Solar is gaining ground in Latin America, but challenges remain, from financing, permitting and local content laws to the need to lower costs while maintaining quality as prices tumble at auction.

By Adam Critchley

Solar is set to surge in Latin America in the coming years, above all in Mexico and Chile, where prices for the resource have hit record lows, but there are still obstacles ahead, according to developers and financiers.


Both Mexico and Chile will hold auctions in November of this year, but the downward price trend per-megawatt hour in both countries, while making solar more competitive compared with wind and combined cycle, threatens developers’ margins while at the same time making financing less feasible.

“The biggest problem Mexico has is the high costs of project development, due to the higher technology costs, and the lead-in times.”

Asier Aya - Jinko Solar

Asier Aya - Jinko Solar

One such company is China’s JinkoSolar, which won projects at auction in Mexico, and the company’s managing director for the Americas at the company’s electric power division, Asier Aya, is optimistic of the opportunities the country harbours.

“Mexico is responding very well and is seen favourably by commercial banks,” he tells Solarplaza. But he remains cautious, however.

“The biggest problem Mexico has is the high costs of project development, due to the higher technology costs, and the lead-in times.”

As a less mature market than Chile, for example, he identifies a lack of readiness on the part of the authorities and excessive regulation, which leads to “many surprises” and additional, hidden costs, and which in some cases could lead to project delays.

“In Argentina, the costs are lower and we are getting permits approved much more quickly, for example,” he says as a comparison. 

Local media reported in May that JinkoSolar is planning to install a module manufacturing plant in Mexico’s Yucatán, a state in which contracts to build various PV plants were awarded in the country’s second power auction last September.

But Aya points out that low prices are not good for everyone.

“The solar prices at auction are very aggressive, and I don’t think they can go much lower, in the same way that module and inverter costs, which have already dropped considerably, can’t go much lower.”

However, he sees Mexico as becoming even more attractive in terms of it being a regional competitor given the depreciation of the Brazilian real, for example.

But he also cited the permits required in Mexico, to work close to archaeological zones, for example, and environmental regulations, as well as the consultations required with indigenous communities, in addition to what he perceives in some areas of the country as a lack of regulations for construction, but subsequent the need to pay exorbitant charges to local authorities.

“They have the impression that [solar developers] are like mining companies and have plenty to spend, but we are all adjusting our costs and have very tight margins.”

“They have the impression that [solar developers] are like mining companies and have plenty to spend, but we are all adjusting our costs and have very tight margins.”

He says that solar developers who the first to develop projects under the new legislation find there are surprises to deal with.

“It’s an immature market, and we are opening the way,” he says, but sees such obstacles as temporary, and that while such permit procurement could delay the start of projects, he does not envisage serious delays, or any danger that projects will not be executed as a result.

Alessandro Orpelli - Fimer

Alessandro Orpelli - Fimer

Italian inverter manufacturer Fimer, which is already active in Mexico (750+ MW supplied) and Chile, supplying a number of solar projects, also sees huge opportunities in Latin America, which is the company’s most important market worldwide, according to Alessandro Orpelli, director of the company’s commercial solar division.

He says that industry events in the region, such as the upcoming Solarplaza conference focusing on Latin America, are extremely important for expanding the company’s reach in the region.

“We see big competition with Spanish companies in Latin America, as they have the advantage of having the language and perhaps have it easier. Mexico and Chile are big markets for us, and South America has the advantage of Mercosur, meaning they are integrated markets,” he says.

In Mexico, the company is supplying components to a project under development by Enel Green Power in Coahuila state.

But despite Mexico being a growing market for the company, he rules out Fimer installing a manufacturing base in the country.

“We will continue to manufacture in Italy, which makes sense for our business model, although we are ready to supply local content if needed.”

But with solar prices dropping, he acknowledges the need to cut costs, while maintaining quality.

“We are now delivering solutions that are more compact and have more power, and developing new systems, such as silicone carbide technology, and looking at all the options to reduce costs and transfer the advantages to our partners,” he says.

“Commercial banks don’t have the resources and can only loan short-term. This limits debt availability, while in Brazil, for example, only local development banks, like BNDES, can offer long-term loans for such projects.”

Long-term financing still remains a challenge for solar projects in Latin America, however, according to Fernando Cubillos, head of energy and principal investment manager at the Inter-American Investment Corporation (IIC), which is the private sector arm of the Inter-American Development Bank.

“Commercial banks don’t have the resources and can only loan short-term,” he tells Solarplaza. “This limits debt availability, while in Brazil, for example, only local development banks, like BNDES, can offer long-term loans for such projects.”

But, as we explored in an earlier article, the procurement of BNDES loans is dependent on complying with local content rules, and which can be seen as stymying solar projects.

Financing characteristics also vary widely across Latin America, depending on the market, he explains.

“Some developers in Brazil seek preferential or subsidized financing, and structure their projects with local content and BNDES financing, while others avoid local content and are financed from the exterior, but for which the financing costs are higher.”

“In Brazil, the currency for financing is reals, as PPAs are in reals, unlike in other countries, where they are in US dollars, but in Brazil the terms are shorter, for 10 or 12 years, and are for only six years in Argentina, and which don’t match the length of the PPA agreements, whereas in Chile a loan could be for up to 18 years.”

Fernando Cubillos - IIC

Fernando Cubillos - IIC

“Some developers in Brazil seek preferential or subsidized financing, and structure their projects with local content and BNDES financing, while others avoid local content and are financed from the exterior, but for which the financing costs are higher.”

He says that, in addition to banks, venture capital funds interested in long-term return on investment are starting to show an interest in financing solar projects.

However, the role of the IIC remains key to the development of projects in priority sectors in the region, he says.

The bank has set aside around $3 billion for project loans this year, approximately one third of which will be channeled to renewable energy, Cubillos says.

But there is no priority country, however.

The bank oversees financing in 26 countries, from Mexico to Tierra del Fuego, and seeks investment spaces where commercial banks cannot penetrate, with the largest markets receiving the largest concentration of loans, given the size of their economies.

“It’s like a family with 26 children, where all are equally important,” he explains.

“We focus on the needs of each country and its different sectors. We seek to have a role where we will have the greatest impact possible. Projects that have a large contribution to social improvement, and which promote gender equality, for example, are of greater importance.”

He says the development bank gauges which projects will have an impact on development, at a social level or, for example, by calculating how a renewable energy project will contribute to reductions in GHG emissions.

He says the bank carries out due diligence to ensure that loans are not awarded to projects in the hands of non-reputable groups, investigating their property and business networks to ensure they are not engaged in activities such as corruption, and other illegal activites.

“We have a specialized and very professional team with an extensive and classified database allowing us to know who is who in each project, and which kind of sponsors or stakeholders a project has.”

“It’s also very important that a project creates a good community relationship, to avoid conflicts during its development and operation,” he says.


JinkoSolar, Fimer and IIC will all be present at Unlocking Solar Capital LATAM, the only event that's completely focused on bankability issues in emerging Latin American solar markets. Join the conference to connect with top-level executives and engage in in-depth discussions to solve LATAM's solar energy funding gap - and get projects realized. Learn more on the website: https://latam.unlockingsolarcapital.com/


Adam Critchley is the Mexico energy correspondent for Business News Americas