Ecuador attracts green investment despite instability

  • Market: Electricity
  • 18/05/22

Many companies and banks have been reticent to invest in Ecuador's renewables sector, but the tide could be turning, writes Alberto Araujo

Local and international investors are looking at Ecuadorean green energy projects, but the country is still regarded as a high-risk market given its lack of long-term energy policies and political instability.

The energy ministry announced this week that more than three dozen companies from 13 countries paid a $10,000 fee to participate in a renewables tender for a combined 500MW of photovoltaic, wind, hydroelectric and biomass capacity. Companies have until 28 October to bid.

Interest in the auction is high despite the time it has taken to sign agreements for similar projects, such as the 14.4MW Conolophus solar project in the Galapagos Islands. The project was awarded in August 2021 but its contract has not been finalised because a trust to purchase the plant's power has not been created. Developers cannot start building the plant because the banks that finance the project require a trust that guarantees energy payments.

Companies and investment funds always demand political stability for developments that require high levels of debt, executive secretary at Latin American energy organisation Olade, Alfonso Blanco, says. The region needs long-term energy policies supported by steady governmental institutions and a legal framework that guarantees that the deals agreed with companies or banks are respected, Blanco says.

Only a few countries in Latin America meet these requirements and many funds have not invested in Ecuadorean renewables projects, Blanco says. Most regional nations work instead with multilateral institutions such as the World Bank, the Inter-American Development Bank or the Andean Development Corporation to finance such projects.

But renewables projects are very competitive in Ecuador and the rest of Latin America because of high fossil fuel prices, Blanco says. The region has abundant wind, solar and water resources that elevate the capacity factor of renewables plants compared with other parts of the world, lowering the cost of the energy produced. This makes renewables attractive, even if countries such as Ecuador are perceived as high risk.

Green loans

Local banks are also granting more loans to small and large-scale green projects in the country. The association of private banks of Ecuador tells Argus that the amount of green loans awarded in 2021 rose to $312mn from $202mn two years earlier. These loans are focused on renewable power projects, energy efficiency programmes, clean production and sustainable construction for small and medium-size companies, corporations and clients.

One of the largest entities in Ecuador, Banco Pichincha, has offered bio-credits since 2019 — loans for renewable generation projects of up to 50MW to replace fossil fuels. The credits also finance the acquisition of electric and hybrid vehicles and the installation of solar panels.

Banco Pichincha in 2021 distributed bio-credits worth $190mn for renewable power projects, energy efficiency programmes, clean agriculture and sustainable construction and transport, benefiting 9,700 clients.

Cluster Financiero is a group of 93 institutions related to the banking system that work together to improve the competitiveness of the sector in Ecuador. The group is working on creating a pool of information on the main renewable power projects to organise it and present it in a more appealing way to possible investors, Cluster Financiero executive director Diego Utreras says. The idea aims to provide funding for these kinds of initiatives in the country.

Ecuador installed capacity 2021

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