The increasingly frequent impacts of global warming have driven companies and governments to move towards cleaner energy matrices, such as solar, wind and hydrogen. But the environmental factor is not the only reason: reducing costs and moving towards the long-awaited energy sovereignty are also goals that already seem realistic. What degree of progress have the different countries in the region registered and what are the factors that hinder their adoption?
Renewable energy is here to stay in Latin America. As if it were the dream of Al Gore - the former vice president of the United States who made the documentaries An Inconvenient Truth - coming true, renewable sources - such as photovoltaic energy - continue to increase in the region, maintaining a growth rate of approximately 20% per year in recent years.
Latin America and the Caribbean have made significant progress in the transition to renewable energy, with 62% of electricity generated from these sources in 2023, exceeding the global average of 30%, according to data from the Global Electricity Review report by Ember, an organization that collects data on energy transition worldwide.
But on a more detailed analysis, this energy transition, the panorama of this transition is quite heterogeneous if we consider different industries and countries.
“Industries that are more exposed to global trade and transnational corporations, such as mining or the forestry and cellulose industry, are making progress in implementing efficiency and electrification measures more consistently,” Luis Llanos, professor of finance in the Industrial Engineering department at the University of Chile, told AméricaEconomía.
The problem is that in countries with a high availability of fossil fuel resources, such as Argentina, Brazil, Colombia and even Mexico, the transition to renewable resources is progressing more slowly than in countries such as Chile or Uruguay, which do not have these resources.
“While we see many plans, proposals and goals, it is still uncertain how much of this will materialize with the large investment required in areas such as electromobility, electrification of industry, energy efficiency and expansion of renewable generation,” adds Llanos.
For now, hydroelectric generation remains the basis of the region's electricity matrix with 43% and solar and wind energy growth of 6% and 8%, respectively.
OBSTACLES AND OPPORTUNITIES
The Latin American region has set a goal of reducing its CO2 emissions by 11% by 2030. With that horizon, according to data from the Inter-American Development Bank (IDB), between 2015 and 2022 the region increased its renewable capacity by 51%, reaching 64% of generation from renewable sources in the latter year. However, the conviction of this organization is that the pace must accelerate, since as the population and economic growth increase, the demand for electricity is expected to grow by an annual average of 2.3% until 2050.
The environmental factor is not the only reason, industry insiders say.
“Changing the energy matrix will allow us to achieve energy independence by using clean, indigenous and local energy, which will make the region's economies more resilient by not being exposed to fluctuations in fuel prices on the international market or geopolitical conflicts in other parts of the world,” Jaime Toledo, president of the Chilean Renewable Generation Association, told AméricaEconomía.
According to the executive, this would also significantly reduce energy costs for end customers, “since clean and renewable energy is much cheaper than energy from fossil fuels; and attract foreign investment, with the positive impact that this brings to the quality of life of the inhabitants of the region,” he added.
But as the old saying goes, “the devil is in the details,” because after an initial push to install solar and wind farms, this energy transition is entering a new phase of greater challenges and complexity.
“We could go much faster, but we are facing some challenges such as the cost of financing for new renewable energy projects, the lack of transmission infrastructure, as well as regulation and pricing that is not adapted to a high penetration of renewable energy,” says Toledo.
“The biggest challenge is to maintain the momentum,” says Llanos.
Suppliers in this industry have first-hand knowledge of the market. One of them, the Chinese company Trina Solar, is a specialist in the manufacture of solar photovoltaic and energy storage solutions.
“Despite the expansion of installed solar capacity, regional penetration remains relatively low. Therefore, the growth potential of this clean, competitive, scalable, safe, and rapidly deployable technology is still very large,” Álvaro García-Maltrás , president of Trina Solar for Latin America and the Caribbean, told AméricaEconomía.
The firm says that today one of the biggest challenges they see for the transition to clean energy in Latin America is the so-called 'dumping' of generated energy into the grid, which limits the potential of renewable sources and directly affects the return on investment in these projects.
“There were more than 2,037 GWh of unused renewable energy during the first half of 2024, which represents an increase of 142% compared to the same period in 2023,” says García-Maltrás .
Given this situation, storage through battery storage systems ( BESS) is presented as a key component to facilitate the stability and efficiency of the electrical grid.
“They allow energy to be stored during periods of high production for use during times of high demand or low renewable generation. This not only minimises waste, it also contributes to a more stable grid, by making it easier for more renewable energy generation plants to be connected to the system,” explains García-Matrás.
Another challenge is to find a way to price energy markets, "so that the pricing of clean and renewable energy is adequate and adapts to the new technological configuration of electrical systems (...) This is because in Latin America, countries have regulations that were created to price energy in hydrothermal electrical systems, and are just now adapting to models with high penetration of non-conventional renewable energy," says Jaime Toledo.
From the academy, Luis Llanos considers the main obstacle to be the great uncertainty regarding the long-term private profitability of the projects required for the energy transition.
“Despite announcements by authorities and private entities regarding support for environmental issues such as zero-emissions goals, as well as continued reductions in the development costs of renewable energy generation projects, these projects face major challenges in terms of infrastructure, market design and permits,” explains Llanos.
Solutions, however, are on the table.
“A regional integration of electrical systems could have significant effects on costs, even if it were marginal in terms of the volumes of energy and power transferred. Imagine the effect of transfers between the Atlantic and Pacific sides of the continent throughout the day, considering photovoltaic energy. The same in the case of droughts or other events,” Llanos points out, clarifying that this process requires both significant investments in high-capacity lines and political will.
"The investments are enormous, and the political system will resist passing these costs on to users, so delays are very likely," the academic said.
However, in the last decade, there have been initiatives aimed at deepening regional electrical interconnection. These include the Andean Electrical Interconnection System (SINEA), which seeks to connect Bolivia, Colombia, Chile, Ecuador and Peru; the Southern Cone Energy Integration System (SIESUR), which includes Argentina, Brazil, Chile, Paraguay and Uruguay; and the Northern Arc, which connects Guyana, Suriname, French Guiana and Brazil.
“If the regional grid is integrated with 80% of renewable energy, US$23 billion and 0.7 Gigatons of CO2e can be saved by 2030,” states the document Energy Transition in Latin America and the Caribbean , published in March of this year by the IDB.
Fossil fuels are also expected to remain a relevant part of the matrix until at least 2050, and a recent report by CAF, called Renewed Energies, suggests taking advantage of the potential of gas in the region, due to its relatively competitive price and because it is the least polluting fossil fuel. Meanwhile, green hydrogen and so-called e-fuels also appear as a possibility for this transition.
“E-fuels produced from green hydrogen and recycled CO2 [are] compatible with existing infrastructure: they allow cars to continue to move, planes to continue to fly and ships to sail, but without increasing greenhouse gases (GHG). If we manage to scale up this technology, we can accelerate our climate goals by avoiding the emission of new CO2 into the atmosphere,” says Juan José Gana, Strategy Director at HIF Global , an international firm that is making large investments in this area in Chile.
The challenge and possible solutions are on the table. Countries will have to find a balance to move towards a green, safe and diversified matrix.
