The chicken or the egg?

Development of Latin America’s solar energy industry brings to mind the eternal debate about what came first – the chicken or the egg? Is a market needed for a solar energy industry to flourish, or vice versa? Keen to exploit their enormous solar potential, several Latin American nations are opting to create a solar energy industry in order to develop their market, while others appear to prefer to encourage increases in installed generation capacity, and yet others are attempting to do both by introducing local content quotas.

Market first

One of the countries that has chosen the “egg first” formula, meaning that they are working to develop the local market, is Chile. South America’s absolute leader by installed solar power (452 MW in January 2015), it is still without a single module factory and does not show any sign of wanting one. The only specific announcement related to module production was made three years ago when the authorities in the country’s Arica y Parinacota region revealed that Spanish firm Eurener and Chilean partner Celtex planned to invest $5.5 million in a plant with a production capacity of 20 MW, a deal that in the end fell through. But the Andean country does make mounting structures, with the solar power plant Amanecer Solar CAP being a prime example. According to newsreleased by mining company CAP, which owns the 100 MW solar power plant built by SunEdison, the solar farm, which went into operation in 2014, uses steel structures fabricated by its subsidiary Cintac.
Central America could also be viewed as choosing to develop a market before developing an industry. Except for a 15 MW module factory opened last February by Alba Tech Green Energy in El Salvador, the solar energy industry there is notable by its absence in a part of the world that this year intends to install almost 400 MW. This volume represents a huge leap for the market that, at the end of 2014, only had around 15 MW of solar capacity in operation. The most ambitious plans in the region are found in Honduras, which anticipates installing between 250 and 300 MW this year.
In the Caribbean, which so far hosts one module factory in Saint Vincent and the Grenadines and another 15 MW factory in Cuba, the bankruptcy of Spanish firms like Isofotón and Pevafersa put an end to manufacturing projects in the Dominican Republic and Puerto Rico. However, one of the region’s oil-producing states – Trinidad and Tobago – could sponsor an integrated solar factory to supply the Caribbean market despite the fact that the country itself does not currently have any plans to install solar power plants. This takes us to the nations that have opted for the “chicken first” approach of developing an industry and then a market.

Manufacturing first

Argentina presents one of the most idiosyncratic cases in Latin America. Although it still only has a tiny market (10 MW in operation and almost 15 MW planned for this year), the country nevertheless has three fully functioning module factories, placing it second – behind Mexico – in the Latin American ranking by number of module manufacturing plants. Solartec has been in business in La Rioja for almost three decades and, since February, the region has also been home to a 10 MW factory run by Led Lar. Led Lar now plans to double its capacity after signing a finance agreement with the central government. Argentina’s third module factory, capable of producing 12 MW per year, is operated in San Luis by LV-Energy. However, without a shadow of a doubt Argentina’s biggest industrial solar project at present is the 71 MW integrated PV turnkey plant in San Juan that production equipment manufacturer Schmid Group will equip for the state-owned energy provider Energía Provincial Sociedad del Estado (EPSE). At the beginning of this year, the German manufacturer announced that production in the factory is due to start in October.
Nonetheless, the production equipment category’s undisputed leader remains Mexico. Although the country’s installation volume (150 MW) leaves a lot to be desired given its potential, a fact mainly attributable to the slow and convoluted energy sector reforms under way that have yet to make solar power’s role clear, Mexico is home to the biggest manufacturing volume in Latin America to date. Mexicali is the location of Latin America’s largest solar module factory. The facility, which has a capacity of around 400 MW, is owned by U.S. company SunPower. Last November, the government of Baja California announced that SunPower planned to invest a further $15 million in the plant and to raise the number of employees from 1,100 last year to 1,500 this year. Meanwhile, ERDM and Solartec, in Veracruz and Guanajuato, respectively, also intend to augment their production capacity.
Similarly, in December, German equipment manufacturer Schmid revealed that it will supply a 110 MW solar module and cell line to ERDM Solar, increasing the xAdvertisementlatter’s solar production capacity from 60 to 170 MW. Production on the new line is due to start in the third quarter of 2015.
Solartec, which has module, cell and wafer production lines, is also in the process of expanding. According to reports in March by Mexican newspaper El Economista, the company recently acquired the equipment of German module manufacturer Algatec in order to increase its capacities. Last year Solartec already acquired the equipment of German manufacturer Bosch to produce wafers and, in 2013, the firm bought a cell production unit from a Belgian manufacturer.
Other companies with module factories in Mexico include Japan’s Kyocera, which has a 150 MW facility in Tijuana; the U.S. company Jabil Circuit, which has 45 MW of solar production capacity in Chihuahua; and Solarvatio, which has a 12 MW assembly plant in Oaxaca. All these manufacturers are now waiting for the market to develop, a market in which around 3 GW of photovoltaic projects have already been authorized by the CRE, Mexico’s energy regulatory commission. Everything indicates that the local industry, which currently operates in the export market, is well positioned for the solar power projects in the pipeline of the country.

Brazil follows its own path

Brazil has decided to circumvent the dilemma of whether it is better to have an industry first and then a market, or vice versa. Instead the country is charting its own course.
Two of the things that the government has made clear is that it wants to create its own solar energy industry. The yearned-for Brazilian solar market showed encouraging signs of emerging in the last quarter of 2014 and the country now plans to hold a series of annual 500 MW tenders. In parallel, the government introduced specific local content quotas for firms seeking funding from the Brazilian Development Bank (BNDES), which, in the initial phase (which runs through to 2017) stipulates that modules should be assembled locally. The first response to the local content regulationspublished in mid-August 2014 took just a week to arrive, when S4 Solar do Brasil announced plans to build a module assembly factory with an annual capacity of 100 MW in the state of Goiás. Employing technology provided by Switzerland’s Meyer Burger and China’s Confirmware and Jinchen Machinery, the firm will assemble crystalline modules to meet demand from the local market.
Since the announcement of the BNDES’ local content conditions for companies seeking funding for solar power projects, plans to set up factories have become increasingly firm.
Brazil’s first solar module plant, a facility with an annual capacity of 25 MW, was opened in 2011 in the state of São Paulo by Tecnometal, featuring machinery provided by U.S. manufacturer Spire Corporation, which will shortly be joined by several new arrivals. In February, Valinhos’s municipal government stated that a module plant set up by Globo Brasil Indústria de Panéis Solares is ready to go into operation. The country is also host to a number of other definite projects, among them a module manufacturing plant operated by Pure Energy in Alagoas which is also the first such center to obtain funding from the BNDES, receiving BRL 26 million ($8.2 million). There are also plans, although in this case somewhat less definite, to set up integrated solar factories. Work on a feasibility study for the 680 MW Green Silicon integrated factory, planned to be built close to the world’s biggest hydroelectric power plant in Itaipú, began in November.
For production equipment manufacturers, Brazil is an extremely attractive market. Meyer Burger is one of the firms with further plans to deliver equipment to the country. Other manufacturing projects in which it could be involved include a factory in the town of Aracati in the state of Ceará. In February, sources there revealed that talks were under way with EL-Connection and Meyer Burger about establishing a solar equipment factory nearby that would generate around 1,200 jobs. Ener Brasil also has plans to build a module production plant with a capacity of 50 MW using Meyer Burger machinery in the town of Fortaleza. Even more definite plans have been announced by German manufacturer J.v.G. Thoma, which in January stated that it would deliver a 70 MW turnkey line to Brazilian company Renovasol. Production on the site is expected to start this year.
Although the government plans a solar project contracting volume via annual 500 MW tenders, all of which are eligible for funding from the BNDES if the local content requirements are met, the sector is calling for at least 1 GW of solar projects per year to meet the forecast demand for local content, explains the Executive Director of the Brazilian solar energy industry association Absolar, Rodrigo Lopes Sauaia. Several industry players are already making moves ahead of the schedule set out by BNDES, among them Spanish inverter manufacturer Ingeteam. Even though the local content quotas will not be applicable to inverters until 2018, the Spanish firm, which has a production center in Valinhos, expects to have this factory ready for producing solar inverters this year, “as many of our clients have been awarded contracts” in the first round of solar tenders held in October, which awarded contracts for around 1 GW. These projects will need to be operational by the end of 2017, although by that date inverters made in Brazil will still be optional.
Brazil is not the only Latin American country that believes that setting local content quotas will help industry and market to develop side by side. The pioneer in this regard is Uruguay, which in May 2013 launched a tender for 200 solar MW with a local content requirement for 20% of the project. The outcome was the announcement last year by China’s Sky Solar and Uruguay’s Tecnogroup of plans to build a module factory with a capacity of 50 MW in Paysandu. Mounting structures are also to be produced in the facility.
Latin America’s diverse approaches to exploiting its solar resources are not going to tell us whether it was the chicken or the egg that came first. However, it will be worth seeing which group achieves most in the long term – those promoting development of a local solar energy industry or those happy to enjoy solar power’s benefits without worrying too much about where the components come from.