The Energy Solution Latin America Needs

A solar photovoltaic plant in Pozo Almonte, Chile. Credit Martin Bernetti/Agence France-Presse — Getty Images
A solar photovoltaic plant in Pozo Almonte, Chile. Credit Martin Bernetti/Agence France-Presse — Getty Images

One of the sunniest places on earth, Chile’s Atacama Desert, has the highest solar irradiance in the world — and the potential to generate enough electricity to power all of South America. But the desert, which covers over 100,000 square kilometers (about 38,000 square miles), is in Chile’s remote north, far from major cities.

In November, the country finally completed transmission lines connecting its huge solar power plants in the northern desert to the densely populated south, allowing lower prices and more reliable energy supplies. If Chile would connect those solar projects to Peru’s power grid, and Peru extended it to Brazil, Bolivia and Ecuador, millions of people throughout South America could benefit from this clean energy source.

Demand for electricity is increasing rapidly in Latin America: Growing middle classes are buying appliances, while many countries are embracing energy-intensive industries. Electricity consumption is projected to rise more than 70 percent by 2030.

To meet this additional demand, Latin America is on a path to increase energy generation from fossil fuels, especially natural gas, while modestly expanding renewable energy from 64 percent of the energy matrix today to 70 percent in 2030. But if instead the region increases renewables to 80 percent of the matrix and expands cross-border connections, Latin American countries can save billions of dollars in investments, avoid blackouts and reduce their greenhouse gas emissions, according to recent findings by the Inter-American Development Bank.

Latin America already has the largest share of renewable energy of any region in the world, but more than 80 percent of its renewable energy comes from large hydroelectric dams. There is limited appetite for building more dams because of the social and environmental costs, including deforestation and displacement of communities. In addition, natural weather phenomena like El Niño make the hydroelectric supply less predictable.

The good news is that the renewable energy sources like wind, solar and geothermal are abundant in Latin America and costs are declining rapidly. Wind and solar capacity in the region has increased significantly as the cost of producing electricity from these sources has dropped over the last several years. The average price in power auctions for supplying solar energy in Latin America plummeted by 87 percent from 2009 to 2017, and the price for wind energy dropped by 37 percent from 2008 to 2016.

Over the next dozen years, increasing renewable energy while connecting transmission lines between countries would save $30 billion compared to the current trajectory, because renewables have zero fuel costs and extending power lines is much cheaper than building new power plants, according to the I.D.B.

Mexico, Brazil and Chile in particular have huge potential to increase solar and wind power. Solar power already represents more than half of Chile’s total installed capacity, and Brazil is home to almost 60 percent of wind capacity in the region.

Integrating clean energy sources also improves energy security. Renewable energy sources in Latin America can be complementary; they are available at different times of the day and year in different countries. For example, Brazil has significant wind energy potential at night while Bolivia, Peru and Chile can produce vast amounts of solar energy during the day. Integration allows countries to take better advantage of this and reduces the need to pair intermittent renewable energy sources with baseload power from fossil fuels.

Renewable energy combined with regional integration also allows countries to diversify energy sources, protecting against the impacts of climate change on hydroelectric supplies. Today, Latin America is dependent on hydropower for about half of all energy generation, and changing rainfall patterns caused by climate change are making hydroelectric power more unreliable in some countries.

In 2001, Brazil experienced a severe drought that led to a drop in water levels at hydroelectric dams, leaving millions of people and businesses without electricity for months. In 2016, Colombia imposed emergency energy-saving measures to avoid blackouts after a major drought. That same year, Venezuela experienced a drought that dried up the supply of water for the main generation basin in the Caroni River.

If current trends hold, electricity sector emissions of carbon dioxide, the largest source of greenhouse gases, will increase by 19 percent and other dangerous air pollutants like sulfur and nitrogen will grow by over 50 percent between 2016 and 2030. But if the region expands renewable energy and grid integration, electricity sector carbon emissions will drop by 15 percent and other contaminants by 10 percent.

Still, energy integration in Latin America is woefully inadequate. The region needs to add about 12,000 kilometers of cross-border transmission lines with about 15,000 kilowatts of power to take full advantage of its potential. But the principal obstacle standing in the way is political.

Most countries are reluctant to rely on their neighbors for energy, deeming self-sufficiency more important than cost, reliability and sustainability. Rather than pursuing this narrow view of energy security, Latin American countries should embrace the advantages of electricity diversification by interconnecting.

In addition to building the physical infrastructure, many countries need to develop the right institutions, rules and regulations to enable liquid and efficient electricity markets.

Central America, for example, would greatly benefit from expanding its regional grid, given the isthmus’s high electricity prices and reliance on imported oil. To encourage investment, the regional electricity market’s regulatory framework must be strengthened. This includes determining the cost of transmission rights and tolls for sending electricity across borders, setting up long-term power purchase agreements on the regional market to provide more security for multicountry investments and unifying national and regional regulations.

While these steps are technically and economically feasible, they require governments to challenge vested interests and relinquish some control over their national power systems. This is not easy to do, but an integrated energy grid would be good for Latin America and for the planet.

Lisa Viscidi is the director of the Energy, Climate Change and Extractive Industries Program at the Inter-American Dialogue. Rigoberto Ariel Yépez-García is the energy division chief at the Inter-American Development Bank.

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