Vestas sees answer blowing in the wind

Tuesday, January 31, 2017

Latin America's wind power growth over the past decade can largely be attributed to a proliferation of projects in Mexico, Brazil and Uruguay. But new opportunities in Chile and Argentina are also drawing the attention of investors, according to Angélica Ruiz Celis, the Latin America head of turbine manufacturer Vestas.

BNamericas: Prices at the last auction in Chile averaged US$47/MWh. Are such low levels sustainable?

Ruiz Celis: Prices were not so low when taking into account that the wind farms need to go into operation in 2021 and 2022, and that the levelized cost of electricity [LCOE], as proven over the last few years, is expected to continue on a downward trend. As many sources prove, the LCOE decreases significantly as investments in renewable energy increase and wind technology develops.

For example, higher towers, larger rotors, optimized power modes, efficient and preemptive O&M services that maximize energy production, et cetera. So Chilean electricity prices will be lower within four or five years, when the projects will need to have been installed. In addition, the PPA [power purchase agreement] is linked to the US consumer price index, so inflation will also play its part.

BNamericas: Just how low do you think wind prices can fall? Do you envisage them leveling out any time soon, or even rising?

Ruiz Celis: Auctions have clearly proven to be a very efficient mechanism to allocate electricity capacity at lower prices, since developers compete against one another to offer the best price that will make them win the project. We cannot speculate a number, but the trend clearly shows that prices are going down.

Morocco, Mexico, Chile, Brazil ... these countries have decreased their energy prices thanks to auctions. Each country presents different market conditions as per their renewable energy resources, infrastructure investments, grid interconnection, et cetera. So prices will go down in a different fashion, but history shows that prices tend to drop. The second Mexican auction held in September is a clear example.

BNamericas: Brazil has seen rapid growth in the wind segment in recent years. But several power auctions were canceled and/or postponed last year due to falling electricity demand. Are you concerned that Brazil's ongoing recession could pose a threat to the country's wind expansion plans?

Ruiz Celis: No, we are not. Despite the negative impacts of having no wind power auctions last year, the long-term perspective is still optimistic for the sector. It is important to recall that the 10-year electric energy expansion plan foresees that wind will reach 24GW of installed capacity by 2024. In September, Brazil also ratified its COP 21 commitment to a 37% emission reduction by 2025.

This will boost the renewables segment, where wind plays a key role, due to the country's [strong] winds and other advantages, such as competitive prices and local value chain. Nevertheless, the long water crisis [from 2013 to 2015] has contributed to convince the government that diversifying the current energy matrix is a need because it is still very dependent on hydroelectric plants. 

BNamericas: Vestas' order intake in the Americas dropped 23% in the first nine months of 2016. What was the reason for this?

Ruiz Celis: Vestas' order intake in 2016 was great. The results will be announced on February 8, but I can let you know that we are satisfied with our performance in Latin America. Order intake has been concentrated towards the year-end due to the number of auctions in the second half of the year, such as in Chile, Mexico, Argentina and Brazil, but this has been the case for the whole renewable energy industry, not just Vestas. In fact, our performance in this region has been good.

In 2016, Vestas opened a factory in Brazil and enhanced its market position with 370MW in new orders. We have also reinforced our presence in Argentina with new orders and a new office. In Uruguay, we have managed to maintain our leadership with over 30% of market share, and we have contributed to boost wind energy development in Honduras with two new projects.

BNamericas: Argentina awarded 59 renewable energy projects with a combined installed capacity of 2,424MW last year. Has the country finally got its act together on the renewables front?

Ruiz Celis: Argentina has clearly made a strong bet on renewables by putting the RenovAr program in place. In 2011, Vestas installed the largest wind farm in the country and we are happy to see that we are now again contributing to developing the Argentine wind industry. We have recently signed new contracts and increased our presence in the country with a new office, so our prospects are indeed very positive.                                                                                  

BNamericas: Along with Brazil, Mexico has also seen rapid growth since the introduction of energy reforms three years ago. How do you see the Mexican market now and what are the challenges?

Ruiz Celis: According to IRENA [the International Renewable Energy Agency], Mexico accounts for one fifth of all energy use in Latin America, and demand is growing fast. The country has made a strong bet on renewable energy development and it aims to generate 33% of its electricity needs from renewables by 2018, so investments to develop this industry are increasing.

The new law that came into force in 2014 has propelled new projects, and wind energy development is a key topic on the agenda now. In just one year, the country has held two electricity auctions and the prospects for growth are enormous. IRENA forecasts that by 2030, Mexico could have 30GW of wind capacity deployed. This is of course very promising for all industry players, from equipment manufacturers to utilities, developers and financiers. 

There are obstacles of course. Such a relatively nascent industry needs to overcome certain challenges, such as difficult access to financing, lack of infrastructure like grid connections in those areas where electricity is needed the most, or utilizing the most advanced technologies to develop low-to-medium wind sites.

Facilitating investments in infrastructure and access to financing with a stable rule of law is of vital importance. Regarding wind energy, an optimal supply chain and skilled labor are also relevant to develop the industry.

About the company

Founded in 1898 as a blacksmith shop in western Denmark, Vestas started producing wind turbines in 1979. It has 77GW of installed capacity and more than 63GW under service globally.