Clean Energy in Latin America

Raymond A. Perez & Alexander P. Trueba

Over the last decade, energy consumption in Latin America has grown at a pace of 3% per year due to a surge in economic activity. Fortunately, the region has been blessed with some of the most precious natural resources on the planet, many of which are crucial in the development of clean, sustainable energy. Yet still, many of these resources remain unharnessed, leaving a window of opportunity for investors as countries in the region continue to grow at a rapid pace while the demand for energy increases.

Although global investment in clean energy diminished nearly 11% in 2012, led by reduced incentive programs in select European countries, Latin America ex-Brazil is bucking this trend. New financial investment in clean energy within the region increased 127%, totaling $4.6 billion. Specifically Mexico, Chile, Uruguay and Peru experienced dramatic growth when compared to 2011 investment totals.

New investment in Mexico, a hotbed for renewable energy investment given recently enacted regulations, leaped 595% and reached $1.9 billion. Much of this investment was focused on the wind ($1.3 billion) and solar sectors ($300 million). Mexico has vast renewable potential given its landscape and geographic location, with an estimated 45 GW of solar and 71 GW of wind power potential. Mexico generated 26% of its electricity through renewable clean energy in 2012. Its goal is to increase that figure to 35% by 2024.

In 2012, four wind farms were erected and became operational, raising Mexico’s current wind power capacity to 1.7 GW. These investments helped wind power surpass geothermal energy as Mexico’s the principal clean energy source. During this period Mexico took a step forward in solar energy investment. Capitalizing on the nation’s level desert land and long sunny days, Martifer SGPS SA, a Portuguese energy firm, agreed to construct a 20 MW solar farm in northern Mexico and Sonora Energy Group de Hermosillo (SEGH) began work on a 39 MW photovoltaic plant in the state of Sonora. In early May, U.S. President Barack Obama visited Mexico and praised it for its commitment to reduce carbon emission through solar and wind technologies. The President even hinted at a new energy partnership between the two nations.

Much like Mexico, Uruguay has taken a leap into the forefront of the clean energy movement, exemplified by the fact that almost 80% of its electricity is produced by hydroelectric plants. Although much of the hydroelectric potential has already been tapped, the nation still shows much promise. Total new clean energy investments in 2012 totaled $105 million, a 285% increase when compared to 2011. Uruguay has a goal of having 90% of all of its electricity come from renewables by 2015. It must now turn to leveraging its solar and wind capacities if it is to be successful in attaining this goal. As of August 2012, 21 wind farms were under development in Uruguay, and just this past week the government issued a declaration to stimulate the development of 200 megawatts of solar-energy projects.

As for Brazil, a historic hub for biofuel production, clean energy investment reduced by 32%. However, Brazil accounted for over 50% of total new investment in Latin America ($5.2 billion) and remained ranked in the top 10 of G-20 countries for clean energy investment. Although the nation’s ethanol industry experienced weaker demand, the Brazilian government has recently cut taxes and extended credit to the sector in an attempt to revive the industry. The hope is that the cuts will lower fuel prices and diminish the nation’s reliance on gasoline imports, therefore reducing inflation. With a projected record cane crop this season, Brazil also proclaimed a blending decree that raises the blend of ethanol in gas to 25%, up from 20%. The nation is turning to other renewable sources as well, such as wind power, which managed to increase capacity to 1.1 GW given $3.5 billion of new investment. Solar has also seen a jump, as many projects are being installed ahead of the 2014 World Cup.

The Inter-American Development Bank (IDB) has been crucial in stimulating new investment in the region. Just this past month, the IDB created a $50 million energy efficiency fund specifically for Latin America, providing loans to help control electrical costs and greenhouse-gas emissions. They also approved a $41.4 million loan to fund three Chilean photovoltaic solar power plants in the Atacama Desert (26.5 MW total capacity) that will aid in providing energy to the country’s mining sector. New clean energy financial investment in Chile rose 313% to $1.0 billion. Investments were made mainly in the wind and hydroelectric sectors. This is a step in the right direction for the rapidly growing nation; it currently depends on imported fossil fuels for 60% of its energy generation. A move to domestic clean energy could save Chile billions of dollars and help it escape from its dependence on foreign oil companies.

The International Finance Corp. (IFC) also played a role in stimulating capital, investing $100 million in InterEnergy Holdings to help foster development of wind and solar power in the Dominican Republic. InterEnergy will also use the capital help the D.R. import more LNG (liquefied natural gas). The IFC also signed a $75 million loan agreement with BBVA Continental, the second-largest bank in Peru, $30 million of which will be used to expand renewable energy through hydroelectric power. In 2012 Peru attracted new clean energy investments totaling $643 million, a 176% increase compared to 2011.
As Latin America continues to grow and its demand for energy increases, the region must take advantage of the natural resources it has at its disposal. Wind, solar, hydroelectric and bio-fuels all have the potential to thrive in Latin America given its location and topography. Steps in the right direction have already been taken. Latin American governments have endorsed many renewable energy initiatives and much public and private funding has been targeted at the sector. Given these factors, coupled with an increasingly environmentally conscientious global population, the renewable clean energy industry presents an attractive alternative for investment, and will act as on of the catalysts for sustained growth in the region.

 

Sources: Wall Street Journal, Bloomberg, The PEW Charitable Trusts, Fox Business, The Inter-American Dialogue, Renewable Energy World, World Politics Review, IDB, The Energy Collective, Clean Technica, IFC, Reuters