Baseload, Bioenergy, Hydropower, Project Development, Solar, Wind Power

Why Renewable Energy in Latin America is a Winner

Renewable energy in Latin America has made some important gains over the last decade and seems positioned to continue in a positive direction thanks to several factors including steady gains in new projects and increased financial engagement by key players. In Central America and the Caribbean, two Latin American regions with large untapped potential for development, renewable energy technologies are poised to play a very important role in the region’s economic health.

Globally, renewable energy has shown steady growth over the past decade. From 2004 to 2014, the global installed capacity of renewable energy sources increased from 814 gigawatts to 1,783 gigawatts. This trend was reflected by a six-fold increase in the yearly investment in renewable energy over the same time period, from 45 billion USD in 2004 to 270 billion USD in 2014. The current development trend of renewable energy sources is expected to continue over the 21st century.

Not All Renewables Are Created Equal

Wind, biomass and photovoltaic solar energy are the most promising renewable energy sources for Central America and the Caribbean. At the global scale, these three sources account for 34.93 percent of the renewable energy installed capacity. The cost per installed megawatt varies per technology, but is somewhat comparable among the three. In the best-case scenario, the three technologies can reach costs less than 2 million USD per installed megawatt. Wind energy offers the best economies of scale, reaching costs as low as 1 million USD per MW. However, it is also the most limited in terms of geographic location, requiring sites with a constant wind speed to be productive. It is important to note that costs can also be high under less favorable project conditions: biomass energy can cost up to 7.5 million USD per MW, photovoltaic solar energy can go as high as 5 million USD per MW and wind energy can reach costs of 4 million USD per MW.

In the specific case of Central America, hydroelectric power also represents considerable untapped potential, and it can achieve excellent economies of scale with the adequate project conditions. Hydroelectric power is capable of reaching installation costs below 1 million USD per megawatt, even less than wind energy under the best conditions. Unfortunately, in the Caribbean the potential for development of hydroelectric power is considerably lower than in Central America. The greatest advantage of hydroelectric power is that once a water reservoir is filled, the power plant can provide energy on demand without depending on variable sources like the sun or wind.

Financing and Engagement Are Key

Currently, the IDB [Inter-American Development Bank] is playing a key role in the development of renewable energy across Latin America, providing financing and a commitment to the flow of ideas, training and capacity building through a newly-created Energy Innovation Center. Because of the high initial investment involved in renewable energy, their engagement is critical, particularly in developing countries.

The role of international funding in the development of renewable energy is particularly important in Central America and the Caribbean. The installed energy production capacity of a country is strongly correlated with economic development and population. Central America and the Caribbean only account for 9 percent and 7 percent of the installed capacity in Latin America, respectively, excluding Mexico and Brazil.

Promising Signs

Latin America is expected to grow at a yearly rate of 0.85 percent over the next 20 years, and with economic growth comes an increase in energy needs. By 2030, 30 percent of the increase in installed capacity is expected to come from renewable energy, totaling 196 gigawatts. In 2014 alone, the combined investment in renewable energy was 1.7 billion USD for Guatemala, Honduras, Costa Rica and Panama. For comparison, the renewable energy investment in Mexico in the same year was 2 billion USD.

Naturally, Central America is not homogeneous with respect to the composition of its electric grid, but the overall trend of the region is toward a larger percentage of renewable energy in the grid composition. For example, the electric grid in Costa Rica is now 98.55 percent renewable. Honduras, on the other hand, obtains 51 percent of its energy from fossil fuels and only 48.9 percent from renewable sources, but is actively transitioning toward a larger percentage of renewable sources.

This year, a 160 MW photovoltaic power plant started operation in Honduras and is currently the largest in Latin America. Other countries in Central America and the Caribbean have also set goals with respect to renewable energy:

–       Jamaica aims to have 20 percent of renewable energy capacity by 2030.

–       Nicaragua aims for 94 percent renewable energy capacity by 2017.

–       Barbados aims for 29 percent renewable energy consumption by 2029.

A very important project that is contributing to the unification of the electric grid in Central America is the SIEPAC, or Central American Electrical Interconnection system. The project consists of a 230,000-volt transmission network that spans the entire region, with 300 megawatts of transmission capacity.

In South America, there have also been recent developments in favor of renewable energy sources. Bolivia and Peru have installed photovoltaic power systems for rural regions, and small-scale renewable projects in general have gained importance. Chile is currently the South American country with the most development and investment in renewable energy, and Argentina has implemented policies that promote the use of renewable energy sources.

The Best Opportunities

Central America and the Caribbean have a considerable development potential with respect to renewable energy sources. The reduced operational costs of renewable energy compared to fossil fuels can reduce the overall energy prices in the region and increase its global competitiveness. In the past, the high costs of renewable energy technology have been the main limiting factor for its development, but this is starting to change thanks to both a reduction of costs and the presence of organizations like the IBD who finance renewable energy projects. In general, renewable energy offers a considerable opportunity for Latin America to become more competitive and at the same time reduce the environmental impact of its industrial activity.

Lead image: Latin America Map. Credit: Shutterstock.