A Low-Carbon Sustainable Development Pathway for LAC Countries

Growth in energy generation capacity has gone hand in hand with economic development over the course of human history. Recently, on the liability side of the ledger, so too have carbon dioxide (CO2) emissions and the natural resource depletion and degradation that have come along with fossil-fuel dependence.

Replacing coal, oil and natural gas with clean, renewable energy sources offers societies across the world an opportunity to decouple socioeconomic development and growth from fossil fuel use and forge new sustainable development pathways.

Spanning a vast area of growing populations and high geographic, biological, cultural, political and economic diversity, renewable energy markets across the Latin America & Caribbean (LAC) region are growing fast as governments, businesses and local communities come to recognize and place greater value on the social and environmental, as well as economic, benefits and advantages solar, wind, biomass, geothermal and other forms of clean, renewable energy have to offer.

Aiming to spur investment in and the deployment of renewable energy technology and generation capacity across the Americas, the American Council on Renewable Energy (ACORE) is strengthening public-private partnerships through its international programs and Power Generation and Infrastructure Initiative. In support of this effort, ACORE recently released a 10-page white paper entitled, “Renewable Energy in Latin America and the Caribbean.”

Renewable Energy in the LAC: Ripe for development

Collectively, the human population in LAC countries totals some 600 million and is growing 1 percent per year. Regional GDP doubled between 1990 and 2013, according to Clean Energy America's (CELA) executive summary in ACORE's report.

Government, business and community leaders across the region are actively seeking out viable sustainable, low-carbon development pathways that offer an alternative to the fossil fuel-driven paths taken by developed countries over the course of the last 150-odd years. Renewable energy is increasingly seen as a key element. As Ramos states,

“The growing economies of Latin America and the Caribbean region are ripe for renewable energy development.”

The challenges

However, high prices, lack of access to reliable sources of electricity and water, outdated electric and water infrastructure, and highly unequal distribution of wealth and income are among the challenges faced by societies across the LAC as they seek to develop their economies, improve the lives and livelihoods of residents, and preserve ecosystems health and integrity.

With demand for electricity in the LAC region expected to double by 2030, “per-capita electricity usage in the region, at 1,987 kWh (kilowatt-hours), is still a third below the world average, and 29 million households do not have access to residential electricity,” Ramos notes.

In order to meet forecast growth in electricity demand, the Economic Commission for Latin America and the Caribbean (ECLAC) estimates that LAC countries will need to invest over $350 billion in new power generation assets between 2013 and 2030. As Ramos writes,

“The present scenario of strong electricity demand growth, decreasing costs for renewable energy, increasing prices of fossil fuels, and concerns about climate change in the LAC region presents interesting opportunities for the expansion of renewable energy.”

Realizing Latin America & Caribbean's clean energy potential

Widely varying geography also has played a significant role in making it difficult to establish centralized power infrastructure – both electrical and political – in nations across the LAC region. That makes distributed renewable power generation sources – which can be built quickly on varying scales and with less of a geographic and ecological footprint – that much more practical, beneficial and economically viable. According to Ramos,

“[T]here is significant potential for expanding the use of renewable energy sources, ranging from extensive solar and wind resources from Mexico to Argentina, to geothermal resources along the tectonically active Pacific Rim, to biomass resources throughout the region. These energy sources can help diversify the overall electricity supply mix beyond conventional options such as fossil fuels.”

Changing energy policies to promote clean energy growth

Key to carrying out a migration to clean, renewable energy and sustainable development and growth pathways, governments across the region are instituting policies and programs to spur greater deployment of solar and other renewable energy technology and systems.

Due to their size and the degree of development of public and private infrastructure and markets, Brazil, Chile and Mexico are among the regional leaders in this regard. Following up on the institution of national climate change legislation and a national carbon tax on fossil fuels, Mexico's stock exchange, the Bolsa Mexicana de Valores, last November launched the LAC region's first carbon-offset credit exchange.

Headway is being made across the region, however, as governments in Argentina, Ecuador, Peru, along with Caribbean countries, look for viable sustainable-development pathways. In Central America, Costa Rica has garnered international recognition for its efforts to preserve ecosystems and biodiversity, as well as its commitment to becoming the first carbon-neutral society in the world.

Forecasting renewable energy growth across the LAC region

Market researchers at NPD Solarbuzz in a January 2013 report forecast demand for solar photovoltaic (PV) energy across the LAC will boom out to 2017, growing at a compound annual growth rate (CAGR) of 45 percent. As NPD Solarbuzz Analyst Chris Sunsong noted,

“Historically, PV demand was confined to rural off-grid and niche applications, but new renewable energy policies and incentive programs are now opening up the region for strong PV deployment. Set against a backdrop of strong economic growth, expanding energy demand, and increasing electricity prices, the conditions for PV adoption appear particularly attractive.”

Clean energy market mechanisms and trends

A combination of net-metering, Renewable Portfolio Standards (RPS), and other market mechanisms are coalescing to support sustained growth across the renewable energy sector.

Given the sharp decline in the costs of solar and wind energy systems, clean, renewable energy alternatives are cheaper than fossil-fuel energy across a growing range of countries in the LAC region, especially when the market-distorting effects of fossil fuel subsidies, as well as the long-term carbon emissions and environmental degradation associated with fossil fuel use, are considered.

Determined, nationwide efforts to replace fossil fuels with renewable energy resources are just beginning to gain traction, however. A few global business leaders, including Virgin Group and Carbon War Room founder Sir Richard Branson, are helping lead the way.

Eliminating fossil fuel subsidies

Governments in the LAC need to significantly scale back, if not eliminate, longstanding fossil fuel subsidies in order to level the energy market playing field, as well as initiate the long-term efforts required to address grid access and interconnection issues across the LAC region, NPD Solarbuzz's Sunsong points out.

“Electricity subsidies in Mexico and low natural gas prices in Peru are also delaying the onset of PV grid-parity for some end-user categories, while import tariffs across the region are keeping PV system costs on the high side.”

Adds CELA's Ramos in ACORE's report, “Policymakers have been compelled to set national carbon reduction and/or clean energy installation goals and to hold auctions for renewable power and biofuels supply contracts to attract additional investment to the region.”

Ramos recognizes and acknowledges the stiff challenges associated with enacting a determined, effective shift away from fossil fuels to renewable energy resources. “Bottlenecks and difficulties in terms of legislation, market maturity, and supply chain constraints are present,” she writes.

Those challenges are gradually being met, she continues, noting that new funding sources are opening up and new market mechanisms are emerging that can accelerate renewable energy investment and deployment. In addition, grass-roots activism and ground-breaking partnerships between NGOs, businesses and industry, governments and local communities are contributing to renewable energy development and growth.

Momentum should be added as the United Nations finalizes its strategic, post-2015 “Sustainable Development Goals,” and multi-lateral, regional and national development banks, such as the World Bank, Inter-American Development Bank (IADB) and Brazilian Development Bank (BNDES) are compelled to allocate more capital and other resources to helping developing countries across the LAC and around the world forge alternative, clean-energy pathways to sustainable development and growth.

*Image credits: 1) ACORE; 2) Bloomberg New Energy Finance; 3) World Resources Institute, UNEP, GRID Arendal