Offshore wind: LatAm’s mission to Mars
Offshore wind in Latin America is generating conversation, if not power, as its governments attempt to meet ambitious energy transition goals. According to the World Bank, the region holds 8,000GW of potential technical capacity, with Brazil, Colombia, Chile and Mexico offering some of the best resources for implementation.
Yet project finance for offshore wind has yet to take off, and many industry experts at REFF LatAm 2023 do not expect this to change in the short term, despite posturing from well-known energy companies.
“There’s a lot of potential but the big difference between the Americas and Europe is space. There are still a lot of suitable locations that can be developed which are not as populated as Europe. There's not enough pressure to go offshore,” said Bernhard Stohr, head of growth at Sonnedix in Chile.
With ample land resources still untapped, Latin America’s case for more costly and more intricate offshore projects is hard to justify to investors.
“You're looking at 3.5 times the investment to generate the same amount of energy when comparing offshore to onshore. It doesn't make sense economically yet,” said Benny Villarreal, chief executive officer at Vive Energia.
To alleviate the costs on developers, governments in other parts of the world have supported the sector through subsidies.
“In Mexico, we have a merit-based energy system. The energy is dispatched depending on price and the government couldn't care less about the technology or how it's made. Why would the government want to put a subsidy on this? I don’t see it happening,” said Villarreal.
In the case of Chile, a near-term possibility for offshore wind could make sense off the central coast, where most of the population is concentrated and the demand is the highest. But even then, subsidies are hard to reconcile with.
“Authorities have seen renewable energy sources being quickly developed successfully in the past by the private sector so talking about subsidies is hard,” said Stohr.
In the near term, the panelists agreed that corporate mandates would be the only solution driving financing for these assets. In Brazil, Petrobras recently joined forces with Equinor to explore the development of 14GW of offshore wind capacity on a corporate mandate.
A lot of international majors and large developers have jumped on the trend in Brazil, as there is the added possibility of producing green hydrogen. Shell is teaming up with Eletrobras on feasibility studies after the oil company applied for environmental permits to develop 17GW of offshore wind projects. Other foreign companies, including TotalEnergies, EDPR, Engie, are among those who committed to offshore wind generation in the country.
Developments like these are made possible thanks to the regulatory frameworks in place. Countries like Brazil and Colombia drafted road maps which provide guidelines for offshore wind projects. But in other jurisdictions, like Chile and Mexico, that same framework is still lacking.
“That's really one of the first steps that governments need to take: Put together a framework, a structure where you can really streamline those processes from the government perspective and give that certainty to the investors, which is really important,” said Sami Asad Mir, a partner at Allen Overy.
A sound regulatory system is essential, as offshore wind projects often rely on cooperation between different government ministries and agencies to deliver environmental permits and licensing.
Despite the legal uncertainty and technology that's still in its early stages, it is agreed that eventually costs will come down, allowing for economies of scale on projects to become a reality in the future.
“We are sending people to Mars. We do so many things that are more difficult than building offshore wind farms. It's difficult for sure but we can overcome those challenges,” said Rodrigo Pedroso, chief executive at Pacto Energia.