Latin America has emerged as a hotbed for renewable energy production. In recent years, renewable energy in the region has emerged as a promising business, fueled by a varied range of resources, diversification efforts, increasing demand for energy, and steadily decreasing technological costs. <\/p>\n\n\n\n
At the end of 2021, Latin America had \u201cmore than 16.5 [gigawatts] of installed renewable capacity<\/a>,\u201d accounting for roughly 25% of consumed energy. That figure is expected to increase by about 9%<\/a> in 2022 to 18 gigawatts (GW). Nevertheless, according to the International Renewable Energy Agency, there are still significant opportunities<\/a> to increase renewable energy production, especially in wind and solar.<\/p>\n\n\n\n Some particularly interesting opportunities for growth in Latin American countries center on the production of green hydrogen (hydrogen produced by the split of water into hydrogen and oxygen using electrolyzers powered by renewable energy)<\/a>, technological innovations such as the use of bifacial solar panels<\/a>, and the transportation sector\u2019s rising demand<\/a> for electric vehicles. For example, Colombia, Costa Rica, Panama, and Chile<\/a> have all made significant progress in electrifying their public transportation systems<\/a>.<\/p>\n\n\n\n However, the green energy revolution in Latin America does not come without challenges. In the long term, climate change\u2019s role in altering rainfall patterns and causing droughts will likely impact countries that rely most heavily on hydropower generation<\/a>. And in the short term, the pandemic continues to cause supply chain and logistics concerns<\/a>, causing delays<\/a> to clean energy development projects.<\/p>\n\n\n\n This blog explores the extraordinary opportunities that Latin America has to become a relevant actor in the renewable energy market and the reasons why international investors should be willing to engage with Latin American countries in the development of renewable energy projects.<\/p>\n\n\n\n Chile is an excellent example of the Latin American energy transition. For more than fifty years, Chile\u2019s energy economy was heavily reliant on oil, but today, solar and wind power have taken centerstage<\/a>. Despite certain political and social difficulties the country has been facing in recent years\u2014including pandemic-induced economic distress\u2014Chile has attracted the greatest share of foreign investment<\/a> in the region. And in 2020, foreign investment in Chile\u2019s clean energy sector reached 41.6%<\/a> of the country\u2019s total foreign direct investments. Accordingly, Chile has emerged as a leader in green energy development and production in Latin America. <\/p>\n\n\n\n One reason why Chile has positioned itself as a top-notch destination for energy developers is its privileged natural resources. Take the\u00a0Atacama Desert<\/a>\u00a0for example, a dry region in the north of the country that spans nearly 700 miles. Estimates suggest there may be up to\u00a01,800 GW<\/a>\u00a0of solar potential in that region alone. Likewise, the Magallanes region\u2014the southernmost and largest region of Chile\u2014has extremely favorable wind conditions, with an estimated potential of\u00a037 GW<\/a>. Moreover, Chile\u2019s history as a copper and mineral extractor has also allowed the country to emerge as a sort of \u201claboratory for \u2018greener\u2019 mining technologies<\/a>\u201d.<\/p>\n\n\n\n Though Chile\u2019s natural features have aided its emergence as a clean energy destination, they have impeded it as well. One central challenge is geography. Chile is 4,300 kilometers<\/a> (2,671 miles) long and solar and wind plants are far away from major consumption centers. Consequently, Chile will continue to grapple with the problem of transmitting and storing<\/a> the renewable energy it produces.<\/p>\n\n\n\n The management of these resources and the legal incentives or restrictions to work in the energy field have also played a role in shaping the Chilean energy market. As a matter of fact, the government has established carbon taxes and a comprehensive legislative agenda<\/a> to attract investors and provide more certainty to those interested in developing energy projects in the country. The backbone of Chile\u2019s renewable energy legal framework is the Non-Conventional Renewable Energy Law of 2008<\/a>. <\/p>\n\n\n\n Chile\u2019s long-term energy policies and economic structure also provide insight into why investors continue to trust the country\u2019s energy market. Indeed, the three major countries investing in Chilean renewable energy are the\u00a0United States, China, and Canada<\/a>. Chile\u2019s open markets and a significant number of trade agreements have generated increasing competition for supplier contracts. Additionally, solar thermal systems are now supported by\u00a0tax exemptions<\/a>, Chile has imposed\u00a0quotas<\/a>\u00a0for non-conventional renewable energy on certain electrical companies, and the government regularly\u00a0subsidizes<\/a>\u00a0renewable energy projects.<\/p>\n\n\n\n Chile has also set ambitious goals for itself through its 2050 National Energy Policy. The plan seeks to achieve the following objectives: (i) attain carbon neutrality by 2050; (ii) increase clean energy use to account for 70% of total energy consumption by 2030; (iii) eliminate coal power generation by 2040; and (iv) become the top exporter of hydrogen by 2050<\/a>. If Chile can reach its goals, the country would successfully transform its entire energy industry. In that case, Chile can set an example for other developing countries in the region.<\/p>\n\n\n\n The mutual collaboration between national and international corporations has made Latin America\u2019s clean energy blossoming possible. <\/p>\n\n\n\n For example, U.S. private equity firms, such as EIG Global Energy Partners, have developed some of the first Latin American thermal solar plants<\/a>. EIG launched a project in 2021 called \u201cCerro Dominador\u201d (\u201cDominator Hill\u201d) that uses special technology to store the sun\u2019s heat to generate electricity around the clock<\/a>, in contrast with traditional photovoltaic solar plants which work during the day only.<\/p>\n\n\n\n Similarly, other U.S entities, such as Atlas Renewable Energy, have positioned themselves as renewable energy sellers to corporate buyers in Latin America. Atlas had over half a GW<\/a> of capacity committed to private buyers in the area in 2020. This successful participation in the energy market is mostly based on long-term Power Purchase Agreements<\/a> with natural resource companies that distribute green energy to other countries, such as Brazil. A Power Purchase Agreement<\/a> is a contract where a developer commits to creating an energy project on a customer\u2019s property and, in exchange, the customer agrees to purchase electricity from the developer for a set amount of time. <\/p>\n\n\n\n As a final example, in Argentina, AES, a North American company, invested $140 million<\/a> in a wind power project with twenty-nine wind turbines.<\/p>\n\n\n\n Nevertheless, the United States\u2019 presence in the market is not unique. Canadian manufacturers such as Canadian Solar are increasing their participation<\/a> in the Mexican market. With long-term supply contracts and the building of a 103 MW solar project, Canadian actors have been pivotal in selling green electricity to industrial clients. <\/p>\n\n\n\n Local regulations can either promote or obstruct investment in the energy sector. In Latin America, the countries that have succeeded in developing broad renewable energy networks to facilitate investment have done so in part by implementing flexible laws and policies. On the other hand, constantly changing administrative rules and unpredictable political dynamics can prevent foreign investors from doing business in Latin America.<\/p>\n\n\n\n Mexico provides one example of the effects of uncertainty. There, proposed constitutional reform threatened to weaken renewable energy progress<\/a>. Through clean energy reform, the government was able to break up monopolies<\/a> on oil production and electricity generation, which incentivized foreign investment. However, a recent constitutional modification would have positioned the Federal Electricity Commission as the only buyer and seller of electrical energy<\/a>, dissuading international investors from participating in the market. However, the Mexican legislature rejected<\/a> this proposal in April 2022.<\/p>\n\n\n\n Colombia illustrates how local regulation can promote foreign investment. The national government there is promoting the entrance of clean energy generators into the electricity market. These measures should make the country more attractive for international businesses and investors<\/a>, due to the demand for advanced technology and the promotion of competition<\/a>. Additionally, local rules in Colombia provide renewable energy purchasers with value-added tax (VAT) breaks and corporate tax deductions<\/a>, which are enormous incentives that reduce risks and costs when investing in the market compared to other industries. During the first five years of an investment, renewable energy investors can get a 50% annual deduction<\/a> on their taxable income. Moreover, in July 2021, Colombia\u2019s Congress endorsed an energy transition law<\/a>, which promotes the development of green hydrogen and establishes tax benefits and import duties.<\/p>\n\n\n\n In Brazil, the applicable rules for clean energy projects are less straightforward and the pertinent laws may change depending on whether the involved funds are public or private<\/a>. <\/sup>These rules create a sophisticated framework of regulation that foreign investors must consider before engaging in business with Brazil. And while Brazil does not have specific regulations on the production of green hydrogen, the country has been conducting studies, looking for new ways to spur investment and enhance collaboration<\/a>. <\/p>\n\n\n\n Peru is also experimenting with renewable energy legislation. In 2008, a legislative decree<\/a> established that one of the country\u2019s national priorities would be the promotion of investment in electricity generation using renewable energy (understood as solar, wind, geothermal, biomass, and hydroelectric resources). The current discussion is centered on whether the country should produce and use hydrogen. A bill<\/a> was introduced in the country\u2019s Congress in January 2021 which would promote investment in both renewable energy and green hydrogen. As such, the government may soon create new local policies<\/a> in order to enhance investment protections for green hydrogen production. These legislative measures may incentivize foreign investors to approach Peru\u2019s energy market.<\/p>\n\n\n\n In conclusion, Latin America is becoming a major competitor in the renewable energy market, mostly supported by international investment and a growing demand to push on the energy transition. This blog explores the main aspects that international corporations and investors who are planning to do business in Latin American countries should consider before they get involved in any venture. However, this blog has highlighted that most Latin American countries are facilitating the introduction of international actors to finance, develop, operate, and maintain renewable energy projects. Furthermore, international investors and Latin American countries alike should recognize that their cooperation can lead to a mutually beneficial business model, and a cleaner, greener future.<\/p>\n\n\n\n Camila Torres Medina is an LL.M graduate (’22) of Northwestern Pritzker School of Law, where she worked as part of the LL.M Committee and as a Student Ambassador for Chile. She graduated from Pontificia Universidad Cat\u00f3lica de Chile, where she received J.D. (2017) and LL.M (2021) degrees. As a lawyer in Chile, Camila has assisted national and international clients in the development and operation of renewable energy projects, such as solar and wind farms. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Introduction Latin America has emerged as a hotbed for renewable energy production. In recent years, renewable energy in the region has emerged as a promising business, fueled by a varied range of resources, diversification efforts, increasing demand for energy, and steadily decreasing technological costs. At the end of 2021, Latin America had \u201cmore than 16.5 [gigawatts] of installed renewable capacity,\u201d accounting for roughly 25% of consumed energy. That figure is expected to increase by about 9% in 2022 to 18 gigawatts (GW)….<\/p>\nCase Study: Chile\u2019s Renewable Energy Market<\/h3>\n\n\n\n
International Involvement in Latin American Energy Projects<\/h3>\n\n\n\n
Local Regulations’ Impact on the Landscape<\/h3>\n\n\n\n