SunEdison has been the dominant force in developing utility-scale solar throughout Latin America over the last year. With the initial public offering of TerraForm Global, the company is aggressively seeking new pipeline in emerging markets -- and there is no better place to start than in the most attractive global growth market where SunEdison already has a strong foothold.
In the second quarter of 2015, SunEdison’s cumulative market share of the utility-scale PV market stood at 25 percent, according to the Latin America PV Playbook from GTM Research. The company installed over 30 percent of the capacity in the region in four different quarters over the last 18 months, at one time accounting for 75 percent of the installed market in a single quarter.
FIGURE: Utility-Scale Developer Market Share in Latin America
Source: GTM Research's Latin America PV Playbook
SunEdison’s total dominance at this level is not likely to continue, as more developers enter the market and bring capacity on-line. The market already started changing in the second quarter of 2015, with Cohessa and Upower rising into the ranks of the top five developers for cumulative capacity solely on the strength of a few big projects in Honduras.
However, SunEdison will still be a top developer for the foreseeable future. According to our rankings, the company is in the top five for late-stage pipeline (megawatts under contract or construction), and in the top 10 for early-stage pipeline (megawatts announced or permitted). Furthermore, the company is poised to grow, with four large acquisitions or partnership agreements in the last few months -- GME, Renova, Latin America Power and Solarpack.
Latin America is key to TerraForm Global’s growth
Latin America will account for 4 percent of the global solar market in 2015 and grow by 39 percent on a compound annual basis through 2020. That’s impressive, but the region is still small compared to other markets.
So why did SunEdison President and CEO Ahmad Chatila spend about a third of his time talking about Latin America on the company's last earnings call?
SunEdison has ambitions for global domination of the energy space, and the TerraForm Global YieldCo is an essential component of that strategy. TerraForm Global will focus on emerging markets, and to ensure growth, SunEdison needs both greenfield development opportunities and a healthy pool of local developers for acquisitions.
Latin America is the most attractive region in the world for TerraForm Global. The solar project pipeline in the region is packed with opportunities. There are over 450 early-stage projects across Latin America, representing a 27-gigawatt pipeline, with about 90 percent concentrated in Chile, Brazil, and Mexico and a further 2.5 gigawatts in the next six countries (with over 100 megawatts in each).
Mexico and Brazil, in particular, hold a lot of promise as huge economies where PV is rapidly becoming economically competitive. The market is packed with creditworthy industrial offtakers; pricing for power-purchase agreements is inflated thanks to upward pricing pressure stemming from drought and over-reliance on thermal power as a backup; and insolation levels are high. Taken together, these factors spell solid profit margins for developers.
Latin America is important for TerraForm Global in other ways, as well. SunEdison rightly noted that most electricity demand will come from emerging markets -- and Latin America certainly qualifies as a growth market, with solar capacity in 2020 expected to be 200 percent higher than in 2015. What's more, it’s precisely the kind of growth SunEdison needs: 18 gigawatts of utility-scale installations are expected through 2020.
Latin America is highly accessible compared to other growth markets like China, where foreign developers are having trouble entering even as the country is expected to account for 20 percent of global demand over the next five years.
And the development risk in Latin America is more manageable than it is elsewhere. In markets like the U.S., U.K., Thailand, China, and Japan, SunEdison is highly exposed to changes in the incentive structure. There are risks in Latin America, but having a strong grasp on the regulatory structure and auction processes is the key to success in a largely unsubsidized marketplace.
We expect that Latin America will be a very important region for SunEdison as TerraForm Global expands. Furthermore, SunEdison will help develop the hallmarks of an established downstream solar industry in the region, with an active secondary PV project market, lower cost capital, and competitive power-purchase agreements.
Adam James is a senior solar analyst with GTM Research and the lead author of the Latin America PV Playbook.