Latin America and the Caribbean Energy Scenarios: Rock, Tango or Samba?
There has been much talk of energy integration in Latin America and the Caribbean for decades but progress has been patchy. A new report from the World Energy Council presents potential scenarios for the region
Despite the clear benefits of regional energy integration, the development of projects in Latin America and the Caribbean (LAC) have not advanced as quickly as many would have hoped, mainly thanks to political and regulatory problems.
As part of its series of World Energy Scenarios, the World Energy Council has published a report, Latin America & The Caribbean Energy Scenarios, which examines the future of LAC energy to 2030, and beyond to 2060, and explores the opportunity for nations working together to increase prosperity and deliver a sustainable future.
The report details possible outlooks for regional integration by assessing the possibilities according to three different scenarios—Samba, Tango and Rock, where Samba represents a world of high productivity and innovation with strong market forces and robust economic growth. Whereas Tango is a more central, government shaped world to achieve sustainable growth; and Rock being the least favourable, where economic growth is low and countries are more inward-looking.
Gerald Davis, Executive Chair, Scenarios, at the World Energy Council, says: "The reason we have scenarios is because we can't be sure about everything. Some of the drivers are very powerful and long-lived… but one of the big uncertainties is how fast these economies will grow. Also, we're not quite sure how high up the agenda climate change will remain. When countries are inward looking and their economies are shaky— Venezuela is a good example—the number one priority is food, water, health, domestic jobs."
The LAC Scenarios report is clear, however, that regional integration, and electricity connections in particular, bring numerous benefits—an observation that has been backed up by many studies over the last few decades. Primarily, regional integration enables the sharing of resources between countries.
For example, the northern part of the region has complementary hydrological cycles to the south. Recognising and using these differing rainfall patterns is crucial, especially in a region that is largely dominated by hydropower.
The same applies to any other energy resource—whether it is power from wind, geothermal or solar, or electricity derived from the vast quantities of gas in Argentina. Enormous economic benefits could be gained if countries could wheel electricity across borders instead of investing in expensive domestic power plants.
In addition, having a region that is integrated in terms of energy would make the whole system more resilient to risks such as extreme weather events, which are becoming stronger and more frequent and result in huge costs at national level. Network interconnection would also accelerate the integration of intermittent renewables such as wind and solar in the region.
As the biggest country with perhaps the most to gain from greater integration, Brazil has been given special attention.
José da Costa Carvalho Neto, Chair of the Programme Committee of the World Energy Council and former CEO of Eletrobras, Brazil noted: "Brazil represents 50% of the region's power demand and has boundaries with 10 of its 12 neighbours in South America. It is therefore very important in terms of interconnection."
Brazil is currently a net importer of electricity, mostly from Argentina. Under Tango, it would change from being an importer to a net exporter but under Samba its economy would grow relatively fast and it would need to import electricity from other countries.
According to Neto, studies show that if South America's transmission network was completely integrated, Brazil would increase its firm electricity generation by more than 100 terawatt hours. "That is more or less the consumption of Argentina, without building any power plants," he notes.
Regional integration is already a focus of attention in the LAC energy sector, as evidenced through projects like Arco Norte (connecting Guyana, Suriname, Brazil and French Guiana), SINEA (covering the Andean Community: Colombia, Ecuador, Peru and Bolivia, as well as Chile as a partner), and SIEPAC II (connecting Panama, Cost Rica, Honduras, Nicaragua, El Salvador and Guatemala).
Regional cooperation, however, requires great trust between countries, working regional governance structures, covering a variety of policy areas, such as energy security, decarbonisation and infrastructure resilience. Accordingly, regional integration is strongest in Tango and weakest in Rock.
While the report does not predict how the future of network integration will pan out, regional experts are cautiously optimistic.
José Antonio Vargas Lleras is chair of the communications and strategy committee of the World Energy Council. He is also chairman of the Colombian Committee of the Council and President of CODENSA (ENEL subsidiary in Colombia). "We have many interconnections in the region, particularly between Brazil, Uruguay, Argentina and Paraguay, he says. "These four countries are very well interconnected but when you look at the north—from Colombia to Ecuador, from Ecuador to Peru and to Bolivia - you will find transmission lines that are not well utilised. Less than 5% of the capacity is currently used. So many countries are asking themselves: why should I build new infrastructure if the one I already have is not being used?"
This thinking means the region is currently in the 'Rock' scenario, where countries are for the most part building their own generation and not making the most of interconnections.
Nevertheless, Lleras is still hopeful. "This Rock scenario we are in is very bad for the region. It results in very high-priced energy, it does not contribute to tackling climate change nor provide the same energy security as if we were integrated. It is the worst scenario from the energy trilemma point of view but I definitely still see hope."
Claudia Cronenbold Harnes, Vice Chair of the World Energy Council for the Latin American & Caribbean Region and Chair of the Board of the Bolivian Chamber of Hydrocarbons & Energy, is also confident.
She said: "Integration in LAC is a clear case with clear economic gains. If we are looking at a horizon of 2060, then I would think the Tango scenario is the most likely one.
"The issue relies on public policy and political will. Governments must work on this and will be forced to do so to ensure the sustainability of energy systems. Bolivia is a country which has a clear public policy oriented towards integration. The government is working to make Bolivia an energy hub in South America and is advancing in different projects to integrate and export energy to neighbouring countries."
While geography is a challenge, it is widely agreed that political will is indeed the main obstacle.
Davis says: "There are many good reasons why progress is much less than many would have hoped for and there are a number of good reasons for that. Firstly, thinking of South America, the Andean chain and the Amazon are formidable barriers. There are gas reserves in Peru but a pipeline to Brazil secondly, some countries don't get on with their neighbours."
Lleras cited a dispute between Chile and Argentina as an example of why countries are unnerved by the concept of resource and electricity sharing.
He explains: "Chile is a good example of a country that built its electricity system [by] putting a lot of confidence in its neighbour, Argentina. Some years ago Chile built some gas fired stations but when there was a lack of gas in Argentina and it decided not to export gas, Chile could not use its gas power stations.
"We have studied the Nordpool system for years and understand exactly what the benefits are but when the moment comes to make a decision, there's a lack of political will. There are a lot of questions from the generation or transmission companies and in the end, someone is uncomfortable with the interconnection."
Hopes for the future
There is a critical need for large-scale infrastructure development and regional integration to unlock the greater economic potential and mitigate risks for Latin America and the Caribbean region.
Lleras concludes: "In the next 20 years we will not have all the infrastructure we need or the level of integration we would like but we will have made important developments."