Success for solar in electricity auctions in Latin America

In Peru, Mexico and Chile, among other markets, record low prices have been set, in some cases as low as around US$ 30 per MWh. This has happened in a context of overcapacity of solar module production, which has generated pressure for the development of emerging markets.
In Mexico, solar energy even registered lower prices than wind energy. It was the first source by volume of electricity awarded in the two electricity auctions this year. In the auction last March, solar won three quarters and in September it won over half. Unlike in other international renewable energy auctions, in Mexico there are no categories for technology but different energy sources called ‘clean sources’ compete in the auction.
The Mexican case stands out at international level due to the large amount of projects that have been awarded, and the low prices. The import tax on solar modules was not an obstacle to the 1,796 MW (AC) that were awarded in the auction in March at a median price of US$ 44.9 per MWh. In the September auction, prices were even lower: 1,823 MW (AC) were awarded at a median price of US$ 31.7 per MWh, according to estimations by the solar association Asolmex. Altogether this means that this year more than 3.6 GW (AC) of solar were awarded in auctions.
The results in the Mexican auctions follow the trend of what has been happening in other Latin American markets in the last year. From a chronological perspective, it was in Chile a year ago that the new trend was confirmed. In an auction aimed to increase the participation of renewable energy in the Chilean electricity auctions, renewables won all the contracts because they offered lower prices than conventional energy sources. PV and solar thermal won one fourth of the 1.2 terawatt-hours awarded. The rest was awarded to wind projects. A PV project had the lower price with US$ 65 per MW hour and the median price for solar PV was under US$ 70 per MW hour.
A larger volume of solar was awarded in Brazil last year but at a higher average price. Specifically, in an auction with a category for solar energy that took place in November last year in Brazil, 1,115 MW of projects were awarded at an average price of BRL 297.4 (US$ 93) per MW hour. In Brazil, electricity auctions are in local currency unlike in other countries, so that currency changes have to be taken into consideration.
A big surprise happened in February in an auction in Peru, in which 185 MW (AC) of solar PV was awarded to projects at a median price of US$ 48. This was one of the lowest prices for solar in an auction. In this Peruvian renewable energy auction there was a specific category for solar PV.
Lower prices were registered in the first electricity auction in Mexico in which the lowest price in the auction was around US$ 35 per MWh for a solar PV project. Outside Latin America, two months later a record low price of US$ 29.9 per MWh hour was registered for a solar project in Dubai in an auction. In August, a record low price was registered for the whole of Latin America, US$ 29.1 per MWh for a solar project awarded in an auction in Chile. Although last September in the opening of economic offers again in the United Arab Emirates (UAE), this time in Abu Dhabi, lower prices were registered (US$ 24.2 per MWh).
Many countries see the low prices for solar and react rapidly. This is the case in Argentina, where 400 MW solar PV projects were awarded at an average price of US$ 59.75 in an auction in October. This RenovAr1 auction was launched at the beginning of this year. When the winners were announced two weeks ago, the Argentinean government launched a second round of this auction with a 200 MW quota for solar PV that will take place in November. Also, the renewable auction RenovAr2 is expected to be launched until May 2017.
Slower is the development of the process of a renewable auction for 150 MW launched last February in El Salvador, where 100 MW are expected to be awarded to solar PV projects and 50 MW to wind projects. As it has happened in other electricity auctions lately, including Argentina, some dates have been delayed due to the big interest in the auction. The results should be announced in January 2017.
Also over the next few months an important auction will take place in Brazil and electricity auctions are expected to be launched in countries where solar projects have already been awarded in electricity auctions. The auction in Brazil, which will have a category for solar PV, will take place mid-December. In Chile an electricity auction for 3.8 TWh should be launched in the next few months and by April 2017 the third electricity auction is expected to be launched in Mexico.
There are many differences between Latin American countries themselves and other markets for the different costs of the projects such as labor costs, land costs and financing conditions. Solar modules represent less and less in solar parks costs. However, the drop in solar module prices in the last year has pushed the development of emerging solar markets. It remains to be seen what will be the trend in the coming months and whether prices of solar in offers in auctions raise.
It also remains to be seen if all the awarded solar projects in the latest Latin American auctions are built in time. At the moment, it looks like electricity auctions have become the largest mechanism for the growth of solar parks in Mexico and other Latin American and International markets.