10% of the total After small hydro, wind power is the lowest-cost installed capacity of the Aysén system.168 renewable power technology, making it a highly competitive choice for marketers to fulfill their new Region IV Projects renewable power sales requirements under the new Canela (18.15 MW) ERNC law.160 161 Chile’s first SIC-connected wind farm came online in December 2007, in the Coquimbo region (Region IV), one • Widespread Availability: Unlike small hydro, of the narrowest and most mountainous areas of the geothermal, and solar resources, Chile has significant country lying 350 km north of Santiago. The region is one wind power resources available throughout the country, of the most favorable for wind and is being targeted for thanks to its long coastline and mountainous large wind farms by several developers. The Canela wind topography. Thus, it has the widest applicability of any farm, which was inaugurated by President Michelle of these technologies. Bachelet, was built and is operated by Endesa Eco, and its eleven 80 m-tall turbines will add 18.15 MW of capacity to Obstacles the SIC grid.169 Construction began on the $35 million • Financing: While wind is establishing itself project in February 2007, and the firm is in the process of internationally, it is still a new technology in Chile with designing a 70 MW expansion of the project, called Canela few developed projects and a limited track record II,170 with an estimated cost of $140 million.171 compared to small hydro, making many potential lenders cautious.162 Although wind power costs can be similar SN Power to small hydro at $1,000 to $2,000 per installed kilowatt SN Power, a Norwegian renewable power development capacity, the greater intermittency of wind can result in company focused primarily on hydro projects in Asia and generation of only half as much power, making it a Latin America, is developing a 50 MW wind farm 300 km
408 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf north of Santiago in the Canela municipality, next to the wind power to provide its operations with more stable Endesa Canela wind farm.172 The project is expected to power prices as well as to enhance its corporate and cost $100 million and will be developed as an 80/20 joint social responsibility programs.180 The firm received venture called Norwind with the Chilean businessman approval in October 2007 to build a wind farm of up to Gustavo Pavez.173 No off-take agreements have been 20 MW capacity in Punta Colorada, in Region IV. The secured yet, but the company is planning to sell part of project, which is estimated to cost $40 million, will be its output on the spot market as well as selling a portion built by Seawind.181 Barrick is also exploring the of its power under power-purchasing agreements (PPAs) potential for renewable power in neighboring to industrial users. Barring unforeseen problems, Argentina, and recently installed the highest wind construction is expected to be completed by July or turbine in the world, a 2 MW turbine located 4,100 m August of 2009.174 above sea level in the Andes mountains, near the company’s Veladero mine.182 The project, SN Power’s first in the sector, is being developed opportunistically rather than as part of a The Canadian mining company strategic plan.175 Several years’ worth of wind measurements had been developed for the Canela area, Barrick Gold plans to diversify its and the firm was already partnering with Mr. Pavez to energy sources with wind power in finance one of its large hydro projects just as the renewable energy law was being developed. SN is open order to provide its operations with to further wind sector projects in the future, but currently more stable power prices as well has no definite plans.176 as to enhance its corporate and The 18.5 MW Canela wind farm, social responsibility programs. built and operated by Endesa Eco, Beyond Region IV became the first wind project to A number of Chilean companies as well as foreign project developers are also in various stages of planning be connected to Chile’s central wind farms located in other regions of the country as SIC grid in late 2007. well.
Ecopower Seawind Ecopower, a firm founded by Swedish, Spanish, and The opening of the Endesa wind farm was used as an Chilean professionals with experience in renewable opportunity to announce the approval of the environmental power development, is working to develop a 140 MW permits for another, larger wind farm in Region IV. British wind farm in Region VIII, as part of 380 MW in potential renewable power developer Seawind International plans to projects spanning several regions. The farm will include build a 37 turbine, 74 MW wind farm in Ovalle, nearly 100 wind turbines, with a total investment cost of representing an investment of $150 million.177 The first of approximately $200 million.183 According to general four project stages will begin construction in November manager Julio Albarrán, the firm anticipates building at 2008. Private bank loans will finance 70% of the project least three other projects, pending the results of wind costs, and the other 30% will be financed by equity from measurements. The firm has leased 2,400 hectares in Seawind and an undisclosed project partner.178 The the commune of La Higuera in Region IV with hopes of project also expects to receive carbon credits, although building an 80 MW wind farm, 430 hectares in Chiloe for this will have only a minor impact on its bottom line. a 60 MW wind farm, and 270 hectares in San Antonio where up to 100 MW could be developed. Seawind is also developing a 20 MW wind farm in Region IV in collaboration with Canadian mining company Barrick As of April 2008, Ecopower was still in the process of Gold, discussed below. It is planning to explore further collecting wind measurements, researching technical and projects in regions I-IV due to mining industry demand, financial aspects of the project, and obtaining good winds, and easy access to electricity infrastructure.179 government permits and financing.184 Ecopower anticipates funding 30% of the project from its own Barrick Gold equity, 60% from foreign private banks, and 10% from The Canadian mining company Barrick Gold has also small Chilean equity investors. It plans to sell the power recently made plans to diversify its energy sources with under long-term contracts to distributors or large users.
Blueprint for Renewable Power | Section 5 409 Ecoingenieros Most of the firm’s existing business in the region involves Ecoingenieros, a firm founded by Chilean professionals large-scale run-of-river hydro projects, including nearly from the energy and forestry sectors, is studying the 1,000 MW of potential capacity in central Chile, some of development of up to 32 MW of wind capacity via three which will be developed in partnership with SN Power. projects in Chile’s southern half, all of which have received However, the company recently opened its first wind feasibility study financing from CORFO. The 10 MW farm in Latin America, a 10.2 MW project in Paraiba Chanco wind farm project in Region VII aims to take State in Brazil. The company plans to develop up to 300 advantage of prevailing strong and steady coastal winds, MW of wind power in Brazil, and it has been conducting and wind measurements are underway there and at a 10.5 initial feasibility studies on a potential 10 MW wind farm MW wind farm in Region X, where wind measurements on Chiloé Island in Chile.193 While the company is not began at the start of 2008.185 186 generally interested in wind projects in the country’s southern regions due to relatively low levels of demand, Ecoingenieros is distinguished not only by its focus on it is pursuing the Chiloé project to establish itself in the southern Chile but by its recent addition of a former market and develop larger projects in the future.194 member of China’s National Development and Reform Commission to its staff, with the goal of exploring Pacific Hydro has also signed a deal with Australian mining potential business between Chile and China.187 These giant BHP Billiton to study the feasibility of developing as links could include imports of wind turbines and much as 100 MW of wind farms in the country’s north, where components from low-cost Chinese manufacturers as Billiton’s mining operations are located.195 Under the well as exports of the firm’s engineering know-how to partnership, which is still in its planning stages, Pacific Hydro help develop projects in China, including current work will study wind conditions and carry out engineering, analyzing projects in Mongolia.188 construction, and operations of the wind farms, and BHP will have the option to buy part or all of the power produced. SoWiTec German wind developer SoWiTec is targeting the development of plants for industrial users seeking to Geothermal develop autonomous, renewable generation to deliver power at reliable costs, as well as power generators Chile is located in the “Fire Belt of the Pacific,” a region of seeking to fulfill their imminent renewables quota.189 the world characterized by intense volcanic and seismic SoWiTec has identified a pipeline of 1,800 MW of activity over millions of years, and the country is home to potential projects at sites with strong wind resources in 10% of all the active volcanoes in the world.196 Geothermal regions I-IV, the most industrialized areas of the country. potential is associated with volcanic activity in the Andean Despite a strong interest in the country due to its mountains in the country’s north, near the borders of combination of favorable sites and long-term power Bolivia and Argentina, the arc between the central valley demand, development of actual projects is several years and the Argentine border in the country’s central region, away, as Sowitec is still evaluating potential sites for wind and the volcanic areas and geological faults of Liquiñe- strength and grid access.190 Ofqui in the south. The National Geology & Mining Service has identified more than 120 geothemral manifestations in Pacific Hydro these areas,197 and keeps a register of thermal events In late 2007, Australia’s Pacific Hydro announced that it spanning the first 10 regions of the country.198 was considering an investment of up to $500 million in 250 MW of wind generating capacity in Chile but was There has been no comprehensive survey of Chile’s awaiting the passage of the renewable energy law.191 geothermal generating potential, but the Ministry of Mines Since the law’s enactment, Pacific Hydro has been estimates that it may be as high as 16,000 MW, more than conducting wind measurements at several sites, and the entire installed generating capacity currently in the while it has not disclosed the estimated investment or country.199 Regions I to III in the country’s north are home capacity of projects under consideration it claims that to many of the most active sites, and the dependence of construction could begin as early as 2010, with projects the area’s mining operations on energy imports makes coming online in 2011-2012.192 These projects will be geothermal an attractive option.200 Geothermal is focused on the central and northern areas of the particularly well-suited for power supply for mining country, which have the highest levels of power companies because of their relatively constant power consumption as well as the greatest availability of grid demand, their need for process heat that can also be connections. Off-take agreements with mining extracted from geothermal reservoirs, and their large companies will be a particular target. drilling and exploration budgets.
410 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chile’s Ministry of Mines estimates In addition to mining-related projects in the north, the that the country’s geothermal technology transfer non-profit Fundación Chile has been working on the development of geothermal resources for direct generating potential may be as use since early 2006, and has already conducted research in high as 16 GW, more than the Region IX and requested exploration concessions in greater Santiago and Maipo in the central area of the country.210 211 entire installed generating capacity The foundation is one of the premier organizations working currently in the country. for R&D innovation in Chile, and counts among its accomplishments the introduction of salmon farming to the country, which has since grown to a $1.7 billion export Despite this potential, exploration of the resource has been industry. It has developed partnerships with the German limited. Exploration efforts have occurred periodically Federal Institute for Geosciences and Natural Resources beginning in the 1930s, but the military government (BGR) and the Chilean firm Geotérmica del Pacifico.212 abandoned the effort in 1982.201 Thermally active areas have been used only for medicinal and tourism-related Key Drivers and Obstacles purposes due to the generally high costs and risks of Geothermal development in Chile has enormous geothermal development.202 203 potential, particularly in the northern regions of the country. Regions I-III enjoy a substantial resource base However, interest in the exploitation of Chile’s geothermal and strong and growing demand from the area’s mining potential returned in the 1990s along with democracy, and industry, which includes many companies with the in 2000 the country passed its Law on Geothermal drilling expertise and financing resources to develop Concessions (Law No. 19,657 – see side box “Law on projects themselves. Moreover, Chile has developed a Geothermal Concessions”) establishing a framework for clear and competitive system for concessioning the exploration and exploitation of projects and creating the exploration and exploitation rights to these resources, legal foundation necessary to facilitate growing interest in which should help reduce uncertainties for project the sector’s development.204 developers as well as lenders.
Development is being led by state oil company Enap, The most significant, or at least the most visible, near-term which holds useful oil exploration data dating back to the obstacle for geothermal development may be public 1940s and 1950s205 and owns concessions in key opposition, particularly for the El Tatio project due its locations for up to 3,350 MW of geothermal potential in location near a prominent tourist site. However, the the country.206 In recent years Enap has formed Ministry of Mining believes that the cautious attitudes of Geotérmica del Norte, a joint venture with Italian oil both the public and private sectors towards geothermal company and experienced geothermal operator Enel and power will rapidly change if and when successful projects with state-owned copper firm Codelco. Enap has also are built.220 On a more fundamental level, high exploration formed a separate joint venture with Enel alone, Empresa costs constitute the most significant economic barrier for Nacional de Geotermia. Geotérmica del Norte is the only many potential projects, as in other countries. The firm in Chile currently working under an exploitation Ministry of Mines is working to explore ways to reduce license, as it seeks to develop a potential 40 MW site in these costs through incentives, but it is unclear whether a the region of the El Tatio geyser field. The El Tatio project program relying solely on national funds would be large is running into local opposition from communities enough to make a significant difference.221 dependent on the geysers for tourism, as discussed below. Enap is also in the process of negotiating a joint Drivers venture with the Luksic Group’s subsidiary Antofagasta • High Prices: As with other renewable as well as non- Minerals to begin exploration of geothermal projects in renewable power technologies, high power prices are the Antofagasta region.207 208 driving interest in geothermal development, particularly in the northern mining regions, where prices are often Beyond the El Tatio exploitation concession, the Ministry of higher due to the SING grid’s reliance on thermal Mines is currently reviewing two more undisclosed generation. Prices will remain high even after LNG applications for the exploitation of major geothermal sites imports come online in 2009, as these imports will be for power generation, and the Ministry believes that costlier than Argentine natural gas. between these three projects it may be possible to install 60 to 100 MW of geothermal generation installed in the • Mining Industry Demand: Given their high levels of next five years.209 power demand, the particularly high prices on the SING
Blueprint for Renewable Power | Section 5 411 LAW ON GEOTHERMAL CONCESSIONS – LAW NO. 19,657 Passed in January 2000, Law 19,657 on geothermal concessions established a legal framework for the exploration and exploitation of geothermal power, enabling investors and project developers to participate in the sector.213 Rights to explore or exploit sites already identified by government surveys as likely to be suitable for electricity production must be won in a competitive bidding auction, which is automatically initiated whenever a firm applies for a grant to an unclaimed site, or can otherwise be specifically initiated by the Ministry of Mining. A person or company wishing to apply for a concession to explore or exploit an area that has not been identified by the government as a likely site may receive the concession preferentially with no bidding.
Concessions can be granted first for exploration and then separately for exploitation.214 Exploration concessions cover sites a maximum of 100,000 hectares in size, and last for two years, which can be extended another two years under certain circumstances. If the exploration attempt is successful, the company can then apply for an exploitation concession, which covers 20,000 hectares of land and grants the concessionaire rights to utilize the resource indefinitely. The Ministry of Mines is responsible for the implementation, monitoring, and enforcement of the Law and its regulations.
Although the law was passed in 2000, the concession system was not significantly utilized until 2005, and the program is still in its early stages.215 There has been very strong interest in recent years, however, with 93 applications for exploration concessions, including many cases in which two or three applicants are bidding for the rights to the same site. The Ministry of Mines has been active in sending information on the geothermal concessions system to mining companies, particularly in the north, and a large portion of the total applicants as well as those awarded concessions thus far have been from the mining industry.216
So far, exploration concessions have been granted for 19 sites, mostly in regions I and II in the north and regions VII-X in the south. Most of the applications have been from mining companies as well as the two large partnerships between state oil company Enap and Italian oil company and experienced geothermal operator Enel, which are discussed below.217 Thus far, only one exploitation concession for power generation has been granted, for the huge El Tatio geothermal field in Region II,218 although a small exploitation concession has also been granted for use as process heat in a salmon farm in the south.219
grid, and their sizeable capital resources, Chile’s mining • Clear Legal Framework for Concessions: With the companies have been among the most proactive 2000 passage of Law 19,657 Chile created a clear industrial users in securing their own power supplies to framework for private sector participation in the hedge against rising grid prices and the risk of outages. geothermal sector, which has paved the way for an Most mining operations are located in the arid northern orderly exploration and exploitation of the resource. regions of the country, limiting the potential for small The law establishes the rights and obligations of hydro and leading to a focus on wind, geothermal, and, concessionaires, regulates the relationship between potentially, concentrating solar power (CSP) options. concessionaires, the state, and local stakeholders, Geothermal power is perhaps uniquely well-suited to the outlines a grievance procedure, and names the Ministry of needs of mining companies among renewable power Mines as the agency responsible for enforcement.224 By sources. Mining operations have a nearly constant reducing uncertainties over legal claims to the resource demand for electricity around the clock that presents an and other potential conflicts, the law will encourage excellent fit with geothermal’s unrivaled reliability, with project developers as well as improve access to financing. load factors of over 90% that surpass fossil fuel and even most nuclear power plants. Mining areas are also well- Obstacles suited to geothermal development because the steam • High Exploration Costs: The primary barrier to from the reservoirs can be used in industrial processes geothermal development in virtually any context is the after it is used to generate electricity and before it is high level of up-front project risks. Before a plant can be condensed and reinjected.222 Moreover, mining developed, exploratory wells must be drilled, requiring companies have large budgets for minerals exploration investments of $2-$3 million just to investigate whether a and a greater capacity to self-finance projects through site has potential.225 Accordingly, potential project equity than most other potential developers.223 developers usually must have access to their own capital.
412 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf CNE, CORFO, and the Chilean Geology and Mining The El Tatio project and two more Service (SERNAGEOMIN) are working to develop a exploitation concessions that are new instrument that would reduce the risks of geothermal exploration by partially covering under review could yield a investment costs in the event that exploratory drilling combined 60 to 100 MW of new fails to locate a developable resource.226 The World Bank Geofund program, initiated in November 2006, is geothermal power capacity over an international program that offers a range of the next five years. instruments to reduce information barriers and geological risks, but it is presently only offering While the leased area is 20 km away from the geysers and support to Europe and Central Asia.227 is unlikely to impact the aesthetics of the tourist site, it is not yet known whether the proposed plant would draw • Local Opposition: Public opposition to geothermal from the same aquifer as the geysers. The project projects on environmental and aesthetic grounds can developers are conducting a rigorous environmental be a significant obstacle as in the case of the El Tatio impact assessment, which will include the drilling of three project, because the drilling activities required for plant exploratory wells, to establish conclusively whether or not development are similar to other extractive mining and the project would affect the geysers.232 fossil fuels industries. The Ministry of Mines is optimistic that public perceptions will change once New Exploitation Concessions plants are actually built and the technology and its The Ministry of Mines is currently reviewing two additional impacts become more widely understood.228 applications for the exploitation of major geothermal sites for power generation, and the Ministry believes that these Projects three projects together might account for 60 to 100 MW of El Tatio geothermal generation installed in the next five years.233 Geotérmica del Norte, a partnership between ENAP, Enel, and Codelco, wants to develop a project as large as 40 Fundación Chile MW in the region of the El Tatio geysers, located 1,800 km In addition to the oil and mining companies that make up north of Santiago in the deserts near Bolivia. The joint the majority of applications for geothermal concessions, venture is seeking approval from the environmental Chilean non-profit technology transfer foundation regulator for a $20 million project to drill test holes as deep Fundación Chile is working on the development of as 2,500 meters.229 The project would supply the geothermal energy, primarily for direct use. It serves as a country’s northern grid, where mining companies platform for interaction between Chile and the government, consume 30% of the country’s power. Analysts expect the private sector, and the academic community, and was Enel to register any resulting geothermal plant as a CDM created in 1976 by the Chilean government and ITT project to receive carbon credits. Corporation. One of its chief accomplishments has been the introduction of salmon farming to Chile, which has However, the project has been met with local opposition on become a $1.7 billion export industry, and as part of its both environmental and economic grounds. The El Tatio sustainability agenda the foundation is seeking to promote geyser field is one of the largest in the world, with dozens the development of small- and medium-scale geothermal of hot pools and geysers that shoot vapor eight meters into resources in the country.234 the air, and draws tourists from around the globe. Towns surrounding the El Tatio geysers have been lobbying the A joint public-private partnership between Funcación Chile government to reject the company’s plans to develop and the German Federal Institute for Geosciences and geothermal plants in the area, arguing that the project Natural Resources (BGR) aimed at transferring expertise in would threaten revenues from the 100,000 tourists who geothermal energy has been underway since January visit the geysers each year.230 Local stakeholders fear that 2006.235 The partnership has jointly undertaken the use of water for the project could dry up or diminish the exploration efforts in Region IX in collaboration with the geysers, and that the roads and 50 m high drilling towers Chilean company Geotérmica del Pacífico, which holds a and powerlines required by the project would diminish the concession in the Sierra Nevada area. Thus far, these landscape. Enel argues that the project is focused on the efforts have been focused on the development of geology, development of a heated underground reservoir that is geochemistry, geophysics, and engineering capabilities in separate from the surface waters feeding the geysers, and Fundación Chile’s environmental division, as well as that the wells and the power plant would be sufficiently far improving models of existing geothermal resources in the away as to be unseen by tourists.231 area.236 More recently, the group has also submitted
Blueprint for Renewable Power | Section 5 413 requests to the mining ministry for two geothermal Intriguingly, in October 2007 there were news reports that concessions, including a 39,900 hectare area known as a consortium of mining companies was considering the Zona Volcán Maipo in greater Santiago that will cost potential for building concentrating solar power (CSP) $790,000 to investigate and a 22,400 hectare area also in projects in the northern regions of the country to provide Maipo where $590,000 will be invested.237 a stable, renewable power supply for their operations.242 While there has been no further information on this or even a confirmation of the original reports, the Atacama Solar Desert has ideal solar and climactic conditions for this type of project, and there is great potential for CSP in the Chile’s Atacama Desert, the driest in the world, hosts region in the future. most of the country’s mining industry in the northern part of the country. It also has world-class solar resources, Key Drivers and Obstacles with nearly cloudless skies and high insolation levels.238 A Chile has superb solar resources in the northern part of the 1987 survey developed by the Universidad Técnica country, but these areas are sparsely populated and offer Federico Santa María indicates average insolation values limited markets for residential and commercial photovoltaic ranging from under 2.5 to well over 5 kWh/m2/day, as and solar heating applications. However, solar heating shown in Table 5.4.4a.239 applications may have greater potential for the production of process heat for mining companies, as demonstrated by Table 5.4.4a Solar Insolation in Chile by Region Codelco’s adoption of this technology, and new tax credits being developed by CNE for solar water heaters could Region Solar Insolation (kWh/m2/day) make this type of application viable for residential users as I 5.3 well. CSP power plants, particularly plants that integrate II 5.6 III 5.1 thermal storage systems to provide power even when the IV 4.9 sun isn’t shining, could also be well-suited to mining V 4.1 companies’ power needs, although commercial VI 4.3 applications of this technology are still in the development VII 4.3 stages in the US and European markets. VIII 4.0 IX 3.6 X 3.1 As elsewhere, the primary barrier to the use of XI 3.0 photovoltaics for grid-connected electricity is cost, as XII 2.5 photovoltaics are much more expensive than other Metropolitan Region 4.1 renewable power technologies. The only current use of Antarctica 1.8 Source: CNE239 PV in the country is for off-grid, rural electrification projects, as discussed below. Solar heating is a more cost-effective application, but it has seen very limited Regions I-IV in particular, with daily insolation of over 5 use so far. CSP systems could potentially be cost- kWh/m2/day in most areas, qualify as superb solar sites. competitive with natural gas and wind power, but the CNE and the German consultancy GTZ are working to current generation costs of these technologie are develop updated solar maps in the north, installing a unproven. monitoring station in Pozo Almonte in the Tarapaca region in July 2008. Between August and October 2008, overall Drivers horizontal measurements ranged from 6.15 to 8.11 • Strong Resource Base: Chile’s northern regions have kWh/m2/day.240 excellent solar resources, making all types of solar energy applications more cost-effective than in many Despite this promising resource base, solar energy has areas of the world. barely been tapped anywhere in Chile, primarily because of the high costs of solar technologies. However, applications • Mining Industry Demand: Chile’s mining companies for the use of photovoltaics to provide power to off-grid have actively sought to secure their own power communities have shown promise, as discussed below. supplies to hedge against rising grid prices and the risk Moreover, state copper company Codelco is considering of outages. Most mining operations are located in the the utilization of solar heating technology to provide arid northern regions of the country, limiting the process heat for its operations, and similar applications potential for small hydro and leading to a focus on could be viable for smaller firms as well, particularly as wind, geothermal, and potentially concentrating solar costs for solar heaters decrease.241 power (CSP) options.
414 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Although CSP systems are still relatively unproven uncompetitive with grid-connected power in most internationally, there has been a surge of interest in this cases, the development of net metering rules could technology in similarly sunny areas such as in the US make photovoltaic installations by early adopters and southwest and in Mediterranean areas of Europe and long-term investors more economical, and establish a North Africa. A number of companies are developing framework for potential mass-market adoption when plant designs that utilize various forms of thermal prices come down. storage to ensure steady operations even during nighttime hours, making this technology a potentially Projects good fit for the relatively constant demand profiles of Photovoltaics mining operations. There are no projects currently feeding solar power into the grid in Chile, and high PV costs make it unlikely to Beyond power generation, Codelco is considering the play a role in residential or utility generation unless installation of a large solar heating system to provide specific solar incentives are created, such as process heat for certain mining operations, potentially investment tax credits or a feed-in tariff. However, providing an example for other mining companies in photovoltaics are being used in telecommunications the area. applications, broadcast television in isolated areas, lighting systems, and rural electrification projects, as Obstacles discussed below. • High Costs: Solar photovoltaics have higher up-front costs than most other renewable power technologies, Solar Heating and are not competitive with grid-supplied electricity Solar heating is a relatively new and currently limited even given Chile’s high power prices. Although costs application in Chile. German donors financed the first large for photovoltaics are expected to drop significantly in system developed for demonstration purposes in April the near-to-medium term, they are presently not an 2007 on the roof of the German School in Santiago.246 economical option without specific incentives. CSP Only a few solar thermal heaters are in use in private plants are currently less expensive and potentially homes, although new tax credits for solar water heaters more competitive with expensive grid power as well being developed by CNE could make this type of as other renewable power technologies, but the lack application viable for residential users. of a recent track record makes it a somewhat risky choice. State-owned copper company Codelco is currently investigating the potential for a very large, 9,000 square • Lack of CORFO Support: Because CORFO stresses meter installation of solar heaters for use in hot water and near-term economic viability in its application process, process heat.247 The project would be the first of its kind in solar companies have been unsuccessful in winning Chile, potentially setting a powerful example for similar support for feasibility and technical studies.243 While initiatives among the country’s other mining companies. CORFO is examining the potential for programs to Currently Codelco uses a much smaller solar heating support more high-cost technologies including solar system to provide hot water for workers. as well as marine power and biogas, its funding is currently too limited and too much in demand to Concentrating Solar Power provide financing for any but the most competitive With its intense sunlight and nearly cloudless skies, projects.244 Chile’s northern mining regions offer some of the best conditions in the world for concentrating solar power • Competitive Nature of ERNC Policy: Because Chile’s (CSP) projects. In October 2007, there were news reports ERNC law is a renewable portfolio standard (RPS), it that a consortium of mining companies was considering provides incentives for only the most cost-competitive the potential for building CSP plants in the region for their renewable power technologies, and is widely expected own power supply, although there have yet to be any to benefit mostly small hydro and wind power. Until further information or confirmations of these reports.248 249 solar power becomes competitive with these Regardless, the region certainly has substantial potential technologies, special additional, targeted policy for this type of application, especially since a CSP plant supports such as a feed-in tariff or tax credits would can incorporate low-cost thermal storage in order to be needed to stimulate its development.245 enable around the clock power production. As with geothermal power, this ability to generate power more or • Lack of Net Metering: Although the presently high less constantly matches the load profile of energy- cost of photovoltaics would likely make them intensive mining operations.
Blueprint for Renewable Power | Section 5 415 Concentrating solar power (CSP) anywhere in the world.255 The central region benefits from could potentially provide a seasonal waves coming from the north during the summer and waves coming from the south during the competitive source of utility-scale winter. Consequently, the center of the country enjoys a renewable generation alongside very low seasonal variability in wave energy of just 18%, compared to about 50% in the north and 30% in the geothermal in Chile’s northern south.256 The alternating seasonal peaks in the north and mining regions. south average out to give the country capacity for remarkably steady year-round wave power potential, with If built, these types of projects could place Chile on the 24% of its annual generating potential coming in the cutting edge of renewable power by adopting a summer and 26% in the winter. By comparison, in the technology that has been widely touted in similarly sunny UK, where waves are strongly seasonally variable, an areas of the U.S. and Europe as having the potential to estimated 42% of annual generating potential falls during produce utility-scale renewable power at a cost similar to the winter, and just 7% in the summer.257 wind. As discussed in Section 5.3.4, while a number of utility-scale CSP plants were developed in the US in the In addition to its excellent resource base, Chile enjoys 1980s, this technology had seen virtually no new projects several other advantages for wave power development. built over the past two decades until the recent Due to its steeply sloping seabed, viable project depths of resurgence in interest. Although it remains to be seen around 50 m are found much closer to the shore than in whether and at what cost the new projects currently most areas of the US and Europe, significantly reducing being considered will actually be built, CSP could potential project costs.258 Moreover, Chile’s environmental potentially provide an attractive source of utility-scale permitting hurdles are more stringent than in most Latin renewable generation alongside geothermal in the American countries, but pose less of an obstacle than northern mining regions. those in the US and Europe.259
Despite this potential, these technologies are considered Waves to be perhaps a decade away from commercial development, and Chile has not made the investments With its rugged, 4,200 km coastline, Chile has striking necessary to attract early stage research and development geographical advantages in the development of wave activities.260 Baird has been seeking to purchase and power. A 2008 study by the international engineering install an oscillating water column (OWC) wave generating consultancy Baird & Associates used twenty years of device in order to demonstrate the technology’s viability, wave data along the entire Pacific Ocean to find that Chile but it lacks the internal funds and has been unsuccessful has the potential for as much as 240 GW of wave power in attempts to win funding from CORFO.261 By contrast, capacity capable of generating 2,100 terawatt-hours of Scotland and England are fast establishing themselves as electricity per year – more than any country in the world.250 marine energy leaders, with innovative offshore testing 251 Overall wave power levels increase from the north to facilities for use by private sector companies – the the south of the country, with average power densities European Marine Energy Centre (EMEC) and the Wave ranging from 26.8 kW per meter in Antofagasta to 41 kW Hub (discussed below). per meter off the coast of Valparaiso and 59.6 kW per meter in Chiloé.252 Wave power densities reach as much Once established as a commercially viable generating as 97.5 kW per meter in Punta Arenas, although the more technology, wave power could eventually provide a powerful waves of the country’s southern region can result substantial portion of Chile’s power, with some experts in greater installation, maintenance, and replacement predicting that costs could reach parity with wind power costs.253 As Baird has commercial interests in the sector in 8-12 years.262 The development of 2 GW of wave and will not release its data, IDB is funding an independent generating capacity could be accomplished with just 110 and objective marine energy resource study for the km of wave power devices installed along the central country in cooperation with CORFO. coast near Valparaiso.263 In the long term, Chile could export wave power know-how to other countries such as While the country’s southern regions have more powerful Peru and Ecuador. While the development of domestic waves, the central region, which has the highest power wave power technology companies would take years and demand, enjoys wave resources that are extremely likely require substantial financing assistance, this could steady, with potential capacity factors of wave generation also be a viable long-term goal if Chile establishes itself estimated at 57% - one of the highest rates found as a leader in the industry.
416 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.4i Wave Power Densities by Region and Month
120
100
80
60 kW per meter
40
20
0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
North Central South Source: Baird254
Chile has perhaps the greatest throughout its length.264 Although the strongest waves are found in the country’s south, the steadiest waves wave power potential of any are found in the central region, home to most of Chile’s country in the world, thanks to its population. uniquely long coastline, its • Steeply Sloping Seabed: Due to the steep dropoff into remarkably steady waves, and the Pacific all along the Chilean coast, waters reach a the proximity of its coast to depth of 50 m as close as 5 km from the coast. In most areas of Europe, the 50 m depth is not reached until 20 demand centers. km offshore, requiring longer transmission cables and boosting construction expenses.265 Key Drivers and Obstacles Chile has perhaps the greatest wave power potential of • Proximity of Demand: Due to its uniquely long and any country in the world, given its uniquely long coastline, narrow shape, most of Chile’s population as well as its its remarkably steady waves, and the proximity of its coast industrial demand are located within 100 km of the to demand centers. However, government support for coast, significantly reducing onshore transmission renewables is focused virtually entirely on the requirements compared to many prime wave power development of technologies that are economically generating areas in other countries.266 Moreover, as competitive in the near-term, such as small hydro and noted above, the steadiest waves are available in wind, and it has yet to create incentives targeting Chile’s populous central region, where most of the technologies that are promising in the longer term. The country’s power demand is located. development of wave power has also been hindered by the technology’s immaturity, and the country’s few experts • Low Seasonal Variability: Chile’s waves are relatively in this area have not yet begun to coordinate their efforts constant year round, driven by Antarctic storms in the or develop a long-term plan for the sector’s development. winter and waves originating in Alaska during the summer, resulting in an average seasonal variability of Drivers just 18% in the central region.267 • Resource Potential: With a 4,200 km coastline, Chile has the highest wave potential of any country in the • Low Environmental Permitting Barriers: While Chile’s world, with an estimated 240 GW potential distributed environmental permitting requirements are greater than
Blueprint for Renewable Power | Section 5 417 most Latin American countries, they are less demanding number of renewables.283 Electrification overall rose to than those faced by project developers in the US or 92%, with lowest rates in Regions III and IV, where Europe, where most current testing of this technology is access to electricity is just over 80%. taking place.268 Until the liberalization of the electricity sector, rural Obstacles electrification in Chile had been the province of the state- • High Costs: Wave power has only been developed as a owned utilities, who followed plans developed and funded renewable power resource relatively recently, and has by the central government.284 However, in line with the yet to see extensive commercial development anywhere sector’s wider reforms, in 1994 the government sought to in the world due to the early stage of the technology reduce the costs and improve the effectiveness of its rural and its presently high costs. electrification policy with the establishment of PER. As with the sector and the Chilean economy more generally, • Lack of CORFO Support: CORFO funding for the reforms stressed competition and private sector feasibility and technical studies have played an participation, although subsidization was and is a important role in the development of other necessary component as well due to the high costs of renewable power technologies in Chile, but because electricity access in rural areas. it stresses near-term economic viability in its application process, wave power companies have PER is highly decentralized, leaving regional governments thus far been unsuccessful in winning support.269 to develop, evaluate, and co-finance suitable projects, While CORFO has expressed interest in providing which must satisfy stringent economic as well as social funding for more high-cost technologies such as criteria to qualify for development assistance from the marine energy as well as solar and biogas, its national government.285 Technical proposals are developed funding is currently too limited and too much in in conjunction with municipalities and submitted by demand to provide financing for any but the most distribution companies or cooperatives, who are competitive projects.270 responsible for working with local authorities to set up and operate supply facilities for 20 to 30 years, depending on • Competitive Nature of ERNC Policy: Because Chile’s the type of project. ERNC law is a renewable portfolio standard (RPS), it provides incentives for only the most cost-competitive In general, 60-70% of investment costs are borne by renewable power technologies, and is widely expected local governments, 20-30% by distributors, and 10% by to benefit mostly small hydro and wind power. Although users.286 Contributions from end users are required to some experts believe that wave power can become pay for meters, wiring, and the power connection, which competitive with wind in 8-12 years, special additional, could be paid in installments along with electricity fees. targeted policy supports such as pilot project funding Public financing comes from a national fund for regional and/or tax credits will be needed to stimulate its development (Fondo Nacional de Desarrollo Regional – development before then.271 FNDR) set up to develop social projects in remote regions of the country. Part of the fund has been set • Lack of Organized Expertise: While there are a few aside to fund rural electrification since 1995, and is private sector experts active in the country at called FNDR-ER. In addition to its local and national ties, engineering firms like Baird and several academics PER also enjoys important support from multilateral scattered across Chile’s universities with an interest in financers. The IDB provided the government with $40 wave power, their efforts are not coordinated, there is no million in low-cost, 20-year loans, which covered 70% of source of ongoing funding, and no work is being done to the program’s estimated $57 million cost from 2001 develop a broader base of expertise in the country.272 through 2006.287
Since 2001 PER has also collaborated with UNDP/GEF on Rural Electrification the second phase of its program, called “Removing Barriers to Rural Electrification with Renewable Energies,” Chile’s Program of Rural Electrification (PER) is one of with the goal of introducing more renewable power into its the region’s most innovative and successful rural rural electrification projects.289 The main focus of this electrification programs. Between 1995 and 2005, the program has been on small and micro hydropower, wind, program helped connect 144,700 rural households to and photovoltaics (in the north) for isolated communities public mains or equipped them with individual and outlying individual houses. The project has received generators, mostly diesel-fired but also a significant more than $6 million in GEF assistance, and has worked to
418 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf WAVE AND TIDAL RESEARCH IN THE UK The UK has established itself as a leader in global marine energy research due to its excellent wave and tidal resources as well as its support for the development of two major research and testing centers in England and Scotland. While the development of research centers on this scale in Chile would likely require external funding assistance, a brief overview of these existing initiatives illustrates the potential for stimulating in-country marine energy research, development, and deployment through similar means.
European Marine Energy Centre: The European Marine Energy Centre (EMEC), based in Orkney, northern Scotland, is the first and presently only marine energy research and testing site of its kind in the world. EMEC and its two main testing facilities have been built with roughly 15 million pounds (or $30 million) in funding from the Scottish government and a range of other public sector organizations, including the Highlands and Islands Enterprise (HIE) and Scottish Enterprise economic development agencies, the Orkney Islands Council, the Scottish Department for Business Enterprise & Regulatory Reform, the UK Carbon Trust, and the Highlands & Islands Partnership Program of the European Regional Development Fund.273 274
EMEC includes a wave power testing facility located on the western edge of the Orkney mainland, an area with one of the highest wave energy potentials in Europe. Completed in 2003, the test facility includes four test berths in waters 2 km offshore with a depth of 50 m.275 It also includes a separate tidal testing facility at the Fall of Warness, west of the island of Eday, where tidal currents reach almost 4 m/sec during spring tides. This facility, which was officially opened in September 2007, offers five testing berths at depths ranging from 25 m to 50 m in depth, in an area 2 km across and 4 km in length.276 The Irish company OpenHydro was the first tidal developer to utilize the site, and several more companies have expressed interest in testing their devices beginning in 2008/2009.277
Wave Hub: England’s South West Regional Development Agency (SWRDA) is in the process of developing a similar marine testing site dedicated to wave power research 16 km off the coast of Cornwall, where waters are approximately 50 m deep. As with EMEC, the Wave Hub will provide an offshore grid connection where up to four different companies could test and monitor the performance of their wave generating devices under real- world conditions. Each company will be able to sublease 2 km2 of sea (out of 8 km2 total) for 5 to 10 years from SWRDA, and each would have access to a 5 MW ‘socket’ connected to the mainland grid, for a total of 20 MW capacity – a significantly larger available capacity than the EMEC wave power facility.278
The Wave Hub secured final regulatory approval from the UK government in September 2007, a process which took several years and cost $4 million. Moreover, the project has been delayed at least a year due to the failure of SWRDA to receive a bid for the Hub’s construction at sufficiently low cost.279 SWRDA is in the process of reviewing the procurement and design process to bring down costs further, and if the project can find a suitable bid the facility is expected to come online in spring 2010, with a target cost of $56.5 million.280 It will draw on funding from SWRDA, the Department of Trade and Industry, and the European Regional Development Fund.281 The first four companies to lease testing areas have already been selected, and include Australia’s Oceanlinx, UK- based Ocean Power Technologies, Norweigan shipping magnate Fred Olsen, and WestWave, a joint venture between German utility E.ON and UK-based Ocean Prospect (a company which is itself using a system developed by Scotland’s Pelamis Wave Power).282
standardize renewable power systems, develop training around 120,000 rural households that could be electrified programs, and assess resources. through access to renewable power, including solar, biomass, hydro, and wind power. Most of these According to estimates from 2000, 88,420 households still households are located in Regions VIII and X. lacking power could be served by an extension of the conventional grid, while 48,250 households could be Key Drivers and Obstacles supplied by off-grid renewables.290 As many as 75,000 Drivers households currently running diesel generators could also • Lack of Electricity Service in Rural Areas: A be converted to renewables, with an overall potential of substantial number of Chileans live in remote areas
Blueprint for Renewable Power | Section 5 419 Chart 5.4.4j PER Funding Sources
Local Governments (via FNDR) 70% Distributors 20% Users 10%
IDB Loans 70% Other 30%
Source: CNE288
lacking modern electricity services, including a potential costly, and targeted populations lack the ability to 120,000 households that could be potentially provided finance them without substantial government subsidies. with electricity from renewable sources. Many of these communities are located in remote and geographically Projects isolated areas of the country, making extension of the Wind grid prohibitively expensive, which increases the utility of Pilot projects for providing wind power to isolated small-scale renewables. communities were implemented in three villages in Region IX in 1997 by CNE with US assistance, providing small- • Renewable Resources in Remote Areas: Some of scale wind generating systems to households, schools, Chile’s most remote and hard-to-electrify areas are health centers and churches.291 According to CNE, more located in regions with considerable renewable than 3,100 families could be provided with access to resource endowments. Chile’s southern regions have power by hybrid wind-diesel systems on 32 islands of the excellent hydropower resources, with rainfall of over Chiloé archipelago in Region X and 200 families on 1,000 mm per year in many areas, and the remote Robinson Crusoe Island in the Juan Fernández communities of the country’s arid north receive high archipelago.292 One early demonstration project was a levels of solar insolation. wind-diesel hybrid system providing power to 82 residential buildings, a health station, and a school on the island of • Availability of Development Aid: Support from the Inter- Tac, which has been in operation since 2001. The system American Development Bank covers 70% of PER’s utilizes two 7.5 kW turbines, a 100 kWh storage battery, budget, and the willingness of international donors to and a 12 kW diesel generator, and belongs to the regional provide assistance to the program is critical to its government. The power tariff on the island of $0.24 per ongoing operation given the high costs of these kWh plus a monthly standing charge of $5.70 only covers technologies and low ability to pay for them among target operation and maintenance costs, with most of the populations. International support for rural electrification $200,000 initial investment outlay covered by national rural programs is founded on their importance for the development funding and US cooperation assistance. achievement of development goals, given the numerous positive impacts on rural businesses, communications, Solar health and health care, education, and other areas from With the assistance of PER, municipalities, regional the introduction of modern electricity services. governments, and individuals have installed small solar photovoltaic systems for lighting and electrification of Obstacles houses. These installations have been focused primarily in • High Costs and Low Ability to Pay: The renewable Chile’s first four regions, in the country’s north. The power technologies used in these programs are still program set a goal in 2003 of installing 6,000 PV systems
420 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf in these areas, along with a training program for users and challenge to the growing number of relatively small Chilean the creation of small business or rural cooperatives to wind power project developers such as Ecopower and handle operations and maintenance.293 2007 estimates Ecoingenieros that lack the access to capital enjoyed by from CNE indicate that the program has successfully established power sector players such as Endesa. CORFO’s installed over 3,000 photovoltaic systems in Region IV efforts to provide ‘matchmaking’ services between project alone,294 at a total cost of about $3.8 million. There are also developers and international financiers have been helpful, plans to equip more than 50 schools and health care and these types of programs could be expanded and centers in the region with PV systems.295 matched with dedicated sources of financing.
Micro-hydro In the longer term, the emphasis on near-term CNE and regional governments are also collaborating on competitiveness for renewable power support programs a program for micro hydropower systems for the supply and policies could channel assistance only to presently of isolated municipalities in various regions of the low-cost renewable technologies at the expense of northern and southern zones. Micro-scale hydropower promising long-term technologies like concentrating solar plants were first installed in indigenous municipalities in power (CSP) and wave power. CORFO’s funding for Bio-Bio in Region VIII as a demonstration project in feasibility studies is limited and directed towards projects 2001-2002, and were followed by similar projects in Rio that are expected to be economically viable in the short Grande, Talabre and Socaire in the San Pedro de term, primarily small hydro, wind, and biomass. As the Atacama community in 2003.296 As discussed above, lowest cost renewable technologies, these sources will the recent 800 kW Cuchildeo project also demonstrates tend to be chosen by marketers required to supply the potential to develop much larger-than-usual small renewable power under the new ERNC law. hydro projects for off-grid areas given a sufficiently favorable project site. Given Chile’s excellent potential for solar and wave power, the creation of dedicated funding mechanisms for demonstration as well as commercial applications of Conclusion these technologies, which could be provided in whole or in part by international financial institutions or a Chile has all of the elements needed for strong growth in consortium of public and private sector funds, could help renewable power generation, including plentiful Chile ensure that these renewables are developed as renewable resources, a clear framework for private sector well. Support for early-stage renewable power participation, and conventional generation costs high enough to make renewables competitive. Moreover, Chile’s Short Laws provide a number of incentives for renewable generators, and its recently-passed ERNC law is the first RPS policy in Latin America and will guarantee PRIVATE SECTOR PARTNERING – demand for the most competitive renewable projects, WIRELESS ENERGY CHILE although it is unclear how much of a premium marketers Many of these projects were developed in will be willing to pay to meet these requirements. The cooperation with Wireless Energy Chile, a private state development agency CORFO has also played an firm that has been dedicated to bringing important role in the development of renewables since renewable power technologies to users on islands 2005, offering funds for feasibility studies and various and remote, off-grid areas in Chile since 1996.297 forms of financing assistance. However, despite its Projects utilize a range of small-scale unsurpassed access to finance for the region and its technologies, including photovoltaics, vertical- strong framework for renewables, Chile’s sector still faces and horizontal-axis wind turbines, microhydro significant obstacles. turbines, and diesel generators and storage batteries to back up these generators as In the near term, while wind and small hydro resources are appropriate. Wireless has developed remote often profitable given Chile’s excellent natural resources and generating systems for a wide range of its presently high power prices, domestic banks are still applications, including wind and solar hybrid cautious of providing loans to wind projects in particular due systems for telecommunications and military to the lack of an established track record for these equipment, solar water-powered irrigation pumps, technologies, which may force project developers to rely on microhydro for homes and businesses, and wind their own equity resources or international financial power for farmers’ cooperatives.298 299 institutions. This financing gap could pose a particular
Blueprint for Renewable Power | Section 5 421 CHILE’S LITHIUM OPPORTUNITY
Beyond its wide range of renewable resources, Chile is a global leader in a critical mineral resource for the emerg- ing clean energy economy – lithium carbonate, the key raw material for the manufacture of lithium-ion batteries. Due to the high amount of energy stored by lithium ions relative to their volume, lithium-ion batteries have been the power storage medium of choice for a wide range of portable electronic devices (including laptops, power tools, cell phones, and music players), where a premium is put on space and weight. While these fast-growing electronics applications have already led to a doubling of the lithium-ion battery market since 2003 and 20% growth in 2007 alone, it could be poised for truly explosive growth if plug-in electric and electric vehicles are successfully commer- cialized, as these batteries are being utilized in virtually all the electric vehicles currently under development.300
Chile holds almost three quarters of the world’s recoverable reserves, and more than a quarter of the total esti- mated reserve base of lithium. Region II is home to the Salar de Atacama, a giant salt lake in the Atacama Desert that was the source of 62% of the world’s lithium carbonate production in 2007.301 The brines from which lithium carbonate is extracted have the highest lithium concentrations of any natural brine deposits in the world, and the ability of lithium carbonate producers to take advantage of the area’s intense solar resources to concentrate the brine makes the Chile the lowest-cost as well as the largest resource in the world.302 These competitive advan- tages should ensure that Chilean lithium carbonate producers SQM and Chemetall Foote remain extremely com- petitive in the global lithium industry amidst booming demand for vehicle batteries.
Chile’s leadership in lithium carbonate production, its strong economic growth and excellent business environ- ment, and its wide range of renewable resources make it an ideal candidate for the development of an alternative transportation paradigm based on electric vehicles equipped with lithium-ion batteries supplied by clean energy. The IDB could contribute funds to a public-private partnership between the Chilean Government and a consor- tium of international battery and vehicle manufacturers, Chilean lithium suppliers, renewable energy companies, and infrastructure providers in order to take advantage of synergies between these emerging technologies. This partnership could establish pilot projects, incubate related SMEs, and provide a model for developing countries seeking to leapfrog fossil fuel-based transportation paradigms and reduce the associated risks from fuel price volatility as well as carbon emissions.
technologies could be provided under a program similar sector if electricity prices fall due to an influx of inexpensive to CORFO’s INNOVA program, which provides grants of new large hydropower generation. up to $1 million for a range of high-technology sectors, although the ceiling on grants would likely have to be Chile’s commitment to a competitive, market-based power raised to be of use for renewable power projects, which sector has made it one of the most appealing destinations have higher capital costs than other high tech sectors. in the region for renewable power development, but a rigid adherence to these principles could stifle the full Also in the long term, the development of more large hydro development of its huge renewable resource base. projects such as Aysén could threaten the competitiveness Addressing near-term financing gaps for currently of some non-conventional renewables. While project competitive renewables such as small hydro, wind, and developers in 2008 enjoyed spot market prices of more geothermal while also creating sources of funding for less- than $100 per MWh, these prices may drop significantly if proven and longer-term resources such as wave power Aysén comes online in 2014 or 2015 as planned, making and CSP could enable the country to lead in an even broad the economic outlook more uncertain for future projects. array of new renewable power technologies. The ERNC law provides no assurances of premiums paid to renewables, and although renewable generating costs are expected to continue to drop, it may be necessary to provide a broader range of incentives for non-conventional renewables to ensure the continued development of the
422 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.4.5 GUATEMALA long-term plans assume increased coal use as well as new large hydro projects.
Introduction There are social drivers for increased renewable power use as well. Despite its laudable economic progress, Guatemala has the largest population and economy in Guatemala is still suffering the economic and social legacy Central America. In 2007, its 13 million people produced a of military rule and civil strife. Per capita income in GDP of $31.35 billion.1 The country has enjoyed Guatemala is much lower than elsewhere in Latin America: increasingly robust growth since the 1996 peace accords the country's $5,200 income per person is less than half ended a 36-year civil war that had claimed more than that of Argentina, Brazil, Chile, Mexico, Uruguay, or 100,000 lives and created an estimated one million Venezuela.3 Moreover, it scores the lowest of any country refugees. in Central America on the UN Human Development Index (HDI), with the lowest education score, the second-lowest GDP grew an estimated 5.7% in 2007, the fourth life expectancy, the highest number of refugees per capita, consecutive year of accelerating growth, a trend that can and the second-highest murder rate.4 be attributed to a decade of democratic peace along with disciplined fiscal policies and steps to open the economy. Guatemala also has the greatest economic inequality in Guatemala recently signed the Dominican Republic-Central the region, a product of the split between the country’s American Free-Trade Agreement (DR-CAFTA) with the US, urban, densely populated south and the rural, sparsely a new free trade agreement (FTA) with Chile, and is populated, largely indigenous northern regions, particularly exploring an FTA with Panama.2 the Franja Transversal del Norte, which was the base of anti-government uprisings during the war. The negative Economic growth has led demand for electricity to grow by impact of past large hydropower projects and associated an average of 6% per year over the past 5 years. As in the resettlement schemes on these communities is discussed wider economy, moves towards liberalization of the power later in this section. sector since 1996 have played a key role in enabling this growth, as private sector participation has added more Social and rural development are expected to be than 1.3 GW of thermal generation capacity – more than important priorities for the government of Alvaro Colom twice the country’s entire generating capacity before the Caballeros, which in January 2008 became the first left-of- reforms. center government since the 1996 peace accords. While the new government is expected to continue the Private sector participation has macroeconomic policies that have facilitated recent economic growth, it will also be under heavy pressure to added more than 1.3 GW of thermal increase spending on social programs, which will be generation capacity – more than difficult given the country’s very small tax base.5 Moreover, the government’s social agenda is threatening twice the country’s entire generating to distract from its renewable power development goals, capacity before the power sector’s as the energy ministry focuses on providing relief from liberalization in 1996. soaring electricity costs. Increasingly, small-scale renewable power projects are This influx of new thermal generating capacity has allowed being integrated into social development programs. In power generation to keep pace with steadily rising addition to the use of solar power to provide basic lighting, demand. Thermal power’s low up-front costs and fast health care, and communications in off-grid areas, there is construction time have been advantages compared to growing attention to the potential of small hydro hydropower, but soaring prices for the fuel oil and diesel generators to drive local economic development thanks to on which thermal generators depend have increased a successful project in Chel. These efforts are led by variable costs significantly. The government has Fundación Solar (FS), a Guatemalan NGO that has expressed interest in developing Guatemala’s substantial encouraged the development of solar power and other small hydro, geothermal, wind, and solar resources in renewable resources in Guatemala’s rural regions for more order to reduce this dependency on fossil fuel imports and than a decade. In addition to developing projects on the hedge against fossil fuel price volatility. However, few ground, often with financing from international donors, FS resources are available to provide incentives for the also serves as a hinge between the private and public development of renewables, and most of the country’s sector in these areas, helping to communicate the needs
423 A Blueprint for Green Energy in the Americas 2008 | Garten Rothkopf Blueprint for Renewable Power | Section 5 423 of local communities to policymakers and increasingly development of resource maps to the financing of influencing policy itself. commercial projects. Through Vienna-based renewable energy policy NGO REEEP’s work with Fundación Solar, Guatemala has strong potential for renewable power the international community is also providing additional development, with a range of abundant renewable policy planning capacity in Guatemala. resources, strong and growing demand, and rising electricity prices. Obstacles • Country Risk: Despite a decade of peace, Guatemala’s The development of Guatemala’s continued social struggles and frequent changes in governments have made investors wary. Investors tend renewable power sector has to seek significantly larger rates of return on projects to depended heavily on support from compensate for this perceived risk, making it difficult to international organizations, secure foreign equity investments. multilateral banks, and foreign aid • Lack of Domestic Financing: Domestic banks have and development agencies. very limited experience with renewables and have funded only small hydro projects. Interest rates offered for even these loans are often too high to be a viable Key Drivers and Obstacles for Renewables in Guatemala source of project finance. Thus, soft loans and other Drivers financing at concessional rates from multilateral banks • Plentiful Renewable Resources: Guatemala has nearly and international development agencies have been 20 GW of hydro, wind, and geothermal resources that critical to the development of Guatemala’s non-hydro are only beginning to be tapped. It also has the highest renewable capacity. average solar insolation of any country in this study. (It is also Central America’s leading producer of biomass • Lack of Policymaking Capacity: Due to the power, a sector not discussed in this section.) government’s lack of continuity, low level of capacity, and scant resources, renewable power advocates have • Oil Dependence in Electricity Generation: Unlike struggled to achieve more comprehensive, long-term most other countries reviewed, Guatemala’s fossil-fuel renewable power policies and incentives. Fundación generating plants burn only fuel oil, with no natural gas- Solar, with the support of international funders like fired generation. Volatility in global oil prices therefore REEEP and GVEP, has consequently become has a direct impact on power generating costs, and increasingly involved in the policymaking process, as its dramatic price increases in 2007 and the first half of long involvement in the sector has given it experience 2008 have motivated a search for alternatives, aand familiarity with the sector that rivals that of the including renewables, although coal and large hydro Ministry of Energy and Mines (MEM). are expected to make up the majority of new development. • Legacy of the War: During Guatemala’s decades of conflict, the military government perpetrated numerous • Renewable Power Tax Holiday: Renewable power human rights abuses to further development projects, incentives passed in 2003 include a 10-year income tax including large hydropower projects that resulted in holiday for renewable power projects, increasing forced resettlements and substantial violence. As a project revenues significantly. However, this incentive consequence, many rural communities distrust also limits the tax shield benefits of debt financing, development projects and hydro projects in particular, which may have the effect of discouraging debt finance presenting a challenge to renewable power projects in in some cases. areas of the country that would benefit most from their introduction. While Fundación Solar and other groups • International Support: The development of are working to change this attitude, it continues to Guatemala’s renewable power sector has depended impede hydropower development especially. heavily on support from international organizations, multilateral banks, and foreign aid and development agencies. These groups, including BCIE, IDB, UNDP, Electricity Supply and Demand UNEP, JICA, USAID, and Finland’s Energy and Environment Partnership, have provided funding and After relying heavily on hydro power throughout its some technical assistance for everything from the history, Guatemala’s power sector has changed
424 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.5a Total Installed Capacity, 2007
Thermal 63% Large Hydro 29% Small Hydro 6% Geothermal 2%
Source: MEM7
dramatically since the reforms of the 1990s. Private At the end of 2007, Guatemala’s national power grid, the developers have focused on the development of thermal Sistema Nacional Interconectado (SNI), had 2,158.53 MW power plants, and the country has gone from being 93% of installed capacity, of which 1,908.22 MW was in dependent on hydropower in 1990 to less than 40% service. 1,369 MW of this capacity, or 63%, consists of today, significantly reducing vulnerability to fluctuations thermal power plants of various types, 742.5 MW consists in rainfall. In effect, however, the country has swapped of hydro plants, including 120.7 MW of small hydro one vulnerability for another. Thermal power has capacity, and 47 MW of geothermal power. Over 1,653 increased its share over the same period from 7% to MW of this capacity, or 77%, has been developed since 63% of the country’s capacity, increasing the country’s the effective opening of the electricity sector to private exposure to oil price volatility and emissions concerns.6 participation in 1993, and over 80% of this capacity has been thermal.
Chart 5.4.5b Power Generation in Guatemala, 2007
Thermal 59% Hydro 38% Geothermal 3%
Thermal Generation
Fuel Oil 61.3% Coal 22% Diesel 0.4% Biomass 16%
Source: AMM8
Blueprint for Renewable Power | Section 5 425 Chart 5.4.5c Power Demand in Guatemala
8,000 2,000
6,000 1,500 Wh) G 4,000 1,000 Demand ( 2,000 500 Max Demand (MW)
0 0 2000 2001 2002 2003 2004 2005 2006 2007
Demand (GWh) Max Demand (MW) Source: AMM11
These thermally-fired units are largely dependent on economic growth since the signing of peace accords. Since heavily polluting and increasingly expensive fuel oil, which 2000, electricity demand has risen at an average annual rate accounted for 61% of all thermal generation and 36% of of 5.9% in terms of power generated and 5.2% in terms of the country’s overall generation in 2007. Another 13% of maximum capacity demanded.9 Demand is expected to power generation was provided by coal, and nearly 10%, continue growing, with an average annual demand for new or 768 GWh, was fueled by biomass, mostly from capacity of 120 MW.10 MEM estimates that by 2020 sugarcane bagasse – the highest level of biomass-fueled maximum power demand could reach 3,820 MW, and power in Central America. Geothermal power accounts annual demand in terms of GWh could increase to 20,000. for nearly 3% of power generation in the country, and hydro accounts for the remaining 38%. The old state-built While the low up-front costs and short construction hydro plants operated by state agency INDE, including the times for thermal plants have allowed the power system 300 MW Chixoy, the 90 MW Aguacapa, and the 75 MW to keep up with demand in recent years, it has come at Jurún Marinala account for most of this hydro production, an increasing cost. Due to the system’s dependence on generating 30% of the total power on the SNI. fuel oil, power-generating prices have risen sharply in recent years, from an average of $44 per MWh in 1999 to The rapid increase in thermal power generation has helped nearly $90 per MWh in 2007, with monthly average meet soaring demand that has accompanied robust prices reaching a high of $112 in December.12
Chart 5.4.5d Average AMM Spot Market Price
$100 $90 $80 $70 $60 $50
$/ MWh $40 $30 $20 $10 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: AMM14
426 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf The government is recognizing that its dependence on oil stave off future power crises that might be caused by for power generation is a major issue, and in the summer Guatemala’s increasing demand, and the ministry hopes of 2008 it announced a goal of virtually eliminating the use to complete it by early 2009.18 of oil for electricity generation by 2022. However, the plans are focused on new coal-fired and large hydropower The Guatemala-Mexico connection and transmission capacity. They call for four thermal plants and five hydro construction at the southern end of SIEPAC in Panama are plants with a combined total of 920 MW of capacity and part of the regional Project Puebla-Panamá, backed by the requiring investments of $1.835 billion.13 IDB, which seeks to connect electricity grids, create a larger Central American market, and help attract private Regional Supply and Demand – The Mercado Eléctrico sector investment.19 The IDB is funding the majority of the Regional (MER) project, with an investment of $170 million, and the Guatemala is connected to the systems of other Central Spanish government has provided $70 million.20 Further American countries through the Sistema de Interconexión regional connections are expected to increase investment, Eléctrica de los Paises de America Central (SIEPAC), expand employment in the sector, increase supply, created as part of a 2001 initiative to integrate regional stabilize power prices, and improve reliability. electricity networks under a Regional Electricity Market (MER).15 Guatemala is connected to the system via El The impact of SIEPAC’s expansion on the development of Salvador, and exported 131.88 GWh of power to the MER renewables is difficult to predict.21 Most of the countries in in 2007, which represented 43.50% of the total exports the region are preparing for electricity crises in the years into the system.16 It also imported 8.12 GWh, making the ahead due to growing demand and inadequate supply, country a net exporter of 123.76 GWh. Power prices on making SIEPAC a potentially large and lucrative export the MER are higher than in Guatemala and increasing even market.22 By increasing potential selling prices and overall more quickly. The average 2007 price on the MER was demand, SIEPAC could make larger renewable power $111, a 23% increase over 2006. These higher prices projects more feasible, but the project could also force create a strong incentive to to reduce imports and new renewable projects to compete immediately with increase exports into the more profitable market through larger fossil fuel-fired plants. expanded capacity. Expanding Access in Guatemala As part of the SIEPAC system, a 2003 agreement made One of the most visible benefits of the country’s power plans for an additional connection between Guatemala sector privatization was the increase in grid access. A and Mexico, which could facilitate the import or export of substantial portion of the revenues from the sale of state up to 200 MW.17 MEM has touted the project’s potential to assets financed major new rural electrification initiatives.
Chart 5.4.5e National Electricity Coverage
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: MEM25
Blueprint for Renewable Power | Section 5 427 The sale of its distribution companies allowed INDE to country’s 13 million people. The most progress was made in create the Rural Electrification Trust, which has devoted the years immediately following privatization, with coverage $333 million to promoting rural development. 23 increasing from 60% to 80% between 1996 and 2001.24
Approximately 45% of the funds have been designated for Increases have slowed in recent years because the areas projects to strengthen the national high-voltage remaining to be connected are generally in remote areas transmission network, with the remainder going to low- with high costs of service and low demand. There remains voltage secondary distribution networks in rural areas. a dramatic split in electrification rates between urban and The Trust funds are administered by a committee including rural areas, with a 95% electrification rate for urban representatives from MEM, INDE, and DEOCSA-DEORSA, households and just 60% for rural households.26 the former INDE distribution companies now owned by Moreover, it is estimated that as much as 20% of the rural Union Fenosa. population is effectively unreachable by conventional grid electrification projects.27 This urban-rural divide is of Through 2007, $199.3 million was invested in the particular political significance in Guatemala. Many rural construction of new substations, transmission lines, and households are located in the country’s northern regions, distribution lines, enabling Guatemala to expand its which are still suffering the impacts of the civil war that left electricity grid coverage from just 60% of the population in many communities isolated from water, electricity, and 1996 to more than 85% today – 11 million out of the transportation services.28
Chart 5.4.5f Electricity Access by Department, 2006
Guatemala
Sacatepéquez
Chimaltenango
Quetzaltenango
El Progreso
Totonicapán
Sololá
San Marcos
Santa Rosa
Suchitepéquez
Retalhuleu
Jutiapa
Zacapa
Huehuetenango
Jalapa
Escuintla
Chiquimula
Izabal
Quiché
Baja Verapaz
Petén
Alta Verapaz
Source: MEM29 0% 20% 40% 60% 80% 100%
428 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Renewable power technologies offer an alternative path Regulation to rural electrification, particularly for remote areas The Ministry of Energy and Mines (MEM) is responsible where traditional grid extension projects are prohibitively for the implementation of the Electricity Act and its expensive. As discussed below, renewable power regulations, the development and coordination of technologies including solar and micro-hydro are the policies in the power sector, the issuing of permits for focus of several off-grid electrification initiatives, many generation, transmission, and distribution segments, and of which are led by Fundación Solar (FS). Renewable the assessment of the socioeconomic impacts of rural sources can often reach off-grid areas more cheaply electrification projects. It is also responsible for the than conventional grid extension, and they can also promotion of renewable power, in part through the attract funding from international donors. FS, for implementation of the Incentive Law.33 example, has relied extensively on financing from foreign development agencies, international organizations, and The National Electrical Energy Commission (CNEE) is multilateral banks. an independent agency of MEM that is responsible for enforcing compliance with regulations, setting tariffs for regulated transmission and distribution segments, Electricity Market Structure settling disputes, and issuing technical standards.34
Before its liberalization in the 1990s, the Guatemalan The Wholesale Market Administrator (AMM) is a electricity sector was dominated by the decentralized private, non-profit entity that operates the wholesale state agency Instituto Nacional de Electrificación (INDE), market and runs power auctions on an hourly basis created in 1959 to manage power generation and based on principles of least cost economic dispatch.35 distribution in rural areas of the country outside the states of Guatemala, Escuintla and Sacatepequez.30 The Generation private company Empresa Electrica de Guatemala SA As of December 2006, there were 30 generators in the (EEGSA) was awarded a 50-year concession for Guatemalan system, 29 of which are private.36 The generation and distribution for these areas that expired in public generator is INDE, which still owns and operates 1972, after which INDE acquired 92% of the company Guatemala’s large hydro plants. Most of the country’s and effectively operated the power sector as a state- remaining generation takes the form of thermal owned monopoly. independent power producers (IPP).
After the country’s largest hydroelectric plant, Chixoy Most of Guatemala’s power (300 MW), came online in 1983, new investments in the power sector were largely abandoned, leading to supply generation currently comes from shortages that culminated in widespread outages in the INDE-owned large hydro plants and early 1990s.31 Privatization effectively began when EEGSA signed a PPA with an Enron-developed, 110 MW privately-owned thermal plants. bunker fuel-burning barge generator that began operating in 1993. Transmission Ninety percent of Guatemala’s transmission capacity is In 1996, the government officially deregulated the sector via the INDE-operated National Interconnected System through the General Electricity Law (Decree 93-96, 1996), (SNI), although there are also isolated systems in remote which created a free and open market for all segments.32 areas of the country. There have been efforts to extend The law created a new regulatory commission (CNEE), a SNI transmission infrastructure into isolated areas wholesale market administrator (AMM), and required through the Rural Electrification Program (PER), which INDE, EEGSA, and other utilities to unbundle their has invested nearly $200 million to extend coverage. commercial activities into separate generation and Another $40.1 million has been designated for INDE’s distribution entities, although isolated systems with continued expansion of the domestic grid.37 generation capacities less than than 5 MW were excluded from this requirement. INDE and EEGSA were Generators and importers of electrical power connected not required to sell their assets provided that they to the SNI must pay tolls by kW of power connected. separate them vertically. Many distribution and generation assets were sold, but INDE has retained Distribution control of the country’s large hydro plants and most of its As in the years before privatization, EEGSA provides transmission network. distribution services for the country’s most populous
Blueprint for Renewable Power | Section 5 429 areas, with several smaller utilities covering the other Social Tariff regions. In 1998, EEGSA sold its distribution network to a Guatemala established a social tariff to subsidize low- consortium including TPS Ultramar (US), Iberdrola (Spain), income users through Decreto 96-2000, signed in and Electricidade (Portugal). The consortium bought an December 2000. The preferential tariff was originally 80% share in EEGSA to serve the departments of designed to provide a subsidized, lower rate to all users Guatemala City, Escuintla, and Sacatepéquez for $520 that consume between zero and 300 kWh per month.44 million. 80% of the shares of the two regional distribution INDE allocates 41% of its revenues to subsidizing rates for companies, DEOCSA (Distribuidora de Electricidad de low-income residents under the program, a practice which Occidente SA, which serves the western part of the manager Marinus Boer fears could limit needed new country) and DEORSA (Distribuidora de Electricidad de private sector investments in transmission and generation, Oriente SA, which serves the country’s east), were sold to including the expansion of rural electrification coverage.45 Uníon Fenosa of Spain for $101 million.38 In addition to these three private distributors, there are 15 smaller publicly-owned distributors serving smaller markets, most Renewable Power Development Framework of which are in remote areas.39 As in most countries, Guatemala’s early market Consumers liberalization rules provided no incentives for renewable Users with peak power demand of less than 100 kW are power sources and emphasized short-term competition. served by regulated distributors, who hold a monopoly on This structure led to a focus on thermal generators, which service in their area in return for the obligation to serve all offered low up-front costs and short lead times, and which customers in their concession. Large users with more relied on then inexpensive oil supplies. With support from than 100 kW demand may purchase power from the the Winrock Foundation, OAS, and USAID, Fundación wholesale spot market or through the term market, which Solar spent years lobbying for measures that would is unregulated. There are approximately 800 of these large incentivize renewable power.46 FS has come to be users in the country, compared to 2.3 million regulated regarded as a crucial source of experience and long-term users.40 The majority of power sold in the country is sold vision in Guatemalan energy policy.47 under long-term PPAs with INDE or private IPPs, limiting activity on the spot market.41 Income Tax Exemption The government finally responded to FS’s advocacy with Diagram 5.4.5a Categories of Electricity Consumers the Renewable Energy Incentive Law in 2003, which created exemptions from import customs, VAT charges, and consular rights fees for the import of equipment and materials for renewable power projects. Additionally, revenue from renewable power generation is exempt from income taxes for the first 10 years of operation.48 While Regulated Unregulated this income tax exemption increases project revenues, it <100 kW 100 kW+ can also serve to discourage project finance in some 2.3m Users 800 Users cases, since debt no longer provides tax shield benefits.49
Lowering 10 MW Interconnection Requirement Although 304 MW of renewable power has been developed under this law, including many of the geothermal and small Source: MEM42 hydro projects discussed below, the impact of the incentives has been limited by the requirement that generators have at least 10 MW of capacity to sell power Tariffs into the grid, which makes many smaller projects Tariffs for regulated users are set every five years by the untenable. Working in conjunction with regulator CNEE, FS National Electricity Commission, with adjustments every proposed lowering this ceiling, and in March 2007 the limit three months to account for changes to the exchange was reduced from 10 MW to 5 MW.50 As of June 2008, rate, fuel prices, and level of consumption. These tariffs implementing regulations had yet to be passed however.51 are set to account for generation costs, the cost of transmission, the value added distribution fee for Long-Term Energy Policy distributors (which is set every six months), a value-added Most recently, FS has been working with the Vienna-based tax, and a municipal rate.43 NGO Renewable Energy and Energy Efficiency Partnership
430 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf (REEEP) to develop a comprehensive long-term energy beginning of 2008 necessarily created some delays, the policy for the country that would incorporate principles of government’s focus has been increasingly directed toward sustainability.52 The project, which also received support providing aid for consumers hit by skyrocketing oil prices from the Global Village Energy Partnership, at first in the first half of 2008, with less attention paid to long- struggled to find an audience in the government, but term solutions.55 former Energy Minister Carmen Urizar soon proved receptive.53 Beginning with her arrival in early 2007, MEM collaborated with FS on the development of its Energy and Renewable Power Development Experience Mines Policy. The policy, announced in October 2007, calls for an energy policy that is sustainable as well as As in other Central American countries, Guatemala's competitive, serving both environmental goals and renewable power development experience has largely economic and social development needs. Included in its focused on its geothermal resources. However, given its list of specific objectives is the diversification of the energy fast-rising power demand, there is growing interest in matrix to prioritize renewable development. The Policy harnessing its small hydro, wind, and solar resources as well. also includes a number of more specific goals to create inventories of national renewable resources, conduct feasibility studies for renewables projects, encourage the Small Hydro development of hydro projects less than 5 MW in size, and study the potential for financing renewables through Guatemala’s tropical and subtropical climate provides public-private partnerships as well as through carbon plentiful rainfall, and the country hosts numerous river offset sales.54 basins running into the major bodies of water surrounding it, including 18 rivers flowing into the Pacific and ten each However, while the October 2007 legislation lays the into the Atlantic and the Gulf of Mexico.56 These provide groundwork for the further incorporation of renewables an estimated 10.9 GW of hydropower potential, 5 GW of into Guatemala’s energy policy, regulations to put the which is estimated to be technically accessible.57 policy into force have not yet been implemented. While Presently, there is 742.5 MW of hydro capacity, 120.7 MW the period of transition to the new government at the of which is derived from small hydro.
Diagram 5.4.5b Enel
Matanzas 11.7 MW Reforestation: 6 ha Hidrosecacao
Secacao 16.5 MW
San Isidro 3.92 MW Reforestation: 8 ha Candelaria 4.3 MW
Reforestation: 589 ha
Montecridta 11.7 MW Reforestation: Planned, ha N/A
Sources: Hidrosecacao, Enel58 59
Blueprint for Renewable Power | Section 5 431 Nearly half of this capacity is comprised of the two for all the power the plants produce, with no required small hydro plants developed by the Guatemalan minimum production.60 61 company Hidrosecacao and the three plants developed by Enel’s subsidiaries, which are discussed below. For Efforts to develop small hydro projects have often these and other hydro projects in the country, encountered local opposition, in large part because of decreased water flows due to increasing deforestation large hydro’s tainted history. This legacy has tended to and the resulting erosion is a growing threat to obscure the important social and environmental maintaining output and thus profitability, leading to differences between large hydro and small hydro initiatives to develop local reforestation projects in projects. In a March 2008 interview, incoming Energy conjunction with these hydro plants. Minister Carlos Meany cited local opposition to hydro projects as a major obstacle to the development of INDE has recognized the value of small hydro for grid renewables in the country, and said that the ministry maintenance and is encouraging its further would promote the potential benefits of these projects to development. To this end, INDE has created a special local communities.64 The Ministry is also facilitating framework for the purchase of power from hydro dialogue between investors and local stakeholders to projects 200 kW to 3 MW in size. These projects must ensure that future renewables projects are developed complete interconnection studies and environmental with social and environmental concerns in mind.65 impact assessments to become eligible for a 15-year Micro-scale projects being carried out by Fundación Solar power purchasing agreement that guarantees a market are helping to improve understanding and acceptance of
CHIXOY AND THE RIO NEGRO MASSACRE62 The construction of the 300 MW Chixoy power plant, the largest in the country, was a key component of the military government’s economic development strategy and received substantial funding from the IDB ($105 million) and the World Bank ($117 million) in 1976. Located in the northern department of Baja Verapaz, the plant was built in an area inhabited by the indigenous Maya Ach people of the Rio Negro village, leading the Bank to request a resettlement plan. When the affected populations resisted the forced move, government forces began a campaign of terror against the villagers.
Nearly 400 people from the village – roughly a tenth of the population to be resettled by the project – were killed between 1980 and 1982, in what has become known as the Rio Negro Massacre. The events were investigated and documented in 1996 by the NGO Witness for Peace. In addition to the violence, the investigation noted that 1,000 acres of communal land were inundated while only 224 were provided as compensation. Ceremonial religious centers were flooded without compensation or mitigation measures, and the community as a whole lost its sense of security and cultural integrity as communities were forced to compete for compensation and families were dispersed. Many villagers believe that INDE was complicit in the violence and that the utility ended up keeping compensation money that was owed to the community.
After the Witness for Peace report in 1996, the World Bank launched its own investigation into the causes of violence and the implementation status of INDE’s resettlement plans. In line with the NGO report, the Bank’s investigation found a long list of outstanding social issues, concluding that INDE had only partially implemented the mitigation and compensation measures specified by the original resettlement plan. The Bank urged INDE to address these failures in a timely fashion, and accelerated the process by providing a remedy fund and asking a Guatemalan NGO to purchase farmland and provide training and technical assistance to the community. By 1999, the Bank was satisfied that INDE had finally restored affected communities to the socioeconomic level they had when the relocation progress began, but community leaders and NGOs have continued to challenge these claims.
While these serious human rights violations are the most troubling aspect of the Chixoy project, it should also be noted that the project also dramatically exceeded projected costs. Estimated at $274 million in 1974, the plant eventually cost $944 million due to engineering problems that resulted in significant delays during construction and closures even after its eventual opening in 1983.63
432 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf small hydro. The 165 kW Chel hydroelectric project in • Low Costs: Guatemala’s low per capita income, the Quiche has spurred the development of local inability of the government to provide subsidies, and the businesses.66 Its dramatic success has encouraged other limited availability of financing mean that cost-effective local communities to reconsider their opposition to small renewables such as small hydro have distinct hydro projects, and a growing number are approaching FS advantages. for assistance in developing projects based on the Chel model. • INDE Small Hydro PPAs: In an attempt to encourage the development of more small hydro capacity, INDE is Environmental concerns are drawing increased attention offering long-term, fixed-price PPAs to small hydro as well. Deforestation and accompanying increases in projects between 200 kW and 3 MW. This measure agriculture, construction, and other human activities in gives smaller installations a market not provided by the many areas of the country are affecting river flows. Water General Electricity Law, which allows only generators of draining from deforested watersheds has higher levels of 5 MW or more to participate in wholesale markets. sediment, reducing hydrological flows and increasing operational costs for hydro plants.67 Developers of hydro • Socio-Economic Development Needs: The success projects therefore have a strong incentive to carry out of the off-grid 165 kW Chel hydropower project in reforestation programs in the area of their water resource, Quiche in jump-starting local economic development is and many are required to do so by the government as part spurring interest in small-scale hydropower projects. of the environmental permitting process.68 69 Small hydropower offers a relatively low-cost, readily available, and easy-to-maintain power source for rural Key Drivers and Obstacles areas, where a significant portion of the country’s As in other Latin American countries, Guatemala’s power population lacks access to electricity and other sector was heavily dependent on hydropower before services. The development of small hydro projects can liberalization brought a wave of thermal capacity, and also be paired with transmission extension initiatives, as small hydro will be one of the first and largest sources of in the Hidrosecacao project discussed below. new renewable generation. Guatemala already has a substantial installed base of small hydro, and the Obstacles familiarity of the technology, its low costs, and the • Historic Opposition to Hydropower: The large widespread availability of the resource all favor its further projects developed under the military government development. Financing from local banks is available, created a negative impression of hydropower in many albeit at high rates, and INDE is hoping to increase the areas. Regrettably, hydropower is distrusted most in number of smaller plants by offering guaranteed PPAs to the country’s rural northern departments, areas where plants up to 3 MW in size. small- and micro-scale projects have great potential to spur economic development. The success of the Chel INDE is hoping to increase the project and efforts such as Hidrosecacao’s to include the development of local transmission lines as part of its number of small hydro plants by projects may help change attitudes. offering guaranteed PPAs to • Deforestation and Human Activity Impacts on facilities up to 3 MW in size. Hydrology: Accelerating deforestation and increased human activity in many of Guatemala’s river basins are Despite the potential of small hydro as a source of low- having an impact on local hydrology, as increasing cost renewable capacity as well as a motor for local sediment content and dumping of wastes reduce flows economic development, the social and environmental and degrade water quality. This trend is already concerns discussed above remain formidable. It reducing available capacity and increasing maintenance should also be noted that for all its benefits, small costs for hydro projects, and it creates long-term hydropower increases the power sector’s vulnerability uncertainty over project generation and revenues. to droughts. Many small hydro developers contribute to local reforestation and waste management activities in their Drivers project areas, but it is unclear how effective these • Strong Hydro Resources: Guatemala’s climate and efforts will be. geography provide more than 5 GW of untapped, accessible hydro capacity, including many potential • Difficulty in Securing Water Rights: Because of local small- and micro-scale sites. opposition, small hydro projects often have difficulty
Blueprint for Renewable Power | Section 5 433 obtaining necessary water rights. Local agricultural Hidrosecacao has formed a stakeholders often oppose attempts to secure water partnership with Fundación Solar rights due to fears that hydro projects will reduce water availability for irrigation purposes or will otherwise called Fundación Trece Aguas contaminate the water.70 Although properly designed that has been training local projects will usually have neutral or even positive impacts on irrigation supplies and environmental quality, communities in electricity use in this misperception presents a further obstacle to project a range of contexts, including development. agricultural processing,
Projects metalworking, woodworking, Hidrosecacao – Secacao and Candelaria small-scale manufacturing, and Hidrosecacao is a Guatemalan company founded in 1996 by a diverse group of investors dedicated to the similar activities that will help serve development and management of sustainable small and economic development goals. medium hydro projects.71 Its 16.5 MW Secacao project came online in 1998.72 The project draws on the waters of the Trece Aguas River, located on the northern side of To this end, Hidrosecacao has formed a partnership with Polochic River Valley on the Sierra de Santa Cruz mountain Fundación Solar, through an initiative called Fundación range. In 2005, Hidrosecacao began developing a second Treces Aguas, that has been training local communities project downstream, the 4.3 MW Candelaria project, which in electricity use.77 These programs focus on using came online in July 2006, for a total of 20.8 MW. The electricity for agricultural processing, metalworking, Candelaria plant will utilize water already released for the woodworking, small-scale manufacturing, and similar upstream Secacao project, and thus will have no further activities that will help serve economic development impact on the river’s hydrological resources.73 goals.78
The two plants cost an average of $1.7 million per MW Because land in the area is primarily used for agricultural capacity, or a total of roughly $35 million. About 70% of purposes, forest coverage is diminishing, and project costs were financed with loans from the Bank of afforestation and reforestation activities have been a Central America, with most of the rest of the project major component of the projects’ environmental funded through equity. A small portion of funds were management plan. Reforestation and afforestation began provided by a local bank, but this debt came at an in 2003, with the development of 246 hectares. In 2005, interest rate of 8-10% and was not an attractive source another project involving 160 hectares was carried out. of financing for a larger share.74 The plant has secured a Another 180 hectares was planned for 2007, and the fixed-price, long-term PPA with INDE and will sell its company expects to cover an additional 700 hectares power into the national grid. between 2008 and 2013.
The Secacao project was built before Kyoto’s CER credits Hidrosecacao undertook these projects because of were available, but Candelaria is now receiving these concern about increased erosion, which may impact the credits.75 Project developers have committed to using generation of Secacao and Candelaría if no remedial 10% of CER sales generated by the Candelaria project to steps are taken. A total of 250 employees have been help fund investments in local schools, health services, and hired from local communities for sowing and planting, infrastructure.76 which lasts 2-3 months depending on the project size, and 50 and 60 additional workers are hired on a year- The projects are located in the department of Alta round basis for the maintenance of existing plantations, a Verapaz, one of Guatemala’s largest and least number that will increase as future projects are connected to the national power grid. This region has developed.79 few employment opportunities, and the projects have trained and employed local laborers in the construction Hidrosecacao is currently evaluating another small hydro of the plants and in the execution of associated project of potentially 10 MW in the country’s northeast. reforestation projects. Hidrosecacao is also connecting The company is developing working relationships with 10 local communities to the national grid, which it communities in the area and keeping them informed of expects will have a substantial impact on economic their plans.80 So long as stability is maintained in the development in the area. electricity sector and in the country more generally, the
434 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf company is optimistic about the future of these projects The loss of river flows affects not only power generation at and estimates a national potential of 400 MW in hydro Matanzas and San Isidro but also a municipal generating plants 1-10 MW in size.81 unit in San Jeronimo and the End-Users Association of San Jeronimo’s Irrigation Unit (AURSA), which is located Enel Small Hydro Projects – downstream of the Matanzas plant. During the dry Matanzas, San Isidro, and Montecristo season, from November to April, half of the river flow is Matanzas and San Isidro: Enel established a Guatemalan diverted for power generation and irrigation in San subsidiary, Tecnoguat, to develop the 11.7 MW Matanzas Jeronimo, reducing flows to Matanzas and San Isidro. hydroelectric plant and the 3.92 MW San Isidro During these months, Tecnoguat must purchase power on hydroelectric plant on the Matanzas and Chilasco rivers. the spot market to fulfill its contractual commitments to Both projects began construction in 2001 and INDE from both Matanzas and San Isidro.86 87 commenced operations in the summer of 2002. The plants sell their power to INDE under a 17-year, fixed- Because forest areas are important price PPA. These facilities are located nine m apart in Baja Verapaz in the northern highlands region, where for water collection and there are a number of small communities and substantial hydrological regulation, agriculture. The combined cost of the two projects was $30.5 million, $10.5 million of which will be provided as deforestation in the area of the equity by Enel through its offshore subsidiary Energía Matanzas and San Isidro projects Global International (EGI) and its partner Inversiones JB, is thought to have contributed to a with the remaining $20 million coming as senior long- 3 term debt financing arranged by the Overseas Private reduction of river flow from 4 m /s Investment Corporation (OPIC).82 to 2 m3/s over the past 35 years.
Unlike many small hydro plants, the Matanzas and San Isidro plants utilize a diversion dam. The dam creates a Tecnoguat has thus developed a conservation and small reservoir of 85,000 cubic meters that allows for the reforestation program for these areas in collaboration with daily regulation of flows of the Matanzas and San Isidro the local NGO Defensores de la Naturaleza.88 In addition Rivers. The reservoir fills up daily and is emptied during to the 50,000 m2 of reforestation projects for Matanzas peak usage hours to ensure steady power supply for completed in 2002, the company has used sales of CDM downstream irrigation users, as per a recommendation credits to finance additional reforestation efforts. In 2003, by the UN. The reservoir’s capacity and the difference 10,000 m2 near the Matanzas powerhouse were between inflows and outflows are not conducive to the reforested to help stabilize the river slopes, and a nursery production of methane from rotting plant material, capable of reforesting an additional 210,000 m2 was eliminating a potential new source of methane developed in 2005.89 Similarly, 30,000 m2 of reforestation emissions.83 Moreover, the reservoir could be seeded projects were required by CONAP for the San Isidro with local fish, serving as a source of income and food project in 2002, and an additional 50,000 m2 of forests for nearby villages.84 were planted around the San Isidro powerhouse in 2003. In 2005, a nursery to grow trees for an additional 90,000 The construction of the dam was motivated in part by a m2 was developed.90 These reforestation projects have decrease in flows to both of these plants and to employed an estimated 10 workers on an annual basis for downstream irrigation users in recent years, reducing each of the two project sites. generation and leading to concerns about the effects of deforestation on the area’s hydrology. Increased land Montecristo use from agriculture has led to deforestation that Enel’s most recent small hydro project in Guatemala is the proceeded at a rate of up to 6,485 km2 per year between 13.08 MW Montecristo plant, located in Quetzaltenango 1991 and 2000. Between 1999 and 2003, 6.65 km2 have on the Samala River, 192 km west of Guatemala City. The been reforested, a rate of 1.33 km2 per year. However, plant is operated by a different Enel subsidiary, the deforestation rate over the same period has been 5.69 km2, for a net yearly deficit of 4.36 km2. Because Montecristo SA, and is a run-of-river plant located 2 km forest areas are important for water collection and downstream of Enel’s larger El Canada hydro plant – itself hydrological regulation, the loss of forests in this area is located downstream of INDE’s 6 MW Santa Maria plant. thought to have reduced river flow, which has declined Flows from the El Canada plant are conveyed through 750 from 4 m3/s to 2 m3/s during the past 35 years.85 m of low-pressure pipes into a 16,000 m3 regulating
Blueprint for Renewable Power | Section 5 435 reservoir, and then a 1,700 m high-pressure penstock to Los Altos, an organization including the municipalities the powerhouse. Power from the station is transmitted of Quetzaltenango, Zunil, Almolonga, La Esperanza, along a 69 kV line to the El Canada substation, where it is San Mateo, San Juan ostuncalco, Salcaja, and then fed into the national grid. This arrangement reduces Olintepeque) to address the dumping of solid wastes investment requirements and environmental impacts and municipal wastewater. The Samala River is the compared to the development of a dedicated connection second most polluted river in Guatemala due to the to the grid.91 Montecristo will produce an estimated 52.4 direct dumping of wastes from Quetzaltenango and GWh per year, a capacity factor of 46%. Because this other villages in the area.96 project is incorporated separately from the El Canada project (which was developed by Enel’s Generadora de Occidente subsidiary), the exploitation of this water Geothermal resource and the operation of the regulating dam are determined independently. Like other Central American countries, Guatemala has a strong geothermal resource base, with an estimated 1 GW The project required a total investment of $23 million, all of of geothermal resources nationwide.97 With 47 MW which came from Enel’s equity. In the Project Design currently developed, geothermal is also the country’s Document submitted to the UNFCCC in order to receive largest source of non-hydro renewable power. However, CERs, Enel notes that the decision to fund the project this resource is underutilized; Guatemala has the lowest entirely from equity is due to the 10-year income tax installed geothermal capacity of the four Central American holiday given to renewable projects in Guatemala. countries that use this source of renewable power.98 Because there is no longer a tax shield benefit from debt financing, debt would lessen the value of the project.92 The development of geothermal power in Guatemala has The plant will sell power into the spot market at market been carried out by private sector companies bidding for rates, and like Matanzas and San Isidro as well as the 47 government concessions on specific sites where MW El Canada plant upstream, the Montecristo project is exploration activities and feasibility studies have already applying to receive CDM credits, which could help reduce been conducted by government agencies. Governments revenue volatility. in turn rely on soft loans from regional development banks or bilateral grants to fund these pre-construction activities, As with the Matanzas and San Isidro plants, Montecristo is which allow concessions to be offered at prices low located in an area where deforestation is threatening enough to produce power competitively.99 hydrological stability. Intense agricultural and logging activities are dramatically altering the subtropical forest. While Guatemala’s 47 MW of According to INDE, the annual deforestation rate in the Quetzaltenango area is 0.19%, and forest cover is geothermal capacity is its largest decreasing throughout the Samala River Basin. Annual source of non-hydro renewable crop cultivation has completely deforested the area around the Montecristo project,93 and the degradation of power, this represents the lowest the river’s hydrology is already impacting hydro projects installed geothermal capacity of upstream. For instance, the El Canada plant removes an the four Central American average of 858 m3 of sediment from its reservoir every day, and a turbine runner with less than 15,000 working hours countries that have developed required early replacement.94 geothermal power.
This trend creates uncertainty regarding the plant’s long- term generation and poses risks to the communities that Geothermal development in Guatemala began in the depend on the water supplies. Enel has accordingly 1970s, when INDE began studying several thermally active signed agreements to reforest the lands affected by the sites with the help of Japan’s Organization for Overseas construction works, which will include productive Technical Cooperation (OTCA, now the Japan International plantings such as coffee that will meet reforestation needs Cooperation Agency, JICA).100 It took decades for while yielding economic benefits for local communities.95 generating capacity to be built, however. The 5 MW Calderas plant came online in 1998, and the 25.2 MW Zunil Additionally, Enel is seeking to improve the local plant, developed by Ormat, became operational in 1999. environment by cooperating with a local community Calderas is a privately-owned plant that was developed to development organization (Mancomunidad Metropoli de test the reservoir rather than for commercial operations. It
436 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Diagram 5.4.5c Geothermal Resource Sites: Existing and Potential Development
Amatitlán
Zunil 200 MW (potential) Tecuamburro San Marcos Moyuta 100 MW (potential)
50 MW 50 MW 30 MW (potential) (potential) 25 MW 18 MW (potential) (1999) (2007)
• IADB-funded prefeasibility studies • IADB- and JICA-funded • Nov 2007 concession annulled • IFC equity and loans pre-feasibility studies • IADB loans
Source: Geothermal Resources Council, MEM, Business News Americas104 105 106 107
has experienced changes in ownership and has been Key Drivers and Obstacles dismantled and reinstalled. A decade passed between the Geothermal is the most widely used non-hydro renewable first studies for the the Zunil project and its financing, which power source in Central America, and Guatemala could included significant international assistance from the GEF increase geothermal’s share of the generating mix. in the second stage of the project in 2001.101 The Ormat- Several promising sites that have yet to be developed developed Amatitlán project followed. It was developed have been identified in past collaborations with with assistance from JICA and completed in 2007. Ormat international funders, and INDE is seeking to auction off began operations at the Amatitlán plant in November 2007, with 18 MW of initial capacity.102 Map 5.4.5a Geothermal Sites in Guatemala Most recently, INDE has attempted to concession the Tecuamburro site but annulled the bidding process in November 2007 for undisclosed reasons. Tecuamburro is located in the Santa Rosa department in the country’s south, 80 km from Guatemala City, and has an estimated generating potential of 25-50 MW.103
GEF funding has also been used to carry out prefeasibility studies on several other promising areas for geothermal development, as shown below. It is estimated that the San Marcos, Moyuta, and Tecuamburro sites can support 130 MW of combined geothermal projects, and the Totonicapan site has shown promise as well.108 109 In general, the country’s geothermal development plans are now on hold while the Colom government works to mitigate the impact of oil price volatility and develops a new energy policy. INDE hopes to develop more geothermal capacity, however, and has targeted sites in 111 the Santa Rosa, San Marcos, and Jutiapa departments. Source: MEM110
Blueprint for Renewable Power | Section 5 437 exploration and exploitation rights, starting with the damage to or reductions suffered by geothermal fields. Tecuamburro site. These changes, which did not apply to the development of the Zunil geothermal project in the 1990s, were cited However, current projects are riskier than past projects, for by Ormat as a source of increased risk for the Amatitlán which INDE (with international support) carried out all project.113 necessary feasibility studies and simply concessioned the project at the construction stage. It remains to be seen Projects whether the shifting of up front risks to private investors Zunil will be successful, but the failure of the first attempt to The Zunil geothermal plant, located in the municipality of concession Tecuamburro’s exploration rights may indicate Zunil in the Quetzaltenango department 200 km to the the need for more development activities by INDE. west of Guatemala City, was the first commercial-scale geothermal plant to be developed in Guatemala. The Drivers plant includes 7 units of 3.6 MW capacity each, for a • Significant Geothermal Resources: As with other total capacity of 25.2 MW, and it could be expanded to countries in Central America, Guatemala’s volcanic at least 40-50 MW.114 115 The project occupies 30,000 m2 geography gives it substantial geothermal resources, of rural land previously used for agriculture, which was with an estimated 1 GW of potential capacity. Its 47 purchased by the project developers, the Orzunil MW of installed capacity represents the largest non- consortium headed by the leading international hydro renewable source in the country, although it is still geothermal developer Ormat.116 less than Guatemala’s smaller neighbors in Central America. The Zunil geothermal resource had always shown strong surface manifestations, and INDE conducted prefeasibility • International Support for Pre-Feasibility Studies: The and feasibility studies in the area between 1989 and 1992 GEF, JICA, and IDB have all played key roles in the with financial assistance from the IDB.117 The Zunil I site development of Guatemala’s geothermal capacity by was concessioned in 1993 with a buy, operate, and own providing financial and technical support. This support contract and a 25-year PPA to the Orzunil consortium, and identified the Zunil and Amatitlán sites for further the facility came online in October 1999.118 Ormat built the exploration and made possible their eventual project in conjunction with the IFC and the US-based development by Ormat. Three additional sites with 130 partners CDC Globeleq and Conduit Capital Partners, who MW of combined potential capacity have been subsequently sold their shares to Ormat.119 The IFC’s identified but not yet developed. involvement was significant. It provided financing through a $12 million loan on its own account, a $2.3 million equity Obstacles investment, and by mobilizing $15 million in outside loans • Lack of Exploration Investments by INDE: Following to the project participants.120 reforms to the Electricity Law in 2003, INDE decided not to invest in geothermal exploration and development, Amatitlán instead leaving these activities to concessionaires.112 The Amatitlán geothermal plant is the second major While this decision allows the utility to avoid expensive geothermal development in the country. It was also built and risky exploration activities, the country’s only by Ormat, through its subsidiary Ortilán Limitada. Its first commercial geothermal capacity (Zunil and Amatitlán) 18 MW of capacity came online in November 2007, and its was developed after INDE carried out project capacity will likely be expanded to 28MW in the longer development activities up to the construction phase term.121 122 The plant is located approximately 28 km with assistance from international funders. The failure southeast of Guatemala City in the municipality of San of INDE’s attempt to auction the exploration rights to Vicente Pacaya, in the Pacaya Volcano National Park area the Tecuamburro site in November 2007 may be in part adjacent to the village of San Francisco de Sales and the due to the higher project risk of the new approach. Laguna Calderas.123 Future geothermal development will likely depend on additional funding from international lenders and As with the Zunil project, feasibility studies for the Amatitlán multilaterals to conduct necessary exploration and site were carried out by INDE with assistance from IDB feasibility studies. between 1992 and 1995. JICA helped fund further studies in 1998.124 The project was concessioned in November • Increased Legal Risks: Recent changes to 2001 along with a 20-year PPA with INDE.125 The IDB also Guatemalan laws regulating geothermal resources have played an important role in financing the project’s made project developers responsible for any and all construction, providing a $22.1 million A-Loan from its own
438 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf resources and mobilizing a $19.3 million B-Loan from for Central American Integration (BCIE) and the Finnish commercial banks, covering 75% of the project’s $55.2 government’s Energy and Environment Partnership with million cost.126 The project is also receiving CERs secured Central America (EEP). However, several commercial by EcoSecurities, which has played an important role in developers are considering projects with more than 100 making the project economically viable.127 MW of additional wind capacity. MEM is conducting further wind measurements at nine of the most promising The area near the plant hosts coffee plantations and other areas identified on SWERA’s map, which is not sufficiently agricultural activities as well as the 5 MW Calderas detailed to enable commercial project development. MEM geothermal plant,128 and Ortilán has committed to plans to use the measurements for presentation to pursuing a range of environmental monitoring and training potential investors, reducing up-front costs and the time initiatives as part of the environmental management plan required for measurements by the private sector.133 submitted to the National Environmental Commission (CONAMA). Ortilán estimated that the plant’s Key Obstacles and Drivers development created approximately 100 temporary jobs in Guatemala has significant wind power potential, the construction phase and another 20 permanent jobs for particularly in the country’s more populous southern ongoing operations.129 departments. While development of this resource is at a very early stage, with the country’s first 15 MW plant under construction, MEM and international donors are Wind developing more detailed resource assessments and feasibility studies to identify promising projects and Guatemala lies at the crossroads of several major pressure reduce development costs. However, rising turbine systems, resulting in strong wind resources. Overall, costs and a lack of domestic financing place wind at a Guatemala has an estimated 7.8 GW of potential wind disadvantage compared to more established, lower-cost generating capacity across sites with measured wind renewables like small hydro and biomass. speeds of Class 3 to Class 7.130 These wind measurements were conducted by the Solar and Wind Drivers Energy Resource Assessment (SWERA) Project at the • Large Potential Resource: With 7.8 GW of estimated United Nations Environment Program, which has carried potential, Guatemala’s wind resources are nearly as out similar assessments of wind and solar potential large as its hydropower resources (discussed above). throughout Central America and Cuba.131 As shown on Moreover, much of it is located in the country’s more the map below, these resources are concentrated in the populous and urban south, where power demand is south and the east, which receive northern trade winds highest. originating in the US and the Gulf of Mexico between October and January, as well as the country’s northwest, • Government Support for Wind Measurements: which receives the Pacific winds that dominate from MEM is conducting wind power measurements at a March to June.132 number of promising sites to develop a portfolio of potential projects for foreign investors. This strategy Guatemala’s Ministry of Energy has played an important role in the country’s geothermal development by reducing up-front costs and Mines is conducting wind and risks for investors. measurements at nine of the most International support is also playing a role in the promising areas in the country, development of the wind sector. Preliminary wind with plans to present these maps for the country were created by UNEP’s SWERA measurements to potential investors initiative. Finland’s Energy and Environment Partnership for Central America is financing a number in order to reduce up-front costs of feasibility studies in Guatemala and throughout the and the time required for project region, and it has helped to develop Guatemala’s first project, the 15 MW Buenos Aires project in Santa development by the private sector. Elena Barillas.
Presently just one wind power project is under Obstacles construction, the 15 MW Buenos Aires project in Santa • Rising Costs: Relative to small hydro and biomass, Elena Barilla being developed in conjunction with the Bank wind power is more expensive, and costs are increasing
Blueprint for Renewable Power | Section 5 439 due to global demand that is outpacing wind turbine Grupo Economia supplies. In the near term, wind power is expected to In June 2008, Guatemalan company Grupo Economia lag behind more cost-effective renewables. announced plans to develop a 62 MW wind power project for an estimated $55 million in Los Llanos and • Limited Domestic Financing: Guatemalan banks have Santa Elena Barillas, near the Buenos Aires project. The no experience financing wind power projects, which company has already invested $1.8 million in pre- makes access to multilateral and international financing feasibility and feasibility studies.146 sources critical, with institutions including the Finnish government and the Bank for Central American Other Projects Integration (BCIE) participating thus far. There are also plans for a potential 3.9 MW wind power plant in the village of El Rodeo in the San Marcos Projects municipality. Private companies are also in the process Buenos Aires Project of conducting wind measurements in Jutiapa, Villa Guatemala’s first wind power project, the 15 MW Buenos Canales, and San Vicente Pacaya.147 Aires project, broke ground in 2007.134 Located 35 km southeast of Guatemala City, the project is being built by the Guatemalan consortium Empresa Electrica Buenos Solar Aires (EEBA) in the Santa Elena Barillas municipality and is expected to come online in 2009.135 The project will Guatemala enjoys excellent solar resources, with cost an estimated $23 million and is being financed average solar radiation levels of 5.3 kWh/m2/day primarily by the Central American Bank for Economic according to maps developed with the assistance of the Integration (BCIE).136 The Bank is providing low-interest UN’s SWERA project.148 The country’s solar resources loans with a 12-year term and 18-month grace period are spread throughout the country, although they are that will cover 62% of project costs.137 The remaining particularly strong in the southeast. As with the wind 38% is being financed through EEBA equity. maps developed by SWERA, this resource map gives a general indication of the intensity and geography of The project is being developed on 90 hectares of land, Guatemala’s solar energy, but more detailed studies will including 30 hectares belonging to the farming group be necessary to facilitate commercially-developed solar Agropecuaria del Cid, the project’s primary backer, and projects.149 60 hectares being leased from neighboring farms. The land is primarily dedicated to pineapple and livestock Commercial or residential grid-connected solar power cultivation, which will not be impacted by the project.138 plants are uneconomical and have not been developed in In fact, it was the landowners’ interest in reducing wind Guatemala. However, the country has provided a damage to their crops that led to an investigation of the significant and growing number of solar power systems area’s wind resources, culminating in the installation of to rural users, thanks in large part to the efforts of wind measuring devices in 1995. Those devices have Fundación Solar. gathered data for 12 years to support the development of the commercial project.139 Key Obstacles and Drivers Guatemala has some of the best solar resources in Latin The feasibility study for the plant, which will use Finnish- America. However, as in most Latin American countries, made WinWinD 1 MW turbines, was financed by the solar power is presently not viable as a grid-connected Energy and Environment Partnership with Central generation source even at current power prices. Instead, America (EEP)140 and included an analysis of wind it is used most widely in off-grid rural electrification measurements, a site assessment, a preliminary projects. environmental impact assessment, estimates for investment and O&M costs, cash flow and profitability Drivers analysis, risk assessment, and recommendations. • Excellent Solar Resource: At 5.3 kWh per square meter per day, Guatemala has the highest average Tahal insolation of any country in these case studies, In February 2008, Invest in Guatemala director Rodolfo surpassing even Mexico. This resource is distributed Batres reported that the Israeli firm Tahal Group is fairly evenly across the country but is most intense in considering investing $60 million in a new wind farm with the populous central and southern regions near 45 MW generating capacity.145 Guatemala City.
440 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf ENERGY AND ENVIRONMENT PARTNERSHIP (EEP) FOR CENTRAL AMERICA: EEP for Central America is a joint initiative of the Government of Finland, the Central American System for Integration, and the Central American Commission on Environment and Development (CCAD), which emerged out of meetings at the 2002 World Summit on Sustainable Development in Johannesburg. The partnership was formally created in June 2003, with 3 million euros in seed money to provide non-refundable grants for renewable resource and technology studies, feasibility studies, and demonstration pilot projects for wind, hydro, biomass, and solar power projects in the region. The partnership’s goals are to emphasize the ability of renewable energy sources to reduce fossil fuel dependence and promote social and economic development, particularly in rural communities.141
Project proposals are generated by stakeholders, who receive seed funding with the intention of generating matching funds from stakeholders and private investors. The first phase of the project was judged a success by outside evaluators. In all, 57 projects were selected for funding.142 They include:
Belize • Hydroelectric resource assessment • Feasibility study for biomass power generation
Costa Rica • Wood biomass gasification pilot project • Biomass resource inventory
El Salvador • Feasibility studies for five small hydro plants • Auto-regulation program for geothermal industry • Trust fund design for small renewables promotion
Guatemala • Feasibility studies for wind power projects • Jatropha biodiesel pilot project
Honduras • Feasibility study for landfill gas to electricity projects • Use of photovoltaics for refrigeration in vaccination program • Feasibility study for the use of municipal solid waste as fuel for a cement plant
Nicaragua • Providing equipment to connect small hydro projects to the grid • Feasibility study for biomass power generation • Feasibility study for landfill gas to electricity projects
Panama • PV electrification projects on two Kuna Indian island communities • Feasibility study for Santa Fé Wind Project • Pilot project for biogas generation in an agro-industrial farm
One review estimated that the $1.2 million allocated to 19 selected projects under the study – just a sample of the $3 million allocated to 57 projects altogether – could lead to private sector investments of between $250 million and $390 million if all the projects are executed.143
The Finnish government has agreed to extend the project for a second three-year period, during which it will contribute as much as 4 million euros. The Austrian Development Corporation has agreed to join the partnership, contributing 1.8 million euros for the second phase.144 The second phase will also take place under the auspices of the EU Energy Initiative for Poverty Eradication and Sustainable Development (EUEI).
Blueprint for Renewable Power | Section 5 441 Obstacles without grid connections. Moreover, as much as 20% • High Costs: Solar photovoltaics are still several times of the country’s rural population may not be more expensive than grid electricity, even given high economically reachable with conventional grid fossil fuel prices. extension projects, making renewables a potentially critical resource to provide power for these • Lack of Detailed Solar Maps: Although the map communities. developed by the SWERA program provides an estimate of the country’s total resources, more detailed • National Reconciliation: Guatemala has the highest measurements will be needed at promising sites for level of inequality in Central America, and there remains future commercial development. a sharp divide between its more urban, affluent south and the rural, poor, and heavily indigenous regions in the Franja Tranversal del Norte. These areas remain largely Rural Electrification isolated from the economic growth prevailing in other parts of the country, and distrust of the government The Guatemalan government has focused its rural persists. Extending economic and social development electrification efforts on conventional grid extension benefits to these communities, including modern projects, which have succeeded in increasing grid electricity services, may help bridge these gaps. access from 60% to more than 85% of the population in the past decade. However, the remaining off-grid • Strong Local NGO Capacity: Fundación Solar has populations are increasingly expensive to connect, as played a critical role in facilitating rural electrification they are generally in the most remote regions of the projects using renewable power over the past decade, country. Moreover, because demand for power is administering a growing number of solar and relatively low in these rural regions, these projects are hydropower projects in some of the poorest areas of the often deeply unprofitable, making significant public country. FS’s reputation as an advocate for rural spending necessary. interests has made them a credible intermediary between these communities and the government and The political urgency of bringing electricity to off-grid international donors, which have provided the majority rural communities is heightened by the fact that many of funding for these projects. FS also has important are in the country’s northern areas, particularly the Franja connections to other local NGOs, including the social Transversal del Norte. These regions are home to most development organization ADIM. of Guatemala’s indigenous population and served as the base of opposition to the government during the civil • Plentiful Solar and Hydro Resources: Guatemala’s war. Connecting these areas to the grid will therefore plentiful solar and hydro resources make these serve an important national reconciliation function. technologies well suited for off-grid communities.
There is no dedicated government program for rural • International Support: Like many of Guatemala’s electrification with renewables, although there have been renewable power initiatives, rural electrification projects individual projects, such as an initiative to bring 50-watt solar have depended on international aid agencies and lighting systems to the town of Guayabales in the development organizations for financing. Although department of Santa Rosa. The project was inaugurated in these projects increasingly utilize fees paid by end- August 2007 and provides illumination for 43 homes with users to enhance long-term sustainability and provide 220 inhabitants. The cost was $25,000, two-thirds of which revenue to cover ongoing costs, the target populations came from MEM with the remaining third coming from the cannot afford the up-front investment costs for these US National Rural Electric Cooperative Association.150 technologies.
However, the majority of projects to bring renewable Obstacles power generating technologies to Guatemala’s rural • Distrust of Hydropower, Development Efforts: Many regions have been spearheaded by the Fundación Solar, of Guatemala’s rural communities harbor a distrust of whose efforts are discussed below.151 development projects, and hydro projects in particular due to past experiences. While the work of FS and Key Drivers and Obstacles other community-based development organizations like Drivers ADIM are changing these attitudes, there have still been • Demand for Rural Electricity Services: 2 million relatively few projects developed, and even ADIM was people, or 15% of the country’s total population, is still unwilling to consider small hydro projects until recently.
442 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Many of Guatemala’s rural the provision of basic health care.154 These PV systems communities harbor a distrust of have been deployed in a wide range of circumstances, serving as part of resettlement programs, human rights development projects, and hydro initiatives in former conflict zones, hurricane relief efforts, projects in particular due to past and environmental and archaeological preservation work. experiences under the military ADIM government. One of FS’s most important local collaborators on these solar projects has been the social development • Relative Lack of Government Support: Government organization the Association for Integrated Multiservice support for rural electrification is focused on Development (ADIM), which promotes economic and conventional grid extension activities, and only a social development in nine communities in the town of handful of small projects utilize renewables. Although Chajul in Quiche. Fleeing military repression during the Fundación Solar has played the role that governments conflict, these communities sought refuge in the elsewhere in the region play—designing, administering, mountains of Sierra de Chama, living as refugees there for and securing financing for a number of rural renewable more than 15 years before returning.156 Since its power projects—greater government support will be establishment in 2001, ADIM has been at the forefront of essential. providing the foundation of strong community participation and capacity building for social development in this region, Projects and as part of its collaboration with FS it has overseen the Fundación Solar administration of photovoltaic systems through Fundación Solar is a private development organization community-based committees.157 that has been operating since 1993. It has grown from an organization focused solely on the deployment of solar In partnership with FS and with support from the power systems in rural communities to a key point of Guatemalan government, the Global Environment Facility contact for a range of energy and development projects. (GEF), the United Nations Development Program (UNDP), the European Union, USAID, the US-based Sandia The organization has collaborated with stakeholders National Laboratories, and Holland’s HIVOS,158 ADIM has including community organizations, the private sector, distributed several hundred PV systems for home and NGOs, municipal and federal government agencies, and community use. In aggregate, these PV systems have international institutions on projects in the areas of clean provided services to more than 500 families and more than energy, water, and environmental services.152 Fundación 2,600 people since 2004. In order to enhance the Solar frequently facilitates dialogue and cooperation program’s long-term sustainability, 22 people have been between the community and the government as well as trained as electricians to install and maintain the systems, international organizations. Its transparency and strong and these expenses are covered by small monthly fees reputation for service in rural areas has helped to overcome charged to end users. Of the 28 quetzals (US$3.80) paid distrust of outsiders that built up during the war.153 every month, 25 (US$3.40) go to maintenance fees and three (US$0.40) help cover ADIM’s administrative costs. FS has focused on the deployment of solar power systems, although it has become increasingly involved in Punta Manabique – Wind/Solar Hybrid Project small hydropower projects after the success of its Chel Fundación Solar is also supporting the development of a project, as discussed below. FS is also becoming unique hybrid wind/solar power generation system for the involved in guiding the development of Guatemalan Punta Manabique protected area. Located on the Atlantic energy policy. coast of the country, the region has been designated for protection because of its marshlands, mangrove forests, Solar Photovoltaics and migratory aquatic and marine species. Fundación FS has participated in nine separate projects deploying Solar will be working to provide renewable power for the solar PV since 2002, distributing over 2,000 systems for Julio Obiols research center, which is co-administered by lighting, refrigeration, telecommunications, or water its project partner, the Mario Dary Foundation for the pumping, primarily in the country’s northern regions. Conservation of the Environment and Natural While the provision of simple PV lighting systems has been Resources.159 a focus of most projects, FS has also become engaged in more far-reaching energy-related initiatives, supplying The collaboration will also provide renewable power for electricity for telecommunications, distance learning, and local productive applications, including a photovoltaic
Blueprint for Renewable Power | Section 5 443 Table 5.4.5a Fundación Solar’s work in PV
Photovoltaic energy for isolated resettled OIM/USAID/SANDIA 250 PV systems for home illumination, light for community communities centers, refrigeration and tele-schools
Archaeological Site of Cancuen REPSO 10 PV systems for illumination, telecommunications and water pumping
Photovoltaic energy for Ixil region 2002 - 2003 PROYECTO IXIL / CEE 250 PV systems for home illumination (European Economic Commission)
Photovoltaic energy for Laj Chimel in Quiché VIENTO Y SOL DE ITALIA / ENEL 40 PV systems for home illumination
Punta de Manabique 3 PV systems for refrigeration
Support to conflict zone and Human Rights, OIM PV systems for home illumination 140 PV systems for home illumination in two communities and 8 refrigeration systems for vaccines
Support to the Verapaz region after Hurricane Mitch CARE Guatemala / USAID 23 communities supported with 1000 PV systems and improved stoves
Support for communications in San Marcos and Atitlan Netherlands’ Embassy 12 back up systems for communications
ADIM 454 PV home systems, 47 community centers (including one refrigeration unit), 6 refrigeration units for health centers, and one tele-school system for the high school level Source: Fundación Solar155 lighting and cooling system for the Centro Mar fish were severely limited. Violence forced many villagers to sausage processing plant, which is run by women from a leave the area, and exiled Chel leaders who witnessed nearby village, and the installation of photovoltaic lighting small hydro projects in other rural areas contacted and cooling and cellular telephone systems for visitors to Fundación Solar about the development of a hydropower the former coal mining community of Santa Isabel, which station for their community upon their return and now hosts an eco-tourism center operated by women in resettlement.164 the community.160 The project’s development was overseen by the All of the projects in this area will use renewable power Asociación Hidroeléctrica Chelenese (AHC), a systems to facilitate conservation work, conduct partnership between the villagers of Chel and Fundación biological and ecological studies, and generate Solar that was established in 2001 and has since productive and diversified employment opportunities in expanded its activities to include community value-added local industries such as fisheries, services, telecommunications services, transportation, and loan and tourism.161 provision for members. The 440 households participating in AHC were each given connections to the FS is also receiving support for this project from local network in exchange for 80 work days on the international funders including Winrock International project, and the households also participate in decision- Laboratories, USAID, and Sandia National making as part of a general assembly.165 Laboratories.162 The labor of the participating households provided the Chel Hydroelectric Project and Other Small Hydro equivalent of 13% of the $674,000 project cost, and The Chel Hydroelectric Project is a 165 kW small hydro Fundación Solar organized donations for the remainder. plant located on the Chel River in the department of The project ultimately attracted financing from twelve Quiche, 310 km northeast of the capital.163 The plant separate sources, including Guatemala’s national and provides power for more than 2,500 people in the local government, international organizations, USAID, surrounding rural communities of Chel, Xesai, and Los and NGOs (as shown in Chart 5.4.5g).166 Flores as well as a growing number of small businesses. The community of Chel suffered during the civil war, and In addition to this financing, important support for the access to water, electricity, and transportation services project has come from the sales of carbon emission credits
444 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Chart 5.4.5g Financing Components of the Chel Micro Hydro Project and Total
USAID/UNDP 4.9% USAID/OEA 4.8% USAID/Sandia 2.0% USAID 5.0% Green Empowerment 1.8% NRECA/BANRURAL Loan 3.8% San Gaspar Chajul Municipality 0.9% Community 13% National Fund for Peace (FONAPAZ) 33.2% Social Investment Fund (National Government) 9.7% INDE 13% CNEE Quiché Program 7.3%
US, International Assistance 16.94% NGOs 5.67% Local Community and Government 14.02% National Government 42.95% National Power Sector 20.42%
Source: Fundación Solar168
to the IDB as part of its Carbon Neutral Initiative since The development of the project also included the 2006.169 The carbon offsets are certified through the Verified deployment of a PV-powered satellite telephone in the Emission Reductions+ (VER+) standard developed by the village, which has enabled the social and economic international carbon consulting firm 3C and emissions transformation of the community. Previously, the verifier TUEV-Sued, which allows small renewable power nearest telephone was a 10 hour journey by foot and projects to benefit from sales of emissions on the global bus. Along with a fax machine, the phone was market while avoiding the high transaction costs associated purchased on credit, a first for the community. A with CDM certification for the regulated Kyoto Protocol donated computer has also been connected to provide market. The Chel project is believed to be the first in which a range of communications services for Chel and other an indigenous people’s organization has benefited from nearby villages.173 Most recently, the school has added global carbon offset markets.170 a computer center.174
The project employed 572 people from the surrounding FS’s Marta Rivera characterizes the changes in Chel as communities during the construction phase, which the transformation of “an 18th century Mayan Indian included the building of an access road to bring necessary village to a 21st century micro-metropolis.”175 Its success equipment to the project site. The road will also improve has attracted interest from other indigenous communities the population’s access to the national transportation in the area, representatives of which have visited the infrastructure, enabling the community to bring its project and are now seeking to build their own, with products to market. The reliable power provided by the training assistance from the AHC. FS has already been project has helped to establish Chel as a center of approached by communities in the area for assistance economic development and services for the surrounding with similar projects, and it is seeking to develop 24 small communities. The number of small businesses in the hydro projects, potentially with funding from the PURE community has grown from 10 to 40, including a butcher project (discussed below). If built, these projects would shop, a hardware store, an automobile repair shop, and have a total capacity of 18 MW, enough to provide power bookstores.171 As of June 2008, there were also plans to for 15,445 rural families and reduce carbon emissions by open a bank, a hotel, and a coffee processing plant.172 more than 26,000 tons per year.
Blueprint for Renewable Power | Section 5 445 Chart 5.4.5h Fundación Solar Small Hydro Project Pipeline
Chipal Grid-Connected Tzicuay 14.7 MW
Ximula II
Ximula I
Cotzal I
Ixtupil II
Chajul
Santa Avelina
Chel II
La Castalia
Corral Grande
Tacaná
Guaxabajá
Lirio Putúl
La Vega
Sajsibán
Chaxá
Balanyá-Pixcayá
Batzchocolá
Jolom Ijix
Seasir Off-Grid
Las Conchas 1.2 MW
0 1,000 2,000 3,000 4,000 5,000 6,000
Source: Fundación Solar 177
The new enthusiasm for hydro projects in this region is all Current Initiatives the more striking given the prevailing negative view of Global Village Energy Partnership hydropower. ADIM itself had previously opposed all One of Fundación Solar’s key international collaborations hydropower projects, but after visiting the Chel site it is has been with the Global Village Energy Partnership considering the development of a 2 MW plant of its (GVEP), a network of more than 3,000 individuals and own.176 organizations from 128 countries around the world
446 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf committed to increasing access to clean energy services for people in rural and peri-urban areas of developing Guatemala’s GVEP Action Plan Partners countries.178 To this end, GVEP provides a combination Guatemalan Government: of direct financial support and information services, • Guatemalan Ministry of Energy and Mines including information on further funding opportunities • Ministry of Agriculture and best practice guides on products, suppliers, and • Ministry of Education approaches. GVEP funders include the governments of • Ministry of Health the UK, Denmark, Sweden, Russia, and the U.S., as well • Ministry of Economy as UNDP, the World Bank/ESMAP, the Shell Foundation, and EDF Energy. Non-Government, Universities, and Private Sector: • Universidad del Valle de Guatemala, a private Financial support from GVEP is provided through the university GVEP Action Programs Fund, or the GAPFund, a $1.5 • Institute de Agricultura Recursos Naturales y million grant program for the support of small, innovative Ambiente (IARNA), an institute at Guatemala’s projects. Launched in 2005, overseen by the World Bank Rafael Landivar University (ESMAP), and managed by Winrock International, the • EUROSOLAR – Guatemala, local branch of GAPFund is co-funded by the Dutch Ministry of Foreign European renewable energy advocacy group Affairs (DGIS) and the UK Department for International • Fundación de Energía Limpia, a Guatemalan non- Development (DFID). profit • Tecno Mecánica, an Italian-Guatemalan hydraulic In addition to being a member of the GVEP, FS is also turbine manufacturer serving as the regional coordinator for Central America for the partnership, and it has helped to launch programs International: in El Salvador and, in June 2008, Honduras.179 The • US Agency for International Development (USAID) promising work done so far in Guatemala has • UN Development Program (UNDP) encouraged GVEP to build similar multi-sector alliances Source: GVEP International183 184 in other areas of Central America, with workshops taking place in El Salvador, Honduras, and Nicaragua in 2008.180
GVEP Action Plan In 2005, FS began to develop a gap analysis for potential markets, physical and social infrastructure Guatemala as a first step towards developing an Action (including schools, teachers, health centers, etc), and Plan that would be eligible for GVEP support. Supported other assets identified by each of the representatives in by funding from USAID, FS assembled a multi-sector their respective jurisdictions.186 group with representatives from the Ministries of Energy and Mines, Agriculture, Health, Education, Economy, This stage was followed by a bottom-up approach that Planning, and the Environment, as well as sought to learn from the communities about their needs representatives from NGOs, civil society, and the private and assets. The 70 communities identified in the gap sector (see side box).181 The methodology developed by analysis were whittled down to 50 by applying a number of FS has become a model, even winning a prize at the criteria, including willingness to charge for services, the Brasilia conference in 2005.182 existence of organizations capable of launching local programs, and commitment to environmental The FS-led group first focused its efforts on identifying responsibility. Information in these areas was gathered target areas including six municipalities and 70 through questionnaires and consultation with households, communities in the Franja Transversal del Norte, utilizing municipalities, community organizations, and local NGOs. poverty maps published by the World Bank to identify These questionnaires and other work materials were later the least economically developed regions of the country shared through the GVEP with Nicaragua, El Salvador, that were not scheduled for electrification for at least the Honduras, Peru, and Bolivia. next 10 years and that were located at least 10 km from the grid.185 The Action Plan group also identified productive uses of electricity, with power needs quantified based on value to The group then assembled “richness maps” of these areas local economies. Due to the poverty of those served by that identified all the relevant positive assets, including the plan, it was considered essential that any initiative renewable energy resources, agricultural productivity, generate income that would allow recipients to pay for
Blueprint for Renewable Power | Section 5 447 service costs such as maintenance and repairs. As a rule, Conclusion the Action Plan seeks to subsidize access, not consumption.187 As in the other case studies in this report, a confluence of factors is driving a growing interest in renewables in In 2006, Fundación Solar finalized the GVEP Action Plan Guatemala. Strong economic growth in recent years has and began working to integrate its bottom-up insights with resulted in similarly strong growth in electricity demand, the top-down perspective of the gap analysis. A portfolio and the government is eager to develop all sources of of projects was prepared that emphasized the most generation, including not only renewables but new coal suitable renewable resources for each community. Thirty- capacity as well. Moreover, the impact of soaring oil eight communities were considered for the use of solar prices in recent years has been felt particularly deeply in power, four for micro hydropower, and almost all of the Guatemala, as it relies far more on fuel oil to run its power communities were included in a program distributing more plants than any of the other countries studied. efficient stoves. All these projects include cost estimates, and the partnership is seeking funding for feasibility Decades after serious human rights studies.188 violations were perpetrated by the As in earlier stages of the project, international donors are military government during the playing a critical role in moving the Action Plan forward. IDB has committed to finance feasibility studies for three construction of the Chixoy large micro-hydro projects in Cahabón, Chahal and Panzós; hydro project, renewable power Japan’s JICA is working with MEM on capacity building development today is increasingly and technical cooperation initiatives in Ixcán, Cahabón and Fray Bartolemé de las Casas; and Holland’s HIVOS is tied to social and economic supporting civil participation activities.189 development needs.
UNDP is also providing $2.5 million for projects identified in the Action Plan as well as related projects under its Of all the case studies, Guatemala’s renewables sector is Productive Uses of Renewable Energy (PURE) program, also most dramatically tied to broader socio-economic which was launched in Guatemala in October 2007 by the issues. Decades after serious human rights violations same steering committee as the GVEP partnership.190 The were perpetrated by the military government during the PURE projects, which will also require a cost share from construction of the Chixoy large hydro project, renewable the Guatemalan government of $8 million, will focus on power development today is increasingly tied to social and employment generation through the use of renewables in economic development needs. Multi-megawatt, grid- a range of industries, including tourism, coffee and connected small hydro plants such as those developed by cardamom production, and forestry. Within the PURE the Guatemalan firm Hidrosecacao and international utility framework, 24 potential small hydro projects have been giant Enel are carrying out major reforestation and social identified, totaling 18 MW of total capacity, enough to and environmental initiatives in communities surrounding provide power for 15,445 rural families and reduce carbon their projects, due to a desire to maintain local support for emissions by more than 26,000 tons per year.191 these projects as well as a need to maintain the conditions necessary for water flows. The development of these projects is FS’s current focus, and it is conducting pre-investment studies in Las Smaller micro-hydro installations are also showing Conchas, Jolom Ijix and Cahabon in Alta Verapaz promise for the provision of reliable power for off-grid department. Projects in Rincón Grande, Corral Grande communities, catalyzing transformative economic and Chaxá are in a pre-feasibility stage. The Batzchocolá development in the Chel community and providing a project is about to start the investment phase, and model for similar projects elsewhere in the country’s north. financing has been secured through HIVOS. FS is also Given the country’s excellent solar resources, the wider working with the Hidrosecacao small hydro project to use of photovoltaics also represents a major opportunity facilitate local economic development.192 for bringing distributed generation to off-grid communities. Although solar power is significantly more expensive than micro-hydro it can be used virtually everywhere in the country. The development of both of these resources for off-grid communities will likely be led by Fundación Solar, which has taken by far the most prominent role in shaping
448 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf the course of Guatemala’s renewable energy development of any NGO studied in this report.
Geothermal power has become an established part of the country’s baseload power generating capacity over the past decade, and the potential identified at several untapped sites offers the opportunity to increase its exploitation of this resource to similar levels as other countries in Central America. The country’s wind resources are just beginning to be harnessed with the 15 MW Buenos Aires project, but its success could lay the groundwork for larger projects being considered by several international private sector developers. While wind power’s intermittency substantially reduces its overall generation for a given capacity compared to geothermal, it is deployable in many more areas and can be built much more quickly and at lower risk, making it likely that it will become an increasingly important source of utility-scale renewable power in Guatemala.
Despite this potential, Guatemala is also one of the countries least able to provide substantial ongoing support for the development of renewables, given tight government budgets, limited policymaking capacity in the energy sector, and a strong emphasis on social spending programs such as subsidies for low-income users. This ffocus intensified during 2008 as rapidly-rising energy prices occupied the new Colom government's energy policy, threatening to move renewables to the backburner just as new renewable energy policies developed by the last administration in conjunction with Fundación Solar were ready to be implemented. Thus, the continued development of Guatemala’s renewables sector is likely to depend significantly on continued support from multilateral lenders and other sources of international financing assistance, as has generally been the case over the past decade.
Blueprint for Renewable Power | Section 5 449 450 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.5 Conclusions and At the same time, questions surround the future development of the renewables sector in the region’s Recommendations largest markets. While Brazil has led the region by far in the development of small hydro and wind power, the end Interest in the development of renewable power has risen of its successful PROINFA incentive program and its worldwide in recent years, and Latin America, with fast- replacement with a competitive auction system have left a growing energy demand as well as rising energy security cloud of uncertainty hanging over the wind sector, as the concerns, is no exception. However, despite its strong first government renewables tender offered prices a full potential for renewables, the region has lagged far behind third below what wind power developers thought the U.S., the EU, and Asia in the adoption of this necessary to merit investments in the sector. Argentina, resource. While the reasons for this may vary in which has the potential to be one of the largest wind significant ways from country to country, the most power markets in South America, has seen its power common and prominent obstacles to greater utilization of sector’s development virtually halted along with the renewable power in the region are a lack of appropriate freezing of its power tariffs in response to its economic policies and regulatory structures as well as a dearth of crisis of 2001 and 2002, and the government has only financing for these technologies. These gaps are recently made its first, tentative moves toward remedying primarily due to the higher costs of renewables compared this situation. In Mexico, the continued operation of the to conventional generation sources, a disadvantage that power sector as a state-owned monopoly has severely has been exacerbated by a precipitous fall in fossil fuel limited private participation and hindered the development prices since the second half of 2008. of its own considerable resources, although the passage of the country's first comprehensive renewable energy The most prominent obstacles to policy framework in November 2008 could provide a platform for new incentives. greater utilization of renewable power in LAC are a lack of While realizing the region’s renewable power potential will pose requirements that will vary widely by country and appropriate policies and regulatory technology, five core pillars will undergird any structures as well as a dearth of comprehensive effort on this front. The IDB can play a financing for these technologies. major role in providing guidance as well as support for each of these pillars through loans, loan guarantees, policy-based and innovation loans, and other instruments In recent years, however, a number of countries have administered by the Bank and its International Investment taken important steps toward remedying these deficits, Corporation (IIC) and Multilateral Investment Fund (MIF) and they are poised for significant growth in renewable These efforts could potentially be included under the capacity in the coming years. Chile has established a umbrella of the Bank’s Sustainable Energy and Climate number of policies to help developers assess potential Change Initiative (SECCI). renewables projects and to create a guaranteed market for their power. Given the country’s ongoing energy shortages Establishing the Potential for Renewable Power in recent years, its diverse renewable resource base, and While low-resolution maps are available for basic its well-regulated power sector, it is ripe for development evaluations of renewable resources in the region, more of a range of renewable power technologies. In Central detailed, higher-resolution maps of the most promising America, Guatemala and Nicaragua have also taken steps areas can play a significant role in encouraging project to pass new incentives that could encourage renewables development by reducing the time and cost of resource development in these heavily fossil fuel–dependent prospecting. In addition to providing valuable information countries, including broad-based tax incentives in for project developers, these efforts can play a critical role Guatemala and a feed-in tariff focused exclusively on the in informing policymakers who are formulating goals for geothermal sector in Nicaragua. In the Caribbean, the the sector’s development. Dominican Republic could take the lead in renewable power generation in the near term, thanks to its excellent More detailed studies of specific low-cost, high-impact wind and solar resources and a recent tax incentive technology applications, such as irrigation package that includes an income tax holiday for canal–integrated small hydro projects, can also help to renewables as well as a tax credit on capital investments ensure that important sources of “low-hanging fruit” in the for homeowners and businesses developing renewable sector are picked. Broad-based technical assistance for power systems. feasibility studies for small and medium-sized project
451 A Blueprint for Green Energy in the Americas 2008 | Garten Rothkopf Blueprint for Renewable Power | Section 5 451 developers can also serve to lower the information and else to fund projects wholly through developer or up-front investment barriers to participation in the sector syndicated equity. While reforms to the region’s banking by a broad range of generators. sectors are improving access to finance in general, long- term loans for renewable power projects are very rare, due Encouraging Renewable-Friendly Regulation to the high up-front costs of these technologies as well as Although the gap between the cost of conventional power perceived risks due to their lack of a track record. generation sources and renewable alternatives is closing, Particularly given the recent turmoil in global credit the development of the renewable power sector beyond markets, international and multilateral finance will likely large hydropower remains largely contingent on the continue to be critical to the expansion of the renewables creation of appropriate regulatory and policy supports. sector. Moreover, finance must not only be available in However, most of the various incentive models lack an general, but it must be scaled to project sizes smaller than extensive track record, even in developed countries, and many of these institutions typically fund. only a few countries in Latin America have had significant experience with them, most notably Brazil and Costa Providing Funding for Innovation and Rica. However, a growing number of countries are Cutting-Edge Technologies adopting new incentive policies of their own, and the While there are limited near-term opportunities for Latin region would benefit from the exchanging of information American companies to compete directly with highly on best practices for goal-setting and policy competitive international renewable power equipment implementation. manufacturers like Vestas, Q-Cells, or Ormat, there is potential for regional manufacturers to license existing Although the gap between the cost technologies and then adapt them to local contexts. R&D labs in the region’s larger markets are also working on of conventional power generation long-term efforts to develop their own wind turbine sources and renewable alternatives designs, including Argentina’s IMPSA and INVAP and the is closing, the development of the CERTE research center in Mexico. renewable power sector globally In addition to opportunities to adapt and manufacture remains largely contingent on the existing technologies where possible, the region could also seek to participate in the development of key emerging creation of appropriate regulatory technologies. A growing number of cleantech startups are and policy supports. developing new renewable power generation technologies that often struggle to secure permits and financing for demonstration or commercial-scale plants as well as the The smaller scale of renewable power plants has the transmission lines needed to serve them. By providing potential to open the sector to a wide range of participants funding for demonstration projects and/or R&D testing beyond traditional utility players and international facilities, the region could attract projects using these early- independent power producers, including local developers, stage technologies, which could establish it as an early municipalities, cooperatives, and large commercial and leader in their development as well as deployment. industrial users. However, in order to facilitate this broader participation, electricity sectors must be sufficiently well Understanding the Impacts of Renewables regulated to attract private sector investment and must As noted above, the availability of appropriate policy have provisions that allow and/or encourage smaller incentives is critical for the development of renewable generators. Without the basis of a strong regulatory power technologies, but these programs require ongoing framework that is open to a broad spectrum of political support to maintain. Given concerns over energy participation, even the most generous policy incentives will price volatility as well as growing economic fears, energy be insufficient to attract significant private sector policymakers will be pressed to justify renewable power investment in the sector. incentives that could help promote a wide range of social, environmental, and economic benefits in the long term but Expanding Access to Finance for cost taxpayers and/or ratepayers in the short term. Thus, Renewable Power Projects the availability of improved data on these wider benefits — Brazil’s BNDES is the only widely used source of domestic including improved energy security, rural economic project finance for renewable power projects in the region, development, and the creation of green jobs — could play forcing most projects outside of Brazil to rely on a critical role in creating and maintaining political support international and multilateral lenders for debt financing or for renewable power incentives.
452 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Program Ideas stakeholders to identify and map rivers as well as hydraulic infrastructure sites suitable for small Mapping the Region’s Potential: hydropower production. High-Resolution Resource Mapping Project Accurate regional siting for renewable energy systems is Geothermal hindered by a lack of comprehensive, publicly- To achieve a better understanding of the siting potential available high-resolution resource maps, requiring for geothermal resources, sub-surface thermal depth potential project developers to spend significant time mapping must be conducted in regions along the Pacific and money conducting their own resource evaluations. Rim, including all Central American countries, Colombia, To reduce this information barrier, the IDB can continue Ecuador, Peru, Chile, Argentina, and western Bolivia. to expand its provision of technical assistance and These data will also be beneficial as hot dry-rock support for the improved mapping of these resources. geothermal technologies develop further. One recent example of this is IDB support for the development of a national wind map in Costa Rica as Ocean part of the Bank’s Sustainable Energy and Climate Wave power potential must be examined much more Change Initiative (SECCI). closely along the Pacific Coast of Latin America. Wave power and wind power are intrinsically linked due to the Our preliminary research has identified a number of areas nature of the resource. Obtaining high-resolution data in Latin America where high-resolution mapping may be for both wind and wave data could facilitate the beneficial for informing potential investment construction of systems combining offshore wind and opportunities for each of the renewable energy wave power technologies More detailed information is technologies in this report. Moreover, by giving a more available for tidal as well as ocean thermal power precise picture of the renewable energy resources technologies. available in a region, these studies can provide valuable information to policymakers as they attempt to set goals Obtaining high-resolution data for for the sector’s development. both wind and wave energy data Wind could facilitate the construction of Low-resolution data mapping provided by SWERA suggest that there is a significant wind resource potential systems combining offshore wind in the Caribbean, particularly in Jamaica and the and wave power technologies. Dominican Republic. Furthermore, publically available low-resolution data indicate that a significant level of wind power potential exists in Uruguay, Argentina, Inventories of Low-Cost, High-Impact Project Sites Bolivia, and Chile. As renewable power is deployed more widely, a range of low-cost, high-impact applications are beginning to Solar emerge that are replicable in a wide range of contexts Available solar radiation data for Latin America are the and represent “low-hanging fruit” for project developers. most comprehensive of all the resource maps available One such project type is the development of multi- at the moment. However, the data are medium- megawatt small hydro projects that take advantage of resolution, which could limit site-specific evaluations. existing hydraulic infrastructure for large hydro dams, High-resolution data should be compiled for key areas, irrigation canals, or water-treatment facilities to such as northern Mexico (including Baja California), significantly lower costs as well as lessen environmental coastal Peru, western Bolivia, northern Chile, and impacts. Chile recently carried out a study of this northwestern Argentina. There may also be significant infrastructure throughout most of the country, revealing interest in the Bahia region of Brazil. 772 MW of potential projects of this type. Similar inventories in other countries could ensure that project Hydro developers pick this low-hanging fruit. There is a significant amount of theoretical hydropower potential in Latin America, but this theoretical capability Other potential emerging project types of this kind could does not identify the environmental, technological or include projects integrating wind power with the environmental variables that make specific sites feasible. operation of existing hydropower reservoirs as well as, in To more fully assess potential small hydro resource the longer term, building-integrated photovoltaic (BIPV) potential of the region, IDB can partner with appropriate applications. Projects identified in these inventories
Blueprint for Renewable Power | Section 5 453 could then be packaged for long-term loans or loan also sensitive to regional regulatory and policy agendas. guarantees from the Bank. Key focuses for the study could include:
Feasibility Study Funding — Small and Medium-Sized • End-user tariffs that provide adequate cost recovery for Project Developer Program generators while also addressing social policy goals While the IDB has provided funding for renewable power project feasibility studies in the past through its MIF and • Policies that allow small-scale renewable projects to SECCI, these efforts could be significantly expanded, connect to the grid and sell power into national including the creation of a dedicated, rolling fund for electricity markets renewable power feasibility study grants for small- and medium-sized enterprises. Feasibility study grants can • Frameworks permitting large industrial and play a catalytic role in involving a wide range of smaller, commercial consumers to contract for or develop their domestic project developers in the sector’s growth, as own renewable power supplies, potentially including these groups may possess valuable local knowledge and incentives for them to do so expertise for project development, but they usually lack access to finance to conduct necessary feasibility • Sector planning and pricing methodologies that studies. consider the value of the long-term energy security gains and other benefits from renewables that are Moreover, along the lines of the successful renewable rarely accounted for in conventional methodologies energy feasibility study program run by Chile’s economic development agency, CORFO, this program could also • Experiences with different types of renewable power be paired with ongoing financial consulting and business incentive programs and their appropriateness for development assistance. This business development different policy goals, an area that could be linked with program could be financed through equity and/or loans the work of the LAC Renewable Power Policy Working from the Bank’s IIC and MIF and could be administered Group discussed below. on a regional or a country basis. After the formulation of best practices for the sector, the IDB could promote necessary institutional and policy Encouraging Renewables-Friendly changes through its policy-based lending (PBL) Regulation programs. This PBL support could include specific funding for renewable incentives, such as the World Latin America and Caribbean 21st-Century Bank’s offering of financing for a 1.5 cent/kWh premium Electricity Markets Initiative for the La Venta III wind project being auctioned by the The IDB could fund a regional initiative to study and Mexican government. support electricity market reforms designed to assist in the transition toward a more decentralized, energy- LAC Renewable Power Policy Incentives secure, and low-carbon power sector based on increased Working Group renewable power development. Following a loss of While there has been a flurry of new policies to promote momentum of the deregulation efforts of the 1990s, the the use of renewable power in the region over the past region’s regulatory environment is characterized by an ad two years, their implementation has just begun, and hoc mixture of liberalizing reforms at various stages of most countries lack any significant experience with completion and more recent efforts in many areas to renewable incentives. In some cases, governments may reintroduce greater regulation of the sector. Renewable also lack the policy-making capacity, resources, and/or power development has been catalyzed by elements of continuity in their energy ministries to formulate long- both paradigms as well as new innovations. By term strategies for the renewables sector. crystallizing these emerging insights into a more comprehensive regulatory strategy, the IDB could help to Thus, the creation of a regional Renewable Power Policy provide a new focus for regulatory reforms in the region. Incentives Working Group could provide an important forum to share experiences with these policies among This program could begin with a comprehensive study of policymakers, regulators, and other relevant stakeholders power market structures, both in the region and globally, and experts. A wide variety of workshops and seminars from the perspective of renewable power development, could be held to address topics throughout the leading to the creation of a set of best practices for policymaking process, from goal-setting to policy facilitating a transition to this new energy paradigm that is selection to implementation. Key topics might include:
454 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf • Setting appropriate short- and long-term targets for the Access to Finance for Renewable Power sector, given resources and policy priorities Projects
• Weighing objectives of cost minimization versus speed LAC Renewable Power Financing Facility of adoption for new renewables The lack of domestic sources of long-term loans for renewable power projects in most countries in LAC will • Integration of renewable power goals with broader make international and multilateral financing assistance social and economic policy goals essential for the continued expansion of the sector. However, existing IDB infrastructure support is biased • Comparing the suitability of different types of toward large-scale projects due to the Bank’s own incentives for different sets of priorities lending economies of scale, which limit its ability to provide finance to the large number of potential small- • Examining the effectiveness of various and medium-scale renewable power facilities in the implementations of different policy types region. This gap could be addressed in several ways, including: • Evaluating and adjusting policies over time to match technology evolutions. • Loan guarantee facilities to back domestic banks that lend to renewable power projects While there has been a flurry of • IIC loans for small- and medium-sized commercial and new policies to promote the use industrial users to build their own renewable power of renewable power in the region assets or purchase renewable power for independent over the past two years, their generators implementation has just begun, • Financing for portfolios of similar projects packaged and most countries lack any together, such as infrastructure-integrated small hydro projects or wind farms located in the same area. significant experience with renewable incentives. In addition to these overarching recommendations, a number of more region- and technology-specific programs could also be created to improve access to International Exchange Program for LAC Legislators financing in key areas. In addition to increasing the dialogue within LAC on the promotion of renewable power through the Power Existing IDB infrastructure support Markets Initiative and the Working Group, the region’s lawmakers would undoubtedly benefit from exposure to is biased toward large-scale the perspectives of their international counterparts on the projects due to the Bank’s own benefits, as well as the challenges, of establishing legislation in support of renewables. To facilitate this lending economies of scale, which international dialogue, the IDB could sponsor a series of limits its ability to provide international exchanges, taking LAC elected officials financing to the large number of abroad to learn from countries that have had longer experience with renewables-appropriate policies, as well potential small- and medium-scale as bringing legislators from abroad to key countries in renewable power facilities in the LAC to share their views. region. Given their strong ties to the region as well as their impressive successes in promoting renewable power, Loans and Loan Guarantees for the Development of Spain and Portugal would both be natural candidates for Wind and Solar Manufacturing Plants such exchanges. Valuable insights could also be gained While there are likely to be economic and job-creation from the experiences of Germany, the U.S., and other benefits from the construction and operation of renewable global renewable energy leaders. power generation projects, the development of equipment-manufacturing plants offers greater potential for long-term job growth as well as technology transfer.
Blueprint for Renewable Power | Section 5 455 Concessional loans from international financial LAC Renewables Exposition for International institutions have already played a significant role in the Developers development of some of the first such projects in the Although regional small- and medium-size businesses will region, including IDB support for the Tecsis wind turbine play an important role in efforts to harness LAC’s component plant in Brazil as well as CAF support for renewable energy resources, major international power Argentina’s IMPSA’s new turbine manufacturing plant, companies have taken the lead in the early growth of the also in Brazil. The further development of manufacturing renewables sector in many countries in the region and will plants in these countries could be encouraged through continue to be indispensable for further development due targeted loans and loan guarantees. to their superior access to capital and unsurpassed experience with large-scale renewables projects. While a Brazil is likely to be the most promising market for the handful of global players, such as Spain’s Iberdrola and further development of wind manufacturing plants in Italy’s Enel, have already established themselves as major South America due to its sheer size and early adoption of renewables developers in the region, LAC has generally wind power, although Argentina also has potential to be a attracted less attention from international developers than major regional player in wind turbine production if it can it should, given its considerable untapped renewable overcome wider regulatory concerns. By virtue of its resources and strong power demand growth. Although proximity to the U.S. market, Mexico is perhaps best this is primarily due to the region’s relative lack of positioned to develop a domestic manufacturing industry renewables-appropriate policies and regulatory for both wind- and solar-power equipment. uncertainties in some markets, it also can be attributed, in part, to a lack of awareness of the region’s potential, South American Geothermal Fund compared to more widely recognized opportunities in the While there are many promising sites for geothermal U.S. and Europe. development in South America — many of which were identified with financing and technical assistance from The IDB could help to enhance the visibility of the LAC IDB and other international groups in the 1960s through renewables sector by holding a LAC Renewables the 1980s — none have been developed for power Exposition that would allow international developers and generation. There has been increasing interest in the investors to meet with officials from the region’s energy harnessing of this resource in recent years, particularly in ministries and other key LAC stakeholders. In addition to Chile and Argentina, but development has been slow, giving LAC officials the chance to highlight the region’s due largely to the problems posed by geothermal’s many opportunities in the renewables sector, such an inherently high up-front risks and drilling costs. These exposition could provide an invaluable forum for these issues have hindered the growth of this renewable power international developers and investors to discuss their own source worldwide, but they are exacerbated in South needs and have their questions addressed. Much like the America due to the lack of experience with this annual events held by Chile’s CORFO to promote its own technology in the region as compared to, for example, renewables sector internationally, the exposition could Central America. also be a place for “matchmaking” among these project developers and key sources of international finance such Moreover, while geothermal power development has as the IDB, the World Bank, and foreign development been slow worldwide, few regions could benefit from its banks. development as much as South America, as geothermal’s unsurpassed reliability could offer a critical LAC Microenergy Initiative source of baseload power free from both the periodic As discussed in the Section 2 essay “The Microenergy droughts that wreak havoc on the region’s hydropower Opportunity,” renewable power technologies lend resources as well as the politicization of the region’s themselves well to the provision of electricity services to fossil fuel supplies. To facilitate the development of this off-grid communities according to a distributed important resource for the continent’s energy security, microenergy paradigm. In addition to alleviating energy the IDB could create a program similar to the World poverty in communities that have been left out of grid Bank’s GeoFund for Europe and Central Asia, which extension programs, microenergy is a strongly provides technical assistance to assess and study development-oriented model, providing unique potential projects, direct investment funding in the forms opportunities for the provision of social and economic of loans and grants, and geological risk insurance to benefits that are at the core of the IDB’s mandate. reduce exploration risks. Indeed, international financial institutions, such as the IDB and the World Bank, have already played a critical role in
456 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf directly financing groundbreaking initiatives that have requiring less assistance as they become increasingly enabled utilities and national governments to deploy profitable to pursue. However, support should be renewable power sources as part of their rural electrification expanded to off-grid installations, where small hydro programs in countries like Argentina and Chile. However, technology is relatively underutilized compared to solar just as microenergy stands in sharp contrast to the wheel- PV and in absolute terms compared to its enormous and-spoke model of traditional grid extension paradigms potential. China has set the pace globally by supporting pursued by utilities, it will require new, decentralized the development of small hydro projects to bring power business models and financing tools appropriate to its scale to thousands of rural communities over the past three to truly flourish. The long-term sustainability of these efforts decades, and a similar focus for small hydro lending in could thus be substantially enhanced by moving away from LAC could help make rapid progress in electrifying direct financing and supervision of projects and toward the remaining off-grid communities in many parts of the support of SMEs and microfinance institutions pursuing region. smaller-scale initiatives. As demonstrated by the Chel hydropower project in Microenergy will require new, Guatemala, small hydro projects can offer a greater role for local labor during construction and operation phases decentralized business models and as well as the provision of more reliable power than solar, financing tools appropriate to its making possible the support of not only household applications but manufacturing and commercial scale to truly flourish. enterprises as well. The IDB could facilitate similar projects by providing loans for rural electrification Microenergy Support Fund: The IDB could provide agencies and NGOs capable of aggregating a large equity and/or debt financing to intermediary microenergy number of these projects, providing economies of scale enterprise financiers, who are best positioned to bundle for both lending and project development. These together many small-scale microenergy projects into coordinating agencies could, in turn, collaborate with local attractive investment portfolios. These intermediaries, stakeholders, including community leaders and including microfinance institutions as well as more entrepreneurs, to establish program goals, while specialized microenergy financiers like E+Co, have microcredit organizations could be used to administer proven to be effective in administering loans at financing as needed. appropriate, affordable terms for rural households and SMEs in the region. Although there are few such Integrated Support Packages for Solar PV Programs intermediaries currently working in the region, the Although small photovoltaic panels have been used for availability of an ongoing source of financing support for years in projects to provide lighting, pumped water, and these pioneers could help nurture the development of other basic power applications to off-grid communities this nascent sector. for years, the utilization of this power source is still far below its enormous potential in LAC, primarily due to Global Microenergy Network: While the evolution of the high costs. However, solar costs are expected to begin microenergy industry in LAC will undoubtedly be shaped declining significantly in the near term as global silicon in unique ways by the region’s specific needs and supplies expand, and the establishment of programs to resources, there are tremendous opportunities to learn begin promoting the wider adoption of this power from the experiences of similar initiatives elsewhere. A source for both rural and grid-connected applications number of developing countries in Asia and Africa — could help countries with rich solar resources position particularly China and India — have been leaders in the themselves to take advantage of these declining costs in adoption of the microenergy paradigm, and the IDB the years to come. could organize a series of workshops and conferences for financiers, SMEs, and end-users to facilitate the Because of the unique potential of solar to provide sharing of knowledge and best practices between these distributed generation in a broad spectrum of contexts regions and LAC. and on a wide range of scales, the effective development of the sector requires the simultaneous expansion of Small Hydro for Community-Based Rural financing and incentives for end-users as well as support Electrification for the growth of local solar developers and installers. The IDB has already begun to provide financing for While the wide range of local players and the relative labor relatively large-scale, grid-connected small hydro intensity of solar power as compared to other, larger-scale projects in the region, but these projects are gradually renewable sources gives the sector significant potential for
Blueprint for Renewable Power | Section 5 457 green job creation, it also requires financing and technical The development of regional R&D assistance for end-users as well as small- and medium- capacity could help ensure the sized enterprises. The IDB is well positioned to offer these resources through the IIC (for SME finance) and MIF (for availability of equipment and plant technical support grants). designs suitable to local
In order to catalyze solar markets more effectively than ad conditions, increase the jobs hoc interventions throughout the region, the IDB could created by the renewable power promote integrated support packages for public-private sector, and encourage growth in solar initiatives focusing on the national, state, or even city levels that could bring together assistance for a wide domestic science and engineering range of stakeholders. Such initiatives would help to education. establish common ground for suppliers; developers; installers; commercial, residential, and institutional end- users; policymakers; and other relevant parties to share Support from the IDB could be provided through its experiences and establish the needs of the industry, as innovation loan program and could be targeted toward well as to provide a common point to interface with Bank both relatively simpler, near-term efforts to license and programs that can help meet these needs. Integrated adapt technologies to local conditions as well as more support packages could include: comprehensive, long-term R&D to develop original technology designs. Opportunities vary by technology • Loans and technical assistance grants for solar area: developers and installers Wind • Lines of long-term financing for commercial and Currently, there is burgeoning interest in public and residential grid-connected programs private sector wind power research initiatives in both Mexico and Argentina, where Oaxaca and Southern • Policy-based lending to support the use of solar power Patagonia, respectively, feature some of the strongest, incentive programs such as feed-in tariffs for grid- harshest winds in the world. Because these winds pose connected users both an enormous generation opportunity and a major operating challenge to many turbines, research in both • Subsidized financing for off-grid end-users, potentially countries has been undertaken to facilitate the testing provided through partnerships with microcredit and modification of existing wind turbine designs to institutions. withstand these conditions. Argentina’s IMPSA is already producing turbines targeted toward the Brazilian market, and Argentina’s INVAP and the UNDP-funded Financing for Innovation CERTE research center in Mexico have also embarked on longer-term projects to produce original turbine Innovation Loans for LAC Renewable Power Research designs for high-speed winds. and Development There is currently a dearth of energy sector R&D in LAC, Small Hydro which is even more pronounced in the renewable energy The small hydro sector is also ripe for local innovation segment due to the relative newness and technical throughout the region, owing to the relatively simple, challenges posed by many of these technologies. well-established technology and the variety of potential However, while it would be unrealistic to suggest that the plant designs that correspond to different topographic region can substantially reduce its dependence on and hydrological characteristics. Local knowledge of imported technologies in this sector for the near-to- irrigation systems and other existing hydraulic medium term, it could still benefit from the stimulation of infrastructure can also be key for identifying the technical domestic renewable power R&D and manufacturing requirements for the integration of small hydro systems. capacity geared toward the needs of local markets. The Innovation loans could thus help to support not only R&D development of this capacity could help ensure the efforts on new turbine and plant designs but also the availability of equipment and plant designs suitable to convening of regional workshops to share expertise local conditions, increase the jobs created by the among small hydro developers working in similar renewable power sector, and encourage growth in geographic contexts. domestic science and engineering education.
458 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Solar Ocean Power Regional photovoltaic cell manufacturing opportunities Wave power technologies are still in need of substantial may be limited to Mexico for at least the near term, as it pre-commercialization research and testing, but they enjoys unique opportunities due to its proximity to the often face offshore permitting challenges that are far out U.S. market. However, there is substantial potential for of proportion to the relatively small size of these systems. local initiatives throughout the region to adapt Latin America offers significant wave power potential, photovoltaics to power a wide range of electrical devices particularly off the long Pacific coast of Chile for wave for refrigeration, water pumping and purification, and power, and Argentina and Mexico for tidal power, and other critical services to off-grid areas. These many countries offer a less-restrictive permitting opportunities will doubtlessly expand with the increased environment for offshore development. Private sector availability of low-cost, flexible, thin-film solar cells, financing could be directed to individual start-up which can be used to develop photovoltaic-enhanced demonstration projects, while public lending could also building materials and other novel applications. be used to develop multi-berth R&D and testing facilities in key areas, based on the model of the Wave Hub and Financing for Demonstration and Deployment of European Marine Energy Centre in the UK. Emerging Renewable Power Technologies In addition to support for research and development of Engineered Geothermal Systems (EGS) relatively established renewable power technologies, the While the technologies necessary to develop EGS IDB could help the region get ahead of the technological systems are fairly well established, they remain costly, curve by establishing itself as an attractive location for and applications are still at a very early stage. However, the testing, demonstration, and, eventually, large-scale advances in drilling technologies are expected to bring deployment of emerging technologies. While there has costs down significantly over the next decade, and their been a fast-growing base of start-ups pursuing the use could open up new areas for geothermal power commercialization of emerging technologies in the U.S. development that lack the naturally occurring (and Europe to a lesser extent), these companies must subsurface hydrothermal reservoirs necessary for frequently compete for suitable testing sites, conventional geothermal applications. Brazil, in transmission capacity, and financing in their home particular, could be a promising site for EGS research countries. and demonstration, given its geological similarity to Soultz-sous-Forêts in Alsace, France, one of the few The LAC region has significant resource potential for the places where EGS technology has been demonstrated deployment of many of these technologies and could successfully. provide an appealing alternative destination for these early-stage projects, given sufficient financing incentives, potentially including financing for necessary transmission Understanding the Impacts of Renewables capacity as well as sufficient intellectual property rights assurances. Support could come in the form of Measuring the Benefits of Renewable Power in LAC innovation loans and grants for small-scale pilot projects In order to obtain ongoing support for the development as well as loan guarantees for larger, utility-scale plants. of renewable power among policymakers, regulators, Key technology and regional focuses could include: and the public in the LAC region, it will be crucial to make a strong case for them based on improved data Concentrating Solar Power (CSP) concerning their benefits for energy security as well as CSP plants were originally pioneered decades ago but socio-economic goals. The IDB could provide technical have seen a resurgence of interest along with other support grants for the carrying out of important studies in renewable power sources in recent years. There are over a number of areas that currently lack significant LAC- 2 GW of potential CSP projects being planned using a specific data. wide range of old and new designs in the Mojave Desert in the U.S., but it will be a challenge for all of them to Accounting for the Full Value of Renewables: Current secure the permitting approval and transmission capacity methodologies employed by regulators and energy necessary to build them. Latin America offers a number ministries for the long-term valuation of, and tariff setting of particularly appealing sites with high levels of solar for, power plants are generally based on short-term insolation and minimal cloud cover as well as relatively generating costs alone, with little or no accounting for the closely located demand, including the states of Baja energy security, environmental, social, and other system- California and Sonoma in northern Mexico and the enhancement benefits of renewables. The creation of an mining areas of the Atacama Desert in Chile. improved modeling system to account for these variables
Blueprint for Renewable Power | Section 5 459 based on LAC-specific supply and demand scenarios could provide an important basis for long-term decision- making at the national level as well as by commercial and industrial users concerned about their own energy security.
Impacts and Potential of Renewables for Rural Electrification: While the potential of renewable power sources to serve off-grid users has been touted for years, there are very little data on the impacts of existing programs or on the potential for their expansion. Because detailed data on rural populations are generally lacking relative to more urbanized areas of Latin America, improved studies on the electricity needs and renewable resource potential of these areas could be integrated into broader socio-economic surveys in order to develop more effective, broad-based development programs.
In order to obtain ongoing support for the development of renewable power among policymakers, regulators, and the public in the LAC region, it will be crucial to make a strong case for them based on improved data concerning their benefits for energy security as well as socio-economic goals.
Green Job Growth from Renewable Power: Green job creation is a more recent focus for advocates of the potential socio-economic benefits of renewables, but data are extremely limited here as well, particularly in developing countries. The IDB could finance national programs to track the numbers and types of jobs created by renewable power projects and manufacturing facilities, develop projections of the potential for their growth under varying scenarios, and examine the evolving requirements faced by local labor forces in order to take advantage of these opportunities.
460 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf
Blueprint for Renewable Power | Section 5 461 59 The Economist. “A Storm Brews; The Caribbean.” 5 Apr. 2008. 23 Oct 2008 85 Agence France Presse – English. “El Nino weather leads Colombia to buy
462 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 114 Petrojam. “Wigton Windfarm Project.” 23 Oct 2008
Blueprint for Renewable Power | Section 5 463 2008. 4 Sept. 2008
464 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf World Bank. World Bank Policy Research Working Paper 3595. May 2005. 11 International Grid-Connected Renewable Energy Policy Forum. Mexico City, Feb. Jan. 2008 < http://ideas.repec.org/p/wbk/wbrwps/3595.html>. 2, 2006. 25 Jan. 2008
Blueprint for Renewable Power | Section 5 465 Division. Nov. 2007. 24 Jan. 2008 Process.” 18 Feb. 2008
466 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Energies: 23 Country Analyses.” Eschborn: Sept. 2007. 14 Sept. 2008 109 Interview with Eduardo Recordon, Pacific Hydro Chile, by Bianca Fletcher. 18 Apr.
Blueprint for Renewable Power | Section 5 467 135 New Energy Finance. “New Energy Finance Desktop 3.0.” 3 Sept. 2008
468 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf United Nations Sustainable Development Studies. Case Study: Ecuador. 44 Apollo Alliance. ‘New Energy for America, The Apollo Jobs Report: Good Jobs &
Blueprint for Renewable Power | Section 5 469 65 Bezdek, Roger. Renewable Energy and Energy Efficiency: Economic Drivers for 16 International Energy Agency. “Renewable Energy – RD&D Priorities.” IEA the 21st Century. 2007. American Solar Energy Society. Accessed via Green for All Technology Programmes. 2006. 17 Jan. 2008 < 5 Sept. 08
470 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 43 Katz, Jorge. “Structural reforms and technological behaviour: The sources and 8 European Small Hydropower Association. “Small Hydropower: Innovation Is Our nature of technological change in Latin America in the 1990s.” Research Policy. Business.” European Small Hydropower Association. 16 Jan. 2008 Issue 30, 2001. 30 Jan. 2008
Blueprint for Renewable Power | Section 5 471 34 International Energy Agency. “Assessment of Further Opportunities for R&D – 19 Marsh, George. “What Price O&M?: Operation and maintenance costs need to be Summary Report.” IEA Hydropower Agreement. 2000. 17 Jan. 2008 factored into the project costs of offshore wind farms at an early stage.” Refocus
472 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 36 Marsh, George. “What Price O&M?: Operation and maintenance costs need to be 8 United States Department of Energy (DOE) — Energy Efficiency and Renewable factored into the project costs of offshore wind farms at an early stage.” Refocus Energy (EERE). “Concentrating Solar Power.” US DOE – EERE. 13 July 2007. 24 8.3 (May 2007): 22–27. Academic Search Premier. EBSCO. 14 Jan. 2008. Jan. 2008
Blueprint for Renewable Power | Section 5 473 24 Trieb, Franz, et al. “Combined solar power and desalination plants for the 41 United States Department of Energy (DOE) — Energy Efficiency and Renewable Mediterranean region — sustainable energy supply using large-scale solar thermal Energy (EERE). “Concentrating Solar Power.” US DOE – EERE. 13 July 2007. 24 power plants.” Desalination 153.1-3 (Feb. 2003): 39. Environment Index. EBSCO. Jan. 2008
474 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5 Brazil. Agencia Nacional de Energia Elétrica. Ministério de Minas e Energia. “BIG - 33 Blount, Jeb and Laura Price. “Brazil to Propose New Rules on Oil Finds by Banco de Geracão do Brasil.” 24 Sept. 2008. September” Bloomberg. 20 Aug. 2008.
Blueprint for Renewable Power | Section 5 475 61 Camargo, Luiz Ricardo. “Reformas no setor eletrico: a burocracia nos processos 88 Eletrobrás. “Transmissão.” Eletrobrás. 11 Sept. 2008 de mudanca.” Conference Paper. X Congreso Internacional del CLAD sobre la
476 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 115 Fraga Machado, Antonio Carlos. “A Evolucão do Mercado Livre de Energia.” 138 Ministério de Minas e Energia. Guia de Habilitação PCH. Ministério de Minas e Presentation. Câmara de Comercializacão de Energia Elétrica (CCEE). Ministério Energia. 18 Sept. 2008 de Minas e Energia. 13 Sept. 2007. 14 Sept. 2008
Blueprint for Renewable Power | Section 5 477 164 Santana, José Ribamar Lobato. “Light for All Program.” Presentation. Conference 195 DNV. “Rio do Fogo – Clean Development Mechanism Project Design Document on Investments in Sustainable Energy. Form.” United Nations Framework Convention on Climate Change. CDM-
478 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5 SENER. “SECTOR ELÉCTRICO NACIONAL CAPACIDAD EFECTIVA DE 26 World Bank Group. “Mexico: Infrastructure Public Expenditure Review.” The GENERACIÓN.” December 2007. 21 Feb. 2008 World Bank. Report No. 33483-MX. 24 Oct. 2005. 1 Apr. 2008
Blueprint for Renewable Power | Section 5 479 49 GTZ. Energy-Policy Framework Conditions for Electricity Markets and Renewable 77 Interview with Simon Camhaji, Comexhidro, by John Atkinson. 11 Apr. 2008. Energies – 23 Country Analyses. German Federal Ministry for Economic 78 Camjahi, Simon. “Small Hydro Projects Using Existing Infrastructure.” Development and Cooperation. Sept. 2007. 2 Mar. 2008 Comexhidro. 21 Feb. 2008
480 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 103 SENER. “Prospectiva del Sector Eléctrico: 2007-2016.” SENER. 2007. 10 Jan. 131 Renewable Energy Report. “Renewable energy in Mexico stands to gain from 2008 five-year national energy strategy.” Renewable Energy Report. Issue 151. 17
Blueprint for Renewable Power | Section 5 481 157 Gaceta de los Negocios. “Iberdrola Renovables ha registrado en México el 190 ANES. “Aplicaciones de la Energía Solar en México.” Primer Encuentro parque eólico La Ventosa.” Gaceta de los Negocios. 15 Jan. 2008. 3 Mar. 2008 Internacional para el Fomento de las Energías Renovables en el Estado de
482 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 214 Renewable Energy Report. “Federal, state policy-makers in Mexico lead charge for renewable energy development.” Renewable Energy Report. 10 Nov 2008. 3 Endnotes Section 5.4.3 Jan 2008
Blueprint for Renewable Power | Section 5 483 27 Dow Jones. “After Failed Gas Summit, Argentina Preps For More Energy Woes.” 57 Nuñez-Luna, Alejandra and Erik J. Woodhouse. “The IPP Investment Experience Dow Jones International News. 25 Feb. 2008. 7 Mar. 2008 in Argentina.” Program on Energy and Sustainable Development at Stanford
484 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 87 CAMMESA. “Minicentrales es en Estudio en Todo El País.” 3 Jul. 2007. 5 Apr. 109 Archer, Cristina L. and Mark Z. Jacobson. “Evaluation of global wind power.” 2008 Journal of Geophysical Research. Vol. 110. June 2005. 18 Aug. 2008
Blueprint for Renewable Power | Section 5 485 146 Sociedad Cooperativa Popular Limitada de Comodoro Rivadavia. “Antonio Moran 179 Interview with Juan Retuerto, NRG Patagonia, by Anselmo Grane. 4 Apr. 2008. Wind Power Plant Project – Project Design Document.” CDM – Executive Board. 180 Alazraki, Robinson and James Haselip. “Assessing the uptake of small-scale 16 May 2005. 10 Mar. 2008 photovoltaic electricity production in Argentina: the PERMER project.” Journal of
486 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 31 Interview with Javier Garcia Monge, CORFO, by John Atkinson. 26 Mar 2008. Endnotes Section 5.4.4 32 Interview with Carl Weber, Hidromaule, by John Atkinson. 14 Mar 2008. 33 Business News Americas. “Govt announces plan to avoid power rationing.” Business News Americas. 7 Feb 2008. 1 Mar 2008
Blueprint for Renewable Power | Section 5 487 61 E-mail communication with CNE. 28 Dec 2008.. 99 CORFO. “Renewables in Chile: Investment Opportunities and Project Financing – 62 CORFO. “Renewables in Chile: Investment Opportunities and Project Financing – Project’s Directory.” Government of Chile. 3 Mar 2008 < Project’s Directory.” Government of Chile. 3 Mar 2008 < http://www.todochile.cl/todochile/incjs/download.asp?glb_cod_nodo=200403181 http://www.todochile.cl/todochile/incjs/download.asp?glb_cod_nodo=200403181 51250&hdd_nom_archivo=Renovables%20en%20Chile%20(English).pdf>. 51250&hdd_nom_archivo=Renovables%20en%20Chile%20(English).pdf>. 100 Hidromaule. “Project Idea Note: Lircay 19 MW Hydropower Plant.” Prochile. Jan 63 Speiser, Robert M. “Energy Security and Chile: Policy Options for Sustainable 2007. 14 Mar 2008 Growth.” United States Association for Energy Economics. 17 Jan 2008. 13 Mar
488 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 128 Hidromaule. “Project Idea Note: Lircay 19 MW Hydropower Plant.” Prochile. Jan 159 Interview with Harald Rudolph, Sowitec, by John Atkinson. 19 Mar 2008. 2007. 14 Mar 2008 < 160 Interview with Eduardo Recordon, Pacific Hydro Chile, by Bianca Fletcher. 18 Apr http://www.prochile.cl/servicios/medioambiente/ideas_proyecto/hydropower_18LI 2008. RCAY2007.pdf>. 161 Interview with Colbún by Bianca Fletcher. 15 Apr 2008. 129 IFC. “Hidromaule – Summary of Proposed Investment.” World Bank Group. 14 162 Interview with Javier Garcia Monge, CORFO, by John Atkinson. 2 May 2008. Mar 2008 163 Zanetta, Rosario and Juan Meriches. “Expertos analizan viabilidad de energies
Blueprint for Renewable Power | Section 5 489 202 CORFO. “Renewables in Chile: Investment Opportunities and Project Financing – 242 Santiago Times Staff. “US$1 Billion in Solar Parks Planned for Northern Chile.” Project’s Directory.” Government of Chile. 3 Mar 2008 Santiago Times. 10 Oct 2007.
490 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 277 Highlands and Islands Enterprise. “First Minister Opens New Tidal Energy Facility 2 Economist Intelligence Unit. “Country Report – Guatemala.” EIU. Apr 2008. 20 at EMEC.” AllmediaScotland.com. 28 Sept 2007. 26 Apr 2008 May 2008
Blueprint for Renewable Power | Section 5 491 31 Hidroeléctrica Candelaria, S.A. “Candelaria Hydroelectric Project – Project Design 57 Rivera, Marta. “Sustainable Energy for Guatemala.” Renewable Energy and Document.” CDM – Executive Board. 9 July 2006. 10 Mar 2008 Efficiency Partnership (REEEP). 27 Mar 2007. 24 Jan 2008 <
492 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 87 Tecnoguat, S.A. “San Isidro Hydroelectric Plant – Project Design Document.” 112 Ortilán Limitada. “AMATITLAN Geothermal Project – Project Design Document.” CDM Executive Board. 8 July 2005. 10 Mar 2008 < CDM Executive Board. 15 Mar 2006. 10 Mar 2008 http://www.aenor.es/desarrollo/descargadocumento.asp?nomfich=/Documentos/
Blueprint for Renewable Power | Section 5 493 135 Renewable Energy Report. “Israeli consortium looks to build Guatemalan wind 160 Fundación Solar. “Memoria de Labores – 2006-2007.” Fundación Solar. June farm.” Renewable Energy Report. 18 Feb 2008. 10 Mar 2008 2007. 12 Mar 2008
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