El Salvador to hold 150 MW renewable energy auction

On Wednesday, El Salvador’s National Energy Council (CNE) announced that it will hold an auction with the aim of bringing online 150 MW of "non-conventional" renewable energy during 2018. These projects will compete in the wholesale market, with further details to be released by the end of the year.

This will make El Salvador’s second auction for renewable energy, following an auction for 100 MW in 2014. Solar PV swept that auction with 94 MW awarded, however there have been long delays and it is unclear how many of these projects have begun construction.

GTM Research Senior Solar Analyst Adam James says that El Salvador is an attractive market for PV development, despite some counterparty risk. "The real question is whether the auction will be structured in a way to secure projects that are likely to actually come online," explains James. "For example, will bond requirements filter out speculative bids?"

"If speculative bids and/or an oversubscribed auction drive down PPA rates, these projects may not be viable," James warns. He notes that if bids are too low, financing may be hard to come by.

Expectations for solar in the nation are high. USAID, which is supporting the auction, has forecast that a total of 170 MW of solar PV will come online this year and the next. GTM Research expects 206 MW-DC to come online from 2016 through 2018.

With USAID and other organizations, El Salvador is also studying how much wind and solar its grid can accommodate without excessive curtailment or deploying storage. In 2014 a mix of hydroelectricity, geothermal and biomass supplied 59% of El Salvador’s electricity, with the rest coming from fossil fuels.

Along with 11 MW already commissioned, El Salvador expects to reach 204 MW of solar PV in 2014. According to a study by CNE, this would meet 5.2% of the nation’s annual electricity demand.

With another 40 MW of wind anticipated, wind and solar would capacity would be equivalent to 21% of peak demand, which is still a fraction of the levels being integrated in Denmark, Germany and other European nations.

However, even more renewables are expected to be deployed across Central America, with electricity being traded in a regional common market. CNE anticipates that 4.2 GW of wind and solar will be deployed in 2018, equivalent 49% of the region’s peak demand.

With hydro, geothermal and biomass already representing more than half of installed capacity and annual generation, this will push the region to a grid dominated by renewable energy, with a limited role for fossil fuels.

Update: This article was modified at 3:15 EST on August 20 to include commentary by GTM Research