Country leaders gathered in Cartagena, Colombia for the Summit of the Americas.
Latin America’s huge available renewable energy resource is appealing for both local and international project developers, but changes in both legislation and regulation are needed to catalyze markets in the region.
“Its all about numbers at the end of the day,” said Carlos St. James, president of the Latin American and Caribbean Council on Renewable Energy and Managing Director of renewable energy consulting group Santiago and Sinclair. Latin America is always a region of potential it usually fails to live up to, St. James said, but the scale of the resource will eventually drive investment.
Energy access for the 30 million Latin Americans without regular access to electricity was one of the areas of focus at the recent Summit of the Americas in Cartagena, Colombia. The region has a goal of providing full access by 2016, and that commitment takes place ahead of the even higher-profile Rio + 20 climate change conference scheduled for Brazil in June, where the UN will highlight its renewable energy-focused Sustainable Energy For All effort.
The difference that regulatory commitments can make to investment levels was demonstrated by a remarkable shift in 2011 from investment in biofuels, which had dominated Latin American renewable energy markets for years, to wind. The change, in which wind investment in Brazil came to more than 80% of the total investment in clean energy in the region last year, was driven by policy shifts that highlighted wind development and cleared financing for new projects.
Brazil Blazes the Trail
Brazil has built on its early success in biofuels to extend its lead as a developer of renewable energy in Latin America, attendees at the second annual renewable energy finance forum (REFF) for Latin America and the Caribbean in Miami said on April 24. “The path has been paved for us in large part by Brazil,” St. James said.
But clean energy investment, which slipped from roughly $13 billion in 2010 to roughly $9.44 billion in 2011, according to figures quoted by Bloomberg New Energy Finance Head of Latin American Research Gabriela de Rocha Oliveira, are completely outweighed by investment in the region’s other natural resources – oil and gas.
Brazil’s oil firm Petrobras, even as it spends on large wind farms, is investing $224.7 billion through 2015 as it seeks to become one of the world’s “big five” oil companies. Argentina recently nationalized Spanish company Respsol’s share in YPF in order to gain greater exposure to a high-priced market for oil and expectations of a sustained boom in natural gas. Some estimates cite Argentina as having the third largest shale gas reserves in the world, making renewable energy development difficult to justify for traditional investors.
In addition, investors in clean energy in Latin America face the traditional list of emerging market risks when facing down long-term commitments for project development. Security concerns, untested policy frameworks, sovereign and currency risks and insufficient supply chains or infrastructure all limit investor participation in the region’s renewable energy sector, de Rocha Oliveira said.
To read a recent AOL energy article about energy project opportunities in the developing world, click here.
The list of solutions if countries want to meet climate change or renewable energy targets is similar to regulatory and policy solutions that have been recommended in developed country markets, Erika Benson said. Benson is a former US Department of Energy official and currently runs Texas-based Benson International Group.
“Bottom line is that the market for renewables is in an adjustment phase,” Benson said. Latin American markets require a national renewable portfolio standard, a market framework that focuses on and rewards distributed generation, long term power contracting and flexibility in monitoring market performance, she said.