Mexico in the first quarter raised its attractiveness profile in the global photovoltaic (PV) market to close in on reigning leaders South Africa and Turkey, while the Philippines is now in the top 10 among the most appealing PV markets for the first time ever, according to new analysis from IHS Technology (NYSE: IHS).
Approximately 300 megawatts (MW) of solar projects are currently under construction in Mexico, of which 100 MW broke ground in the last quarter. The increased construction activity has pushed up Mexico’s solar attractiveness index to 43 from 40, making it No. 3 overall. A total of 327 MW is expected to be installed in Mexico this year, IHS predicts.
Outranking Mexico are South Africa in first place, with an index score of 67, and Turkey in the runner-up position, with a score of 45. In fourth place is Israel with a score of 42, followed by Switzerland with 40, as shown in the attached table. Last year’s No. 3 player, Romania, has fallen out of the top five and is now in ninth place, after solar subsidies there were cut in half in January.
The IHS attractiveness index for PV markets rates the allure to prospective investors, developers and manufacturers of emerging solar markets in countries throughout the world. Countries are rated in four categories, including macroeconomic climate, potential market size, project profitability and pipeline maturity.
Assessed on a quarterly basis, the attractiveness index takes into account 17 parameters within the four areas above. Profitability, as determined by power prices and the pull of incentive schemes, is deemed the most important factor for near-term attractiveness. Overall, the resulting index gives an indication of the emerging solar markets where current conditions support near and mid-term growth, with the rankings subject to fluctuation each quarter as policy schemes evolve and pipelines mature.
For the Philippines, the country is seeing 25 MW of construction at present, to be joined in the next few months by another 42 MW via signed power-purchase agreements (PPA). With some 117 MW to be added in the Philippines this year, up from just 9 MW in 2013, the Philippines will figure in the top 10 of the most attractive emerging solar markets. The country’s index currently sits at 38.6, up from 35.3.
“IHS sees signs of an increasingly dynamic PV environment that is boosting the attractiveness index of both Mexico and the Philippines,” said Josefin Berg, senior analyst for solar demand at IHS.
These findings are contained in the report, “IHS Emerging Solar PV Markets Tracker Q1 2014,” from the Power & Energy service and Solar Demand research area of IHS Technology. The total pipeline for the 40 countries covered by the report will amount to 43 gigawatts (GW) when construction is finished. At present 1.7 GW are under construction, but these markets together will install more than 5 GW of solar capacity by the end of this year.
Chile heats up—but at what cost?
In Chile, years of development are now resulting in PV projects coming online. But to avoid the tough competition brought about by PPAs, many developers are opting to sell at spot market prices, particularly in high-priced nodes of the grid, Berg added.
“IHS is flagging it as risky that a too-high concentration of PV projects under merchant schemes will suppress future power prices,” Berg remarked. “Close to 1 GW of PV projects is looking for financing in Chile, and revenues could face risks even if only a third of those are connected to the same nodes and linked to spot prices.”
In comparison, bilateral PPAs with electricity consumers are a safer option to guarantee revenue. But the competition here is fierce—not only with solar but also with wind.
Emerging markets are not without risk
Despite the attractiveness posed by emerging solar markets as areas with potential, the markets can be girded with regulatory risk, Berg noted. This is similar to apparently stable incentive schemes in Western solar markets that get upended because of market factors or other variables, such as the decision by a country to end an ongoing subsidy.
Among newly attractive PV markets, Puerto Rico is renegotiating signed PPAs for 1 GW of solar capacity, but only 167 MW have come out of the process so far with new contracts. Signs of caution are also coming from Ecuador, where licenses were revoked in December after contract breaches for 112 MW of projects granted earlier via feed-in tariffs.
Aside from regulatory risks that might limit the attractiveness factor of a potential solar market, the transmission grid has to be taken into consideration. If the grid is not ready to handle large additions to capacity, even bulging project pipelines may not see actual deployment.
In Pakistan, for instance, a major chunk of a solar pipeline consists of projects that have signed Memorandums of Understanding with the government in Punjab, the country’s most developed and populous province, to be part of a 1-GW solar park. However, the Asian Development Bank has expressed that it may not be able to fund the required grid infrastructure for the park, which essentially has now put the pipeline on ice.