Concern emerges over whether the government will keep its promises.
Solar project developers are rushing to complete projects this month amid fears that the government may go back on its feed-in tariff (FiT) promises. Two years ago the country launched a FiT of USD$0.18 per kilowatt-hour, over 15 years, for solar projects completed before August 2015.
The aim was to install around 300 MW of solar but the country has already seen power-purchase agreements (PPAs) being signed for twice that amount, said Josefin Berg, senior analyst for solar demand at IHS Technology. As of now there is 73 MW of solar in operation across Honduras and a further 271 MW under construction, she said. And some of the PPAs are for far longer than a 15-year term, amounting to as much as 25 or 30 years.
Given the unstable nature of the country, which has the highest murder rate in the world and effectively suffered a coup d’état in 2009, “there is definitely a lot of risk involved,” Berg said. As a result, some developers are being careful to secure multilateral investment guarantees to cover the cost of major projects.
In June, for example, SunEdison gained guarantees from the Multilateral Investment Guarantee Agency (MIGA), part of the World Bank, against a $56.7 million investment for projects amounting to 80 MW. The projects, being developed by SunEdison’s Dutch subsidiary SunE Solar, obtained debt financing worth $146 million from international lenders last December. The funds included $86 million from the World Bank’s International Finance Corporation, $45 million from the Central American Bank for Economic Integration and $15 million from the Organization of the Petroleum Exporting Countries Fund for International Development.
The MIGA funding is perhaps significant because the Agency is one of few multilateral lenders offering political risk insurance to protect foreign direct investments against political and non-commercial risks in developing countries. It is not known whether this insurance forms part of the SunEdison funding package. But what does seem certain is that companies targeting the Honduras market will want to make sure they get it right first time because analysts are predicting this will be the big year for solar there.
“We see about 500 MW being installed this year and then the market will drop off,” Berg said. “There will be a market, but nothing like this year.” There may be one or two large projects still to come from 2016, she added, but for the most part the Honduras market looks set to continue growing only at commercial or residential scale. This small-scale market has already started to take off, and will likely be a focus of discussions during the second edition of the combined conference and exhibition called El Futuro Solar, scheduled for November 19 and 20 in Panama City as part of the Solar PV Trade Mission Central America & Colombia.
Last month, for example, the Central American Bank for Economic Integration (Banco Centroamericano de Integración Económica in Spanish) set aside a budget of $160,000 for rural electrification in the south western Honduras departments of Choluteca and Valle.