Central America has been increasingly moving towards renewable energy. Countries like Costa Rica generate over 98% of its energy from renewables, and Honduras with one of the largest solar shares in the world, show that Central America is a region ripe with opportunities. However, gaining economies of scale across the regions electricity grid, in comparison with its large neighbors Mexico and Colombia, could hinder investment and sector growth. One market we like is Honduras.
Partnerships with US Development Banks Offer Support
We believe the government initiatives in partnership with the US trade bodies and development banks will support the connectivity of the power grid in Honduras. We expect roughly $2 billion to $3 billion of infrastructure projects to be directed to expanding the country’s electrical grid.
“Only 75% to 80% of the country is covered by the power grid and Honduras has inland natural resources that can’t be developed because of the lack of grid connectivity” according to Paola Moreno, a consultant a Latam Energy Advisors.
The need for more wind and solar in Central America is vital, but we acknowledge the risks of blackouts as countries rely on highly variable sources of power like wind and solar. For example, a recent blackout in Costa Rica was caused by an imbalance of roughly 12% of demand during the business day.
We think better organization and cooperation across the regional power grid will help alleviate these blackouts. However, one risk for the region is that the private capital needed to expand the grid is also being sought in Mexico and Colombia, much larger markets for project developers and utilities.
Positive Fundamentals for Solar Projects in Honduras
Honduras has the largest solar share generation in the world at 10%, followed by Italy with 7.6%, Germany with 5.9% and Japan with 4.8%. This is exceptional when compared to the global solar share of 0.04%. Also, it is remarkable considering the size of its economy and regional socio-political uncertainties.
The major projects are Cinco Estrellas (61 MW), Choluteca I and II (50 MW each), Cohessa (50 MW), and Soposa (50 MW). We also expect an addition 60 MW to be added over the next two to three years, Nacome I (21 MW), Helios (25MW), Lajas (11.9 MW), and Fray Lazaro (5 MW).
Development Bank Support is Robust
“We expect Honduras to continue with its growing photovoltaic trend. Developers not only benefit from regulations and fiscal incentives, but also receive support from financial institutions” adds Moreno, a consultant at Latam Energy Advisors.
Since 2012, the Inter-American Development Bank (IDB) has assisted in the technical and financial feasibility of photovoltaic projects. Roughly 22 studies have been completed for new projects ranging from 40 kW to 3 MW of installed capacity. In 2018, the Multilateral Investment Guarantee Agency (MIGA) granted US$56.7 million in guarantees to three photovoltaic projects.
The positive fundamental backdrop for solar generation is being driven by the lower costs of solar technology and the expertise the region has acquired from previous projects. Photovoltaic module prices have fallen more than 70% since 2010, and the availability of local manpower has reduced labor costs formerly associated with foreign temporary workers.