This is Dana Perkins and you're listening to Switched on the Bennif podcast. As with the rest of the world, over the last year, Latin America has been contending with inflationary pressures and high energy prices. But what has been the region's reaction to the global crisis and how of its nations gone about securing affordable domestic energy while also
looking for new export opportunities. Earlier this month, BEANEF put out our region's clean energy policy, supply and installations under a microscope when we released the Latin America Market Outlook for the first half of twenty twenty three. In addition to the market outlook, BENEF also has been researching something that has the potential for a huge impact on the region,
green hydrogen. To find out more, I sat down with beanef's head of Latin America Research, James Ellis, and a member of benef's team from the saal Pallo office, Associate Natalia Cassillos Rebel. Together we discussed a range of topics, including key findings from the Latin America Market Outlook, digging into the details, and assessing whether last year's record breaking solar and winds installations could be surpassed in the future.
We went into the opportunity for green hydrogen and ammonia produced in South America and which countries are at the forefront of the potential boom. We also discussed Brazil's small scale photovoltaic revolution, Chile's continued clean energy drive, Columbia's renewables rise, and some of Mexico's recent failings in this space. If you like this podcast, make sure to subscribe to receive updates on future episodes and consider giving us a review.
But right now, let's speak with James and Atalia about Latin America. Natalia, thank you for joining.
Hi everyone, thank you so much.
Denna and James, thank you for coming back to the show.
Hey, Dana, it's a pleasure.
So we're here to talk about Latin America. And we just recently put out one of our regular Latin American Market outlooks. It's certainly a story of growth right now, and James, can you give us some context around that, given that this report recently came out.
Sure.
Yeah.
The Latin America Market Outlook is really our flagship publication in which we take stock capacity, generation, investment, energy transition policy and all the sort of key trends that have been happening in the region over the past six months. And if there's one thing I would just sort of pull out for you as a main finding, it's a
story of wind and solar growth. As in much of the world, wind and solar really just continues to boom in Latin America in often spectacular fashion, and really when you look at it cumulatively as a region, it only grows.
So individual markets and segments, of course fluctuate from year to year with policy or project development cycles or financial conditions, but annual editions of renewal energy and wind and solar specifically are getting bigger every year than the year before, including even in twenty twenty when the pandemic hit, and that of course means that every year is a record year basically in terms of growth and wind and solar,
and last year was no different. Latin America commissioned twenty two gigabouts of new wind and solar capacity, which is about twenty percent more than the year before. And maybe spoiler alert here, we're on track for another record year in twenty twenty three, so we'und track.
For a record year. But I would say a lot of what I hear regarding any sort of global trends pass to do with inflation. There's a lot of discussion around inflation, and then many countries that have responded in kind to cool inflation with high interest rates. Are we seeing the same issues in parts of Latin America or is this growth continued on despite inflationary pressure.
Well overall, it has very much continued on in spite of inflationary pressure. There was interesting news this week, particularly in Brazil and Mexico, and I believe Chile as well, that inflation is starting to come down and analysts across the region are starting to expect central bank to lower rates. In central banks largely across the region have kept rates high. Brazil, according to many analysts, has had one of the more
aggressive central bank policies in the world. But this has really done nothing to slow the growth of when it's solar in the region, it's really just marched on.
So another thing that we've pointed out in previous podcasts around supply chains had to do with the fact that Mexico really stands to benefit from changes to global supply chains and this near shoring trend that is starting. When we're thinking specifically regarding wind and solar. Have we seen those industries started to in some cases on shore in let m some of the production and have supply chains really changed And is that impacting these record breaking years
that you're talking about. Is it tied together?
The Mexican story is a really interesting story because there are a number of factors that are pushing in opposite directions. On the one hand, there's a narrative that the country stands to benefit disproportionately from changes in global trade and near shoring, and that is largely true, particularly in the
automotive segment, or has been true. And the main data point that you could kind of point to would be the announcement of Tesla's new factory that is planned in Monterey, Mexico along the border, which will be its first in
Latin America. But on the other hand, the current administration, which has been in power since twenty eighteen, has been tremendously hostile to private investment in the energy sector, and this is really stunted what had been previously one of the most exciting markets for wind at solar development in Latin America. So overall, net Mexico is actually not in a fantastic place in terms of in terms of energy transition investment because of these conflict conflicting factors.
And really so in terms of the industries that we cover in some respects in this automotive and batteries of therefore storage space. But really we're not seeing the onshoring of wind and solar manufacturing, but we are seeing deployment. So let's go in into deployments part of things. What countries are really standouts. You mentioned that we're going to be entering the year where we're probably going to continue to break records. Where are you seeing the most activity.
It's a story about Brazil now, and this is the drivers of growth of clean energy growth in Latin America have really changed from a couple of years ago. As recently as twenty twenty, clean energy in the region was a story for principal markets, all contributing pretty significantly, and
those being Argentina, Brazil, in Mexico. But as I mentioned, what we see today as a market that is much much more concentrated, and that's really concentrated within Brazil, which contributed about three quarters of regional new build and specifically we're talking about growth in solar in the sub five megawat market that is the key driver of regional activity. I sort of hesitate to call that small scale or rooftop just because Brazil's net metering policy is quite generous
and goes up to five megawats. So it's really growth in this five megawats solar market that's the key driver of regional activity. And just to kind of put some numbers around that that I think will give much much needed context, that segment added more capacity than total solar additions in the rest of Latin America combined, and that's including Brazil's own utility scale solar gains, and it provided about a half of overall regional wind and solar capacity growth.
So we're talking about eleven gigawatts of solar that's all under five megawat systems, and that's just completely crazy growth because it also dwarfs Brazil's own utility scale solar editions, which were just about three and a half gigawatts. And the reason why that's sort of unusual is in most markets around the world, it's really the other way around. Utility scale is generally much more dominant in a much
larger share of the solar market. There are some other exceptions like Australia, but in general, like in the inner market, like the US, utility scale is much bigger. So those eleven gigawottes of small scale let's call it PV in Brazil is much bigger than about the eight and a half that was installed in the US last year, and many many times greater than the two and a half gigawatts of a residential commercial solo that was installed in India. So we're talking at this point about a very very
big market by global standards. Brazil installed the fourth most solar in the world in twenty twenty two.
That you're hesitant to call it residential solar. These not residential projects.
Well a lot of them are residential, a lot of them are commercial as well, and that's largely because, as I said, you know, maybe a typical household system, we're thinking of something in the high single digits or very low double digits in the kilowatts. And in Brazil the
net metering benefit extends up to five megwats. So in some countries, as our head of Solar Jenny Chase says, in some countries that would be large scale solar, and it can also be claimed either like locally like local net metering i e. Located in the same location as the consumer, or remote net metering, that is, the plant can be located in a completely different location from the consumer.
So this is sort of allowed consumers across Brazil, whether residential or commercial, install pretty large sized solar systems all over the country and benefit tremendously because power prices are pretty high in Brazil and the country has great sun, and those factors together have really helped kick off a boom that has had an impact on the solar market in the region. Who are financing these projects, well, you know,
at this point the market's quite mature. So I mean, I couldn't I couldn't pinpoint just one sort of subsector. I mean, it's buy in large private banks, but.
It's largely diverse, and it's largely coming from utilities kicking things off and then build or project developers kicking things off, even at this smaller scale, doing a number of small projects in a number of different locations, and then either operating them or selling them on.
Yeah, it's house it's businesses seeking to lower their power bills. That there are developers involved, there's community solar arrangements. There really are a variety of different schemes. As I said, this was a market that was about Brazil. I think at twenty nineteen sold about two gigattes of small scale TV, and now it's eleven. So I think that point that a lot of markets around the world have reached where
it's in headlong kind of solar growth. And I'll have to say it came in quite a bit higher than our forecast for this year, which originally were around nine or ten gigaotts for twenty twenty two. So there's so much solar being installed in Brazil in this segment that the regulator itself is having a hard time keeping track of all of them. So the historical numbers also keep going up, which makes it kind of difficult to keep track of things.
So really fragmented, which is really exciting to see so many things happening all at once, and then looking at this and we're seeing essentially a number of different projects happening across the country. Really what it makes me think of is a number of different projects require a number of different permitting processes and a lot more paperwork because they're different projects. So surely there must be some very strong government incentive to bring these sorts of things up online.
Why are things moving so quickly and so well in Brazil in particular.
Well, for a brief period under the past government, when the debate over how to reform the net metering program was underway, there was a brief window in which the policy environment became quite contentious and the net metering program became controversial and a little bit politicized. There was a don't tax the sun A bit humorous, humorous to say that, but there.
Was a don't tax side it was it works well, and it did work.
The way that net metering was reformed was done in a way that I would argue was pretty generous to solar overall. It largely provided continuity to existing rules. So the market continues to boom on. Existing systems are kind of eligible for net metering through twenty forty five, and those that are installed in this year are starting to pay a very small, almost negligible part of the tariff for use of the grid, and they're sort of phased in over a six year period, and it's going up.
I think the grid fees usually are about thirty percent of the total bill, and so customers who install solar are going to start paying fifteen percent of thirty percent of their bill, So overall, it's a very sort of soft rule and it remains a very attractive thing to do. So that is part of the reason why overall wind and solar growth in Latin America we're looking at another record year in twenty twenty three.
So let's pivot to another country that is definitely also a solar powerhouse. Snowpun intended. What's happening in Chile.
So Chile is very much it's important. I'm glad you brought up Chile. It's really important Mark can talk about. It's obviously a much smaller power market overall than Brazil. It's thirty two gigawatts total installed capacity versus one hundred and ninety three for Brazil, so much much smaller in terms of overall impact on the region. But as a market, it's really out in front in the region in terms of policy and even compared to the rest of the world.
Chile also had record wind and solar editions last year. It has nothing to do with small scale though, it's almost completely utility scale winded solar editions that we're talking
about in terms of scale that's about three gigawats. But more importantly, it's starting to hit some really cool milestones, and a couple of those are so lar actually became the largest power generation technology by capacity in the country last year with about twenty two percent of total capacity in Chile is now solar, so that just sort of
edged out large hydro. And then the other thing that I think is very cool by regional and global standards is that wind and solar combined provided a whopping twenty eight percent of total generation in Chile last year, So that is really really high. And for context, in Brazil that is about fifteen percent fifteen percent of generation comes from wind and solar utility scale, and in Argentina and
Mexico it's about eleven eleven twelve percent. So Chile is also in many ways very much a regional leader.
Wow. And then speaking of regional leaders, Lynn the category of maybe biggest mover, where would you put Columbia.
Colombia is fascinating as a market because, as I mentioned when we were talking about the top line winded solar growth in the region, there are some important fluctuations in other markets that have kind of lent Brazil outsize importance, And what I was alluding to really was the fact that Mexico and Argentina are both at a low for very different reasons, at a low in terms of clean
energy deployment. And Colombia is a very interesting market to look at right now because it's sort of filling in the gap and it's really just starting to get going and about to kick off a multi year what we forecasted to be a multi year boom and wind and
solar installation. But one important data point to look at here is that for the first time in twenty twenty two, Columbia end of the year among the top three destinations for new investment in the region for the very first time, it's mostly tied to utility scale solar at this point. There have been some really significant delays tied to wind just because the wind resource, as in most markets, it's very geographically concentrated in a particular part of Columbia where
there have been significant delays tied to transmission interconnectivity. But yeah, I don't know, Natalia, do you want to come in there? Yeah?
Sure, Well, as you mentioned, there has been some of the delays in terms of transmission connection in this region, which is going to be the area where all the wind farms are concentrated called Labajira, a region with very poor infrastructure over.
And also projects.
Both the wind developers and also transmission developers are facing challenges in terms of negotiating with local communities to get the permits that they need in order to build their assets in that region. And just to give some stats on that, the company that is developing the transmission line had to negotiate with more than two hundred local communities and that is a process that took much much longer than it was actually predicted, and it's causing delays of
this transmission line. And because of that, a lot of the wind farms that are planned for their region are also going to be delayed. So that is a downsign for Columbia as all of the wind farms is concentrated in this region. But for the solar side, the good news is that the resourcers are more spread out us the country, so the developer zone face the same challenge and we are seeing more deployment of solar projects. Year by year, we're seeing growth on that.
So, Natalia, let's go into a space that you've spent some time looking at very recently, which is hydrogen, and this is intrinsically linked to this clean energy that we are seeing installed. So with this wind and solar capacity comes the potential for green hydrogen and hydrogen made from renewable sources. Can you talk a little bit about some of the countries that have been the leaders in this space in terms of really looking at green hydrogen is a really big market opportunity.
Sure.
I'd like to start saying why green hydrogen is so relevant for the region, and that is because we have the best renewable resources in the world in many countries.
So in Brazil we have.
The best capacity factors for wind farms and in Chile we have the best capacity factors for sol. So that means these two countries they can produce very cheap renewable power and that is a key element to produce cheap
hydrogen as well. So according to our projections, we see Brazil and Chile having the lowest l COH the levelized costs of hydrogen in the world today and in twenty thirty and in twenty and fifty, and that is basically because of the great renewable resources that we have in these two countries.
So We've got a lot being installed and it's incredibly efficient. So countries and companies are looking at ways to better use these high capacity factors for their wind and solar, which I'm sure is driving part of it. But then with hydrogen itself, so are the conditions right to store use. What's the domestic circumstances both physically and from a demand standpoint for this.
That's a very important question.
So for now we are seeing most of the projects being developed in the region mainly focused on exports, so the domestic demand signs are not here yet. So basically Europe and Asia are giving the first concrete signs of demand, and the company is developing green hydrogen projects both in Brazil and Chile are mainly focusing on exporting for these two areas of the world. But that actually imposes a risk because it's actually a little bit uncertain how much is going to be the.
International demand for green hydrogen. So in my.
Opinion Blomberg's opinion, we think that these two countries Brazil and Chile, or whatever country that is actually planning to produce green hydrogen, they need to start thinking about policystems centervized local demand as well and there are some sectors in the region in Brazil and Chile mainly that could be a potential domestic demand, big potential demand, which.
Are still and fertilizers.
So Brazil is a huge market for the agriculture sector right and because of that, it consumes a lot of fertilizers, but seventy six percent of the nitrogen fertilizers are important today, so there's a huge opportunity therefore Brazil start to producing their own fertilizer and producing in a green way. So and especially if we see this green fertilizer market to flourish in the future, Brazil could even start producing locally and exporting to other markets.
Are the conditions right geologically speaking to store hydrogen?
No?
Not, Actually, we are not talking so much about storage of hydrogen.
Mainly, all the.
Green hydrogen projects being developed they have some sort of facility to transform convert the hydrogen into something else, a derivative. That could be ammonia, that could be methanol, and these two materials that could be further use for other uses. Ammonia, for instance, would be applied mainly in the fertilizer markets, but it could also.
Be used as a fuel methanol.
It could be used as a fuel or as a raw material for other processes as well. So there's a very interesting project in Chile, for instance, that they actually already commission that they are producing methanol from green hydrogen and capturing CO two from the atmosphere, producing methanol and then transforming the methanol into synthetic gasoline, and that synthetic gasoline is going to be exported to Europe. That's one example of how the international demand is going to play out.
For use cases like aviation for example.
Aviation as well, Yeah, and ship transportation. Both methanol and ammonia could be applied.
So it's either user or ship it, which then brings us all the way back to supply chains again and seemingly a very hot topic this year. And my question is when it's being shipped, is it being shipped as methanol? Is it being shipped as ammonia? Are we actually shipping tankers of hydrogen.
Now we're shipping as ammonia or methanol. It depends on what the off taker is planning to do with the derivative. So this first case in Chile, they're shipping as a synthetic gasoline already, so the product is already finalized and ready.
To be used in Europe.
The many projects are aiming to ship as ammonia and then in Europe first they would transform the pemonia into other fertilizers and methanol the same case.
So what are the policies in place that are really spurring hydrogen on in the region, and perhaps pick the countries where you see the most favorable environments.
So for now, we see very little concrete policy in the region. We see hydrogen strategies, which are not actually policies. They are they are a plan that the country put out to give signs for the private sector and also for.
Development banks for instance.
But I see Chile as the more mature market in the region, as they put the first green hydrogen strategy in Latin America in twenty twenty, and.
It was a very well structured strategy.
They have very well defined goals for electoralizer capacity and very ambitions goes.
It's actually the most ambitions goals if.
We compare other strategies in the world. They aim to have twenty five giga OTTs of electoralizers by thirty for instance, and they also have other very well defined goals such as the levelized costs of hydrogen at one point five dollars per kilogram of hydrogen which occur into our projections is realistic. And they also put up plans of what the demand would be if it would be more focused
on domestic market or international market. According to their strategy, they would first focus on domestic demand and then in the midtime they would become a large exporter. But in reality, what we are seeing is that projects are they are planning more to be exported first, as a domestic demand signs are not here yet.
So Natalia with these stated goals, that's great, but how do they actually get translated into action in the region without clearly defined policies.
Yeah, it's a good question.
What we see so far is that the strategy that was established in Chilea was important to give concrete signs for both the private markets and for development banks to
support these projects. And when we compare the capacity to plan in Latin America overall, across all countries, we see the largest pipeline is in Chile, and I believe that it's clearly linked with the fact that Chile positioned themselves in twenty twenty with well defined goals, and with that we also saw multilateral development banks coming to support these projects as well. So initially we saw a very symbolic support with only fifty million dollars to support these projects,
which is actually nothing. But now we are seeing more deals being revealed. IDB and the World Bank are going to follow up with more significant support for these projects.
So really development banks are providing a lot of the financing. But then at the same time you're really seeing well, essentially the countries making perhaps an easier permitting process and moving things along. Is that fair to say, Yes and no.
Chile they plan to have two main hubs of hydrogen, one in the north and one in the south. The north would be mainly powered by solar and in the south it would be powered by wind, which could reach up to seventy percent capacity factor, which would be the highest in the world.
However, we haven't.
Seen like concrete wind farms actually being operating in the area right now, and that is in Patagonia, so there is a big debate right now if projects in the area they're actually going to be able to acquire environmental permit because it's a really protected area. There's no so much infrastructure in the region, and the government wants to both protect the area but also allow this industry to
flourish in the market. So it's a really a big challenge for the current administration, and we still need to see how it's going to be developed.
So there are goals without necessarily policy incentives. So my question really is do you think, given that the goals are considered fairly ambitious, that they're going to reach them or are they really more of a stated objective and a direction of travel for some of these countries.
Yeah, the latter, definitely.
We don't believe that Chile is going to achieve the twenty five gigawatts target because it's too ambitious.
And even if all the support was put in.
Place, they don't have right now the planned capacity to reach that goal. And they also don't have all the environmental permit policies that they need, concrete signs and port infrastructure.
And many many aspects are missaying.
Still, can I just bring in what I think is a relevant point just to kind of add to what Natalia is saying, which is that Chile's hydrogen strategy was amazing. It came early on, it was very ambitious. The electrilizer target was like similar in scale to the EUS, so it was ambitious and it came out in December twenty twenty. Brazil, for example, still doesn't have a fully elaborated national hydrogen strategy,
although one is coming soon. But one thing I wanted to point out that I think is very optimistic and positive for the region, which is that Chile's hydrogen strategy came out under the past administration, which was of a very different political orientation than the current one than Borich who's currently president, you know, very kind of famous and kind of rock starish president of Chile, guys in his thirties. And similarly, there have been very significant sort of political
swings in much of the region. But the positive and what I think is a key point here is that although you know, this has been called a pink tide in Latin America where the political pendulum has swung to the left, basically the energy transition policies and plans that have been put in place under past administrations have seen continuity. There hasn't been like an abandonment of goals that were put in place by by governments of different directions. Mexico
being an exception. So I just think that's sort of like an important macro point about the region, and it's relevant for hydrogen and Chile, as it is for wind and solar in Brazil.
And as much as I'd like to see domestic energy production coming from some of these sources not being politicized, certainly they do tend to fall on this left leaning government space. So for those who are not familiar, can you just expand a little bit on what is the pink tide?
Sure you could argue that it began a couple of years ago with the elections in Mexico, in Argentina of Amblo and Fernandez respectively, certainly sort of left leaning administrations in those countries, and then more recently the election of Petro in Colombia, Borich and Chile, and then Lula most recently in Brazil. So pink tide is I think a funny way of putting it, but referring to leftists or censor leftist governments across the major markets or major economies
of the region. And there are a number of other examples. Those are just the big ones.
So I'm actually going to lead us to a last section where I'm going to ask you a couple questions on whether or not we should keep watching something or it's kind of something that we shay ignore because we be and ef we keep our eye on a number of different things across different regions around the world, and that can come from business all the way through to policy. And so in the watch or ignore category, should we be watching or ignoring? Voluntary carbon offsets.
One hundred percent watching and one hundred percent watching in Brazil. So Brazil accounted for just a few I think. I think as recently as two years ago was like a couple percentage share of the global voluntary carbon market. I think last year was twelve or thirteen percent. It has some of the largest potential globally to produce offsets, tied to obviously being home to the largest rainforest in the world.
Also, in watching and ignore, any changes to the auction space.
Watching definitely, well, we're going to see auction auctions is a very important thing for the region overall. I would say Chill is going to be holding a very big auction this year that we haven't seen since should tell than fifteen And with that came as some important modifications which is going to increase the competitiveness of renewables and starch.
So for now we have a touch on this. But Chile has a big problem in terms of transmission bottlenecks, and advancing transmission lines and allowing more storage projects are solutions to increase grit flexibility. So that is why these next auctions in Chile are going to be very much focused on that.
Okay, and so this last one something that we've been globally watching that given what's rolling out in Latin America, watch or ignore? Should the region Maybe not US, because we certainly are looking at this, but is Latin America closely watching or ignoring natural gas prices?
So it's difficult to generalize, but in Mexico natural gas is very cheap and abundant thanks to proximity to the US. In the case of Brazil, it's very important in years of low rainfall when hydrogeneration is down and then it has a huge impact on the market. So right now probably ignoring, but next year possibly watching, particularly in the case of Brazil.
Okay, Natalia and James, thank you so much for joining us today.
Thank you so much.
Thank you. Dana Bloomberg.
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