Juxtaposition of Renewable Investment
US and Ecuador
Image by the US Trade and Development Agency. https://ustda.gov/ustda-expands-climate-portfolio-in-ecuador/
While the United States enters 2023 on a tide of clean energy investment that promises a year of rapid growth, Ecuador is struggling to find any private investment to diversify their energy matrix. Ecuador experienced significant investment in major hydroelectric projects over the last twenty years that was primarily the result of large, publicly run infrastructure projects created through Chinese investment. This has produced a rapid shift to renewable energy, as Ecuador is now receiving 92% of its electricity from hydroelectric facilities across the country. While carbon emissions have been drastically reduced, this approach places Ecuador’s renewable future under the control of Chinese banks and construction companies. Outside of Chinese loans, Ecuador is struggling to find private investment in renewables. In contrast, the US government has chosen a more decentralized approach to promote renewable energy. Private investment in renewable energy in the US continues to increase rapidly as it becomes more attractive both economically and politically. This, combined with favorable legislation, is propelling US private investment in renewables and perhaps offers Ecuador a possible roadmap to the private investment it seeks.
The US Agency for International Development found that the level of private investment in both renewable energy and energy efficiency in Ecuador is struggling, despite the calls by the Federal Government for increased investment. According to this study, the primary obstacles to private investment are price subsidies, including discounts given to low income households which are not offset by budgetary allowances and direct state financing for public generation projects. The report found “such subsidies strongly discourage private renewable energy and energy efficiency investment.” Government regulation for private renewable energy projects further deters potential investors. Certain regulations targeting the private sector, such as the Organic Law of the Public Service of Electric Power, require a public selection process or a delegation from the Ministry of Energy and Non-Renewable Natural Resources. Difficulty obtaining environmental permits and the process to connect to the grid are disincentivizing investment.
In contrast, the United States focus on private investment is one of the reasons renewable energy markets are so attractive to investors. In the last four months of 2022 alone, the US had over 40 billion USD invested in clean energy, equalling the total clean energy investment of 2021. This also bolsters US infrastructure and employment, as 20 new clean energy manufacturing facilities were announced in this period, creating roughly 7,000 new jobs. A report by Cleanpower found that “new incentives approved by Congress offer companies a significant opportunity to invest in new utility-scale wind, solar, and storage projects and manufacturing facilities while passing on savings to Americans.” US workers are seeing benefits from the transition to renewable energy, further encouraging government support for private investment.
Biden’s legislative agenda includes net zero carbon emissions by 2050. Government policies, including the Infrastructure Investment and Jobs Act, could facilitate 177 billion USD investment in wind and solar by 2030. This will create lasting cooperation between private industry and the public sector. The possibility of a clean energy tax credit could further strengthen clean energy progress. A Bloomberg NEF report found that tax credit expansion could increase investment by 115 billion USD, with increased capacity in solar of 15% and wind of 40% over the period of 2022-2030. However, both tariffs and supply chain issues are hindering the US transition to renewables. Cleanpower found that “more than half of the surveyed developers report plans to delay projects that were scheduled for completion in 2022 by a year or more because of supply chain issues.” The phasing down of the PTC wind credit and ITC solar credit are also slowing solar and wind growth, and extending these credits could prompt a resurgence of investment under the Biden administration.
While the major hydroelectric projects in Ecuador create large temporary work forces, they are built by Chinese construction firms and imported Chinese products. For some projects, there are concerns about worker safety. The Coca Codo project had ninety-two labor claims and fourteen civil lawsuits. Similarly, US private investment in renewable energy does not outsource natural resources, whereas Chinese investment in Ecuador threatens resource sovereignty. A New York Times article reports that Chinese loans to Ecuador can be paid for in petroleum, which China receives at a discount and sells for profit. As of 2018, China gets to keep 80% of Ecuador’s oil, further hindering public investment.
The overall confidence in the US clean energy market is strong. “More than half of investors report their preference for the US will not change, while 36 percent report they expect their preferences for the US to moderately or significantly increase over the next three years. 92% of investors think the US is attractive for investment compared to other leading countries for 2022-2025.” If the public sector is able to support these clean energy projects by extending tax credits the US can expect rapid clean energy growth.
There is reason to hope that Ecuador’s “broad reform that gives more prominence to the market” is beginning in earnest. New regulatory advances such as the approval of the Regulation of the Organic Law on Energy Efficiency and new standards of distributed generation and self-sufficiency demonstrate Ecuador’s commitment to opening up private investment channels. The updated Electricity Master Plan adds another 1.4 GW of new energy projects to the grid, which are expected to include PV and wind energy, diversifying Ecuador’s energy matrix.
It is an exciting time to be a renewable energy investor in the United States. Money is abundant, projects are being built, and the public sector is supportive on several fronts. On the surface, Ecuador’s reliance on Chinese projects and public investment, along with the unfriendly policies and climate for private investors, is hindering both Ecuador’s transition to renewable energy and its economic growth. However, the concrete steps taken by Ecuador over the last few years show the government is interested in creating a market for private renewable investment, and US investors should continue to consider Ecuador.