In the coming years, Latin American countries will have to make major investments in electricity generation and grid infrastructure in order to meet growing energy demand and provide universal energy access. According to the U.S. Energy Information Administration, power generation in Latin America and the Caribbean will have to double by 2030, requiring an investment larger than $700 billion. Over 31 million people in the region lack access to electricity and many countries still depend on fossil fuels for power generation, causing economic vulnerability due to volatile prices. Hydroelectric power is the other main source of electricity for many Latin American countries, but recent changes in precipitation patterns signal an uncertain future for this traditionally reliable baseload energy source in the face of climate change.
Creating integrated regional power systems by connecting national electricity grids can alleviate some of these challenges facing Latin America, especially for those countries seeking to provide affordable and reliable electricity to their citizens while constrained by limited natural resources, poor infrastructure, and low investment levels. By pursuing regional integration, countries benefit from economies of scale, complementary energy resources, lower costs of energy infrastructure development, and stronger regional cooperation. A regionally integrated power system can provide energy security at lower costs by increasing power generator and utility access to markets and diversifying the mix of energy sources. Furthermore, it facilitates the penetration of renewable energy by creating a market for financing large-scale projects and by providing increased grid stability necessary for high levels of intermittent energy sources like solar and wind.
In April 2012, at the Sixth Summit of the Americas in Cartagena, Colombia, the Connect 2022 initiative was introduced. Its aim is to ensure universal access to electricity to people in the Americas by 2022. This past June, in support of the Connect 2022 initiative, the Inter-American Development Bank (IDB) and the U.S. Department of State hosted a dialogue in which commitments for energy integration in Latin America were strengthened. The Central American Integrated System Project (SIEPAC in Spanish), is the first major regional transmission system in Latin America, connecting Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama with a 1,800 kilometers of 230 kilovolt transmission line. SIEPAC will be completed by the end of this summer, connecting 37 million consumers in the region onto a common grid. The project will also result in the creation of a Regional Electricity Market (MER in Spanish) that will increase competition between power generators in national markets and attract greater foreign investment. The project was constructed under a public-private partnership consisting of electric utilities from all member countries and additional extra-regional partners from Colombia, Spain, and Mexico.
The member countries of SIEPAC signed a Joint Declaration and Action Plan to finalize the regional power system integration, which will require the completion of the line and further investment in infrastructure, regulatory and institutional measures to support long-term power purchase agreements between countries, and the development of additional interconnections with Mexico, Colombia and Belize to integrate the North and South American markets to this new Central American market, MER.
While further ahead in execution, Central America is not the only region in Latin America exploring regional power integration. In the Andean region, Chile, Colombia, Ecuador, Peru (and Bolivia as observer) are also seeking to integrate their power systems through the Andean Electrical Interconnection System (SINEA) project. Last October, the IDB committed $1.5 million over two years to the project for technical and planning assistance.
Further south, the Garabi Project is a privately-owned regional transmission project that connects Brazil and Argentina by two 1100 MW, 500 kV transmission lines and has led to the construction of Brazil and Argentina’s shared Garabi-Panambi 2.2 GW hydropower plant. While the main motivation behind this project was to protect Brazil from the vulnerability of its hydropower-dominated system, in practice power has been flowing from Brazil to Argentina (and Uruguay) due to Argentina’s recent economic crisis.
While plans for regional integration in Latin America have been underway since the 1990s, recent interest in developing renewables to increase access to electricity, provide reliable energy services sustainably, and overcome dependence on fossil fuels has further spurred these initiatives. Combining regional integration with smart grid technologies can make it even easier to integrate high levels of renewables without affecting the stability of the grid. Smart grid technologies include consumer energy demand response measures, new methods for scheduling and dispatching power, and small- and large-scale energy storage.
There are various levels of integration, from bilateral interconnection between two countries, to connections spanning multiple countries paired with an integrated electricity market. Without a doubt, the higher the level of integration, the larger the barriers preventing its development. In Latin America some of those barriers include mismatched electricity regulations, divergent national and regional investment decisions, national sovereignty and energy independence concerns, and insufficient local expertise. In addition, regional power integration usually requires new transmission capacity, which can be expensive, and if renewable energy is involved, additional ancillary and regulation technologies might be required.
Creating a regional regulatory authority, as in the European Union, could remove some of these barriers by coordinating prices, tariffs, and grid access. However, the energy sector in each Latin American country is subject to political priorities that change with each election. The future of regional grid integration in the region will depend at least partially on the conclusion of the SIEPAC project and the launch of the MER, which will hopefully spark confidence in other parts of Latin America to continue to integrate their power systems and potentially create a larger regional electricity market. The barriers will not be easy to overcome, but the benefits are numerous and hard to ignore.