Renewable Energy Latin America – Latin America is vulnerable to climate change in a number of ways. Many countries in the region are vulnerable to extreme weather events. But governments should also be concerned about major changes in the global economy.
Because the steps the world has taken to accelerate the transition away from fossil fuels will inevitably affect the region’s carbon-intensive commodity markets. According to the report of the International Energy Agency and others, it is likely that export volumes and prices of fossil fuels will decrease in the medium to long term. How will the region prepare for this challenge?
Renewable Energy Latin America
On the other hand, the area is lucky. Latin America has many options to begin addressing and reducing carbon emissions from its heritage assets. More importantly, low carbon fuel. It is well positioned to monetize renewable energy and carbon offsets.
Latin America’s Renewable Energy Market Analysis
But getting there requires commitment from the private sector and collaboration with the public sector to pursue bold policy initiatives and overhaul the institutional framework to create a true energy revolution.
In the short term, additional income from high oil and coal prices should actually be invested in the region. However, as it stands, in some countries there is little evidence that existing institutional arrangements will improve the resilience of these sources and help ensure a smooth energy transition.
The International Energy Agency estimates the need to finance the energy transition in emerging markets at $1 trillion annually in the period to 2050. Due to the wounds caused by covid and the current government’s high debt – public investments will be limited. This means that a large part of energy transmission must be privately financed.
One of the main obstacles to this is that Latin America has a much higher cost of capital than other emerging economies, including developed economies and Asian countries. Macroeconomic instability. financial risk; underdeveloped domestic financial systems; This is the result of many factors, including political risk and instability.
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Addressing these limitations is particularly important because financing the energy transition is not the same as financing fossil fuels. State-owned or multinational companies are willing to invest in mining because the rent compensates for the high macroeconomic and political risk. This is especially true in countries with proven reserves and sound governments. Because manufacturing industries are export-oriented, they generate foreign exchange and are less exposed to domestic regulatory risks (such as price controls).
On the other hand, low carbon industry is technologically advanced. Small margin and subject to regulations. They are not an important source of exports. At least at first. Furthermore, low-carbon industries are not a source of financial rent – quite the opposite. The use of renewable energy often requires government support through subsidies or special tax systems. From a public finance perspective, the transition to clean energy means revising the tax structure and moving towards growth financing programs.
While the energy transition may bring significant opportunities for the region, these opportunities – and the associated investments – are not guaranteed to be taken advantage of. The fight for clean finance has led to policy changes. This requires new regulation and even the creation of new markets. All these factors lead to effective governance and predictable policies.
The first priority should be to help the region’s carbon-intensive industries reduce their carbon footprint so that Latin American economies and industries remain competitive in a carbon-sensitive global market.
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The creation of technology-based markets and regulatory frameworks, such as natural carbon offsets and carbon capture, storage and use (CCUS), will be key. Sectors such as cement and steel are particularly difficult to digest. Fossil fuel industry expertise in the use of CCUS technology is essential to create domestic markets in decommissioning operations and renewing existing infrastructure.
The transportation policy and financial challenges are more obvious than pure hydrogen, which appears to have significant potential for heating and livestock use but has yet to be developed commercially. Several countries, including South America, have developed hydrogen road maps. But with the exception of Chile, where hydrogen projects are being developed and hydrogen auctions are being held, other countries in the region are not even at the conceptual stage or have not yet started.
The Latin American countries have two main natural advantages that can be used to promote energy transmission. One is the region’s strategic minerals, such as lithium and rare earths, which are important for the production of batteries and other equipment needed to generate renewable energy. The second issue is carbon compensation in accordance with the area’s biodiversity.
To maximize these benefits, the region could build on past success in attracting wind and solar investment through auctions.
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In the future, governments may need to review and expand their portfolio of financial instruments in four areas: effective use of international development finance; capital structure of SOEs to rely on equity rather than debt financing; The organization of regional development banks and the structure of local banks. Global green bond and ESG markets are more aggressive.
While most financing may come from the private sector, financing development is key to the energy transition in Latin America, especially for countries with high capital costs and limited size and depth of private capital markets. Development Finance Institutions (DFIs); Climate funds and climate-adapted foreign development assistance (ODA) will be important components. DFIs are hybrid financial instruments to finance less proven technology and infrastructure, specifically to support less proven technology and dense infrastructure. Tools and facilities must be specified.
Financing the energy transition also requires risk mitigation tools (such as credit guarantees, road tolls with a clear phase-out period, public procurement to ensure initial demand for new products and services). Local development banks lend money by providing patient capital is very important.
The presence of state-owned enterprises along the energy chain can create opportunities for equity financing as a means of reducing reliance on debt financing for the energy transition. This can also reduce capital costs.
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The portfolio of financial instruments should be expanded with new tools or new ways of using existing tools. Some of these new instruments include green and ESG bonds, which have recently risen in Latin America.
Climate change and the energy transition require a review of the role of the government and the private sector in the energy market. The model based on public enterprises should be changed to one of public private entities. State-owned enterprises and development banks have equity capital, although credit and/or credit enhancement can be provided, but the private sector must play a leading role. Instead of extracting rent, the public sector should support these new industries. Innovators and private investors trust local institutions. Predictable regulation and market control and appropriate pricing policies are required. Not all of these devices are associated with election cycles and require longer lifetimes. Political experiments that lead to improvisation and polarization create uncertainty and are the exact opposite of what is needed in the energy transition.
Whether Latin American countries reap the benefits of the energy transition or bear its costs is at stake.
Cardenas is a senior fellow at the Center for Global Energy Policy at Columbia University. He was Colombia’s Minister of Finance from 2012 to 2018.
Latin America’s Renewable Energy Future
Palacios is a senior fellow at the Center for Global Energy Policy at Columbia University’s School of International and Public Affairs. Geothermal Capex Government Demand Economic Planning Solar CSP Smart Grids CSP Rural Power Systems Biomass Grid Upgrade Wind Efficiency/Efficiency Tidal/Wave Taxes and Subsidies Generation Private Power Purchase Agreement (PPA) Radial Onshore Wind Wind Capacity Solar Legislation and Regulations Current and Current Regulations Conflicts Wind Secondary Distribution Primary Distribution
This is a snapshot of the capacity to install renewable energy in Latin America, including a $120 billion investment in the region between 2010 and 2015.
Latin America shows 838 renewable projects (excluding hydropower generation) in the early stages or under construction with an estimated total investment of 110 billion dollars.
So the investment trend remains strong and we will continue to see more project announcements in the coming years.
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Some projects were submitted until 2013 and the largest investment is up to 590 million USD.
The solar-photovoltaic project will have a capacity of around 1GW but has been rejected twice by Chilean environmental authorities.
The proposed changes will allow consumers to return unused energy from their electric vehicles to the grid.
Renewable Energy For Latin America And The Caribbean (relac)
The approval of two additional projects makes July a good month for renewable project approvals.
On the sidelines of the debate in Santiago, Chile’s COP25 representative, Gonzalo Muñoz, spoke about how the region’s infrastructure sector is doing.
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