Renewable Energy Opportunities in Latin America and the Caribbean

Latin America and the Caribbean have the most extensive and diverse supply of renewable energy resources of any region globally.
Published: Mon 12 Jan 2015

Latin America and the Caribbean is a global low-carbon leader in terms of power generation from hydrological and biomass resources, and recently has made great strides in developing its other renewable energy sources.

Declining costs, maturing technologies, and vast untapped potential for renewables offer an unprecedented opportunity for further development of the renewable energy market in the region, according to a new report from the Worldwatch Institute for the Inter-American Development Bank (IDB). Continuing investment will provide the opportunity to address key economic, social, and environmental challenges in the energy sector. These include:

● Achieving universal access to electricity, with the need for provision to the approximately 34 million people in the region still lacking access

● Meeting future electricity demand, with the installed power capacity in the region required to almost double from 1,379TWh in 2011 to 2,500TWh by 2030

● Transforming the electricity system through modernization and expansion, including reducing the level of distribution losses, which at average 15% are almost double the global average

● Mitigating and adapting to climate change.

Renewable energy potential in Latin America and Caribbean

Latin America and the Caribbean’s claim to greenest energy mix is based primarily on its large hydropower development, which has been the biggest source of electricity generation since the 1970s and currently makes up 51% (small and large hydro) of total installed generating capacity. However, the share of electricity from hydro has been declining over the last decade, a trend that is expected to continue with the development of natural gas – which has been slowly replacing fuel oil – and renewable resources.

Although renewables other than large hydro currently comprise only 9% of total installed power capacity (4% biomass and waste, 3% geothermal, 2% wind), they have begun to grow rapidly in recent years. Between 2006 and 2012, installed renewable capacity more than doubled from 11.3GW to 26.6GW. Biomass and waste make up the majority of this growth (largely in Brazil), but there has also been significant development of small hydro and wind. Falling costs of solar are making this resource more attractive as well.

Almost all countries in the region have high hydro, wind and solar potential, at least half have high geothermal potential, and at least a third high biomass potential. Even excluding hydropower, which is not yet fully exploited, the region could produce an estimated more than 78,000TWh of electricity from renewable energy sources. This is enough capacity, combined with hydropower, to meet the region’s current and future electricity needs many times over.

Renewable energy targets

To date, 10 countries in Latin America and the Caribbean have set official targets for increased deployment of renewable energy technologies, the report finds.

These take several forms:

● Share of consumption: Argentina (8% by 2016), Barbados (29% by 2029), Peru (5% by 2013)

● Share of generation: Colombia (3.5% of on-grid and 20% of off-grid by 2015), Chile (10% by 2024), Dominican Republic (10% by 2015, 20% by 2025), Mexico (35% by 2024)

● Share of installed capacity: Jamaica (20% by 2030), Nicaragua (94% by 2017), Uruguay (15% by 2015).

The varying ambitiousness of these goals reflects national disparities in resource availability, the current status of renewable technologies and investment, and political willingness.

Opportunities for renewables development

However, there are technological, market, finance and social barriers to the advancement of renewables in the region, the report finds. These include a lack of public awareness of its benefits and technological feasibility; vested interests in the status quo; inaccessibility of data; fossil fuel subsidies; a lack of capital; unavailability of appropriate loan products; volatile legal systems; and a lack of long-term policy frameworks as well as concrete support policies and mechanisms.

However, diverse mechanisms exist to overcome these barriers that have proven their effectiveness in the region and beyond. In particular effective policies and measures can greatly improve the investment environment for domestic and international, as well as public and private, actors – particularly given a market that is distorted due to both direct and indirect subsidies for fossil fuels.

The report concludes that only through the collaborative effort of governments, the private sector, and civil society can effective policies and market solutions be implemented to scale up renewable energy deployment in the face of competition from well-established conventional energy sources. Promising examples of successful policies that could serve as a guide include the PROINFA incentive programme in Brazil, Chile’s energy market liberalization, Nicaragua’s tax exemptions for renewable energy equipment, Peru’s utility regulation prioritizing the dispatch of renewable energy sources, and Mexico’s 35% renewable energy target by 2024 (as well as its active support for IPPs).

Considering the longevity of current investments in power system infrastructure, it is imperative that policymakers carry out integrated resource plans that seek to lower overall electricity system costs in the long term by taking advantage of synergies among different renewable sources, energy efficiency and smart grid technologies.

Further reading

Worldwatch Institute: Study on the Development of the Renewable Energy Market in Latin America and the Caribbean