Transmission challenge: Power grid bottlenecks stunt LatAm’s renewables growth

• Power transmission growth stunted in Latin America by long distances, low population density and lack of capital
• Development of renewable energy capped in Argentina by shortfall of power lines caused by investor hesitance
• In Chile, boom in wind and solar has outpaced grid capacity, gas mitigates variability of renewable power generation
• Land disputes, red tape limit Colombia’s grid growth, Mexican grid struggles to match demand spikes in heatwaves

Latin America’s difficulty in rolling out enough power transmission infrastructure from areas where renewable energy is generated, combined with its limited uptake of grid-scale battery storage, could support natural gas demand in the region. Hydropower, the main resource that many countries in Latin America rely on to integrate more intermittent renewables, is not expected to expand significantly in the region over the coming years as climate change increases the risk of droughts and large dam projects have fallen out of favour.

Latin America meanwhile faces a bigger challenge than most other markets in connecting its often far-flung solar and wind resources to consumers. “Chile is around 4,250 km long,” notes Patricia Darez, the director of 350renewables, a Chilean renewable energy consultancy. “The distance issue is not easy to get away from. And Brazil is huge. Brazil is luckier in that due to its shape it has more of a star-shaped grid, whereas Chile has more of a narrow line-shaped grid.”

Population density is another consideration, says Darez. “If you have a look at the density of the UK or Germany versus Brazil or Chile, you’ll see that it’s pretty obvious why there’s less density of lines. In the end, electricity is produced for people and if you have less density you’ll have fewer lines.”

Access to low-cost capital in a region exposed to higher political risk than developed markets is also a factor. Infrastructure spending as a share of GDP in Latin America has traditionally been low, ahead of only sub-Saharan Africa. According to the Inter-American Development Bank, global investment in power grids needs to double by 2030 to meet national climate targets, whereas in Latin America it should triple over the same time horizon. Argentina, Chile, Colombia and Mexico are among the countries in the region confronted by grid bottlenecks.

Financing Argentina’s projects

In Argentina, gas has faced a lack of takeaway capacity as investors have balked at the above-ground risks, but the growth of renewables has similarly been capped by a lack of power lines. “No progress has been made with new lines and that is due, on the one hand, to the lack of access to financing, which is something specific to this country,” says Juan José Carbajales, a director of energy consultancy Paspartú and Argentina’s former deputy secretary of hydrocarbons. “There are projects that are viable from the point of view of load factor and economic cost but they are not developed because there is no way to evacuate this electricity.”

President Javier Milei is attempting to change Argentina’s energy model and has pushed for the private sector to finance projects without the involvement of the state. For Carbajales, if investor confidence in Argentina improves, it will be seen in different stages. “If that happens, I think we’re going to see it in three steps. First of all, investors are going to focus on crude oil, which is quickly monetised,” he says. “Then gas, due to the enormous resources that exist and the possibilities for exporting in the region. And finally electrical energy.”

Chile’s grid congestion

In Chile, where a boom in renewable energy projects has outpaced grid capacity, 9.8% of solar and wind generation was curtailed last year. This rate is set to rise as more and more projects continue to come online. Northern Chile is home to the sun-drenched Atacama Desert and the south has some of the best wind resources. However, central Chile is the main power-consuming region.

In 2023, solar and wind generated almost a third of the power supplied to Chile’s main grid, the National Electric System (SEN), compared with less than 1% a decade earlier. The Kimal-Lo Aguirre HVDC transmission line, which will have a 3 GW capacity, will “temporarily” relieve the grid congestion, Darez says, but she expects the line will not enter service until 2032.

A lack of regulation in Chile governing the order in which renewable plants should be curtailed is worsening grid congestion, says Darez. By allowing the burden to fall equally without regard to which generators connected to the grid first, more diversified developers are incentivised to connect projects at a later stage. According to Darez, this gives bigger developers opportunities to buy out smaller players that struggle with the ensuing spike in curtailment rates.

Compared with most countries in the region, Chile’s grid is a “more advanced network”, says Luis Miguel Bedoya, a high voltage transmission consultant based in Colombia. “Chile turns to natural gas facilities to mitigate the variability of renewable energy,” he says. “However, its long-term strategy revolves around modernising the grid and adopting energy storage solutions to reduce dependence on gas.”

Colombia turns to gas, coal

According to Bedoya, Colombia is “increasingly relying on natural gas-fired plants to offset the drawbacks of hydroelectricity during droughts and the limitations of existing transmission lines.” The country has been heavily affected by a drought and its hydro reservoirs have fallen to historic lows in recent weeks, leading to record LNG imports.

Bodoya notes that a lack of investment and the country’s complicated topography have created “a disjointed grid system.” Developers of transmission lines in Colombia – where land rights have been a long-running source of social conflict – have become bogged down in local disputes and lengthy permitting delays.

Notably, in January 2018, Colombian energy conglomerate Grupo Energía Bogotá was awarded a project to build the Colectora substation and associated transmission lines. The Colectora project intends to connect several wind farms totalling 1.05 GW in La Guajira department on the Caribbean coast to the grid. La Guajira has the country’s best wind resources but is also home to the Wayúu indigenous communities.

Work associated with the project was started in June 2023, but the Colectora project has not received all the required permits and its completion date remains uncertain. “With Colectora, we are waiting for the environmental licence, so until the environmental licence is issued it’s held up,” Juan Ricardo Ortega, the CEO of Grupo Energía Bogotá, said in an interview last month. “The vulnerability of the electrical system is the most critical it has been in many years,” he added.

Amid delays to other power lines and the slump in hydropower, Colombia has turned to its coal-fired capacity, including Enel’s 225 MW Termozipa power station near the capital Bogotá, Ortega said. “Termozipa is at full capacity. That’s coal generation – 90,000 tonnes of CO₂ per month. And that’s what happens when you can’t bring energy from other places.”

Mexican heatwaves

Mexico’s power grid is also coming under increasing strain. During last summer, Mexican grid operator Cenace was forced on several occasions to declare a state of emergency during a heatwave as generation capacity struggled to match a surge in demand for air conditioning.

With Mexico experiencing another severe heatwave, blackouts were recorded in several cities this month and Cenace briefly declared a state of emergency on 8 May. Cenace has since issued a steady stream of emergency operating alerts. Once again, drought has hit the availability of hydropower.

President Andrés Manuel López Obrador has bet on more gas-fired plants being built by state-run utility CFE to fix the problem. “This generation deficit is because some combined cycle plants were delayed, but work is being done and they will soon be finished,” he said on 9 May.

Vicente García, the country manager for Mexico at Vector Renewables, a consultancy, says the López Obrador administration is building up to six combined cycle plants. “If you put into operation six combined cycles you will increase the demand for gas, this is very clear.”

Grid-scale solar and wind installations in Mexico have largely stalled amid the López Obrador administration’s hostility to private investment in the power sector. Yet the pause in utility-scale renewables deployment has not seen the country’s power lines catch up.

“The curtailment is a real problem and obviously it’s related to the lack of investment in transmission lines in recent years,” says García. “In the last three years – in 2020, 2021 and 2022 – there was nearly no growth of the high voltage transmission lines,” says García.

The Mexican energy ministry is mainly responsible for the planning associated with  transmission requirements, while state-owned utility CFE is supposed to execute these infrastructure projects. García says some suspect the CFE has been only too happy for transmission constraints to keep renewable energy companies in check, allowing the state-utility to dispatch more of its own power.

Meanwhile, the only major state-led variable renewable energy project in Mexico, the planned 1 GW Puerto Peñasco solar park in the sparsely-populated northern state of Sonora, could be hamstrung by the large distances the power would need to travel to consumers.

Sonora has the highest solar irradiation levels in Mexico, but García points out that most power demand is generally located in more central areas of the country, such as the Bajío region and Mexico City. The distance between Puerto Peñasco and Mexico City, for instance, is approximately 2,000 km.

“You have to invest in huge transmission lines to export this power to other areas,” says García. “Once again, I think the ideology is being put above the economic and technical and financial reality. In my opinion, it makes more sense to build solar farms and to improve the transmission in the areas where you have also a good resource, like in the centre of the country, and there you have a lot of consumption,” he adds.

“This is the reality that the following government will have to face because what we know is the power demand is growing,” García says. Mexico will elect a new president in June and Claudia Sheinbaum, López Obrador’s protégée, has established a consistent lead in the polls.

At the same time, García believes that if Mexico is to fully capitalise on the nearshoring phenomenon, the next president will not be able to shun renewables and grid infrastructure to the extent that López Obrador has done. “The companies which are establishing in Mexico, many of them are intensive in power,” he says. “The headquarters of these companies in Europe and the US, sometimes they require them to use not only cheap power but green power.”

Batteries yet to arrive

Latin America is home to most of the world’s reserves of lithium, the metal used for lithium-ion batteries. By allowing generators to store electricity and dispatch it during periods of higher demand, batteries may help to alleviate grid congestion. In April 2024, Chile inaugurated the largest battery energy storage system in Latin America: the 139 MW/638 MWh BESS Coya, owned by the Chilean subsidiary of Engie.

Yet with the notable exception of Chile, most countries in Latin America have so far shown tepid enthusiasm for grid-scale batteries, opting to rely on hydropower and gas to integrate the growing installed capacity of intermittent renewables. “It’s a technology that has effectively not yet reached the region,” says Carbajales.

This may be starting to change. Brazilian authorities are considering including batteries in a power capacity auction that is set to be held in August. But in Mexico, the market for utility-scale batteries is in its infancy. “The thing is that there is no regulation – they are starting now with the regulation,” says García. Earlier this month, Mexico’s Energy Regulatory Commission (CRE) published a draft of rules governing electrical energy storage, such as batteries. “Now private and public organisations will have to analyse these rules. We will see with the following government what happens.”

Nonetheless, García does not see batteries as a substitute for Mexico’s lack of power lines. “Battery storage could be a partial solution,” he says. “But the main topic is to open up the market again, to let the private sector invest and to also invest via both the private and public sectors in transmission lines.”

Contrasting transitions?

“Definitely, I think it’s a bigger problem in Latin America,” says Francisco Monaldi, a fellow and director of the Latin American Energy programme at Rice University’s Baker Institute for Public Policy, of the transmission challenge in the region. “This is again illustrating the issue of political risk. If you think about it, developing, say, an oil upstream project in Latin America – as long as you can export, it’s a high-risk, high-return opportunity. And that can be done even in countries with very weak regulatory, macroeconomic and rule of law frameworks,” he comments.

“But I think in general, the energy transition and the electrification of Latin America requires strong institutions, good regulations, the elimination of energy subsidies or at least the transformation of energy subsidies,” says Monaldi. “So, I think the energy transition will separate countries in the region between those that have credibility and institutions – like, say, Uruguay, perhaps Chile, perhaps Brazil – and countries like Venezuela or Ecuador or Bolivia or Argentina that simply are not equipped to produce the kind of regulatory and rule of law baselines that are required for this.”

Darez points to another consideration. “I do think it also has to do with the philosophy and the will of the general population and how they think about the energy transition,” she says. “I do think that stronger institutions definitely help to make an easy transition, for sure. Because it does require regulation, it does require fair rules, it does require changes and adjustment to the rules constantly because what you’re doing is moving away from what was there. And, yes, 100% it is easier if you have strong institutions which are backed up by trust.” - EO