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Latin America Embraces Renewables

The Itaipu Dam, between Brazil and Paraguay, is shown at sunset.

As the effects of global climate change continue unabated, the need to grow renewables has become mission-critical. While this strangely still stirs much debate in the United States, in Latin America the push toward renewables is strongly underway. 

This is one area where Latin America can show consensus and be a leader, rather than a follower. In an ever more politically divided region, leaders from all sides of the ideological spectrum seem to agree on its importance. 

Hydro Leads the Way

Already, Latin America generates 25% of its energy from renewables, thanks in large part to its robust use of hydropower across the region. In fact, 80% of the region’s use of renewables comes from hydropower. But the construction of dams has become an increasingly controversial endeavor because of the now well-known environmental and social effects of damming major riverways. So, countries in the region are now embarking on ambitious drives to increase solar, wind and other renewable sources. This puts the region right smack in the middle of the world’s green energy transition. 

In 2019, eight countries of the region led by Colombia, under the umbrella of the Latin American Energy Organization, set the tone ahead of the United Nations Climate Action Summit by pledging that 70% of the region’s energy would be renewable by 2030.  

This goal is both ambitious and expensive — at least in the short term. According to the International Renewable Energy Agency (IRENA), “Latin America and the Caribbean requires yearly investments of $118 billion in renewable power generation, energy efficiencies, electrification of heat, transportation, and power grids to be in line with the Paris Agreement’s objectives.” 

It’s certainly not a drop in the bucket, especially when you take into consideration that between 2010 and 2015, IRENA estimated that investment in renewable energy in the region totaled $120 billion. 

But one dramatic change that is certain to spur greater investment in renewables is the reduction in the price of renewable technologies, especially that of wind and solar. In the 10-year span, between 2010 and 2020, prices for solar and wind energy declined by 70% and 89%, respectively, even below that of coal and gas generation. 

Given the greater affordability of renewable energy generation, it is no wonder that some countries in the region have taken the bull by the horns to lessen their dependence on fossil fuels. 

Costa Rica Leads the Way

Costa Rica, while small in size, has proven to be a giant in using renewables to generate the nation’s electricity. Nearly 100% of its electrical grid is powered by renewables, largely from hydropower, but it is increasingly adopting solar and wind sources as well. The country is now working on a broader decarbonation strategy focusing on transportation and areas where fossil fuels are still used. 

Chile has adopted aggressive policies to wane its energy matrix from fossil fuels. 

The country, which already generates 45% of its energy through renewable energy sources, has set a target of 70% renewable use by 2030, with the achievement of carbon neutrality hoped for by 2050. Much of this increase is expected to come as solar energy from the country’s Atacama desert. 

The Atacama — with one of the earth’s highest solar radiation levels — is known as one of the planet’s premier sources for solar energy. Chile took a further step toward decarbonization last year when it announced, along with U.S. multinational AES, the acceleration of the decarbonization of that company’s coal plants, which represent 20% of Chile’s coal-generating capacity. 

For its part, Brazil aims to meet its energy demand from wind and solar sources by 2027. In fact, by the end of 2021, the Minister of Mines and Energy expected solar energy generation to increase by a whopping 67% and wind energy to grow by 23%.

Mexico Is a Holdout

One notable exception to the growing Latin American desire to embrace renewable energies is Mexico.  

As we have written in the past, the government of President Andrés Manuel López Obrador has aggressively sought to overturn the energy reform law pushed by his predecessor, former President Enrique Peña Nieto, which opened the energy market to foreign private investment and encouraged renewable energy investment. Not only has the government sought to undermine the reform, but it is seeking to adopt a new, controversial law that would give the mostly fossil fuel-based energy controlled by the Federal Electricity Commission (CFE), Mexico’s state-owned electrical utility, priority in the dispatch of energy around the country. This would effectively reduce the attractiveness of current and future renewable energy investments in Mexico. Last weekend, in a late-night vote, the Mexican Congress voted down the electricity law, one of the few issues which has united the opposition parties from varying political spectrums. The rejection of the law was the first major legislative defeat for President Lopez Obrador since taking power.

The drive for greater renewables as a source of energy is not only environmental. It is very much an economic decision as well.

As a new generation comes to power in Latin America, renewables will rise to the top of the policy agenda.  

Just look at the juxtaposition between the Jurassic energy vision of Mexico’s president versus that of Chile’s new millennial head of state, President Gabriel Boric. Boric has made climate change a centerpiece of his politics and has promised to seek a more carbon neutral, green economy with much wider use of renewables, a drive that Chile has already begun under the previous conservative president. President Boric’s ambitious green energy policies will be closely looked at and may have ripple effects across the region if they work.

The drive for greater renewables as a source of energy is not only environmental. It is very much an economic decision as well. In fact, according to a study by IRENA, significant investments in green energy sources would create 3.2 million jobs in Latin America by 2050, with a positive +2.4% impact on regional GDP. 

Natural Gas in Abundance

Another report by the Inter-American Development Bank and the International Labor Organization focused more broadly on the job impact of the region’s transition to a green economy. It found that, with the use of renewables as a critical first step in that process, “the transition to a green economy offers the promise of creating 15 million net new jobs in Latin America and the Caribbean.”

One outstanding item in the push for greater use of renewables is the use of natural gas for energy generation in the region. It is a resource found abundantly in many countries. While gas is a fossil fuel, it is well-known as a transition fuel, burning far more cleanly than coal or oil and producing 50% – 60% less carbon dioxide. Its use for power generation today is growing and may soon surpass hydropower. 

Some see the use of gas as anathema to the renewable transformation, while others see it as a necessary source of energy critical to maintain the resiliency of fragile electric grids around the continent.

Juan Cortiñas

Founder and Managing Partner at Opportunitas Advisors

Juan Cortiñas is the founder and managing partner of Opportunitas Advisors, a strategic communications firm. For two decades he has advised leading corporations and political leaders throughout Latin America.

Peter Schechter

Host of Altamar Global Issues Podcast and BRINK columnist @PDSchechter

Peter Schechter is host of the Altamar global issues podcast. He is also the former founding director of the Atlantic Council’s Latin America Center. He can be found on Twitter at @PDSchechter.

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