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In Renewable Energy, Latin America and the Caribbean Show What's Possible

October 10, 2016

In the years ahead, the world’s developed and emerging economies must accelerate their transition to renewable sources of energy if they are to mitigate the impacts of climate change. Two recent events underscore how countries in Latin America are doing just this and leading the way in reducing carbon emissions.

The Latin America and Caribbean Council on Renewable Energy (LAC-CORE) Finance Summit 2016, held in Miami, drew bankers, investors, project developers and government officials from across the region to discuss recent trends in the region’s clean energy sector, which posted significant advances in shifting toward non-fossil energy sources in recent years. Miami was a fitting venue for this event not just because of its economic and cultural ties to Latin America, but also because the effects of climate change are increasingly evident in the frequent flooding in Miami Beach.  While there, I presented about Abt’s work in Central America under USAID’s Climate Economic Analysis for Development, Investment and Resilience (CEADIR) Project. 

For decades, countries in Latin America have been early movers in the adoption of technologies to decarbonize the energy sector. The region’s continued leadership was on display during the three-day Latin American and Caribbean Carbon Forum.  Countries across the region are among the most ambitious in terms of combating climate change, with increasing use of markets for carbon to reduce greenhouse gas emissions.  These efforts and other energy sector policies are yielding tangible results in terms of investment in the clean energy sector across the region. In 2015, investment in renewable energy projects in the region increased 11% to $17.5 billion, much faster than the 4% growth recorded in the market globally. During the LAC-CORE Summit, presenters described further expansion and dramatic developments:

Uruguay.  In five years, Uruguay has added 1,000 megawatt (MW) of wind generation capacity, which, together with hydropower capacity and biomass, now provides over 90% of its power supplies.  Like many countries in the region, Uruguay added considerable thermal capacity in the 1990s as sites for hydropower facilities were all developed.  In the last decade, Uruguay’s policymakers discovered the risks associated with reliance on imported natural gas from Argentina.  Under the leadership of Ramón Méndez beginning in 2008, the country established a suitable policy and investment regime and attracted $3.5 billion in investment by major global developers. In his speech at the Finance Summit, where he received the 2016 LAC-CORE Renewable Energy Prize, Mr. Méndez noted that the country’s per-capita carbon emissions from the power sector are 3% those of the global average.
Mexico.  Enrique Peña Nieto’s administration has implemented energy sector reforms and an ambitious restructuring of the power sector that includes a renewable portfolio standard and a system of renewable energy certificates modeled on arrangements used in the United States. Mexico’s objective is to transform its traditionally fossil-heavy power system and reach 25% renewable energy generation by 2024 and 50% by 2050.  In a series of renewable energy auctions from 2012-2015, investors have bid record low prices to provide energy from 2,500 MW of wind and over 140 MW of solar plants. 
Argentina.  Mauricio Macri’s administration has engineered a dramatic turnaround in the country’s system for procuring new generation capacity by squarely addressing investor reluctance to return to this market, long cut off from international capital markets due to the economic mismanagement of previous administrations.  Argentina’s Ministry of Energy has concluded a bid process that attracted bids to sell power from 1,000 MW of wind and solar generation capacity at prices in the 6-7 cents/kWh range, nearly as low as those recorded in Mexico and Chile, countries long considered attractive destinations for international investors, including in the clean energy sector.
Cuba.  In her first trip abroad, Delice Moreno of Cuba’s Electrical Engineering and Project Company reported on the government’s ambitious plans to add almost 1,400 MW of generation capacity from wind, solar PV and small hydropower, and achieve 24% RE in total generation, signaling the increasing openness of the island nation to foreign investment as it moves to decarbonize its power sector.

Challenges to Renewable Energy in Central America

In Central America, there have been notable developments in recent years, including the addition of almost 500 MW in solar and wind generation capacity in Honduras. Privately owned and operated fossil-fired capacity expanded dramatically there during the last two decades because the state-owned utility did not have the resources to keep pace with increasing demand.  The challenge for Honduras and other Central American countries in the years ahead is to sustain the progressive transformation of their power sectors and to take advantage of the continued decline of solar photovoltaic (PV) prices that will encourage the use of solar power. This is a particular challenge for Central American nations because of their relatively small markets and continued fragmentation due to diverse regulatory regimes and industry structures.

The increased penetration of solar PV technology use throughout the economies of the region will require more financing for relatively small increments of capacity. This will require additional participation of local commercial and development banks in the region.  To that end, Abt is supporting implementation of USAID’s CEADIR project.  In my presentation at the Finance Summit, I reported on the project’s progress to date in identifying seven banks interested in receiving training and technical assistance to develop product lines and business units focused on clean energy lending.  This month, the CEADIR team in the region will conclude agreements with the banks and begin work on programs tailored to the objectives and needs of each of the banks.

Effects of Climate Change:  Slow Change Punctuated by Devastation

As the Finance Summit drew to a close, delegates rushed to catch flights home while Hurricane Matthew roared across the Caribbean. Earlier in the week, heavy rain from an unrelated storm flooded some of the streets of South Miami outside the conference venue. Matthew brought widespread flooding and property damage to the coast of northern Florida. Elsewhere, the hurricane’s effects were devastating, with nearly 1,000 dead in Haiti and Cuba.

This reminded me about how the impacts of climate change caused by global warming are manifesting themselves – a slowly advancing tide of inconveniences punctuated by cataclysmic effects. What initially seems to be a nuisance will steadily become an economic, social and environmental challenge of existential proportions.  And Abt, true to its mission of seeking to improve the quality of life and economic well-being of people worldwide, is involved in work on all fronts in this global effort.

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