The construction of windmills in Mexico like this one, which powers local Walmarts, is expected to grow significantly as Latin America seeks to offset losses in hydropower with new wind power installations. Wikimedia Commons/Walmart
A new report notes that Brazil and Mexico are capitalizing on robust wind resources to diversify their energy portfolios.
November 12, 2013—Policy uncertainty in the United States and many European countries has produced a dramatic slowdown in the installation of new wind energy turbines there. But this slowdown is being offset by strong growth in Latin America, according to a new research report released by BTM Consult/Navigant Research.
The report, “Latin America Wind Market Assessment,” projects that 15 markets in Latin America—led by Brazil and Mexico—will experience robust growth in the coming decade. Together Latin American countries are projected to install more than 20,000 new wind turbines between 2013 and 2022, with a combined generating capacity of approximately 33.5 GW. That amounts to a compound annual growth rate of 22.6 percent.
“Economic growth makes these countries hungry for energy,” says Feng Zhao, a research director of BTM Consult, which is based in Copenhagen. “Wind has become the most mature renewable technology. Economically speaking, it can compete in some cases against conventional energy, especially in Latin America.”
Zhao explains that in Brazil and Mexico, rich wind resources mean that the capacity factor can reach 40 percent—in other words, the turbines can generate electricity 40 percent of the time. Many countries in this region do not have significant fossil fuel resources and historically rely on hydroelectric generation. Additionally, remote areas of the countries are not serviced by the conventional electrical grid. Wind energy can be effectively sited in these areas to create microgrids.
Latin America is expected to generate approximately 2.2 GW of wind power online in 2013. This compares with the 2.3 GW under construction in the United States by the third quarter of 2013. The U.S. will bring approximately 3 GW of wind power online this year.
Figures for the United States are down sharply from 2012, when more than 13 GW of wind power were brought online, Zhao says. The decline is mainly attributable to uncertainty about the future of the federal production tax credit, which encouraged installations and was renewed in 2012, but only at the last minute.
The market in Brazil is driven by a series of measures by the minister of energy to aggressively develop wind energy as a complement to hydropower in the nation. Recent droughts, potentially attributable to climate change, have created poor hydropower conditions, leading to energy shortages, rationing, and rolling blackouts.
Brazil has auctioned development rights for a total of 8.5 GW of capacity since 2009, and further auctions are planned. Brazil is on track to meet its national goal of 10 GW of installed capacity by 2017, a full eight years ahead of its original schedule.
That robust growth is fueled in part by the state-owned Brazil Development Bank (BNDES), which provides loans at 3.3 percent below prevailing rates to companies that can meet a requirement to source 60 percent of their hardware from within Brazil. The policy has fueled a migration of manufacturers to the country in contrast to some mature markets in which manufacturers have closed facilities.
“It brings the cutting-edge technology from Europe, U.S., and China to Brazil,” says Zhao. “I think they are smart. Brazil is already the number one market in Latin America and will maintain its leading position.”
Six turbine vendors have won BNDES local sourcing accreditation, and additional companies have applied. This has created overcapacity within Brazil—a potential problem that might paradoxically create an opportunity.
“In Brazil right now the demand is probably 1-1.5 GW per year,” Zhao says. “The six companies together can produce more than 3 GW annually. For this reason, turbine [manufacturers] have to find a way to digest the extra manufacturing capacity. It does make a lot of sense if Brazil can be the manufacturing hub to export wind turbine to the rest of the countries in this region. This will help the turbine [manufacturers] to justify the investment in Brazil. ”
In Mexico, the wind industry is also fueled by abundant resources, and benefits from the North America Free Trade Agreement, which gives developers access to wind energy manufacturing capacity in the United States. Importing state-of-the-art technology without duty fees makes the projects more affordable.
Zhao says that in general most of the counties in Latin America are eager to develop wind energy to diversify their energy portfolios. Wind projects have been well accepted by the public, although there are some exceptions in Mexico, where some indigenous Mexican communities and developers have had disagreements about proper compensation for property and rights.
The report notes that many Latin American countries have shifted responsibility for developing a connection to the electrical grid to the wind energy developers. This avoids a problem faced in China, where 10 percent of wind turbines installed by the end of 2012 are sitting idle, awaiting connection to the power grid, Zhao says.