Renewable Energy, creating a bright future for South America
Latin America has the cleanest power sector in the world and according to Cliamtescope, four Latin American countries made it to the top 10 “Most attractive emerging markets for clean energy investment in 2017”. (Brazil 2nd, Mexico 4th, Chile 7th and Uruguay 9th)
So it is a fact that the Latin American countries are moving towards a more sustainable and greener energy sector. But the question is, how are they doing it and what are the challenges? Here are some of the key elements to why renewable energy has become a key component for economic growth and increased social welfare, which is creating a bright future for Latin America.
Uruguay is a true fairytail story, pioneering their way towards a renewable energy future. Not long ago, Uruguay was an energy importer, but has now shifted towards an energy exporter as a result of investing in renewable energy sources.
15 years ago, oil accounted for 30% of the total energy supply and Uruguay were planning on building a pipeline from Argentina to supply gas. Compared to today, when renewable energy provides 95% of the country’s electricity. According to the former Director of Energy, Ramon Mendez, there are three key factors to why Uruguay has managed to succeed with this dramatic change. (1) Credibility; Uruguay is ranked as the least corrupt and most democratic country in Latin America and rated among one of the two “high income states in Latin America” by the United Nations. Also ranked as one of the 20 “full democracies” in the world, according to the Economist in 2015.
(2) Natural conditions: Uruguay have not only been able to transition to almost 100% renewable energy consumption, but compared to many other “green energy leaders” they have diversified their energy consumption, thanks to the access to natural resources. With good wind resources (22% of electricity need), decent solar radiation (<1%), great hydro power possibilities (56%) and access to biomass from agriculture (18%) they have been able to benefit both economically and at the same time becoming more resilient to climate change. (3) Public companies and foreign investments: Strong public companies that work in harmony with the state to create attractive investment opportunities and operating environment has made renewable energy in Uruguay a safe and ideal investment for national and foreign investors.
With a promising policy Uruguay has an ambitious and promising long term goal were they want to save US$10 million through source substitution and energy efficiency and rank as the top performer in energy intensity globally.
Chile’s government has set an ambitious goal, that the country will rely on 90% clean energy sources by 2050. Currently that number is 45%.
There are three key elements to why Chile is successfully altering the energy sector. Their natural resources, government support and healthy economy.
With Chile’s seemingly never ending coastline, off shore wind farms make an excellent energy source. The Atacama Desert in the north, which is one of the hottest places on earth allows for an ideal location to install solar panels. The volcanic landscape also located in the northern parts of the country, is almost handmade for producing geothermal energy. Despite this, their main energy source still is hydro power.
But Chile is looking to diversify their power sources, similar to Uruguay. Today, the country is too affected by droughts and floods. As a result solar, wind and especially geothermal has become increasingly more popular in the last 5 years.
Atacama desert, solar farm
In 2017, Argentina suspended natural gas shipments to Chile, because they could not support their own domestic needs. This was a clear wake up call, saying that Chile needs to become energy self-sufficient. One of the actions Chile’s government has taken is to invest in green infrastructure to lower the price of renewable energy in the long term and make it attractive for foreign investors to invest in Chile.
A healthy economy has made it possible to create a healthy competition in the market putting different technologies and energy sources head-to-head to win the largest energy contracts. Chile has since 2014 held three large power auctions, where the result is that as much as 50% of the contract will be supplied by renewable energy.
Mexico has had a little bit of a slow start in comparison to Chile and Uruguay, with reforms fully implemented only in 2018. However, with the constant decrease in cost of solar panels the price for renewable energy has lowered as well and has been a major contribution to the accelerated switch to investing in greener energy sources. According to Bloomberg New Energy Finance Outlook solar will overtake gas and hydro to dominate Mexico’s capacity mix, by 2040.
With the rapid growth of green energy infrastructure, primarily rural communities are experiencing a negative effect because a lot of the land that it is best suited for is already occupied by historically marginalized communities such as indigenous and rural communities. As every country, Mexico wants to increase and embrace the amount of renewable energy investment in the country, but it should not come at the expense of the most vulnerable parts of the society. They are facing a social and political challenge, they need to ensure that not only investors and wealthy land owners are taking part of the paradigm change in the energy sector, but that all parts of society receive their fair share of the cake.
Similar to Chile, Mexico is located in what is called the “Ring of Fire” which is a basin surrounding the Pacific Ocean where earth quakes and volcanic eruption occur frequently. This presents many challenges but also a lot of opportunity, especially for one renewable energy source, geothermal energy.
Brazil is the economic heart of Latin America and by far the largest power market. Brazil’s macroeconomic crisis, from experiencing an economic boom between 2003 and 2014 to a devastating recession that can be correlated to a growing political crisis. This has crippled many of the country’s industries, and the renewable energy industry is no different. A few examples are the absens of long term contracts through federal auctions on wind projects, increased costs for renewable energy sources and financing a project is more difficult.
Still, Brazil is ranked 2nd by Climatescope on the most attractive emerging market for investment in clean energy. A major reason why the Brazilian clean energy market is an interesting market for investors are the policies established to benefit the clean energy sector. One of their policies is to increase their energy savings. This policy forces electricity distributors to save an amount (0.5%) of their revenue, and use the savings to invest in the Brazilian energy market to make it more efficient.
Another major player that has helped develop the Brazilian renewable energy market is the Banco Nacional de Desenvolvimento Economico e Social (BNDES). The bank is one of the top global lenders to clean energy, having distributed $29 billion between 2006 and 2016. Part of their strategy is to invest in projects that undertake not only environmental problems but also social, such as modernizing the education system, health and social welfare.
As many other Latin American countries, Brazil has started to understand the importance of diversification within the renewable energy sources. This is why they are investing in other clean energy sources, apart from hydro power making them less vulnerable to droughts.
– David Gutierrez Arvidsson, May 6th 2018