Recent natural disasters have severely hit some Caribbean countries and some regions of the United States. Hurricanes Harvey and Irma have devastated households, cities and whole countries. Millions of citizens were forced to abandon their homes and the economic losses are estimated to be over 100 billion dollars. This situation has once again raised the question about global warming and its consequences. Scientists claimed that climate change has contributed to making these bad storms even worse.
Agreements have been reached between countries and international organisations to try and tackle this problem. In 2016, the Paris Agreement was signed by more than 190 countries, including China and the United States, which both represent almost 40% of global emissions. In the Paris deal, each country determines its own contribution in order to alleviate global warming.
Unfortunately, the World Bank has estimated that Latin America is likely to be one of the regions of the world that will be most affected by climate change, especially if the Earth’s temperature rises by more than two degrees Celsius. If things stay the same, the melting of the glaciers will accelerate to the point where most glaciers below 5,000 meters will disappear, specifically in the Peruvian and Bolivian Andes. This situation will disrupt water supply and affect millions of people who work in the agricultural sector. That is why some Latin American leaders have joined the Paris climate agreement to reaffirm their commitment to mitigating the effects of global warming. This raises the question: how can Latin America contribute to reducing carbon emission through clean energy?
Latin American has almost complete access to electricity (94% in total) and to non-solid fuels (84% in total). The latest source of energy contributes to lowering pollution and is more beneficial for health. There is enormous potential in the region and the rapid spread of renewable energy is seen as a source of hope for a global transition to a low-carbon economy. Latin America has the world’s cleanest electricity sector as 56% of installed electricity comes from renewable sources compared with the world average of 22%. In 2016, Uruguay generated almost 93% of its electricity from renewable sources and Costa Rica ran purely on renewable power for almost seven months. Moreover, one of the largest photovoltaic projects in the world is located in El Romero, Chile. It is composed of 775,000 grey solar panels, which are spread out in the Atacama Desert. It can generate 196MW of electricity, enough to power a city of one million citizens. The Chilean solar plant is one of the main symbols of the region’s vast renewable energy potential. It is proof that technological progress and economies of scale have reduced the cost of green energy: once built, solar plants are cheaper to operate than thermal power stations.
If Latin America wants to keep leading in clean energy, investment in the strategic sector is required as well as coordination between public and private agents. In 10 years, total investment in renewable energy has been multiplied by a factor of four. The amount of investment of each country is considerably different (Figure 1): Brazil is leading the way, which is in part due to the country’s wind power auction. The gap between Brazil and the rest of the region has been historically present but it has been narrowing in recent years. The other highest destinations of investment in 2015 were Mexico and Chile, which, for the first time joined the list of the top 10 largest renewable energy global markets. Uruguay came in fourth with big investments in the wind sector.
As for different types of renewable technology, the trend over the past years reflects a change in the nature of the investments. From 2005 to 2009, most of the renewable energy capacity came from hydroelectricity, which has suffered from droughts these last few years. The region has other forms of renewable energy such as geothermal, solar, tidal, wind, biomass and biofuels, but they only represent 10% of electricity production and they are increasing very slowly, which made it difficult to offset the decline of hydroelectricity. Even if non-hydroelectricity is something new in the region, investments are rising. In particular, solar photovoltaic plants have experienced rapid growth. It is the same situation for onshore wind investments, which have increased since 2008. Geothermal investments are present every year but it is not the case for hydro-power and bioenergy investments. Overall, private investment in renewables has gradually increased, especially to support wind-based generation (Figure 2).
The way to encourage investment in Latin America is to combine national policies with financial mechanisms in order to attract private investors. Some countries such as Chile, Mexico, Brazil and Argentina have changed their regulations to encourage alternative energy without offering any subsidies. Another instrument is to use energy auctions to attract clean energy investors at low prices. For instance, in Argentina, Chile, Mexico and Peru, power auctions have recently resulted in high-participation and low-bids for wind and solar projects.
Despite the progress made in renewable energies, there is still room for improvement. Considering the vulnerability to climate change related shocks that Latin America has, the region would benefit tremendously from regional interconnections. However, many of the existing ones are not used because of technical and market barriers. For instance, power exchanges between Argentina, Brazil and Chile remain consistently low. Increasing energy efficiency could also reduce pollution. The region’s energy intensity is the lowest of any region, largely caused by the nature of its economic activities. The region could certainly reduce transmission and distribution losses as they are the highest of any region after the Middle East and North Africa.
On many occasions, we have been hearing that fighting against global warming is a complex matter and there is little that can be done. However, Latin America is trying to transform a challenge into an opportunity. The region is characterised by developing countries that need to grow, but they have decided to develop clean energies that foster industries, attract capital and create employment. The future looks encouraging and time may confirm it.
by Alea Muñoz Guisande