In Energy

Arthur Deakin

Energy Practice Director


As 2023 unfolds, there are some impressive opportunities in Latin America’s energy sector, such as providing biomass for clean fuels, scaling up distributed generation and exporting green hydrogen derivatives. However, inadequate transmission is plaguing the region and impacting both consumers and businesses alike, increasing electricity costs and hampering the region’s cost-competitiveness. Above all, political interference may well be the biggest risk that the energy sector will face, as governmental policies could cripple growth in a wide range of areas. Below we delve into where the best LatAm energy opportunities will lie in 2023, as well as key risks to factor into investment plans with respect to specific countries.


5 Megatrends in Latin America's Energy Sector 2023

A new resource to help energy professionals anticipate massive changes sweeping through the region.

Modern boiler house. The hydraulic system supplying wood chips. Fuel supply.

The Good

NASA and other respected scientific institutions predict that the earth is roughly 75,000 to 100,000 years away from undergoing another Ice Age period. From now until then, human civilization must reduce emissions quickly enough to prevent catastrophic repercussions, ranging from sea levels making coastal cities uninhabitable to the growing presence of air-pollution related diseases.

Latin America will play a role that goes far beyond reducing its own emissions, as it will serve as a main raw material supplier for the energy transition. From providing the majority of the world’s green minerals such as lithium and copper (covered in AMI’s mining practice), to supplying producers with cheap hydrogen exports, low sulfur crude and biomass for sustainable aviation fuel, Latin America could serve as a key provider for the clean energy transition. This is a daunting, but exciting, task.

Countries that are nearby the U.S., such as Mexico and Colombia, that have an abundance of waste and residue, such as used cooking oil, agricultural waste, or animal fats, are likely to do particularly well.

Akin to Saudi Arabia’s role in the oil industry, for Latin America to play a fundamental part in the clean energy transition it will have to provide cheap, reliable, and abundant raw material. One specific opportunity is in the provision of biomass used to produce clean fuels, such as sustainable aviation fuel (SAF) and renewable diesel. Globally, there is a major feedstock deficit that is hampering the ramp-up of cleaner fuels and raising the costs of the final product. In fact, the entire global feedstock of virgin and waste oils could provide just over 3% of our total oil demand. And that ignores the fact that virgin oils compete with food supply.

Countries that are nearby the U.S., such as Mexico and Colombia, that have an abundance of waste and residue, such as used cooking oil, agricultural waste, or animal fats, are likely to do particularly well. Countries with established soybean export industries, such as Brazil and Argentina, will also see increased demand for those products. Although the trend is to move away from feedstock that competes with the food industry, the chart below shows that soybean oil (which is widely used in the US) will still be the main feedstock used by the biofuel industry through 2027. 2nd and 3rd generation feedstock, such as forestry residue and algae, are likely to only become a reality in the later part of the decade.

Another sector that continues to grow in spite of bad policies is distributed generation. Markets that have done particularly well in the past few years, such as Brazil and Chile, have reached a level of maturity that have naturally led to the phasing out of subsidies (lower compensation is now provided for PMGD in Chile and subsidies in Brazil have begun to be phased out). Those markets will continue to grow but at a less ferocious pace, giving way to smaller, less-developed markets such as Puerto Rico, Panama, and Colombia, who will all see upwards of 3x growth in installed distributed generation capacity through 2030. Providers of solar modules, inverters, and transformers, such as Trina Solar and First Solar, will do particularly well. Having a comprehensive expansion strategy for each of these markets will ensure that companies position themselves appropriately to capture market share from their competitors.

Another subsector that is poised to do well in Southern Chile and Northeast Brazil is the production of green hydrogen and its derivatives, such as ammonia and methanol. AMI analysis shows that due to a variety of factors in each country, ranging from the production costs of electrolysis to the existing export infrastructure needed to ship the final product overseas, both Chile and Brazil are best positioned to take advantage of the billions of dollars flowing towards hydrogen projects. This venture will not be short of challenges, however. Using low carbon fuels such as ammonia or hydrogen for power generation does not make economic sense, unless there is a very high carbon price, or the molecule can substitute other dirtier sources during peak demand. For now, Latin America’s best bet is to develop projects that are focused on the exportation of derivatives, such as green ammonia and methanol, which can be used in the fertilizer and chemical industries.

Silhouette of engineer and construction team working at site over blurred background for industry background with Light fair.

The Bad

There is not much in the bad that doesn’t overlap with the ugly, but this section usually encompasses trends that are reaching a breaking point but are not quite at that critical juncture just yet. That is the case of the region’s inadequate transmission infrastructure—a byproduct of decades of underinvestment caused by poor planning and low returns diverting investment to other pockets of the economy. Some of the repercussions are being felt acutely in specific areas, such as the North and Central East Mexico, as well as northern Chile and Brazil, leading to rising electricity costs (many other factors also play a role here as well), longer blackout periods, delays in interconnection approvals for the grid and industries failing to gain access to clean energy. Not only does this directly impact consumers’ pockets, but it also hurts the region’s cost advantage competitiveness (in terms of energy cost) in relation to other locations. In Mexico, in specific, the biggest impediment to the nearshoring boom will be access to cheap, reliable, and clean electricity.

High electricity costs not only lead to civil protests, but it can also cause the government to take drastic actions that impact the profitability of companies. In late January, Colombian President Gustavo Petro decided that the executive branch would temporarily set residential electricity tariffs instead of energy regulators. Petro is unhappy with the higher prices charged by dams, which he claims are full, as well as prices on the Caribbean coast. This move is likely to cut returns for power providers, putting future investments at risk and jeopardizing new infrastructure needed to sustain the long-term reduction of tariffs.

High pressure wire tower at sunset at dusk.

The Ugly

The ugly in Latin America is its politics. In Mexico, AMLO continues to pursue the dominance of the state-owned electric utility, CFE, at the expense of private independent players. It is nearly impossible for a private player to obtain an interconnection point for a utility scale renewable project, making CFE the only significant contributor of newly installed capacity in the country. The country’s power demand is expected to continue growing at nearly 3% a year by 2030, but new generation capacity is not keeping up. In fact, from 2019 to 2021, the annual growth in new installed capacity was less than 1%, reflecting a mismatch between supply and demand.[1] Transmission congestions in the Northeast, South and Center-east of Mexico, a consequence of underinvestment in the grid infrastructure, has also raised electricity prices and the frequency of power outages. Distributed generation has been the sole exception in this administration’s tenure. And that is because distributed generation projects are not required to obtain a generation permit from Mexico’s energy regulatory system, the CRE, as long as the asset produces less than 500 KW of power.

Given that the distributed generation sector was on pace to add a record 500 MW and grow nearly 25% in 2022, AMLO recently decided to target this sector as well. In November 2022, new regulations were proposed by the CRE to exclude net-metering compensation for medium voltage projects, making it less profitable for distributed generation players to sell energy back to the grid. Medium voltage distributed generators that inject energy back to the grid will now be compensated at a rate that is equivalent to CFE’s cost of energy, which usually includes long-term auctions and are much lower than the retail cost. This will make it less profitable for new distributed generation projects, delaying the payback period and creating uncertainty around the sector. Although the regulations are still in a public consultation period, they are expected to be enacted and will cause a slowdown in new distributed generation installations.

In Colombia, there is confusing and often contradictory messaging coming from the Gustavo Petro administration, who seeks to ban new oil and gas contracts even though the country is dependent on hydrocarbon and mining exports for 50% of the country’s total exports, and 87% of the total royalties received by regions.

The silver lining in Mexico is that the country is experiencing a boom in electricity demand, brought on by nearshoring, which will force CFE to lean on independent power producers (IPPs) to help satisfy those needs. AMLOs term will also end in October 2024, with a collective sigh of relief being heard both in Mexico and abroad. The state elections for Estado de Mexico and Coahuila in June 2023 will provide a clear indication of who the next Mexican President will be. If Morena wins those elections, the likely President will be either Claudia Sheinbaum or Marcelo Ebrard. And between those candidates, if Sheinbaum receives the Morena nod for 2024, energy companies should expect more of the same through the end of the decade.  

The growing presence of the state is also present in Mexico’s neighbor to the South, Brazil. With the recent election of the former President Luis Ignacio da Silva, Lula, who previously spent 18 months in jail for corruption charges, the involvement of state-owned entities are bound to increase. Although it seems that the newly appointed Petrobras CEO, Jean Prates, will keep Petrobras fuel prices linked with international crude prices, he has indicated that he will unlink them from the country’s import parity policy. This means that the domestic oil price set by Petrobras will disregard foreign exchange rates and import costs. With domestic fuels being sold at a discount, crude distributors such as Petrobras and Vibra Energia could lose billions in revenue as most of the machinery and distillates used to extract and process the country’s crude are imported in USD. In fact, under the presidency of Lula’s successor, Dilma Rousseff, price controls on diesel and fuel sold locally turned Petrobras into the most indebted oil company in the world.

In Brazil, the distributed generation (DG) sector is also still a safe long-term bet, showing continued growth regardless of the administration in power. Although there is a phase out of subsidies for DG projects submitted for approval after January 1, 2023, the payback period is still attractive in most Brazilian states. Looking ahead, public spend and large infrastructure projects (in all sectors) will be channeled towards pro-Lula states in the North and Northeast regions of the country, where the President-elect won roughly 70% of the vote. States such as Ceara, Piauí, Rio Grande do Norte, Bahia, and Pernambuco are expected to see the brunt of this investment, mostly in offshore wind to reduce those state’s electricity bills.

And last, but not least, there is the confusing and often contradictory messaging coming from the Gustavo Petro administration, who seeks to ban new oil and gas contracts even though the country is dependent on hydrocarbon and mining exports for 50% of the country’s total exports and 87% of the total royalties received by regions. Within the context of the energy transition, this decision would make sense if the country had abundant gas reserves, which it does not, forcing it to consider importing gas from the autocratic regime in Venezuela. Europe’s dependance on Russian gas should serve as a stark warning for the Colombian government.

Next Steps

Energy investors, operators and service providers will struggle to navigate this challenging investment climate that is crowded with political risk, changing regulatory frameworks and greedy local partners. They will require on-the-ground sources, a deep understanding of changing political alignments and detailed due-diligence to mitigate risks. This is where AMI can help.

Contact us to find out more about how our energy market intelligence can help you gain market share from your competitors, discover new opportunities, find the right local partners and more, all with an eye towards maximizing your company’s success in your market of focus or in all Latin America.


[1] Sistema de Informacion Energetica:

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