The inaugural edition of Bloomberg New Energy Finance's (BNEF) Mexico and Central America Market Outlook finds that investment in solar has fallen to only US$81 million in the region in the first half of 2014. This compares to $274 million invested in 2013 and $351 million in 2012.

Despite this slowdown in funding, BNEF expects 193 MW of solar PV to be installed in 2014, with 100 MW in Mexico alone. The company anticipates this will increase to 355 MW in 2015 and 456 MW in 2016, with much of the new capacity coming online in Central America.

While such predictions imply exponential growth for the region, this is still lower than GTM Research's prediction that the region will install 265 MW of solar PV in 2014, 804 MW in 2015 and 965 MW in 2016.

BNEF cites strong market drivers including natural solar potential and a need for new generation in Mexico, and says that such drivers are even stronger in Central America. And while the company notes that utility-scale solar projects are not competitive with wind and gas in Mexico, it also says that distributed PV has good economics and should continue to see significant growth in certain market segments.

Across the region, nations are attempting to move away from oil and diesel-fired generation, due to high and volatile prices. Such generation currently comprises 20% of Mexico's installed capacity and 42% of capacity in Central America, and renewables are poised to replace a portion of this due to lower and more predictable costs.

As such, policymakers across the region are emphasizing renewables. BNEF notes solicitations with specific opportunities for wind and solar in El Salvador, Panama and Guatemala, as well as energy sector reform in Mexico, Honduras and potentially Costa Rica to allow a greater role for private-sector generation.

Additionally, Honduras is offering a feed-in tariff for solar for projects commissioned before August 2015, which pays $0.18/kWh for 15 years. Costa Rica is also implementing a feed-in tariff, but has not announced details including rates for solar.

However, BNEF also warns of market barriers. While in Mexico the main challenge for large projects is securing a long-term power contract with a credit-worthy off-taker and an interconnection contract, in Central America financing is the biggest barrier.

A number of solar projects in Central America which have been awarded power purchase agreements are currently attempting to secure financing, and are competing for the same funds. “Local and development banks are the main financiers in Central America, as high political and legal risks and a relative small market make Central America somewhat unattractive to private banks,” notes BNEF.

The report finds that the top financiers for clean energy projects in Central America since 2008 are all development banks, led by The Central American Bank for Economic Integration (BCIE), The Netherlands' FMO, and the Export-Import Bank of the United States.