Energy transition in Latin America

Latin America (OpenDemocracy) – Latin America is increasingly exploiting its renewable energy potential. New wind and solar projects are under construction across the region thanks to partnerships with Chinese energy companies.

Thanks to Chinese energy companies, Latin America is increasingly exploiting its renewable energy potential as historic laggards like Argentina get on board with the region’s energy transition. New wind and solar projects are under construction across the region as partnerships with Chinese deliver affordable finance and materials to local governments and businesses.

Along with Costa Rica, Uruguay is now running on almost 100% renewable energy.  In 2015, the country installed more than 316 MW, meaning its total installed capacity is now 845 MW. Now several others are following in their footsteps. Chile generates the most power from solar energy, while neighboring Argentina has just completed the bidding process for 1,100 MW of renewable energy.

“China has begun to broaden its interests globally,” says Carlos Saint James, managing director of consulting firm Santiago & Sinclair and former president of Argentina’s Renewable Energies Chamber (CADER). “Initially, they secured the food sector, then natural resources and now they are going after energy. Given their growing industry and current oversupply of products, Latin America offers attractive markets”.

At the conclusion of the first round of Argentina’s renewables promotion programme Renovar, the country offered 17 projects for electric power generation from renewable sources accounting for 1,109 MW.  Of these, 12 are wind power projects, four are solar photovoltaic and one is biogas. The total investment required is estimated at US$1.8 billion.

At least half of the winning wind energy projects and three quarters of solar energy bids are linked to Chinese capital and technology, according to a survey conducted by Saint James. US and European companies account for a much lower share as they still consider Argentina to be a risky investment environment.

China’s company Envision Energy was awarded the largest contract, securing four projects totalling 185 MW of the 708 MW granted to other international and local bidders, including some of the largest wind farms, located in the southern provinces of Neuquén and Rio Negro. Other winners included Genneia, Central Puerto, Pan American Energy and the EREN Group. Of the solar energy projects, 75% stand to benefit from low-cost Chinese capital thanks to agreements with Argentine provincial governments.

“China has become a major player in the Argentine energy sector,” says Ernesto Fernández Taboada, executive director of the Argentine-Chinese Chamber of Production, Industry and Commerce. “They provide bank financing at very reasonable rates and this is always very attractive,”.

Andrés Napoli, director of Argentine environmental NGO FARN welcomed the bidding programme but pointed out that the government is simultaneously promoting fossil fuels. “The country continues subsidizing the oil industry in all its facets and is developing environmentally risky energy projects such as Vaca Muerta in Patagonia”.

By 2017, Argentina aims to have 8% of its electric power generated from either wind, solar or small hydroelectric plants, according to a law approved by Congress late last year. The legislation also mandates that this figure increase to 20% by 2020.  Presently, renewable energy accounts for only 1% of the energy matrix.

Regional Developments

Chinese investment in renewable energy in Latin America is viewed as a prime opportunity to expand trade between the Asian country and Latin America. Increased oil and gas production in the US is forcing China’s major renewables players to seek alternative partners and export markets.

Brazil, Mexico, Chile and Uruguay seem to be those investing most heavily in clean energy generation, according to data from the International Energy Agency (IEA).  China ranks highest as the country with most installed solar energy capacity in these countries.

The pragmatic Uruguayan approach to stimulating development in renewable energy, which does not offer subsidies but instead promotes strong private sector involvement, has become a global benchmark. The country has outstanding natural resources for developing renewables, such as predictable and constant wind energy along with high levels of water flow discharge.

According to Jorge Dosil Decaro, secretary general of the Uruguayan Wind Energy Association, Uruguay’s political stability and its reputation for having low levels of corruption have been instrumental in the success of the partnership. “All state entities are oriented towards promoting the development of renewables.”

More than 80% of the solar water heaters imported by Uruguay come from China, according to official data from the Ministry of Energy.  In a recent visit to Beijing, Uruguayan president Tabaré Vázquez underscored the importance of signing a free trade agreement with the China, which would provide even greater stimulus for Chinese investment in renewables.

Private sector players were the main drivers of the development of renewables in Uruguay. Most technology is imported from China since Uruguay’s own manufacturing sector is unable to compete. The  low prices for Chinese products are a “major factor” in this partnership, according to Andrés Eliseo Cabrera, President of the Solar Chamber of Uruguay.

pixabay.com

pixabay.com

Similarly, Chile plays a prominent role in Latin America’s development of renewable energies.  The country’s goal is to derive 20% of its energy from renewables by 2025.  It has developed specific policies for the sector, such as tax exemption mechanisms for renewable energy projects. In 2015, the sector attracted US$3.4 billion in investment, up 151% from 2014.

China is Chile’s main trading partner, and this has increasingly been reflected in the wind and solar energy sectors in recent years.

Such Chinese companies as Goldwind Americas, Junko Solar and Sky Solar Holding are already working on numerous projects in Chile. Of the total energy produced in the country, 38% is supplied to the mining sector. Consequently, a large portion of investment is carried out directly by mining companies and in many cases, using Chinese capital.

“Chile has very good conditions for the development of clean energy, particularly in the north, where there is an abundance of wind and solar energy resources,” says Li Baorong, China’s Ambassador to Chile. “Chile needs to develop such energy. As a result, there is significant potential for China-Chile cooperation in the energy sector,” he said recently.

This report prepared by Diálogo Chino for OpenDemocracy