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Plentiful resources of renewables like wind and solar power - combined with a need for new, more economical power capacity - are fueling strong momentum in clean energy in Mexico and the six main countries of Central America, according to a new report from Bloomberg New Energy Finance (BNEF). In fact, Mexico is on track to set a new investment record this year.

The report says investment in clean energy in Mexico totaled $1.3 billion in the first half of this year, compared to $1.6 billion in the whole of 2013. If activity continues at the rate of the first six months, the report says 2014 will become a record year for the country, overtaking the previous high of $2.4 billion set in 2010. Furthermore, significant increases in both wind and solar are forecast in the next two years.

In Central America (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama), clean energy investment in the first half of this year was $317 million, short of the pace required to match 2013's full-year total of $1 billion. However, the report says drivers of wind, solar and geothermal investment are even stronger in those countries than in Mexico, and this year's political changes have mostly been positive for renewables.

"One of the striking things about this region is the very high exposure to expensive oil- and diesel-based generation. This makes up 20 percent of installed capacity in Mexico and 42 percent in Central America," explains Yayoi Sekine, Latin America analyst at BNEF.

"Yet these countries have unusually good wind, solar, geothermal and hydroelectric power resources. Using these to meet much of the additional electricity demand in coming years, and replacing that costly oil and diesel power, makes sense. It is becoming a key plank in the region’s energy policies."

BNEF's analysis of the project pipeline suggests that Mexico and Central America are likely to install just over 1 GW of wind power capacity this year, beating 2012’s record of 757 MW, with potentially another 1.3 GW in each of 2015 and 2016. Solar may see just a modest 193 MW installed this year, but the figure is likely to leap to 355 MW in 2015 and 456 MW in 2016.

"Renewables are not having everything their own way in these countries," notes Michel Di Capua, head of Americas analysis for BNEF. “Mexico continues to see strong investment in gas-fired generation, taking advantage of both its domestic resources and its proximity to U.S. shale plays.

"Hydroelectric has run into some difficulties in Costa Rica and Panama, because of drought,” he continues. “And across the Central American region, financing for renewables does not come easily, making the role of development banks and export-import banks vital for projects to get off the ground. But policy is being amended in most countries to encourage stronger investment in wind, solar and geothermal."

The report says these changes include Mexico and Honduras reforming their power sectors to allow a larger role for private-sector generation, Costa Rica’s parliament possibly approving an increase to the share of private-sector generation, and tenders in El Salvador, Panama and Guatemala providing specific opportunities for wind and solar project developers.

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