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.

Latin America could benefit greatly from regional power systems integration (source: commons.wikimedia.org)

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.

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Central America, Connect 2022, developing countries, electricity, energy policy, grid integration, IDB, Latin America, Proyecto Mesoamerica, regional electricity integration, renewable energy, SIEPAC, SINEA

The World Bank and other MDBs are increasing funding for renewable energy

Commercial lending for sustainable energies has slowed in the wake of the financial crisis, but support from multilateral development banks is on the rise. This multilateral support, however, only accounted for almost one-eighth of the global sustainable energy investment in 2009. Recent estimates suggest that the public financing needed to achieve a stabilized global temperature increase of 2 degrees Celsius far exceeds this amount.

Despite this limited means, support from multilateral banks is critical in developing countries transitioning to a sustainable energy sector, as these institutions provide technical assistance, concessional loans, and guarantees that can help mitigate the perceived risks associated with renewable energy technologies. The banks also play an important role in building the conditions that enable investors and commercial financiers to plan investments in these sectors.

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ADB, carbon capture and storage, climate finance, EIB, finance, IDB, nuclear power, project finance, renewable energy, renewable energy finance, World Bank