The 500 million inhabitants of Latin America and the Caribbean consumed 735,000 GWh of electrical energy in 1999 -- and, to meet future demand, the region is estimated to require 60,000 MW of additional capacity over the next ten years. Wind power plays a fractional part in both present and planned generation; development has been piecemeal and in quite specific poles such as Costa Rica, northeastern Brazil and southern Argentina. Beyond these areas, however, there is interest -- and in some cases concrete plans -- to develop more.
Wind market players ranging from sector-focused companies such as Enron Wind of the United States, Wobben Windpower (owned by the owner of Germany's Enercon), and Denmark's NEG Micon, to all-round power companies like Spain's Iberdrola and industrial giants such as Chilean copper miner Codelco, are either considering wind projects or actively involved in them. So what is it that attracts them and what can they and others expect to see develop in the region?
The area's population is growing along with per capita power consumption; hydrocarbon reserves are declining and climatic instability such as El Niño (which was first detected off Peru's coast) has shown the risk of reliance on hydro power, traditionally Latin America's generation backbone. In 1999 it accounted for 57% of the region's installed generation capacity and 62.5% of actual generation. Against this background there would seem to be plenty of scope for renewables.
Strategic vacuum
Renewable energy, however, requires long term planning, and the long term has historically been a blind spot with regional governments in Latin America. Many countries are in economic depression and thus wallowing in power surpluses because of suppressed power demand. The long term consensus is that economies and demand will pick up, but "the perceived glut of power generation currently installed" is certainly a disincentive to wind generation, says Ian Baring-Gould, of the US National Renewable Energy Laboratory (NREL).
Even in times of energy shortages when alternative energies are sought (such as the severe 1999 drought in Chile that led to power rationing), it is diesel-fired solutions that are generally chosen to breach the crisis. They are easy and quick to install with start-up costs which are low compared with wind. The high up-front capital costs for an installed wind kilowatt are a major disadvantage for cash strapped countries, however cheap they may be in the long term. When immediately cheaper power sources exist, they will be favoured.
Up against these obstacles, wind needs governmental push, but this push is dependent on governments understanding the issues involved and the resource itself. Wind is a new technology and therefore little known compared with conventional technologies. These, too, often have local industries supporting them, witness Brazil's high number of hydroelectric supply and engineering companies. As a result, the conventional power industry has built up a convenient cushion of political influence that can resist changes to the established rules of the game. This was the case in Argentina, where a wind generation law was passed in 1999. Political pressures ensured that it was never implemented.
Political shuffling
Such government policy U-turns to win votes are part of the game in Latin America. Dan Waddle, director of Latin American programs at the US National Rural Electric Co-operative Association (NRECA) has a prime example. NRECA agreed to develop an energy strategy for Peru's government. Eight months prior to elections, President Alberto Fujimori (ex-president as of last month) suspended the country's power market privatisation, of which the rural electrification program was a part. "That it put a wrench in the works is an understatement," Waddle says.
Nicaragua is another example, like that of Argentina, of a wind project falling by the wayside following a government about-turn. Iberdrola's local consortium had a power purchase agreement (PPA) in place to develop a 24 MW wind farm at Rivas when the government privatised power company Enel, the would-be buyer (Windpower Monthly, November 2000). Although this was not fatal to the project, it has led to delays as developers have had to renegotiate the PPA with Union Fenosa, the buyer of Enel's distribution spin-offs. Furthermore, in Mexico, a 50 MW wind plant for Juchitan, with a proven wind regime and fully favoured by state-owned power giant CFE, will remain on the planning table until president-elect Vicente Fox's new government takes office this month.
Governments are often keen to develop small-scale wind projects as part of larger schemes. Although encouraging in that they clearly want to further the use of wind, the approach often means that the wind element gets caught up in delays to the whole scheme. The Tac island wind-diesel project, of two 10 kW turbines from American company Bergey, in Chile's Region X Chiloe archipelago, is just such a small cog in a large wheel. "Somewhere in that larger plan the project got slowed down tremendously," Waddle continues, detailing how NRECA and project partners had to explain the new project every time a new government took office. "It could have been built easily two years ago, it could have had two years of operating time by now," he adds.
Another stumbling block lies with electric utilities, who are often wary of a new power source. Not even wind heavyweight Enron has been able to make progress in two major possibilities, Puerto Rico and Honduras. In Honduras it has had to renegotiate a PPA with state-owned power company ENEE, while Puerto Rico power company Prepa required Enron to do further wind studies. Price is not even the bone of contention. In Honduras the price is established by law and in Puerto Rico Prepa is obliged to buy from any generator providing power at less than its own costs or the costs of power from existing PPAs.
Excess capacity in some countries also makes for unwilling utilities. Colombia has three times more installed capacity than demand and power rates have been driven through the floor. "There is no economic driver to install renewable based power," says Baring-Gould.
Rural cost advantage
In other areas, however, wind can be the cheapest option. Mexico has no specific laws or concessions to favour wind and yet power giant CFE has installed a number of facilities based purely on cost analysis.
Where wind can really compete is in rural electrification or isolated systems where it is economically competitive with existing (generally diesel-fired) facilities or the option of grid extensions. Such has been the case in Chiloe and in the isolated systems and rural projects in Argentine Patagonia. "It ends up being an economic question: is it more cost effective to electrify a town using grid extension, diesel fuel or renewable technologies?" Baring-Gould explains, "Right now most of the countries in South America aren't doing that calculation; they are spending tons of money on rural electrification but they aren't doing that calculation."
External financing
To make the jump from being a rural electrification alternative to a mainstream power source, wind in Latin America has to reduce its cost. That is where external financing from overseas aid agencies plays an important part. The involvement of institutions such as the Global Environment Facility (GEF), the Inter-American Development Bank (IDB), the International Finance Corporation (IFC) as well as individual countries' own development banks can bring down project costs with cheap money.
But the watertight guarantees and meticulous project preparation these organisations demand take time to prepare and authorise. Cash strapped utilities will often hold out and delay projects to qualify for the financing plans on offer. A case in point is Brazil's Ceara state distributor Coelce, which time and time again has put off the tender for the development of its 30 MW Paracuru and Camocim wind projects due to delays in financing approval from Japan's Bank for International Co-operation (JBIC).
Yet despite its delaying disadvantage, external financing has in many cases undoubtedly opened the door to wind power, both in Latin America and elsewhere. Small scale projects facilitated in this way raise awareness of what wind can do. Once the initial investment is made, local financing -- public and private -- soon follows, says Bergey president and CEO Mike Bergey. The boom for wind in India, which overseas aid helped create in the 1980s, could be repeated in Latin America, he ventures, but exactly when "is a question of what the pressures are on the electricity supply or on environmental concerns because it takes those sorts of market drivers to overcome the cost advantage of conventional fuels."
The Latin America representative for a Denmark based organisation, the International Network for Sustainable Energy (Inforse) agrees that external finance is a two-edged sword: "It is one of the factors [behind the slow uptake of wind) but is not the only one nor is it the most important," says the group's Marcelo Alvarez.
More important, he says, is the big scene and the part that climate change policies can play on shaping generation policy. "Two big motors for the development of alternative energy in the region are going to be the internationalisation of externalities and the evaluation of environmental costs of conventional sources," he says. Enter the Kyoto question: "Clean Development Mechanisms (CDM) of the Kyoto protocol will make it possible to secure funding at very low rates to be able to develop renewable projects," Alvarez believes.
The large scale cash credits -- in addition to income from power sales -- that carbon trading would allow have already led to greater interest in larger-scale wind operations in the region. But the uncertainty surrounding the whole issue has at the same time put projects on hold. Although it is proceeding with feasibility studies for a 37.5 MW wind farm, Codelco expects the deciding factor to be whether carbon credits are implemented or not, according to the company's environment director, Santiago Torres.
Time for action
Estimates of wind power potential float in the gigawatt range (box), but without regulation the wind markets will not evolve -- even with favourable financing. A source from ABB in Brazil speculates that 600 MW a year of new wind generation in the country is perfectly possible. "It's easy once the price is established ... the conditions here are fantastic," he says. But Brazil has been waiting for regulation for what seems like an eternity -- and despite the predicted power shortages from the explosive growth in power demand, the government has turned to a priority $11 billion thermoelectric expansion plan that, in theory at least, will add 13,000 MW to the country's generation plant by 2003.
Argentina is working towards a goal of producing 10% of national generation from renewables (excluding large scale hydro) by 2020, but asked if that goal is attainable, Inforse's Alvarez replies: "Not with the existing regulatory framework." Colleague Roque Pedace is more optimistic. He points out that wind turbines could be combined with the 4 GW installed hydroelectric capacity of the Comahue generation plant to create hybrid systems where wind is used to pump water into reservoirs, and then used when the wind drops.
The Argentine power market is seen as one of the most competitive in the world, with the cost of delivered power falling to $0.02-0.025/kWh from $0.07-0.08/kWh prior to sector privatisation in the early 1990s. The use of wind in competition against abundant natural gas reserves in an absolutely market oriented economy such as Argentina's would show the region what wind is capable of.
Steps so far
Indeed, construction of a 50 MW wind plant in Argentina is expected to start by year end. And Spain's Elecnor has an agreement with the province of Neuquen to install 600-800 MW of wind power over the next ten to 12 years. "For that to happen depends on a lot of factors," Elecnor's Joaquin Torres Gandarias concedes, but the agreement at least shows the potential for the country to increase its installed wind capacity.
Ecuador has taken the step of creating a legally established fixed price for wind and other renewable energy, along with clearly defined obligations of the country's dispatch centre, Cenace, on when to use that power. The obligation even includes transmission discounts for renewable power. What at first glance seems like the ideal opportunity for wind investment is, however, tempered by the lack of proper wind resource maps. Investors are also giving the country a wide berth due to its pronounced political and economical instability.
Market forces are at least helping wind by stimulating the grid development needed to bring power from a large scale wind farm to centres of population. Wind farms of, say, 100 MW in countries like Bolivia, Peru and Ecuador, would exceed the capabilities of the grid. New interconnection is resolving that problem. Peru interconnected its two separate grids in October, Brazil already has a 1000 MW interconnection with Argentina and will soon more than double that, Chile plans to interconnect its two principal systems and then combine with neighbour Argentina, while Peru and Ecuador, at war as recently as 1997, plan to connect their border areas. The isolated system in Argentine Patagonia has over 1000 MW installed capacity and could quite easily absorb 100-150 MW of additional generation; its planned interconnection with the national system could result in the area becoming a major wind exporter to the rest of the country.
Which way now?
Faced with the long term issues of rising power consumption, limited financial resources and finite fossil fuel reserves, individual Latin American countries will probably base their generation decisions on what best suits their particular interests; regional organisations in Latin America, such as southern cone trading block Mercosur, are not as focused on long term strategy as the European Community, for example. They concentrate more on trade issues.
What makes a particular option good for one country is not necessarily applicable to its neighbours. While Argentina and Brazil can feasibly be expected to develop further wind facilities, Chile and Venezuela are unlikely to follow suit. Chile is home to 10% of the world's volcanic structure, thus geothermal power is the more likely renewables option, and Venezuela's tremendous oil, gas and hydroelectric reserves make the country something of a renewable energy backwater.
Wind "is not a panacea that a lot of people think," Mike Bergey says. If studied, explained, understood and regulated, however, it could certainly help Latin America to keep pace with demand, or at least reduce what the generation deficit might otherwise reach. "No matter how many wind turbines, solar panels, mini hydro or geothermal plants are put into operation, they will not be able to provide what fossil fuels have provided until now," the UN's Economic Commission for Latin America and the Caribbean energy expert Manlio Coviello says. For him, meeting future demand depends not only on wind and other renewables, but also energy efficiency and even the possibility of a re-emergence of nuclear power, hinted at by the first ever hemispheric nuclear power symposium in Miami in December.
Wind, it seems, will have to compete on its own against other generation sources and against the lack of market regulation, at least for the time being. It will need all the financing, be it multilateral or carbon-linked, that it can get. On the plus side, it is regarded as the cheapest of the renewable sources in Latin America, with the exception of hydro, and is predicted by some to be the cheapest of all power sources within five to ten years. In Latin America it has not started to win all-source bidding, as it has done in the US Midwest, but if the long term price advantage comes true, the predictions that it could make up a significant percentage of the region's generation profile in the next ten to 20 years could well turn out to be true.
