Emerging PV Markets: Analysis and Insights

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Demand analysis of emerging PV markets: El Salvador of South and Central America

Country profile

El Salvador is the smallest country in Central America. It has a total land area of 21,040 square kilometers and a population of approximately 6.42 million. The country’s economy maintains a solid momentum of development, with an annual GDP growth having stayed at 2.3%–2.5% in recent years and registered 2.5% in 2018. International credit rating agencies Standard & Poor’s and Fitch Group assign El Salvador a rating of B-, which indicates stable economic prospects.

Thanks to foreign investment in local information and communication infrastructure, as well as electricity grid, El Salvador received a foreign direct investment of USD 435.9 million in the first half of 2019, an increase of USD 148.5 million, or over 50%, compared to the same period last year.

El Salvador has a tropical climate. Its coastal region and lowlands are characterized by a hot and humid weather and mountain areas by a cool weather. The dry season lasts from November to April whereas the rain season from May to October. The country’s annual temperature averages 17–25 °C.

El Salvador receives an average daily solar radiation of 5 kWh/m2.

Renewable energy development in El Salvador

To diversify the country’s energy mix—a goal mandated under the National Energy Policy 2010-2024—El Salvador has played an active role in the development of its renewable energy sector. Today, more than 60% of the country’s energy is sourced from renewables.

Source: CNE

El Salvador has focused on developing solar PV and wind power in recent years. It assigned 94 MW of generation capacity through auctions in 2014 and 170 MW in 2016, with solar and wind power respectively constituting 214 MW and 50 MW of the total. Thanks to a sharp reduction in renewable energy costs, bids continue to decline from auction to auction, with the final price decreasing from USD 123.4/MWh in Round 1 auction to as low as USD 49.55/MWh in Round 2.

Last December, the El Salvadoran government held a renewable energy auction to procure 20 MW of solar and 8 MW of biogas. The outcomes of the auction have yet to be announced.

No further measures have been introduced into El Salvador’s agenda on renewable energy development. So, the country’s PV demand will mainly come from tendered projects for the short term.

Solar policies and outcomes in El Salvador

The development of the El Salvadoran solar industry depends largely on auction and independent power producer (IPP) mechanisms. So far, the country has assigned some 214 MW of capacity through two rounds of auction. Notably, most of the projects awarded in 2014 had been commissioned in 2018. Those assigned in 2016 were mostly financed by the end of 2018 and are due to begin construction between 2019 and 2020.

El Salvador saw the highest growth in demand in 2017 and accumulated 184 MW of installed solar capacity in the following year. Much of the demand came from projects auctioned in 2014.

Source: IRENA

However, with its PV industry at the nascent stage, El Salvador depends largely on foreign developers and financing institutions for its development of solar projects. International companies, including the Paris-based Neoen, Dutch development bank FMO, and the AES Corporation, a U.S.-based power company, have all engaged in developing IPP and tendered projects in El Salvador.

The El Salvadoran government has yet launched any measures needed to support the development of solar PV or other renewable sources. The local PV market may continue to depend heavily on tendered and IPP projects for the short term, and once tendered projects are all commissioned, IPP projects would pick up the slack to dominate the market.

El Salvador–China trade: Module import and export

From the first to third quarter of 2019, El Salvador imported 265 MW of Chinese modules. Of which, 230 MW was shipped by Jinko, which represented nearly 90% of total shipments. Most of these modules were probably used in the tendered and IPP projects from the Round 2 auction. If tendered projects are all furnished with Chinese modules shipped this year and only IPP projects sustain the domestic PV market next year, there would a significant decline in China’s module shipment to El Salvador.

Conclusion

As the smallest country in Central America, El Salvador promotes solar as well as other renewable energy sources through auction system, and relies on foreign developers and financing institutions in constructing solar projects.

Two large-scale renewable energy auction rounds, including solar energy projects, have been held in El Salvador. Through the analysis of the Chinese module shipment to El Salvador, Chinese modules will have been pulled in for all the tendered projects by the end of 2019 and the country would import significantly fewer modules from China starting 2020.

Without any new policy to foster the development of solar energy or other renewables, the local market will continue to rely on tendered and IPP projects for the short term. Once tendered projects are all commissioned, El Salvador’s demand will mainly be sustained by IPP projects.

 
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