By Mark Lambrides
Director REEEP Regional Secretariat for Latin America and the Caribbean
In February of this year Petrobras, Brazil’s oil producer, announced plans to build an 8000 km $23 billion gas pipeline between Venezuela and Argentina.
According to the company’s president, the pipeline would create a strong energy backbone down the continent, allowing energy-intensive industries such as steel and fertilisers to develop further.
In overall energy terms, Venezuela as the world’s fourth largest oil-producing country is probably the most powerful country on the South american continent. Whether or not that pipeline is built, fossil fuel use will continue to rise there for many years.
But paradoxically, as the political power of countries in the region develop due to improved conventional energy infrastructure and more wealth, they are likely to seek more alternatives too. No-one likes to be too dependent on imports – particularly from one individual party.
Heated exchanges
Chile is a case in point. This copper, wood products and wine producer has risen rapidly up the international ranks and is now a positive contributor to the continent’s overall current account surplus - the first experienced for 50 years. A steady increase in energy demand has accompanied this economic success, so that energy efficiency and security have begun to matter.
Energy supplies have become a worry for the government. In an occasionally volatile region, the attractiveness of local and secure renewable resources has become more evident. One international organisation, headquartered in Vienna, has been playing a part in helping Chile find tools for introducing clean energy into the matrix.
REEEP (Renewable Energy and Energy Efficiency Partnership), a global coalition formed at the 2002 Johannesburg sustainability summit, structures policy initiatives for clean energy markets and facilitates finance for clean energy.
Renewables are not altogether new to South America though. The continent’s long, powerful rivers have provided the source of much of South American electricity through hydro-electric power stations, though increasingly this is being replaced by natural gas.
Alternative renewable energy sources in these largely liberalised markets, including solar, wind, geothermal, modern biomass and small hydro, are tiny players.
But it was actually a sudden sharp drop in Argentinean natural gas supplies and the effects of four years of drought on hydropower that alarmed the Chilean government and prompted a search for alternatives.
In 2003, Argentinean oil workers went on strike, the currency lost a third of its value, and gas prices to Chile shot through the roof. That was when it realised natural gas imports were not guaranteed. It responded by taking steps to stimulate investment in several geothermal plants and windpower by developing a research fund for clean energy feasibility studies.
Clearing policy blocks
Policy making has been one of the weaker points for much of Latin America and is the principal bottleneck preventing the development of clean energy. Policies have so far failed to grasp the problem entirely, either from an economic, energy security or environmental standpoint and few laws exclusively promoting clean energy have been passed.
In the mean time, as the area becomes richer, any reduced carbon emissions in the Northern hemisphere could be undermined by unbridled energy use in emerging markets.
A wide range of policy and financial blocks exist, including arrangements that favour low upfront costs and continued fuel costs (fossil fuel) over high upfront costs and low fuel costs (renewable energy).
In Central and South America, many of the privatised energy systems consist of unbundled (separated generation, transmission, and distribution) competitive markets which place a good deal of emphasis on short-term spot prices, as well as on investments with very short construction lead times and low initial capital costs. Thus, alternative energy systems such as renewables are at a disadvantage.
REEEP’s role in many of these countries has been to help them focus on imaginative financial mechanisms which help to introduce renewable energy technologies into this weighted system, for example by introducing new leasing structures for solar energy in Brazil. In addition, it helps to raise awareness by spreading financial and policy-related expertise from parts of the world that are more advanced in this area.
A broader energy platform
Guatemala, the largest and most populated of the central American countries (other than Mexico) has been surprisingly forward-looking given its relative poverty (it has half the per capita GDP of Brazil) and only recently-found stability (its civil war finally ended in 1996 after 36 years).
Perhaps that newly-found peace ushered in a particular kind of independence and determination, for only seven years later It introduced its own renewable energy law, providing incentives such as tax exemptions on imports of equipment for building renewable power generation projects, among all these central American countries, though, Guatemala is the exception.
All the others are struggling to make any steps in clean energy. Known for its revolutionary past, the region has since attempted to rebuild local economies. Yet a band of gentle, prosperous and creative rebels could emerge from the area if plans to build a whole new energy paradigm are realised. That is a vision to which non-governmental organisation BUN-CA and REEEP passionately subscribe.
Their aim is to create a culture of entrepreneurs in the energy sector across the whole area that would spawn numerous energy efficiency businesses. One reason is that the energy imbalance is intensifying because electricity demand is doubling every decade; it is forecast to increase a rate of around 6% between 2005-2014.
Innovative financial mechanisms such as ESCOs and equipment leasing – critical to the sector’s development – would also allow local conventional players such as commercial banks and project developers to get involved.
“If we were able to trigger a market for financial intermediaries and project pioneers by convincing them to undertake commercially viable financial mechanisms like leasing and payment schedules based on electricity savings for energy efficiency investments, we can say we have won the first round,” observes Kathya Fajardo, BUN-CA Project Officer.
However, they will not be drawn to the idea unless the mechanisms are designed and validated and support offered. BUN-CA will also earmark and screen four projects as key components of a pioneering energy efficiency investment portfolio and will develop a business plan for energy efficiency investment in Central America. Mexico, their bigger neighbour, has already provided a blueprint for this.
Among both Central and South American countries, it is probably the most advanced in terms of clean energy, as well as one of the most wealthy. As long ago as 1990 it established a trust fund to promote energy conservation, while in 1992 it liberalised its energy sector.
Several energy organisations in Mexico have been working to improve the regulatory regime to enable further development of renewable energy and CHP. It has also created a functioning market for ESCO operations supported by the energy ministry, which other central American countries are seeking to copy.
It is one of the few in the region to be seriously considering developing windpower and is consulting with REEEP and other organisations in order to make the decision. Fernando Elizondo Barragan, Mexican Secretary for Energy, recently stated that: “Determining the potential contribution of wind power will enable us to take advantage of the world first class wind resources with which Mexico is endowed.
It will also help Mexico to improve energy security and to promote sustainable development.”
Other countries of South and Central America are beginning to recognize the benefits - energy security through diversification and energy price stabilisation through increased dependence on domestic natural resources – of more renewable energy and energy efficiency.
And if they are struggling, the expertise of international partnerships like REEEP and its sister organisation the Global Village Energy Partnership (GVEP), which is committed to poverty reduction through energy development, should provide both financial and policy help. Meanwhile, alternative energy is likely to rise up the agenda as more tax is raised from businesses fuelled by conventional sources.
