3 lessons learned from our collaboration with other energy institutions and Latin America’s path to decarbonization
The global energy market has experienced volatility, price increases, and energy security challenges on many fronts in recent years. According to the 2022 World Energy Outlook, geopolitical and economic concerns have affected the energy markets worldwide, reminding us of the many challenges faced by the global energy system. 
Although Latin America was no stranger to the impacts of these challenges, the region’s tremendous advancements in adopting clean energy in the power grids have made it evident that it was better prepared to manage the impact of the increase in fossil fuel prices. Additionally, we have learned that energy security is consistent with clean energy transitions. Countries such as Costa Rica, Uruguay, and Paraguay, which have vast clean energy resources, were not only less impacted by the fluctuation of fuel prices but were also able to generate revenue and help increase energy security in neighboring regions by expanding clean energy exports. And last, but not least, we have learned that energy integration has become more critical to manage uncertainty in energy markets, including better sharing of renewable energy sources such as hydro power availability and wind and solar.
While the region continues to decarbonize, there is a need to further accelerate the pace to meet the goal of zero net emissions by 2050. This will require accelerating the electricity sector transition, as well as decarbonization of new frontiers, such as the industrial and transport sectors.
In this scenario, collaboration becomes a catalyst for accelerating this transition.
First, Collaboration on increasing policy ambition and accelerating the enabling environment for clean energy in the electricity sector.
The Latin American region has roughly 60% clean energy on the grid, thanks mainly to hydropower and the important additions of wind and solar power that have been able to compensate for the lower growth of the former in the last ten years. While there are large variations among them, with countries such as Paraguay, Uruguay, and Costa Rica having 100% renewables, there are still some challenges in other regions such as the Caribbean, where in many countries most of the power is still produced with fossil fuels.
The first step to accelerate clean energy in the electricity sector is policy ambition. A good example of the region’s commitment is the Renewable Energy Initiative for Latin America and the Caribbean (RELAC), which is recognized as a high-impact ambition initiative under the United Nations Climate Action Summit. The initiative has the goal of increasing the penetration of renewables to 70% by 2030 in the region. The IDB, as technical secretariat, collaborates with organizations such as OLADE as the reporting agency, and IEA and IRENA as key knowledge partners, to exchange best practices on how to transform policy ambition into results.
Once the policy is in place, the right enabling regulatory environment is critical. For this reason, we, at the IDB, maintain a key partnership for example with the Ibero-American association of regulators (ARIAE). Through this partnership, we promote guides on best regulatory practices including the design of renewable energy contracts, wholesale energy markets with large shares of renewables, and the regulatory challenges of the electricity distribution segment, among others.
In addition, with our own IDB instruments (mainly technical assistance, projects, and policy financing), we have contributed more than US$30 million in assistance to developing regulatory frameworks to enable an environment of clean energy technologies. These investments have been focused primarily on:
- The development of new business models,
- Regulation for private sector participation,
- Developing national plants and renewable targets, and
- Pre-investment activities of projects.
Second: Collaboration to build a clean and resilient integrated energy system in Latin America and the Caribbean
Regional integration will be key to achieving a larger share of renewables in the region. Our studies indicate that the region can achieve up to 80% of renewables in the grid and save more than US$20 billion dollars in the process if we do it in an integrated manner.
Electrical integration is challenging, as it needs different layers of policy, institutional, regulation, and technical operational rules to be developed. But we have supported the expansion of important enablers for regional collaboration in many regions, including in Central America, with the development of the regional electricity market. This process has proven already the benefits of integration: trade has grown more than 5 times in the last 8 years. Today, more than 300 companies trade electricity freely across the six central American countries.
In addition to the Central American integration process, we continue leading the support to other regions such as SIESUR, where we collaborate with OLADE and CIER to advance this initiative. Today, SIESUR has a clear roadmap, which was recently approved by Argentina, Uruguay, Paraguay, Chile, and Brazil that will guide the process.
Additionally, we are working on the integration process in the Andean region with SINEA, where we also serve as the technical secretariat of the integration process. The region is in the process of approving important regulatory decisions to support the strengthening of energy trade between Colombia, Ecuador, Peru, and Chile.
Our priority is to continue having a key role in the energy integration processes in the region.
And last, but not least, collaboration on pooling resources for assistance and financing the transition, and facilitating decarbonization of new frontiers.
We are a development bank. Thus, financing is critical, especially in countries where renewables in the power grid have not been adopted as “business as usual” and to support decarbonization of new frontiers, such as transport and the industrial sector.
In the last five years, we have provided more than US$5 billion in financing to critical public investment. Our climate financing amounts have increased from 47% in 2018 to 84% in 2022, a clear indication of the demand from the region for the financing of the clean energy transition and our role in supporting it. In this process, we have leveraged almost US$ 1 billion from other institutions as co-financing or investment grants. This includes resources from the European Commission, the European Investment Bank, Korea, Japan, Spain, the United States, France, and Norway.
Climate financing is critical to start developing the enabling environment for the decarbonization of hard-to-decarbonize segments, and we are working heavily with other partners on this. For example, on the decarbonization of transport, we have provided technical assistance in policy, strategy, and regulation to enable transport electrification in more than 20 countries.
In addition to this, we work with partners to attract concessional financing to the region. In the last quarter of 2022, the IDB approved the E-Mobility Program for Sustainable Cities in Latin America and The Caribbean”. The program will facilitate a transition in the region’s cities towards lower carbon emissions and resilient public transportation.
Additionally, we currently support four countries: Colombia, Chile, Jamaica, and Uruguay in the development of their green hydrogen strategies and markets which will be key to decarbonizing other areas in transport and industry.
In summary, we see a huge potential in three areas to accelerate the energy transition.
- Collaboration on increasing policy ambition and accelerating the enabling environment for clean energy in the electricity sector.
- Collaboration to build a clean and resilient integrated energy system in Latin America.
- Collaboration on pooling resources for assistance and financing the transition and facilitating decarbonization of new frontiers.
We believe we must accelerate these cooperations recognizing each other’s complementarities and, above all, how we can better support our clients.