It is hard to keep warm in Uruguay when July hits and a polar front blows in from the South Atlantic. The winds are bitter, the weather is damp and the Spanish-colonial houses, designed to ward off summer heat, offer little protection from the cold. With monthly heating bills running to $260 for the average household, the poor face particular hardship.
In 2005, Uruguay’s government sought to address this state of affairs with a US$7 billion program to improve its energy infrastructure and to reduce its dependence on oil imports and hydropower. It also established regulations for private investment in wind power. The efforts bore fruit last year, when installed capacity from new wind farms increased 800%, to 530 megawatts. Uruguay became the fastest growing wind market in the world. By the end of 2016, officials expect the country to generate as much as 38% of its power from wind, up from 13% today. Only Denmark, with 43%, has a higher percentage of wind in its energy mix.
“In the past, we depended on hydroelectric power, which is vulnerable to drought and expensive oil imports [when reservoirs run low],” says Juan Ignacio Cabrera, a director of the Uruguayan Wind Power Association (Audee), an industry group. “But Uruguay has great wind resources, with strong, steady winds and a very well-connected grid. The development of wind power is an official priority of all political parties. It should help us bring down energy prices and achieve energy independence.”
Among Latin American nations, Uruguay is not alone in that aspiration. The region’s solar market in 2014 grew by 470%, with 625 megawatts of new solar capacity, while windpower capacity rose 326%, with around 4 gigawatts of new capacity, according to a report by MAKE Consulting, a Danish energy research firm. Brazil, Chile and Mexico were among the top performers, spending $10.8 billion between them on renewable energy apart from large hydro.
That investment, to be sure, cannot compare to the $83 billion that China alone spent, or the 34 gigawatts in solar and wind that it installed last year—seven times the amount in Latin America. Nor does Latin America’s renewable-energy market rival those in the United States, Japan or Germany in absolute terms. Still, experts say, the results were impressive.
And, they say, it is about time. Latin America and the Caribbean have the world’s largest and most diverse share of potential renewable-energy resources. The region could use non-carbon-based technologies to supply all of its current and future energy needs many times over, according to a report by the Worldwatch Institute, a Washington, D.C. think tank.
Yet traditional sources of energy still reign in the region. As of 2013, large-scale hydroelectric plants represented 51% of energy capacity in Latin America and the Caribbean, with fossil fuels such as oil, gas and coal representing around 40%. Non-traditional renewables accounted for only 9% of the region’s energy supply, with geothermal at 3%; wind at 2%; and solar at less than 1%.
Conditions, however, are shifting. Costs of solar modules globally fell 75% during 2009-14, and by one-third to two-thirds for utility-scale solar-energy plants, according to the International Renewable Energy Agency, an intergovernmental body that helps countries transition to renewables. Meanwhile, greater efficiencies in windpower, including taller towers and longer blades, are making that resource competitive as well.
“In certain markets with strong wind resources, like Brazil and Uruguay, wind farms are cheaper than any other kind of technology except for large hydro,” says Brian Gaylord, a senior analyst in MAKE Consulting’s Chicago office.
There is also is growing sense that climate change is making hydroelectric power, the region’s biggest and cheapest source of energy, increasingly unreliable. According to a United Nation’s Intergovernmental Panel on Climate Change’s report in March 2014, rainfall will decrease in Mexico, Central America and parts of Brazil and the Andean region later this century. That, combined with greater evapotranspiration and competition for water resources, could slash the water available for hydroelectric dams.
Countries in the Southern Cone, northern Andes and Central America have experienced troubles with sinking water levels in their dam reservoirs in recent years. Those dangers are especially manifest in Brazil, the region’s largest economy, which is in the midst of its worst drought in 80 years. Dams are functioning at 38% of capacity. In São Paulo, home to 20 million people and the nation’s industrial heart, electricity prices have soared. Brazil is responding by stepping up fossil-fuel exploration and, paradoxically, planning more dams. But it also is boosting non-hydroelectric renewable energy. (See related story—this issue.)
Last year, Brazil spent over $6 billion to add 2.7 gigawatts of windpower, including a wind farm in Bahia operated by the Brazilian renewable energy firm Renova Energia. With 184 turbines and an installed capacity of 294 megawatts, the wind complex is Latin America’s largest. Brazil also held its first national-level auction solely for solar power-generating plants, in which contracts for 31 solar parks were signed, totaling 890 megawatts.
Meanwhile, the Brazilian Development Bank (BNDES), is offering low-interest loans to companies that can bring solar costs down by using locally produced solar modules and equipment. “The situation with droughts and high power prices have shown how really vulnerable the system is,” says Josefin Berg, a senior analyst at the IHS Technology, a Denver-based consultancy. “It has increased Brazil’s interest in solar and other renewables.”
For many countries, the high cost of imported fossil fuels is an added factor. Fossil-fuel plants account for 38% of Central America’s installed generating capacity despite that region’s considerable hydroelectric resources. Chile, like Uruguay, also is heavily dependent on fossil-fuel imports, getting 60% of its power from them. If the recent downturn in oil prices offers some relief, it is not enough to convince those countries that they can count on cheap energy supplies in the future. The oil market is volatile, and countries know that if they want to plan for sustained growth over the next quarter century they need their own sources of energy, experts say.
The government of Chilean President Michelle Bachelet, which took office in March of last year, is trying to tackle that challenge. Facing electricity rates that can be twice those of the United States, Chile is now requiring that 45% of new generating capacity added during 2014-18 come from non-conventional sources such as solar and wind. It is also favoring those power resources in certain electricity auctions. The notoriously energy-intensive copper mining operations and other mineral-extraction companies are eager customers—and influential as well, given that they account for 70% of the country’s export earnings. Located in northern Chile, they are far from the hydroelectric plants in the south and have energy costs that can run to 40% of operating expenses. As a result, they are increasingly purchasing their power directly from new renewable facilities and, in some cases, helping to build them.
The Atacama Desert is a 1,000-kilometer-long (620-mile) strip along Chile’s northern Pacific coast where it rains on average just 15 millimeters (0.6 inches) per year, and the occasional red scorpion or sand-colored grasshopper can appear to be among the only signs of life. The Atacama is ranked by many experts as the best solar-power site in the world. Last year in that vast desert, the U.S.-based renewable-energy company SunEdison completed the 100-megawatt Amanecer solar plant, the largest solar facility in Latin America. Other solar projects in the Atacama have taken off, too, allowing Chile to boost its solar power-generating capacity by 439 megawatts in 2014, four times the amount added in 2013. In 2014, Chile also finished building its largest wind farm, El Arrayán, in the northern coastal city of Ovalle, with an installed capacity of 115 megawatts.
“There is a lot of pent-up demand in Chile, and power prices are high,” says Berg of IHS. “If you can build a renewable-energy facility in places of the grid that are under-supplied, you can offer energy more cheaply [than conventional sources] and be profitable.”
Many analysts nevertheless wonder whether such growth can be sustained in Chile and elsewhere. Wind and solar energy are variable by nature: the wind can cease to blow and the sun be obscured by cloud cover. This creates a need for energy storage, since the grid must deliver power whenever it is needed. That problem confronts solar and wind systems everywhere where their use exceeds 15% of a grid’s capacity, according to studies.
One remedy, pumped storage, involves using excess energy from solar or wind plants to pipe water into high reservoirs during times of low energy demand and then release the water through hydroelectric turbines to generate power when demand is high. Increasingly used in China, Japan and the United States, pumped storage could be implemented in many areas of hydroelectric power in Latin America, experts say. Authorities in Chile are currently considering a plans for the region’s first such plant.
Proposed by local developer Valhalla Energy, the project calls for a 600-megawatt solar-power station in conjunction with a 300-megawatt pumped hydro energy-storage plant in the northern Tarapaca Region. Still, wide use of that technology seems far in the future for Latin America.
So does the implementation of so-called smart grids that use sensors and digital communication to stabilize electricity flows, experts say. Though Brazil and Mexico are investing in such grids, the rest of the region remains well behind.
“There is no feasible economic solution yet to the problem of storage of large amounts of energy that could allow Latin America to take full advantage of its very great potential in renewables,” says Hugo Ventura, the chief of the Energy and Natural Resources Unit of the United Nations Economic Commission for Latin America and the Caribbean (Cepal). “The way the electrical system is managed will change and change a lot, but it could take up to a decade.”
Transmission problems, meanwhile, will represent another obstacle. Mexico, for example, has some of the world’s best wind resources in its southern state of Oaxaca, site of 90% of the nation’s wind generation. Last year, it increased its installed capacity in wind by 1 gigawatt to a total of 2.6 gigawatts and has ambitions to boost that capacity sevenfold by 2022. But Oaxaca is one of the country›s poorest states, and many areas lack connection to the power grid, making transport of wind energy to population centers difficult. That, and similar grid-connection problems in states such as Baja California, has held up speedier wind development in Mexico. And it plagues other Latin America countries eager to expand their use of renewables, experts say.
In 2012, Mexico passed a climate-change law calling for the nation to get 35% of its energy from renewable sources by 2024. Then in 2013, it passed an energy-reform law that will open up the monopolized energy sector to private entities. Those measures, and an energy-transition law currently being debated in the nation’s Senate, are expected to lower the costs of renewable power, speed the expansion of transmission lines and vastly increase investment in wind and solar.
Meanwhile, most Latin American countries have adopted renewable-energy targets and laws, says a June report by the International Renewable Energy Agency. These have spawned the use of incentives such as tax breaks, guaranteed grid access and auctions favoring renewable technologies. Wind and solar, the most dynamic of the renewable sectors, are expected to benefit most.
But Mexico, Costa Rica, Nicaragua and El Salvador, produce considerable quantities of geothermal energy, and could potentially produce more. Brazil is the world’s leading producer of sugarcane ethanol. And small hydro (under 50 megawatts) has significant potential, especially in Central America, where it already makes up 12% of the energy mix and provides a clean way of expanding rural electrification.
“Latin America has world-class potential in renewables, and all countries in the region could power their entire grid with those resources available at their doorsteps,” says Alexander Ochs, project director and coauthor of the Worldwatch report on renewables in Latin America and the Caribbean. “That would not only benefit the environment and climate change. It would save the region huge sums now spent on importing fossil fuels, cleaning up the environment and fighting pollution-related sicknesses.”
Adds Ochs: “The problem is the upfront cost of investment. If Latin America can attract domestic and international financing, including from international development banks or the UN Green Climate Fund, it could rival the world’s biggest players, including the U.S., Germany, and China in the absolute amount of renewable energy produced.”
- Steven Ambrus