Sun shines on Ecuador's solar sector

A solar boom will provide investment opportunities of all shapes and sizes, writes Quito-based Joaquín Martínez, a Strategy Analyst at Avanti...

Ecuador is on the cusp of a renewable power revolution. Growing awareness of the need for renewable generation, coupled with pioneering projects has kickstarted growth for the clean energy industry. With some progress underway, Ecuador will deliver huge growth in investment opportunities over the next few years. Solar generation looks particularly attractive.

Why solar?

Ecuador is already a green leader. Between 82-85% of Ecuador’s electricity generation comes from renewable sources. Yet, wind and solar produce less than 1% each, signalling enormous growth potential. Hydropower in Ecuador has been hit by the high-profile failure of Coca Codo Sinclair dam, which is severely underperforming, currently producing below a third of its installed capacity. Development of new hydroelectric projects is hit by increased regulatory oversight and political uncertainty, limiting the issuance of construction permits. Likewise, wind projects also suffer as authorities keep modifying the terms to qualify for environmental licences. If one is lucky enough to be approved, operation permits take years to be issued.

Unlike hydroelectric and wind, solar, especially at the small scale requires minimal involvement from government authorities. There are no complicated contract term negotiations with government ministries or complicated processes. For instance, the current wait-time to connect a private solar generation to the national grid is around three months. This expedited installation process is fuelling solar growth. The complicated approval permits which hydroelectric and wind projects suffer from, are not a problem for solar projects.

Ecuador’s solar advantage

Ecuador enjoys a comparative advantage in relation to other countries: its location on the equator gives 12 hours of sunlight throughout the year. This prolongs the solar daily production time allowing a slightly higher production of electricity per unit of cost. In other words, Ecuador can produce solar electricity for more hours each day than other countries. Production intermittency and peak production capacity, which are common concerns in renewable projects, have slightly more predictability in Ecuador. In addition, given Ecuador’s perpendicular solar radiation, it is not necessary to mount panels over tilting structures allowing more cost-effective projects.

The prize - in numbers

Solar-generated electricity in Ecuador is quickly expanding. One critical element is price, with the cost of solar equipment falling 90% over the last two decades. Similarly, the technical know-how has expanded, allowing cheaper installation costs. This has shortened the payback period of solar investment from 20+ years to currently between 5-7 years. These opportunities, however, are available for small, medium and large-scale investors. In that past, solar had a cost-prohibitive structure. Today, solar adoption can start with an investment of only $1,000. Small-scale solar installations go from $1,000 to $40,000, generating production capacities from 1kW to 30kW, according to Jorge Andrés García of Energycontrol. The growth of solar panels demand for small-scale projects has grown almost triple digits over the last years, signalling a rapid deployment driven by the residential demand. Although economies of scale make bigger projects more cost efficient, many cost barriers have been effectively displaced.

Ecuador is already a green leader. Between 82-85% of Ecuador’s electricity generation comes from renewable sources. Yet, wind and solar produce less than 1% each, signalling enormous growth potential. Joaquín Martínez, Strategy Analyst, Avanti

One interesting project is the 1.5MW solar plant installed by Grupo KFC earlier this year in Intag, a community close to Quito. The project cost around $1.1million and is intended to power 13 of the chain’s restaurants. Opportunities for bigger projects are also available. One recent example is the signing of El Aromo development, a solar production facility in the northern coastal province of Manabí (a coastal province) which will receive an investment of $150million and have an installed capacity of 200MW. Ecuador has fiscal incentives to promote the development of all sizes of solar projects. For instance, panel imports are exempt from import and sales tax, as well as income tax deductions.

Opportunities ahead

Ecuador’s solar development will be boosted by innovative policy design that attracts a wide range of private sector players. Businesses in many industries are called to participate in distinct forms. For instance, the finance and banking system can introduce solar credit lines for small and medium-sized businesses. Consulting firms can educate small businesses of their options to decarbonise their operations. Although often small businesses want to reduce their environmental footprint, they don’t know where to begin. The adoption of solar requires necessary information such as payback period or the available tax incentives. For that reason, one very interesting opportunity is educating small businesses on their alternatives in solar adoption; this is one among many other opportunities that remains to be capitalised in the Ecuadorian market.

Local firms will also need to remain at the frontier of technological know-how. As the installation of solar production continues, the industry will require building the accompanying maintenance services for cutting edge technological systems. External actors are called to bring the expertise, training local technicians and maintenance teams. Cooperation between involved parties, as well as innovative thinking will accelerate Ecuador’s goal to adopt renewable production methods. In this quest towards a fully renewable Ecuadorian electricity grid, investors of all sizes will find plenty of opportunities in the years to come.