Latin America, more than any other geographic region, is focused on the impact of climate change, based on Pew Research Center polling.1 In 2017, Pew surveyed 38 countries to evaluate each population’s highest ranked national security threat. Of the seven Latin American countries polled, six ranked global climate change as the topmost concern among eight identified potential global threats. Perhaps this is because Latin American countries are particularly prone to natural disasters and extreme weather events, such as droughts, floods, extreme temperatures and rising sea levels, inciting worry among residents regarding sustainability.
Because of these concerns, an energy revolution has taken place in the region over the past few years, making the region a global leader in the clean energy sector. In 2016, Latin America produced 53% of its electricity from renewable sources, compared with the global average of just 22% – and this figure is only expected to rise.
Investments in renewables are projected to increase across the region as countries continue to set higher renewable energy goals and offer more lucrative financial incentives for renewable energy manufacturing and project development. Additionally, electricity demand is slated to grow 3.7% per year, on average, between 2008 and 2030, underpinned by the current demographic and socioeconomic dynamics, such as population growth and rising GDP per capita, occurring in numerous Latin American countries.2 Prime examples of renewable energy adoption include Brazil and Colombia.
In the upcoming years, Latin American countries will be forced to make large investments in electricity generation and enhanced grid infrastructure to meet increasing energy demand. Specifically, the U.S. Energy Information Administration suggests that power generation in the region will have to double by 2030 to support the growing population, which the Economic Commission for Latin America and the Caribbean estimates will rise from 625 million in 2016 to 680 million in 2025 and 779 million in 20503 – an increase that will require an investment greater than $700 billion.4 Currently, 4.8% of people in Latin America lack access to electricity. As population growth persists, this number is only predicted to rise.
Latin America’s recent energy infrastructure development has made it an attractive target for foreign investors looking to develop renewable energy assets. Neighboring countries in the region have started creating regional power systems by connecting electricity grids. By doing so, the countries can alleviate some of the challenges they are presented with in terms of providing affordable, reliable electricity while simultaneously facing natural resource constraints, weak infrastructure and low levels of investment.5 This regional integration alongside smart grid technologies facilitates the efficient incorporation of renewable energy into the grid without disrupting grid stability. Integrated Power Systems has helped facilitate renewable energy penetration by creating a market for financing large-scale projects and providing enhanced grid stability for intermittent energy sources such as wind and solar. Additionally, with the creation of these regional electricity markets, competition between power generators in national markets has increased, attracting greater foreign investment.
Latin America’s dependence on renewable energy sources is about twice that of the global average according to ABN AMRO; renewable sources account for 25% of the region’s total energy supply vs. the global average of 13%.6 According to the International Renewable Energy Agency (IRENA), hydropower accounts for the lion’s share of Latin America’s renewable energy consumption, meeting 50% of the region’s electricity demand. That said, its importance is slowly declining. In 2015, hydropower accounted for 80% of Latin America’s renewable energy sources, down from 95% in 2000. This reflects a growing appetite for solar, wind and biomass energy sources, which are shown to have less environmental impact than hydropower.7
The value of renewable energy deals in Latin America jumped substantially in the past few years. According to Mergermarket, the renewable energy space in the region saw a surge in mergers and acquisitions (M&A) between 2013 and 2016, with deal value soaring 157%.8 Since 2014, renewable energy M&A activity has increased by almost $2 billion, passing $2.5 billion in value. Recently, wind power seems to be the most attractive industry. Twenty-six of the 62 renewable energy deals recorded in Latin America since 2013 have been in the wind energy space.9 Brazil is the most advanced country in the region in terms of wind power utilization. As of 2017, the nation had 447 wind farms with an installed capacity of 11 gigawatts (GW) – enough to power more than 10 million homes.10
Brazil is repeatedly ranked as the most attractive market in Latin America in terms of renewable energy, currently generating nearly 40% of total energy consumption and 76% of its electricity from renewable energy resources.11 The rising demand for energy alongside a desire to shift toward renewable sources has been a key driver in the country’s advancement. Specifically, Brazil has grown its use of hydropower by developing more dam facilities, with large hydropower dams accounting for 93 GW of its current energy capacity.12 However, the lack of production from some of Brazil’s largest dams due to recent droughts has increased awareness that the country must decrease its hydropower dependence. In 2014, Brazil faced one of the worst droughts in its history, hampering power generation at some of its most important hydropower facilities.13 This event highlighted the urgency of developing renewable energy infrastructure and catalyzed a new wave of renewable energy investments within the country. Brazil has committed to expand non-hydropower renewables to at least 20% by 2030, as there is an immense amount of unexploited potential in sectors such as wind, solar and floating solar photovoltaic (an array of solar panels located on a structure afloat a body of water).
Brazil is well poised for renewable energy investment opportunities, given it has one of the strongest wind resource bases (11 GW) in the world and the largest in Latin America.14 Recently, the country has put a stronger emphasis on wind energy. As an established source of energy, wind has been removed from the specific renewable energy auctions in Brazil and is now sold alongside hydropower and energy derived from fossil fuels in the conventional energy auctions.15
Although solar energy generates just .02% of Brazil’s installed electricity generation (27 megawatts [MW]), an additional 2.2 GW has been tendered and, upon installation, will represent a 750% increase in installed solar power capacity.
Like Brazil, Colombia is a leader in the renewable energy space, with renewable sources accounting for 31% of total energy consumption. The country has the third largest installed hydropower capacity in South America at 11.7 GW, representing 70% of national installed energy capacity and 86% of electricity generation.16 With its hydropower energy, Colombia has positioned itself at the forefront of clean and sustainable energy systems worldwide. Furthermore, it is approaching its target to reduce greenhouse gas emissions by 20% by 2030.
Although Colombia is considered a pioneer in the use of renewable energies, its current infrastructure is seemingly transient, as hydropower – its biggest energy source – is not sustainable in the long term. As climate change worsens, future weather patterns are increasingly unpredictable. Because hydropower dams rely on two rainy seasons to supply sufficient reservoirs, one cannot be sure this supply will continue in the future, as evidenced by the droughts and lack of water supply in Brazil. As dams reach capacity, new ones must be built, but the demand for hydropower is increasing at a rate faster than the supply is growing.17
Despite being a leader in renewable energy generation and use, Colombia is the largest coal producer in South America, with the biggest reserves in the continent, and the 10th largest worldwide. Further, the country is the fourth largest coal exporter across the globe. Colombia is known to be a low-cost producer with highly sought-after coal, primarily due to its low sulfur content.18 In the past 20 years, production has increased 80%, with most of the coal exported and shipped to European markets. Production is expected to persist; however, at the same time, the country is placing increased emphasis on the potential for solar, wind and biomass energy generation.
Both nations and individuals often refrain from using renewable energy, citing the cost advantage associated with fossil fuels. However, in recent years, this cost advantage has been decreasing, and renewables are now considered to be financially competitive with fossil fuels. According to IRENA, the cost to generate electricity from hydropower fell from $65 per megawatt-hour (MWh) in 2010 to about $50 per MWh in 2016. In comparison, the cost of fossil fuels can fall anywhere between $40 per MWh to $150 per MWh.19 Further, the costs of renewable energy sources are only predicted to continue declining, while fossil fuel prices will likely increase alongside decreases in supply. Therefore, as climate change persists, and countries are forced to adapt, this energy transformation will continue. Ultimately, a shift is taking place across Latin America, encouraging each country to embrace clean energy sources to find both a more accessible and sustainable way to increase electricity generation.
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1 “Global, People Point to ISIS and Climate Change as Leading Security Threats.” Pew Research Center. August 1, 2017.
2 The World Bank.
3 “Latin America Population Will Reach 625 Million Inhabitants by 2016, According to ECLAC Estimates.” Economic Commission for Latin America and the Caribbean. February 2, 2016.
4 “Integrating the Latin American Electricity Grid.” Worldwatch Institute. August 8, 2013.
6 “Renewable Energy in Latin America.” ABN AMRO. May 16, 2018.
7 “Renewable Energy Market Analysis: Latin America.” IRENA. 2016.
8 “Wind Investors Blow Into Latin America.” Forbes. July 14, 2017.
11 Export.gov. August 2017.
16 International Hydropower Association. June 2018.
18 World Energy Council. 2016.
19 “ Renewable Energy Market Analysis: Latin America.” IRENA. 2016.