Latin America gets a second wind

Wind capacity has been growing steadily in the region, but a confluence of factors could soon spur an offshore boom.

From the vast expanses of Patagonia to the thousands of miles of coastline that bisect the Atlantic and Pacific Oceans, Latin America is a region perfectly suited to renewable wind generation. Already, around 7 percent of global wind capacity can be found there, equivalent to 41.5GW, but that barely scratches the surface of the region’s enormous resource potential.

The World Bank estimates that Latin America’s vast coastline could produce as much as 8,000GW in total offshore wind energy, led by Argentina with 1,870GW and Brazil with 1,228GW. Even the much smaller Uruguay boasts 275GW in total offshore potential.

Appetite among investors has also been building. Global Energy Monitor, a San Francisco-based NGO, estimates that more than 203GW in wind projects has been either announced or is in pre-construction or under construction across Latin America. If fully realised, this would lift capacity by almost 390 percent by the end of the decade.

“Latin America is one of world’s most established markets for private renewables investment, with capacity set to surpass 100GW this year and nearly half of that wind,” says Michael Harrington, partner, head of strategy and head of Americas, energy infrastructure, at global infrastructure manager Actis. “Brazil is leading the expansion, propelled by its roaring distributed generation sector, which will account for 40 percent of total wind and solar built in the region this year.”

A decade ago, Latin America produced just 3.5GW but last year added 5.2GW in newly installed wind capacity, the second-highest annual growth on record in the region. According to the Global Wind Energy Council, Brazil led the booming growth with an almost 80 percent share of additional capacity.

Latin America’s largest country has yet to develop any offshore wind projects but holds around 23.6GW in total installed onshore wind capacity. Until recently, a combination of factors including the easy availability of land, high operational costs and lack of regulations deterred offshore investment, but this is starting to change, particularly with the long-term attraction of green hydrogen.

Mapping the opportunity

In June, Macquarie announced that its specialist offshore wind company Corio Generation will develop five offshore wind projects in the country, ranging from 500MW to 1.2GW and stretching down Brazil’s northeastern, southeastern and southern shorelines.

“The Brazilian coastline offers vast potential for the development of offshore wind power,” says Alberto Büll, a partner at Brazilian law firm Veirano Advogados. “The federal government has expressed a growing interest in the development of Brazil’s offshore wind power capacity, and state-owned energy company Petrobras recently announced the signing of a letter of intent to study the economic viability of offshore wind projects.”

In December, the Brazilian government also announced 71 applications for offshore wind licences. If fully approved, these combined projects would add 176.6GW in additional domestic wind capacity. Among the largest, the Ventos do Sul joint venture between French energy firm ENGIE and Spanish renewables specialist EDP Renewables, located in the southern state of Rio Grande do Sul, would add 6.5GW in proposed capacity.

“There are no legal restrictions in place that would prevent private sector participation in Brazilian offshore wind power projects,” adds Büll. “However, Brazil still does not have a comprehensive and single regulatory framework governing every aspect of the development of offshore wind projects.”

In August, the Brazilian Senate passed a bill proposing a new regulatory framework for offshore projects, which has since been sent to the House of Representatives for further amendments. Brazil’s wind power association, ABEEólica, argues that a suitable regulatory framework will be needed to maintain momentum and attract further investment.

Brazil’s 2050 National Energy Plan aims to reach 194GW in total wind capacity by mid-century, a jump of around 722 percent from current levels. Global Energy Monitor estimates that the country has around 160GW in total prospective capacity, leaving Brazil with two decades to find the remaining 34GW if all projects reach start-up.

Green hydrogen potential could also motivate more projects. Brazilian energy researcher FGV Energia says that the country could become one of the world’s largest producers of green hydrogen, using power from its abundant offshore wind resources.

Brazil’s Energy Research Office, an agency that supports the Ministry of Mines and Energy, has recently begun examining the country’s green hydrogen potential. The state of Ceará in the north has also created a working group to study the possibility of launching a regional hydrogen hub, and there has been similar intent at Porto de Açú, in Rio de Janeiro.

“There is growing interest in using offshore wind power specifically to allow green hydrogen production in Brazil and perhaps allow for the exportation of green hydrogen to European markets,” says Büll. “That said, some market players expect that green hydrogen production will be first developed in combination with onshore energy projects, and currently there is no government policy in place.”

Beyond Brazil

The Brazilian government is not the only country in Latin America looking to spur offshore investment in wind energy. Last year, the Colombian authorities took a decisive step towards developing Latin America’s first offshore wind farm by launching the country’s offshore wind roadmap. The report identified around 50GW of accumulated potential along the Caribbean coastline, particularly in the east of La Guajira.

Today, Colombia holds roughly 3.9GW in operating capacity but could add 12GW of wind to the grid by the end of the decade if all projects are realised. The Latin American country’s electricity grid is dominated by hydropower, with fossil fuels deployed to offset intermittency, but natural gas reserves have been falling and high wind speeds are seen as an obvious solution to energy security and decarbonisation concerns.

“Low-cost, large-scale offshore wind power generation could be used to produce green hydrogen and other zero-carbon energy vectors,” says Carlos Umaña Trujillo, partner at Colombian law firm Brigard Urrutia. “These products could not only enable the decarbonisation of local industries such as agriculture and transportation but could potentially be exported to other consumers.”

More recently, private investors have also looked towards the long-term potential of Colombian wind power. Last year, Denmark-based Copenhagen Infrastructure Partners signed an initial agreement with the Barranquilla city government for up to $1 billion to develop a 350MW offshore wind farm.

“Colombia is particularly interesting when it comes to offshore wind as there are load centres in the Caribbean region, which are not very well connected to the rest of the country,” explains Robert Helms, partner at Copenhagen Infrastructure Partners. “In and around Barranquilla, natural gas is a relatively expensive way of producing electricity whereas there are ample wind resources if developed.”

The project was initially signed under the previous government, and Helms says that discussions are ongoing with the new government to progress the project. Last year, President Gustavo Petro won the presidential election running on a pro-green agenda.

Appetite for projects is a good sign for the government, but one concern is likely to be Petro’s recent attempt to seize control of Colombia’s utility regulations, aimed at curbing electricity tariffs.

“Regulatory uncertainty has the potential to impact current and market participants’ profitability and cashflow visibility, which affect their decision-making processes,” explains Jose Luis Rivas, a senior director at Fitch Ratings. “Political interference has the potential to discourage investments.”

Historically, tariffs allowed utilities to remunerate capital investments, maintenance and operational costs as well as to guarantee a fair return on investment. Removing the independent regulatory framework, which sets the tariff-setting process, risks undermining investor confidence and jeopardises the required expansion of the system, adds Rivas.

Other countries in Latin America also present opportunities for investors. Supported by the government, Chile is targeting at least 60 percent of its electricity supply from renewable sources by 2035, and 70 percent by 2050. “The wind regime in Chile is very attractive – given the geography of the country with such a long coastline, and extensive mountains and valleys,” says Eileen Fargis, lead manager at Ecofin US Renewables Infrastructure Trust, a London-based investor focused on US renewable energy assets.

Currently, French energy firm Total Eren is developing the 10GW H2 Magallanes wind farm in southern Chile, one of the world’s largest onshore wind projects. The wind farm is set to produce 800,000 tonnes of green hydrogen annually when it reaches startup in 2027, ramping up to 25GW in wind capacity by 2030.

Renewable projects in Chile have particularly benefited from the government’s PMGD regime, an incentive scheme launched in 2005 to spur the development of green projects. President Gabriel Boric has also taken a strong stance on decarbonisation since taking office last year.

Across the border, Argentina shares a Patagonian coastline and similarly has plenty of offshore wind potential. However, historically the country has proved a much riskier investment than its neighbour. In 2018, the IMF bailed out President Mauricio Macri’s government for $55 billion, the largest sum in the organisation’s history, and it has frequently been beset by high inflation and political volatility.

“The Argentina government attempted to incentivise investment in renewables through its RenovAr auction programme, but it was fraught with problems,” adds Fargis.

Politics in Latin America has noticeably shifted to the left in recent elections, with many new governments setting ambitious net-zero targets and promising to move away from fossil fuel dependence. No doubt, this is a positive trend for renewables, but politics in the region can be slippery and governments still have much to do to scale private investment and realise Latin America’s enormous wind potential.