Despite falling system costs, growth in the region will be fairly constrained, particularly in Mexico, where bottlenecks are slowing the pace of renewable energy development. Developers in the region will also face increased competitiveness in the market due to lower system costs and reduced power prices. While falling costs will be a driver of future solar demand, major Latin American countries will face headwinds that will stunt market growth over the next five years. Solar PV installations in Mexico will grow by only 7 percent this year compared to 2019, a slowdown that is linked to increasing political and regulatory uncertainty and high development costs due to pandemic-related delays. The slowdown will continue into the 2020s. No new auctions are planned in the foreseeable future due to an unfavorable shift in policy from Mexico’s government and new measures that don’t encourage private investment in the renewable electricity sector.
Brazil’s growing utility-scale pipeline faces a somewhat different set of challenges. Although Brazil’s pipeline of utility-scale projects keeps growing, these projects’ operational and economic feasibility hinges on an increase in energy demand, which in turn could jeopardize their operational timelines. Capacity additions will slow by around 2023 when the government is expected to remove transmission rate subsidies for renewable energy projects. Power oversupply and a decrease in demand in both Brazil and Chile have challenged solar project economics and increased the competitiveness of bilateral power-purchase agreements. Delays and difficulties in obtaining governmental permits have become an additional burden for developers in countries like Brazil and Mexico. In Mexico, the process of obtaining proper permitting and interconnection agreements has become increasingly challenging for developers under the current government, and the COVID-19 pandemic has only made matters worse. Even as utility-scale solar growth is hindered in some countries beyond 2021, system costs are still expected to fall. High demand for bifacial module technology will continue to drive down soft costs; the same trend could materialize with system costs as these module prices become competitive with monofacial module prices. Furthermore, total solar demand in these major Latin American countries will also be driven by the distributed generation segment as prices continue to drop, particularly in Brazil and Chile.