Powering everything with renewable electricity will be cheaper and cleaner. Can governments accelerate the transition?

Your day in the future. You cook breakfast every morning on an electric induction stove. It is powered, as all appliances in your home, by the solar panels on your roof. To go to work, you take your e-bike or the tram that a wind farm powers outside the city—just another Tuesday with a zero-carbon footprint. And here is the best part: you can afford it. Electricity is so cheap that you are not charged for how much energy you consume. Instead, you pay a small, predictable monthly fee that is not affected by international oil prices or wars. And your lights stay on even during major hurricanes!

Thanks to dramatic drops in the cost of solar, wind, batteries, and, more recently, green hydrogen, this is the future that we may get. A new report by IDB and IDDRI, funded by the French Climate Fund, suggests governments can deliver it – and put an end to the climate crisis in the process. But enabling the transition to carbon-free energy requires identifying the many barriers that prevent a fast and broad deployment of renewable electricity and acting on regulations and incentives to remove them.

Step one: decarbonize electricity. Also, step one: electrify everything. There is no step two.

Getting cheap and clean energy is not a question of technical feasibility. We know the technology, where to apply it, and that it is the cheapest way ever available to humankind to generate energy. Globally, a 100% renewable energy system brings the promise of USD 12 trillion in net savings. The necessary investments can be paid back in less than seven years.

There is no one-size-fits-all solution and local context matters, but in general, there are three basic ingredients:

• All new electricity generation projects can leverage solar, wind, geothermal, or hydro. In other words, no new coal, oil, or gas power is needed.
• Governments can organize the phase-out of existing coal, oil, and gas power plants negotiating with owners, workers, and communities that depend on them and ensuring a just transition.
• Cars, cookstoves, heaters, and other appliances that use fossil fuels can be replaced with more efficient electric alternatives.

The transition to a zero-emission energy system is already happening

Costa Rica and Paraguay show that countries can get more than 99% of their electricity from renewables. Others can follow: Mexico, Chile, and Argentina set global records in terms of wind and solar potential. In remote rural areas, renewable power plants backed by batteries can bring reliable 24/7 electricity for the first time.

As electric vehicles are becoming the new normal – 13% of new cars sold worldwide in 2022 are electric – they are the poster child of what “electrification” means. But using electricity instead of fossil fuels also makes sense for most other energy uses. Cooking can be done on electric or induction stoves. Heat pumps can save money compared to gas to heat houses and even in industries like dying or paper production. Importantly, countries need not wait for electricity to be clean before electrifying energy uses: both processes will take decades and should be started in parallel.

Even if fossil fuels still account for 43% of the energy used in Latin America and the Caribbean, the region is already transitioning. Around 65% of electricity generation in the region is already renewable, and 40GW of renewable electricity generation was added in the region between 2019 and 2021, about 10% of the current capacity. Electrification is also advancing. For instance, Santiago and Bogota have very large electric bus fleets.

Governments can incentivize financing and speed up construction processes

But a lot remains to be done. Policymakers have a crucial role to play in overcoming barriers linked to outdated regulation, lack of infrastructure, complex financing, and information gaps.

One key barrier is red tape. Since renewable energy is cheaper, private companies should be encouraged to hire local engineers and technicians, build solar and wind power plants, reduce electricity prices for families and businesses, and make a profit. But regulations often prevent that from happening. Getting permits to use the land to install wind or solar power can take months, if not years. Obtaining the rights to connect to the grid can be as tricky. Some of the paperwork does not even make sense, as investors are asked to comply with regulations meant to reduce the risk of fossil fuel spills.

Governments can solve these issues. They can, for instance, update land-use regulations, pre-establish renewable electricity generation zones to accelerate approval for new sites, and tailor safety regulations for renewable energy.

Another critical issue is high capital costs. In countries where wind and solar are still new, investors may charge higher risk premiums, jeopardizing the financial viability of projects. Governments can de-risk investments, using public guarantees to decrease the interest rates associated with renewable projects or providing interest-free loans to project developers. Governments can fund these policies using green or sustainability-linked bonds – that often turn out to be cheaper than traditional bonds: everybody wins.

All hands on deck to achieve carbon-free prosperity

Many other barriers prevent the uptake of clean electricity solutions, ranging from intermittency issues, the need to connect windy and sunny areas to consumption centers, or a lack of basic information. For example, did you know that most air conditioners can also provide heat, using two to four times less energy than electric heating?

Although each country is different, the primary path to removing these barriers is clear:

1. Start from a vision of a prosperous economy based on renewable energy, electric vehicles, and electric appliance.
2. Identify the obstacles on the road.
3. Get governments to enable the transition.

Learn more about how governments can enable better energy, transport, buildings, agriculture, industry, and waste management reading our report on 15 transformations toward net-zero prosperity.