Latin America has made considerable progress in electrical integration. Recent estimates indicate that in the last 20 years the installed interconnection capacity increased tenfold, from 500 MW in 1995 to 5000 MW in 2014. Note that such achievements have formed part of various regional and global integration strategies in the countries in the region. However, this progress has not been linear and the leveraging of advantages and benefits of electrical integration is still below the potential that Latin America offers given its characteristics and geographical distribution of energy resources. This potential has not been taken advantage of at the level of existing interconnections either, and it could improve the capacity and quality of transmission.
- Any effort toward regional physical integration must start with the recognition of the differences that exist in strategies and national policies. Agreements should be developed on the premise that the intervening countries have different objectives and goals that are subject to regular review. Sharing schemes should be flexible and incorporate mechanisms for adjustment. There are several implications: many times the bilateral relationship is privileged at the expense of multilateralism. This increases the chances that you retain or even increase the volume and amount of electricity transactions. Another potential result is that the institutionality necessary for multilateral frameworks is not built or that alternative mechanisms for conflict resolution are necessary. Also, the increase in uncertainty related to projects given the possible changes in policies in some countries could add a risk premium to integration projects or transactions that have an extended term.
- The rules of distribution of benefits of interconnection should be transparent and allocated in a balanced way among the members of the agreement. There are examples in the region where the allocation of congestion pricing has been a source of dissatisfaction for some partners and, ultimately, has encouraged autonomous solutions, despite their inferiority from an economic point of view. Efficiency and distribution must be reconciled properly.
- While regional agreements continue to advance, bilateralism seems the most immediate tool for managing existing interconnections and for their future expansion. The main reason for this approach is related to, as I noted above, the multiple and simultaneous integration initiatives pursued by countries. To cite the case of South America, while members of the UNASUR block manage projects and actions related to physical integration in the sub-region, infrastructure development and reduced transportation costs are also a reason for debate and agreement in the Pacific Alliance, MERCOSUR and CAN.
- The need to have stable exchange rules, which provide predictability and, simultaneously, the necessary margin of flexibility to be adapted to circumstances that will change based on national strategies to respond to objectives that are not necessarily consistent. The design of these rules must be recognized in binational agreements to establish legal certainty for the parties involved, in addition to providing appropriate arbitral dispute resolution mechanisms.
To continue the integration effort, it is necessary to understand constraints regarding the expansion of electricity interconnections between countries and the increase in the flow of energy that could be exchanged. These issues relate to existing interconnection lines, for lines whose construction is in progress, and for the analysis of projects that have been identified but construction has not progressed despite having demonstrated physical, economic, and financial feasibility. Before embarking on project, and conducting feasibility studies and engaging in regulatory harmonization, it is important to understand the political, and macroeconomic constraints, and the sectoral and supra-sectoral issues that prevent the construction and use of international connections at full economic capacity.