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New Energy World™
New Energy World™ embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low-carbon technologies.
Latin American and Caribbean nations poised to lead the transition
29/11/2023
6 min read
Feature
It is perhaps not widely known that countries of Latin America and the Caribbean are among world leaders in adopting renewable energy, led by hydroelectric schemes, writes Fernando Zúñiga, Managing Director for Latin America & Caribbean with MPC Energy Solutions (MPCES).
Governments across Latin America and the Caribbean have been making significant strides in the adoption of renewable energy sources. Countries such as Guatemala and Jamaica have made bold commitments to boost their resilience and transition from fossil fuels to cleaner energy generation.
Additionally, the Latin American Energy Organization (OLADE) and the International Renewable Energy Agency (IRENA) have agreed to collaborate on strengthening policy plans, supporting the growth of low-carbon investments in the region and facilitating the pursuit of the RELAC (Renewable Energy in Latin America and the Caribbean Initiative) member states’ goal of reaching 70% renewables in power generation by 2030.
Latin America already has a high concentration of hydroelectric energy, but this partnership is expected to accelerate the transition to renewable energy sources and promote sustainable development in Latin America and the Caribbean more generally. According to OLADE and IRENA, their efforts will focus on increasing the penetration of other renewable resources in the region such as wind, solar and geothermal.
Rich in green energy resources, 61% of Latin America’s power generation capacity is currently from renewables. Also, over 26% of the region’s primary energy supply comes from clean energy, one of the world’s largest rates of renewables.
Latin America and the Caribbean have also found themselves at the forefront of global climate change mitigation. Intensifying weather patterns are leading to extensive consequences for ecosystems, food and water security, and health. Caribbean nations, particularly, are among the most impacted by climate change and therefore have strong ambitions when it comes to the energy transition.
For example, Barbados, a small island developing state in the Caribbean, has set the ambitious target of becoming a 100% renewable energy and carbon neutral economy by 2030. To help ensure such rapid decarbonisation, it has identified the widespread deployment of energy storage as a key tactic.
Earlier this year, Barbados’ Fair Trading Commission (FTC) ordered a four-year pilot deployment of battery energy storage systems (BESS) to be conducted, with installations to gather data on the value they can provide to the electricity grid.
Rich in green energy resources, 61% of Latin America’s power generation capacity is currently from renewables – also, over 26% of the region’s primary energy supply comes from clean energy, one of the world’s largest rates of renewables.
Taking a lead
Spurred by the recent energy crisis worldwide, markets in the Latin American and Caribbean region are witnessing increased demand for renewables infrastructure, with solar and wind projects having the biggest potential. For example, Guatemala, a nation rich in solar and wind resources, is a hugely attractive market; recently, it called for tenders for the installation of clean energy projects.
Further competitive renewable energy auctions are expected to be launched in the coming years as the government of Guatemala procures green power at competitive prices and aims to facilitate the country’s energy transition.
In the Dominican Republic, a major tourism hub and one of the largest countries in the Caribbean, there is strong political support for further development and adoption of renewables. The historically high costs of fuel imports have prompted leaders to take decisive actions to increase the installed capacity of electricity generation from renewable sources. The current administration has looked to accelerate investment in wind and solar projects, readjust regulations and set the level of fiscal credit for investments to 75%.
Panama has also realised that increasing investment in cleaner energy sources is more cost-effective than continuing to use fossil fuels. Panama is focused on reducing electricity prices by lowering its dependence on fossil fuels and ensuring that 15% of its generation capacity comes from renewables by 2030, and 50% by 2050. Currently, Panama has an installed capacity of approximately 336 MW from wind projects, and around 470 MW from solar PV plants.
Within Panama, one of the best areas for renewables is located in Penonome, where at the moment there are several wind farms under operation. Good wind resources can also be found in some areas in Chiriquí.
The country’s commitment to decentralise and diversify its energy generation will allow for more rapid mitigation of greenhouse gas (GHG) emissions, increase the country’s resilience and help meet its growing energy demand. Panama has abundant natural resources, a well-functioning and mature electricity market for independent power producers (IPPs), power purchase agreements (PPA) and the cheapest cost of debt financing in the region.
These factors, together with its strong economic and political stability, and appealing fiscal incentives, make investments into Panama’s renewable energy assets attractive.
Drawing in foreign direct investment (FDI) to finance renewable energy installations is an important driver of sustainable development, which stimulates the economy whilst mitigating carbon emissions. In fact, the United Nations (UN) estimates that $3.3–4.5tn/y needs to be mobilised by 2030 to achieve the UN Sustainable Development Goals.
Thanks to national support measures made by leaders in Guatemala, the Dominican Republic and Panama, confidence among local and international investors has grown. As governments continue to promote clean power initiatives, these nations are poised to lead the region’s renewable energy revolution.
The nearshoring wave
As FDI in renewable energy projects grows, governments will likely invest more in infrastructure, including transport and logistics, leading to a favourable environment for nearshoring. Companies worldwide which sought to lower production costs in their supply chains by offshoring suppliers have heavily relied on Asia’s manufacturers.
However, after facing severe supply chain issues because of the global COVID-19 pandemic, further exacerbated by Russia’s invasion of Ukraine and the global energy crisis, a growing number of companies are transferring, in full or partly, their production to regions closer to their key markets.
Therefore, companies serving the North American, or even the European markets, are increasingly seeking to relocate their manufacturing operations to Latin America and the Caribbean. In addition to its geographic location, the region offers other benefits, including lower transportation costs and an optimised logistics strategy. However, in turn, this nearshoring phenomenon is boosting energy demand, emphasising the region’s need for investment in renewable energy to meet decarbonisation goals.
Major multinational companies are also increasingly adopting their own GHG emissions reduction targets. To ensure they meet their sustainability objectives, businesses need access to reliable and affordable electricity from green energy sources. As a result, to make the most of potential nearshoring investments, countries across Latin America and the Caribbean should continue to invest in clean energy installations, while safeguarding the security and continuity of supply.
MPCES Case Studies
El Salvador
MPC Energy Solutions (MPCES) is well positioned to help deliver El Salvador’s goal of boosting the adoption of renewable energy sources. With the introduction of the National Energy Policy 2010–2024, the government of El Salvador prioritised diversification of the energy mix to improve its energy supply and increase access to electricity across the population. This has allowed the country to become a renewables powerhouse, with most of its energy being produced in hydroelectric and geothermal plants.
El Salvador’s new National Energy Policy 2020–2050 draws up a long-term energy strategy, highlighting the importance of mitigating the dependency on fossil fuels and climate change effects, with the reduction of electricity tariffs in the country to prioritise renewables over fuel imports.
MPCES has contributed to El Salvador’s energy plans by helping boost the country’s energy production through solar and wind. Earlier this year, the company commenced operations for its Santa Rosa and Villa Sol solar photovoltaic (PV) plants located in El Salvador’s region of Quezaltepeque, which have a combined installed capacity of 21 MW and are expected to generate 45 GWh of solar energy per year.
The solar power of these projects will offer substantial environmental benefits, preventing nearly 11,000 t/y of CO2 emissions. MPCES is committed to further contribute towards El Salvador’s renewable energy transition and is evaluating further investments in the country.
Part of the solar PV plant at Santa Rosa and Villa Sol in El Salvador
Photo: MPCES
Panama and Guatemala
In 2023, MPCES has expanded its development footprint in Central America by entering Panama and Guatemala. As Panama’s government looks to decentralise and diversify its energy generation, the company is seeking to support the expansion of the country’s green energy sources through new developments focusing on ground-mounted solar PV. It has already identified sites and a grid connection capacity for combined 60–70 MWp, with immediate start of development works.
In Guatemala, Comercializadora de Energía Para el Desarrollo, a subsidiary of Ingenio Magdalena, the country’s leading producer and exporter of refined sugar, alcohol and energy has signed a long-term PPA with MPCES for the development of a solar PV plant. The project is currently under development and will have an installed capacity of 65 MW.
This project shows the growing private corporate PPA demand in Central America and will allow MPCES to meet the region’s high demand for renewable energy.
As we move into 2024 and the world edges closer towards the collective goal of decarbonisation, Latin America and the Caribbean should continue to pave the way to reach a sustainable, low-carbon future. As policy support, such as the use of energy auctions, and public backing continue to grow, local and foreign investors will be increasingly able to reap the vast opportunities for future renewable energy development in the region.