SECTION FIVE BLUEPRINT FOR RENEWABLE POWER Blueprint for Renewable Power | Section 5 197 Renewable Power everywhere, due to their high up-front costs, are significantly exacerbated by a general lack of domestic 5.1 Introduction sources of long-term debt in most countries in the region. In some countries, including Argentina and Rising costs for fossil fuels, growing energy security Ecuador, renewable power development has been concerns, and the persistent gaps in electricity service hamstrung by political risks that have crippled the entire provision in rural areas throughout LAC call for the power sector, and in others, such as Mexico, it has been targeted and strategic expansion of renewable power slowed by regulatory barriers. technologies throughout the region. In addition to these powerful drivers and the evident need, the region’s While the renewables sector has yet to establish a strong abundant wind, solar, geothermal, and small hydro legal and regulatory foundation, there have been resources offer a clear opportunity for the region to successes in the region. Brazil has led the region in match the explosive growth that the sector has small hydro as well as wind power development, thanks experienced elsewhere around the world. Renewable to its PROINFA program, a feed-in tariff policy that power technologies can truly transform the region, stands as the most effective policy for renewable power offering an escape from the electricity supply crises that development in LAC, as well as the availability of low- have frequently disrupted economic development in past interest loans from the Brazilian National Social and decades as well as a means to achieve important social Economic Development Bank (BNDES). More recently, objectives through the provision of rural electricity by Chile has passed the region’s first renewable portfolio way of a decentralized microenergy paradigm. However, standard policy and has laid the foundation for strong despite this compelling case for sector development, growth in the wind, small hydro, and geothermal sectors, LAC has lagged behind the rest of the world in the the last of which will likely make it the first country in adoption of renewables. South America to develop geothermal power. Costa Rica has been an early adopter of renewables as well, Global renewable power generation capacity (excluding using an effective system of government auctions to lead large hydropower and biomass) expanded rapidly to total Central America in geothermal as well as wind power 186 GW at the beginning of 2008, which represented generation. New policies to support renewables have 4.3% of total electricity generation capacity. Wind power also been passed in countries including Argentina, capacity alone has reached 100 GW globally, averaging Nicaragua, Guatemala, the Dominican Republic, and growth of roughly 25% per year, and solar power has others, demonstrating the widespread desire to tap into reached 10 GW, growing at a pace of nearly 50% per these energy sources throughout LAC. year. This growth has been strongest in the U.S., Europe, and Asia, where, coupled with the increased Over the last several decades, the Inter-American competitiveness of renewables, the most important Development Bank and other multilateral institutions drivers have been robust policy incentives, including have played an important role in the deployment of feed-in tariffs, tax credits, renewable power mandates, renewables, particularly for large hydro and geothermal and government tenders. plants. Their assistance will be critical to catalyzing the widespread adoption of renewable power throughout By contrast, LAC has an estimated 4.6 GW of renewable LAC going forward, particularly in light of the recent power capacity (excluding large hydropower and economic downturn, which will most certainly impact biomass), comprising just 1.7% of its overall generation access to finance. The sustained support by the IDB will portfolio. Moreover, nearly 90% of this capacity comes be essential as countries in the region strive to meet their from small hydro plants in Central and South America energy diversification and economic development goals. and geothermal plants in Central America and Mexico, In order to facilitate this transformation of the region’s which are technologies that have been deployed in the power sectors, interventions must not only seek to region for decades. Despite the rich resource base, LAC develop individual projects but to consider the more has barely 500 MW of wind power generation and fundamental, systemic changes necessary to foster a virtually no solar power. self-sustaining movement toward low-carbon generating sources. Just as the existence of strong policy support has been a core driver of the success of renewables elsewhere, the The following section will evaluate the key factors absence of such policies in most LAC countries remains determining the adoption of renewable power a key impediment to the adoption of these technologies. technologies on both the global and regional levels by Moreover, the financing challenges faced by renewables assessing electricity supply and energy security 198 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf concerns, resource endowments, access to finance, electricity market structures, policy incentives, socio- economic impacts, and technological development. The section will also discuss the interaction of these factors within the context of individual countries, with in-depth case studies on the development of renewable power in Brazil, Mexico, Argentina, Chile, and Guatemala. The final pages of this chapter synthesize and distill the global, regional, and country analyses, providing recommendations and program ideas for a comprehensive renewable power strategy in LAC. A Blueprint for Green Energy in the Americas 2009 | Section 5 199 200 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf 5.2 Key Factors Influencing small fraction of the total. In 2007, renewables other than large hydropower reached 240 GW of cumulative capacity, Renewable Power Development an increase of 50% since 2004, but this is just 5% of a total global generation capacity of 4,300 GW, and this capacity generated just 3.4% of actual power consumed, 5.2.1 GLOBAL AND REGIONAL ELECTRICITY since much of the capacity consists of intermittent wind SUPPLY AND DEMAND and solar generation.1 Wind power is the largest source of renewable power Global Renewable Power Trends generation worldwide in terms of capacity, with an estimated 95 GW installed, including 21 GW added in 2007 Global Electricity Supplies and the Role of Renewables alone, more than any other technology. Wind capacity Renewable power is a rapidly growing sector of the global grew at an average annual rate of 25% between 2002 and power generation mix, although it still accounts for only a 2006, more than any renewable power technology other Chart 5.2.1a Global Electricity Generation, 2006 Fossil Fuels 67% Nuclear 14% Large Hydro 15% New Renewables 3.4% Source: REN212 Chart 5.2.1b Global Renewable Capacity, 2007 Wind 41% Small Hydro 32% Biomass 20% Geothermal 4% Solar PV 3% Source: REN212 201 A Blueprint for Green Energy in the Americas 2008 | Garten Rothkopf Blueprint for Renewable Power | Section 5 201 Chart 5.2.1c Average Annual Growth Rates of Renewable Capacity, 2002–2006 Solar PV (Grid-Connected) Wind Solar PV (Off-Grid) Small Hydro Biomass Geothermal 0% 10% 20% 30% 40% 50% 60% 70% Source: REN212 than solar, and capacity is expected to continue double- that is expected to surpass 10 GW by 2010,4 while China digit growth through 2012, adding annual quantities that surpassed Denmark in early 2008 to become the world’s will steadily increase to 36 GW in 2012.3 While Europe has fifth-largest market, with 4.6 GW in current capacity that is been the leader in this sector, with over 50 GW installed expected to reach up to 30 GW by 2020.5 Overall, wind (led by Germany, Spain, and Denmark), the U.S. is now power has been deployed in 70 countries around the growing more rapidly. India and China are also huge and world, including many developing countries such as Brazil, fast-growing markets; India is the fourth-largest user of China, Egypt, Iran, Mexico, Morocco, and South Africa, all wind power in the world, with a current capacity of 7 GW of which installed new wind capacity in 2006. Chart 5.2.1d Global Wind Power Capacity 1996-2007 100000 90000 80000 70000 60000 MW 50000 40000 30000 20000 10000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Global Wind Energy Council6 Annual Cumulative 202 A Blueprint for Green Energy in the Americas 2009 | Garten Rothkopf Small hydropower is the second-largest source of Geothermal power provides 10 GW of generating renewable power in terms of capacity, with 73 GW capacity worldwide, most of which is concentrated in Italy, worldwide. The majority of this capacity is found in Indonesia, Japan, Mexico, New Zealand, the Philippines, China, where it is by far the largest source of renewable and the United States. Moreover, while Iceland has less generation, with capacity increasing by 19% in 2006 to installed capacity than these leading countries, it relies on reach nearly 50 GW.7 In contrast to the serious negative geothermal for the provision of one-quarter of its power environmental impacts that can accompany large needs.9 While geothermal has been established as a hydropower development, small hydro plants are reliable source of baseload renewable power