Regional integration key to unlocking economic potential in Latin America

A new energy scenarios report identifies a critical need for large-scale investment and regional integration to unlock greater economic potential and mitigate risks for the energy sector in Latin America and the Caribbean.

The World Energy Council has identified that if the Latin American & the Caribbean (LAC) region is to achieve a sustainable economic growth of 2.7% to 2060, an effective system of broad-ranging regional and international governance, including strong collective climate change policies and regional integration of energy systems, is essential.

The findings come in a new set of exploratory scenarios, developed in partnership with CAF- Banco de desarrollo de América Latina, Eletrobras and Unidad de Planeación Minero Energética (UPME), which were launched on 31 May in Lima, Peru.

In the report entitled ‘Latin American & the Caribbean Energy Scenarios to 2060’, three scenarios “Samba”, “Tango” and “Rock” present a distinct trajectory for the energy sector to 2060.

The scenarios identify key areas for action: government policy directions, new energy opportunities, climate-related policies and the need for macro-risk management.

Ged Davis, Executive Chair of Scenarios, World Energy Council, commented: “It is clear that we are undergoing a Grand Transition, which is creating a fundamentally new world for the energy industry in Latin America and the Caribbean. We are seeing a fundamental change in geopolitics, lower population growth, and the impact of revolutionary technology. The scenarios demonstrate that the LAC region has great potential to benefit economically from regional integration and cooperation, but has been slow to reap the long-term benefits in the face of short-term political and economic priorities.”

The report also goes on to also highlight new opportunities for wind, solar, geothermal and continued growth in biofuels and natural gas. Although alternative energy sources such as solar wind and geothermal still only account for around 2% of Latin America’ electricity generation, compared with a world average of 4%, the LAC Scenarios show that this share will grow rapidly between 2030 and 2060, with up to 20% of Brazil’s electricity generation coming from wind and solar by 2060.

Claudia Cronenbold, Vice Chair for Latin America and the Caribbean, World Energy Council, added: “One of the main challenges we have is the investment needed to grow and develop the region. We need to attract investors and make sure there is the right balance between the business model and the consumer. Integration has the potential to help countries be more resilient and lower costs related to back-up infrastructure.

The report is an important tool for the regions to share their initiatives and to see what would happen if the energy sector in the region were to take one road or another.”

Over the next decades, LAC governments will need to make massive investments in infrastructure to promote economic growth in urban areas. Decisions taken by governments on issues like structural reforms and private sector participation will play a crucial role in determining the sources of funding and the total amounts available for making those investments.

Jose Antonio Vargas Lleras, Chair, Communications and Strategy Committee, World Energy Council, concluded: “If the region is to maintain a sustainable rate of growth, unlocking economic potential over the next decades, the focus on the next five years should be to utilise existing interconnections. Currently those interconnection projects are only being utilised as occasional energy exchanges so there needs to be progress in using them in a more permanent basis rather than sporadically. Which in turn will increase and attract larger-scale investments, which can only benefit the region and its energy systems.”