The Caribbean and Central America's balmy climate not only lures millions of tourists to the area each year, it also provides ideal conditions for clean-energy investments.
Due to the region's ample energy resources and high local power prices, energy-efficienct wind and solar power projects are currently among the most lucrative investment options. Their attractiveness has increased even more as they are now able to compete with conventional fossil-fueled power plants.
Investors can also benefit from U.S. dollar exposure as financial contracts such as power purchase agreements are usually U.S. dollar-pegged or denominated in dollars.
Additionally, the renewable energy industry matured globally in the previous year. This includes not only the equipment and technology side, such as wind turbines or solar panels, but also the related supply chain and availability of qualified and experienced contractors for construction, operations and maintenance.
Fixed-price turnkey engineering, procurement and construction contracts are most common, and the same fixed-price and full-service operation and maintenance agreements are available in developed and developing markets.
Another reason for the rising attractiveness of clean-energy investments in the Caribbean and Central America is that developers and investors can build and operate renewable energy assets with the same trusted partners in the U.S., Jamaica or Panama. This has derisked investments in greenfield and brownfield renewable energy projects materially over the last couple of years, thus diminishing the importance of the project location.
In general, the region offers investors the possibility of higher returns and portfolio diversification. This is in marked contrast to the renewables market in North America, where clean-energy assets have experienced shrinking returns and yield compression during the past years leading to high (over)valuation. Furthermore, the origination of sound investment opportunities in an overcrowded market becomes more and more challenging.
It therefore comes as no surprise that investors have been eyeing the neighboring Caribbean and Central American region for quite a while now — especially since several governments have already committed to ambitious renewable energy goals. Barbados, for example, aims to run on 100% clean energy by 2030. In Latin America, nine countries, among them Colombia and Costa Rica, have set a collective target to reach 70% renewable energy generation by 2030.