Solar energy most favoured renewable power generation source among South America G20 investors

Solar energy most favoured renewable power generation source among South America G20 investors

• South America is highly attractive to G20 investors, in particular those based in China and North America.
• Solar energy is the most favoured renewable power generation source for executives from Argentina, Brazil and Mexico, closely followed by onshore wind.
• Changing investment strategies and shifting attitudes towards renewable technologies is imminent.

A recent research report by global law firm Ashurst, Energy Transition Investment: Latest Trends across the G20, has shown increased interest in South America from G20 investors in renewable energy, energy transition and decarbonisation technologies.

The research tracks survey responses against Ashurst's 2020 Powering Change: Energy in Transition report and maps changes in attitudes towards renewable power generation and decarbonisation technologies. Based on a survey of 992 senior business leaders involved in energy investment decisions at their organisation, the findings provide an insight into how businesses are managing the transition to clean energy.

Companies based in China and North America are the biggest investors in the energy transition in South America from the G20, with 40% and 37% respectively doing so, according to their executives. A strong showing of European companies (26%) is also currently investing in South America or plan to do so in the next five years. Meanwhile, companies in South America also see their home market as an attractive investment opportunity, with 56% currently invested, committed to invest or considering investing in the region in the next five years, reflecting its favourable climate - the steady winds in southern Patagonia and the imperishable sunshine, as well as the plentiful natural resources. The region plans to diversify its energy mix, moving away from imported fossil fuels and reducing its carbon emissions

In terms of potential new markets, South America was voted the most popular region that G20 investors were considering over the next five years, led by respondents from India (29%), Turkey (28%) and Saudi Arabia (23%). Reflecting this increased investor appetite, in Argentina for example, the government is creating a market for attracting ~US$35 billion energy investment over the next few years, with approximately half making up renewable power. It launched a renewables program called RenovAr to target 20% of the country's electricity production from renewable sources by 2025.

Notably, only 58% of respondents from within the region said their organisation had already committed to a net zero target, which is a stark contrast to the global average of almost 70%, and the lowest of all countries surveyed. Corporate net zero targets are more common among organisations based in Europe (76%) and North America (76%) trailed by other markets including Australasia and the UK.

Given the political upheaval in the region, it is perhaps no surprise that 85% of respondents from Argentina, Brazil and Mexico said they had changed their investment strategies for the energy transition in the past year and would continue to do so. Reinforcing this, some 74% of respondents in Brazil said they plan to fast track their shift from investing in traditional energy sources – such as coal, gas and oil – to renewable energy in the next 12 months.

Solar energy remains the most favoured renewable power generation source for executives from Argentina, Brazil and Mexico, closely followed by onshore wind. Across the G20, the number of organisations considering solar in the next five years has almost doubled from 22% to 42% between the two reports. In addition, 72% of respondents from these three countries are investing in, have committed to invest in or would consider investing in battery storage over the next five years.

Outside of the G20, Chile's solar capacity is also likely to grow, with opportunities for solar projects in the Atacama Desert by example, which will help the country to reach its target of 20% renewable power generation by 2025.

Respondents in the region also believe that banks will be more heavily involved in renewable power generation investment in the next five years, increasing from 16% in 2020 to 28% in 2021. By example, CAF, the development bank of Latin America, announced a US$25 billion mobilisation over the next five years to finance the region's energy transition.

Despite these investment plans, the research also identified growing concerns among large businesses about barriers to investment. South America, in particular, highlighted a lack of government support as the biggest barrier (46%) up from 33% in 2020. It comes as no surprise that COVID-19 has put a strain on infrastructure and reduced government capacity to finance a clean energy transition. That said, the region is preparing for a large infrastructure push, for example, the 5G Concession Program in Colombia which includes roads, airports, rail and river projects. This is the most important infrastructure program currently in Latin America.

Andrés Arnaldos, Americas-focused projects partner at Ashurst, added: "Despite challenging economic circumstances in Latin America, the transition from oil-dependent economies to cleaner energy sources has been for a while, and remains, a priority for many countries in Latin America. It is an area that we expect will keep growing and offering opportunities to local and foreign investors."

Beyond South America, the upward trend in low-carbon investment is consistent globally. Across the G20, 94% of respondents expect their organisation's investment in the energy transition to increase over the next five years, with the average increase expected to be a massive 43% in dollar terms.

Andrés Alfonso, partner and head of energy for Spain and Latin America at Ashurst, added: "Energy technology plays a pivotal part among energy investors and the willingness of organisations to invest. However, business strategies will be influenced by the availability of greenfield developments and access to a skilled workforce, as our research also identifies. Our research report highlights how corporates increasingly set the pace and direction of net zero investment, moving ahead of government policy and regulation.

As the global economy moves towards a carbon neutral world, it is clear many organisations will need to develop new business models to survive the change and adapt to new technologies."

Michael Burns, partner and head of energy for EMEA/US at Ashurst, said: "The research highlights how rapidly investment in clean energy projects is accelerating, particularly when compared to just one year ago. As the energy transition continues to gather pace, we expect to see investments being made both in projects that have clear government support but also, for those seeking higher returns or prepared to deploy capital earlier, investments in earlier stage project developments, including innovative energy storage, low carbon hydrogen and carbon capture and storage."