My fiancée and I are planning our honeymoon at the moment. After weeks of looking at brochures we’re no closer to booking anything, but I have become pretty familiar with how Latin American countries sell themselves to tourists. The pitch generally goes something like this: “[insert country name] is a land of contrasts. A long coastline is set against some of the world’s highest mountains, while the interior has vast swathes of jungle/desert/wilderness to explore.” It’s not that they’re lying. Indeed nearly every Latin American country I’ve ever been to has spectacular landscapes. But for those competing for the tourist dollar, so do all their neighbours, unfortunately.
But this breathtaking, extreme geography isn’t just good for tourism. It also creates ideal conditions for renewable energy. Until now, renewable technologies such as wind and solar power have been slow to get off the ground in Latin America, but that looks like it’s starting to change. And that should throw up exciting opportunities for investors. And today I’ll share with you one great way to get in on this opportunity.
Why Latin America had a slow uptake of renewable energy
The daddy of all renewable energy is hydropower. Humans have been harnessing it for thousands of years, while modern large-scale hydropower plants are common across the world – including in Latin America. However, the next wave of renewable technologies – solar and wind – have been much slower to take off there. Indeed, according to the latest figures from the Global Wind Energy Council, Latin America has just 1.3% of the world’s installed wind power capacity, while its share of the solar market is even smaller.
One reason is that fancy solar panels or wind turbines were long seen as a luxury for rich countries to ease their consciences. It was not a serious way to provide power. Back in 2000, for example, these new technologies were far more expensive than a traditional thermal – coal, gas or oil – power plant.
Latin America also had more pressing priorities. Given the levels of poverty, many governments understandably preferred to subsidise food or schooling rather than solar panels.
There was also a lack of interest from the international renewable energy firms. In the last decade global renewable investment has shot up, first in Europe, then America and finally China. According to Bloomberg New Energy Finance, clean energy investment grew from $54bn in 2004 to $302bn in 2011, with around 80% of that money being spent in those three regions. The massive rise in demand, fuelled by subsidy schemes in the West and a pro-renewable five-year-plan in China, put enormous pressure on manufacturers. With waiting times going up, capacity constraints across the board and more contracts than they could handle, few firms felt the need to bother with Latin America.
What’s different now?
But in the last few years a lot of the factors listed above have disappeared or reversed completely.
The most important is the cost of renewable energy. The flood of investment in the last decade has encouraged competing manufacturers to design ever more efficient turbines and solar panels. As a result, the cost per kilowatt hour (kWh) has come tumbling down.
The rise of Chinese renewable manufacturers has also helped to reduce prices. While Europe went about subsiding the consumption of renewable energy, the Chinese shrewdly spent their subsidies on its production. Thanks to various types of government support – and lots of hard work and ingenuity – China now has several of the world’s largest renewable energy firms. And their low-cost products are helping to reduce prices further still.
Another change has been the collapse of renewable energy investment in Europe. Countries such as Spain, Italy and the UK have cut back on generous subsidies as they struggle to get to grips with their debt.
Of course, these developments haven’t been good for renewable energy firms. Unsurprisingly the collapse of a major market, combined with falling prices, has hit the industry hard. Many companies have gone bankrupt, while others now trade at a fraction of their former price. Even the seemingly all-conquering Chinese players are struggling. For example, this week Chinese solar firm Suntech, which was once the world’s biggest, lurched towards bankruptcy when it defaulted on some of its debt.
All in all it’s been a painful time for renewable energy investors, but it has a silver lining for Latin America. Desperate renewable energy firms are now looking for new markets, and Latin America looks very attractive.