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LatAm renewables holds its breath over Trump effect

ANALYSIS: Donald Trump hasn't endeared himself to Latin America, but in some scenarios he could be good news for renewables growth in the US's southern neighbours, says Alexandre Spatuzza

Like every other industry in the region, Latin America’s fast-growing wind and solar sectors are holding their breath to see what a Donald Trump presidency means for them – and there is plenty to gain or lose.

They shouldn’t expect any early answers, warned Ramón Fiestas, head of the Latin American arm of the Global Wind Energy Council (GWEC), who said it would take at least three months after Trump is sworn in to "see what is his real political project".

If events play out in a certain direction, Trump could actually spell good tidings for growth prospects in Latin America’s solar and wind industries, which will suddenly assume a greater significance in the global clean-energy push.

That could happen, for example, if a decisively anti-renewables Trump prompts more US businesses to look south for opportunities, potentially boosting competition in Latin American markets.

Whether because of increased long-term uncertainty in the US’s domestic renewables market or through the effects of a weaker US economy – and consequently the US dollar in relation to other currencies – Latin American countries are expected to continue, and even strengthen, their renewables policies, mostly based on competitive tenders and long-term PPAs.

“Geopolitical instability is one of biggest allies of renewable energy, because by relying on their own energy resources countries can increase supply security,” Fiestas pointed out.

Argentina, Brazil, Chile, Mexico, Peru, Uruguay and several smaller Central American nations have in the past few years implemented policies to reduce dependence on fossil fuels and drought-ridden hydroelectric dams through an increase in solar and wind capacity.

According to the International Renewable Energy Association (Irena), installed renewable energy capacity topped 35GW in 2015 up from under 15GW in 2010, and the trend is due to continue as nations look to cut power prices and create jobs.

But with his divisive approach Trump is by no means a welcome presence in Latin America, and there is considerable regional trepidation over potential downsides.

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“Whatever policies he pursues, the election of Trump is likely to sour relations with virtually every country in Latin America, where he is widely disliked,” wrote Peter Hakim, president-emeritus of the US-based US-Latam relations think-tank Latin America Dialogue, just before the elections.

Mexico is in the front line of Trump’s anti-LatAm rhetoric, and the US’s southern neighbour has already been the worst affected, especially due to the Republican President-elect’s recent comments on trade.

With the Mexican Peso’s plunging against the US dollar, local central bank authorities were quick to call a press conference to appease markets the day after the election.

“Trump has directly expressed doubts vis-a-vis NAFTA, the Trans-Pacific Partnership and explicitly against firms such as Ford and others investing outside of the US and concretely in Mexico. I expect at least some negotiation of NAFTA from Trump’s perspective and this, without a question, would generate a lot of uncertainty in Mexico,” Enrique Dussel Peters, a foreign policy specialist at the National Autonomous University of Mexico, told Recharge.

With many of the winners of the country’s recent renewable energy tenders relying on US imports for equipment, especially solar, uncertainty is sure to affect strategies. By 2018 no less than 5GW of wind and solar needs to be built.

"If there is a real risk of trade barriers, the import of US products to the Mexico projects will accelerate before 2018"
Josefin Berg, IHS Markit

“If there is a real risk of trade barriers, then the import of US products to the Mexico projects will accelerate [before the 2018 deadline],” Josefin Berg, senior global solar demand analyst at IHS Markit told Recharge.

Bets are on over whether some of the worst of Trump’s comments against renewables, free trade and relations with Latin America will be enacted, or were just campaign bravado.  

“Trump is a businessman and as a businessman he understands economics and how companies work, so I don’t think he will move to cause harm to business,” says GWEC’s Fiestas.

But if the new Trump administration really does disrupt the rhythm of the US’s domestic renewables market, the news could be even better for Latin America.  That could mean US companies, or the US units of global solar and wind equipment makers, focusing on the growing demand in the region, therefore increasing competition with European and Chinese suppliers who currently have the upper hand in Latin America.

In the sights of US companies would be the annual 1GW-plus renewable energy tenders in each of Argentina, Brazil, Chile and Mexico, as well the expected entrance of Colombia, which is preparing new legislation to open up its renewables market over the next two years.

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“The solar industry in Latin America has its own drivers and Trump threatens [commercial, investment and immigration] flows going into the US, not the flows towards other countries,” said Manam Parikh senior Latin America analyst at GTM Research. “If there is a downturn in the local renewables market in the US, companies will look for business down south, as they are already doing. Mexico, being so close, could benefit.”

Except for Brazil, most of Latin America has set up tender policies looking at importing equipment and quickly attracting investment through US dollar-denominated PPAs, and lower import taxes on solar and wind equipment.

Brazil could see its fledgling renewables supply chain in the firing line if US renewable players are really forced increase their activities abroad. It is the only big player to have local-currency PPAs and a 3GW-a-year local wind turbine assembly park, which is not yet competitive enough to face any kind of imports.

Still, as Brazil completes its transition from local-currency, public bank financing to a more international-reliant capital structure, it has room to remodel its relations with the rest of the world, including in its sights Trump’s new inward looking policies.

Until the dust settles, Latin American nations will be doing their sums to see whether Trump’s ascent to power will be better served by keeping current pro-renewables policies or bolstering them.

Clean energy supporters worldwide will be hoping Latin America’s renewables markets have the strength to brush off Trump’s anti-globalisation rhetoric.

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