Renewable Energy in Latin America

Overview and Trends that will shape the future.

Gustavo Stainoh, Research Analyst, Energy & Environment

August 6,2013

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Today’s Presenter

Gustavo StainohResearch AnalystEnergy & Environment

Frost & SullivanLatin AmericaBuenos Aires, Argentina

Gustavo Stainoh joined Frost & Sullivan in 2012. Since September, he accomplished research services in the renewable energies in the Southern Cone, Andean Region and Mexico working with the latest information and focusing on supporting policies, the impact of local industries and processing industry characteristic figures.In 2010 he co-authored the chapter on “Renewable Energies” in “Public policy, civil society and legislative agenda” of the Argentinean Senate.

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Occasion for this Analyst Briefing

• Latin America’s strong GDP growth rates coupled with the challenges shown by conventional power generation systems have led local governments to promote new alternative energy sources.

• The region has been gaining knowledge and developing supportive policies and local supply chain industries.

• This briefing is supported by Frost & Sullivan renewable energy industry studies for Latin America.

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How is Latin America Growing?

Source: ECLAC; World Bank

Latin America GDP AAGRs 2004 –2012

6.8%Peru

4.8%Ecuador

4.7%Colombia

6.2%Veneuela

2.7%Mexico

3.9%Brazil

6.3%Uruguay

7.0%Argentina

4.6%Chile

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Impact of GDP Growth in the Addition of RE Installed Capacity

Third conditionMarket penetration

Second conditionActive focus on renewables

First conditionLong term energy planning goals

Economic growthGrowing electricity demand

Support policies implementation

Industry growth

Installed capacity add-on requirements

Feed

back

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Outlook – Mexico

• SENER strategy includes ambitious installed capacity goals, including CC and Wind. (4.9% and 7.8% AAGR)

• Mexico opened the borders to foreign and private IPPs. Regulation is efficient and proved positive results. LAERFTE.

•US shale gas looks foward to increase CC installed capacity. Does it impact RE?

Third conditionMarket penetration

Second conditionActive focus

on renewables

First conditionLong term energy planning goals

The availability of primary sources

Funding from public institutions and international organizations

Government promotion of renewables

Expansion of the national natural gas pipeline system

Drivers

Restrain

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Outlook – Andean Region

• Excluding Venezuela, all countires have long term goals.

• Colombian regime prejudices large renewables. Ecuador focuses on solar PV. Peruvian public competiting bidding shows positive results.

• All countires have still significant unexploited large hydropower resources.

Third conditionMarket penetration

Second coniditionActive focus

on renewables

First conditionLong term energy planning goals

The availability of primary sources

Opportunities in the distributed power generation market

Unexploited small hydropower and biomass resources

Lack of experienced supportive policies

Drivers

Restrain

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Outlook – Brazil

• Brazil long term energy planning is consolidated in it’s 2030 PNE.

• Guvernamental focus on developing RE with several supportive policies: PROINFA, Taxes reductions.

• Recurrent energy crisis associated to a high dependent hydropower energy matrix benefits thermal power plants.

Third conditionMarket penetration

Second conditionActive focus

on renewables

First conditionLong term energy planning goals

High competitiveness of wind power

Local industry development

An electric grid expansion is still required

Drivers

Restrain

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Outlook – Southern Cone

Third conditionMarket penetration

Second conditionAcitve focus

on renewables

First conditionLong term energy planning goals

• Uruguay defined long term multi-party planning. Chile and Argentina focus on private and public short term projects respectively.

• Chile and Uruguay reached over 5% of share in 2013 through diverse supporting policies. Argentinean focus is lighter.

• Chile cancelled HydroAysen and Castilla for over 4.7 GW. Uruguay lacks of additional primary resources for hydro and thermal. Argentina focuses on YPF & shale gas development.

The availability of primary sources (Solar Chile and Wind Argentina)

Both three countries have energy deficit associated to hydrocarbon fuels imports

Most project are delayed in the finance stage

Drivers

Restrain

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Energ

y pr

oduc

tion

paym

ent

Renewable Energy Support Policies

Argentina X X X X X X X X

Chile X X X X X X

Uruguay X X X X X X X

Brazil X X X X X X

Colombia X X

Ecuador X X X X

Peru X X X

Mexico X X X X X

Source: REN 21 Report

REN 21 Renewable Energies Support Policies Dashboard, 2012

RE Targ

ets

FIT

Net M

eter

ing

Capita

l Sub

sidy

Inve

stm

ents

or p

rodu

ctio

n

tax

c cr

edits

Public

inve

stm

ents

Taxe

s re

duct

ion

Utility

quo

ta o

blig

atio

n

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2012 2013 2014 2015 2016 20170.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0

Wind Power TrendLatin America, 2012 - 2025

Mexico Southern Cone

Brazil Andean Region

2012 2013 2014 2015 2016 20170.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

Solar Power TrendLatin America, 2012 - 2025

Mexico Southern Cone

Brazil Andean Region

Renewable Energies Installed Capacity Forecast

Gastre Wind Farm1,350 MWGoldwind

Grupo CAP Solar PV100 MWSunEdison

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Key Trends: Local Industry or Imported technology?

MexicoLocal supply

support & market opening

• Political atractiviness▲• Active support policies and

promotion programms ▲• Limited procurement structure ▼• Increases average LCOE ▼

Argentina, Brazil

• Low country’s long-term benefit ▼• Active support policies and

promotion programms ●• Fast procurement structure ▲• Increases competitiviness and

reduces CAPEX ▲

Chile, Uruguay, Peru

Lower growth, more stable market Higher short term growth

Local Industry: RE as key local industry driver

Imported technology: Focus on developing RE

Impact on RE development Negative▼ Neutral ● Positive▲

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The impact of Shale Gas

Restrain? Driver?

• High efficient and cleaner gas turbines• Lower LCOE for CC gas power stations

rather than wind, solar or small hydropower

• Sustained development of the upstream gas industry

• Gas is still considered a clean fuel (low Nox emmissions)

Conclusion: gas instead of renewables

• Increasing the gas power stations fuel supply asserts the base load power structure and allows renewables to compete demand curve during peaks. Hydropower regulates the daily power generation.

Source; Energy Information Administration. Image source: US department of Energy.

1 2 3 4 5 6 7 8 9 10

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Typical daily power demand curve

Base load Peak hydro + RE

Demand

Rank Country (trillion cubic feet)

3 Argentina 802

6 Mexico 545

10 Brazil 245

1 2 3 4 5 6 7 8 9 10

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14

15

16

17

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Typical daily power demand curve

Base load Peak hydro + RE

Demand

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Successful Case - Chile

166 MW installed in 2013 -

50% of the add on demand

High economy growth and market

penetration12,847 MW in

planning stages (17,745 MW

total)

1,047 MW installed (June

2013)

Expected to overcome 10% by the end of 2014

Source: Centro de Energias Renovablesn (CER)

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Key Insights

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Excluding exceptions, there is an evident intention for developing the RE industry in Latam, leveraged by the global reduction of CAPEX.

2The following years will expose the effectiveness of the supportive policies and how they attract private investors.

3Strategies, planning and market penetration are imperative to guarantee a medium term development. .

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Q&A

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Analyst Contact Information

Francesca ValenteCorporate Communications & Marketing

(+54) 11 4777 5300

francesca.valente@frost.com

Gustavo StainohResearch Analyst, Energy & Environment

(+54) 11 4776 4433

gustavo.stainoh@frost.com

Gustavo Stainoh

Juliana PassadoreBU Leader, Energy & Environemnt

(+55) 11 3065 8471

juliana.passadore@frost.com @Frost_Latam @Frost_EPS

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The Frost & Sullivan Research

Southern Cone• Solar Market (2011)• Wind Turbines (2011)• Chilean Electricity Market (2011)• Argentinean Energy Market (2011)

Andean Region• Peruvian Electricity Industry (2011)• Wind Turbines (2012)• Renewable Energy (2012)

Mexico• Solar Power (2011)

• Geothermal Generation Market (2012)• Wind Turbines (2012)

Brazil• Wind Power (2012)