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Arthur Deakin Horizontes podcast

Renewable energy holds much hope for investors in Latin America. The region is endowed with some of the best solar and wind energy generation assets in the world. Electricity demand is growing. The region’s private sector and voting public welcome energy transition. And yet, Latin American governments, despite their enthusiastic cheerleading for the idea, are the biggest obstacles to a successful and speedy transition.

In the latest episode of Horizontes leadership podcast, our guest Arthur Deakin, AMI’s Energy Sector Practice Director, will help unpack this complex story in a fascinating discussion.

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Podcast highlights:

Opportunities in Emerging Markets

While high interest rates and low energy prices have shifted investment from Latin America to more developed markets, Deakin notes significant opportunities within the region itself, particularly in less saturated markets. Investors and developers are increasingly turning to countries like the Dominican Republic, Guatemala, and El Salvador, where less competition, higher power prices, and quicker permitting processes make renewable energy projects more viable and financially attractive.

Key growth areas identified include: 

Energy Storage in Chile: Chile has over 7 GW in BESS capacity in its pipeline, driven by high energy arbitrage spreads and the upcoming release of a capacity payment 

Utility-Scale Solar Projects in the Dominican Republic, Guatemala, El Salvador, and Panama: These countries offer a faster route to becoming cash-flow positive, driven by streamlined permitting processes. 

Renewable Fuel feedstock in Mexico and Brazil: Mexico and Brazil have an abundant amount of waste and residue (e.g., animal fats, used cooking oil) to produce biofuels, supporting feedstock collection that can be exported to European, American and Asian refineries.

Future Prospects: Green Hydrogen Derivatives in NE Brazil and Southern Chile

Looking further ahead, Deakin highlights the potential for green hydrogen production, particularly in northeast Brazil and southern Chile. Despite high costs and the absence of substantial off-takers, ongoing technological improvements and international market mechanisms will subsidize the cost of hydrogen (e.g., European Hydrogen Bank). The low cost of renewable electricity, coupled with local industrial demand, promises to make southern NE Brazil and Southern Chile a pivotal player in the global green hydrogen market.

Challenges in Scaling Renewable Energy

Despite these opportunities, significant challenges remain. Only 13% of Central and South America’s total energy comes from renewable sources, excluding hydropower. To increase this percentage, Deakin stresses the need for policies that make renewable options both economically feasible for consumers and profitable for providers. This requires substantial investment in not only generation but also in transmission and distribution infrastructure to handle increased loads from renewable sources.

Impact of Policy Changes in Mexico

The energy sector in Mexico, in particular, has seen turbulent times with shifts in policy under different administrations. The constitutional energy reforms initiated under Peña Nieto, and the subsequent pushback from AMLO, have created a volatile environment for investment. Looking ahead, potential leadership under Sheinbaum could revive the sector’s prospects through ambitious renewable energy targets and enhancements in distributed generation capabilities. This includes: 

Growth in renewable energy development. Energy investors, developers, and manufacturers will reignite their Mexico operations as Sheinbaum seeks a 50% renewable target by the end of her term in 2030, up from the current 15% penetration. She recently announced $13.6 billion in renewables, gas plants and transmission lines. Although Sheinbaum has called for private investment, the extent of her divergence from AMLO’s nationalist policies is still unclear. 

Increase the maximum threshold for distributed generation projects from 0.5MW to 1MW. To achieve the above objective of 50% renewables, this policy change would allow for an easier grid connection for larger on-site projects that supply power to commercial and industrial facilities. AMI projects that a favorable policy shift could increase Mexico’s installed distributed generation capacity to 34 MW by 2030, a fourfold increase when compared to a scenario in which policies remain the same. 

Approval of a biofuel law. Sheinbaum is more likely than any of its political predecessors to approve a biofuel law or mandate, as clean fuels are a personal interest of hers (she spearheaded a biodiesel plant in Mexico when she was mayor and wrote a paper on the potential of biodiesel from waste cooking oil in Mexico.”)

Technological and Infrastructure Development Needs

With the projected increase in electricity demand due to data centers and electric vehicles, Latin America faces a critical need to expand its infrastructure. This includes not only additional power supply but also extensive development of transmission lines and energy storage solutions to manage the higher loads and maintain system reliability.

Role of State-Owned Enterprises 

Looking forward, Deakin predicts that state-owned enterprises will continue to play a significant role in the region’s energy landscape. They serve not only as key energy providers but also as symbols of national pride and sovereignty. The strategic direction of these enterprises, particularly in transitioning to cleaner energy sources, will be pivotal in shaping Latin America’s energy future.

Conclusion

Higher interest rates have recalibrated investment strategies, with a heightened focus on safer returns. This shift impacts the pace and scale of new projects, particularly in emerging markets where risk profiles are higher. However, Deakin remains optimistic about continued investment in clean technologies, supported by reductions in costs driven by global supply chain adjustments, particularly from China. 

As Latin America navigates the complexities of transitioning to a more sustainable and resilient energy system, the insights from industry experts like Arthur Deakin provide valuable guidance on leveraging regional strengths and addressing systemic challenges. The path forward requires a balanced approach, harnessing both innovative technologies and supportive policies to realize the full potential of Latin America’s energy sector.

Engaging conversations, some in English, others in Spanish, with a variety of leaders, including politicians, business magnates, subject matter experts, futurists, financiers, cultural icons, entrepreneurs, inventors, intellectuals, academics, and more.


Carefully crafted discussions designed to inform, instruct and inspire.

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