Time for Latin America to come out of stealth mode as an energy powerhouse

Last year, the US broke a record with 40% of electricity generated being zero-carbon. China added 216 gigawatts (GW) of solar in a year, the EU achieved 44% clean energy…bored yet? This is how most climate tech articles begin, discussing important but over-reported regions. But what about Latin America?

It is rarely reported but Latin America is actually a secret leader in energy transition.

Latin America’s electricity mix is 60% renewable, twice the global average. Paraguay generates 99.9% of its electricity from hydroelectricity. Brazil has 33GW of solar capacity, and its 113GW of solar energy in the pre-construction stage is second only to China globally. Chile ranks second globally for solar photovoltaic potential, and its Magallanes Region is one of the best wind resources in the world, with a potential of 310GW. BloombergNEF recognised Chile as one of the top three developing countries for renewables investment, as Chile’s renewables penetration has grown from 43% to 63% in just three years.

The region’s net zero journey contains both lessons — and even more importantly — big opportunities for the rest of the world.

Focus on opportunities in Chile: industrial heat

The massive mining sectors in Peru, Argentina, and Chile are already benefitting from the energy transition. Chile has the largest reserves of copper and lithium globally, and its mining industry produces 30% of the world’s lithium. The energy transition will drive demand growth of 42x for lithium and 3x for copper by 2040; these transition metals are essential for the tremendous growth in electric vehicles, wind turbines, the electrical grid, and more as we decarbonise.

The region’s industrial sector, however, has a long way sustainability journey ahead. Some 20% of Chile’s energy is used for industrial heat, which is primarily fossil-generated. Considering a small handful of smelters consume 6% of Chile’s energy, Chile’s mining industry, chiefly its heat, is ripe for decarbonisation. The rewards for sustainable production are significant — green copper, for example, can command a $283/ton premium.

Though heavy industry is often categorised as a “hard to abate” area for emissions, some “hard” things, like decarbonising industrial heat, are surprisingly easy. Industrial heat storage innovators realised that 24/7 heat storage is quite simple: charging with renewables and resistance heaters (as in a kettle) and storing heat in cheap, energy-dense bricks. Industrial heat storage startups, most less than a decade old, could achieve energy capacity capex costs of just $10/kWh. Compare this to lithium-ion cells, first commercialised in 1991 and only just dipping below $100/kWh. Furthermore, these simple thermal technologies can generate electricity with industry-standard turbines, providing some of the cheapest long duration energy storage available at capex costs of less than $20/Kilowatthour (kWh). Latin America needs these novel industrial heat technologies to decarbonise its mines as they power the net zero transition.

A test-bed for long-duration grid storage

Another big opportunity comes from improving Chile’s overstretched electricity grid. Chile’s solar industry’s rapid growth is quickly surfacing reliability problems, zero-priced electricity during the day, grid congestion, and curtailment. These are issues everywhere, but Chile’s long and thin geography and limited grid interconnections exacerbate the situation.

To ensure the reliability of its grid, increasingly powered by intermittent wind and solar, Chile must cheaply and rapidly build out energy storage, starting with ~4-hour lithium-ion batteries. These won’t be sufficient — McKinsey research shows that at 70% renewables penetration, grids need 12-100 hour+ long-duration energy storage to remain reliable. Chile is rapidly approaching this point, with 63% of generation from renewables in 2023. With the wind and solar industries growing fast, it is estimated that Chile will require 500 gigawatt hours(GWh) of long-duration energy storage capacity by 2040 to enable a reliable, decarbonised grid.

Energy storage economics in Chile are strong even without subsidies – the arbitrage opportunity between charging during the day and discharging at night exceeds $100/megawatt hour (MWh). So founders should consider building their first commercial long-duration energy storage plants in Chile, capitalising on zero-priced daytime energy, and proving the resiliency benefits of their systems by integrating into LatAm’s renewable-powered, highly-stressed grids.

Opportunities for energy export and onshoring energy-hungry industries

Latin America may have plentiful renewable energy, but it is hard to export because of limited internal and US interconnection. While the EU imports energy from sunny Morocco, only ~0.1% of electricity in the US comes from Mexico.

However, convert the electrons into molecules like hydrogen, methanol, and sustainable aviation fuels (SAFs) and Latin America has the potential to significantly lower the price of these.

There is an acute need for lower prices on these fuels. The aviation industry causes 2.5 percent of global greenhouse gases and is under pressure to cut these. But with airlines averaging 2.7% profit margins, they struggle to pay the 3.6x pricing premiums SAFs hold today. The primary cost component for SAFs is energy, so LatAm should export these fuels using existing global supply chains, thereby valorising its renewable energy globally.

Similarly, methanol, the future decarbonised shipping fuel, should site its energy-intensive production in Latin America. Although more difficult to export, green hydrogen needs a price decrease of more than 80% to compete with the grey hydrogen that fuels industries today. The main lever to achieve this? Electricity prices again. Capitalising on its resources, Chile is targeting to be the global lowest-cost producer of green hydrogen and plans to supply 13% of global demand.

The opportunities for Latin America to onshore energy-hungry industries are also multifold. Direct air capture should be sited wherever energy is cheapest, like Latin America. Data centres contribute 2% of global greenhouse gases, and data centre energy demand is expected to grow 50% by 2027, mainly because of energy-hungry generative AI. These data centres should be built in LatAm. Localised and decarbonised production of transition minerals, steel, and cement are also obvious. Chile’s long coastline means it has ubiquitous access to the ocean for wave-powered desalination and ocean-driven carbon capture. These are just a few examples, but high-energy use applications are numerous, and Latin America is bursting with renewable energy potential to drive them.

LatAm has many other unique ingredients that make it attractive for the energy transition. In 2021, before the global VC contraction we’re experiencing today, it was the fastest-growing tech market, growing 320% year-on-year and attracting $19.5 in venture funding. Its 670m people are younger (63% working age, higher than the US and India) and are some of the heaviest internet users in the world (8.7 hours per day on average in Chile, compared to 7 in the US and 5.5 in China). According to Atlantico, the region has $3.9tn of tech value creation potential catching up to the US. Progressive energy policies, renewable-powered grids, and electrified public transport, combined with progressive consumers and enterprising local talent, suggest that many of the next generation of climate innovators will hail from the region.

Interesting technologies for Latin America

Some industrial heat source companies include Rondo Energy, Antora Energy, and Kraftblock; combined with turbines, these can also act as long-duration energy storage. Similarly, some geothermal companies with long-term storage capabilities include Fervo Energy, Eavor, and Sage Geosystems. Finally, some pure-play long-duration energy storage companies include Form Energy, Noon Energy, Quidnet Energy, and E-Zinc.

Time to come out of stealth mode

While the US, the EU, and China have been loudly leading the energy transition, LatAm has quietly and diligently built its leadership in the space. It has been putting its resources to work, growing its renewables faster than the US and with penetrations higher than the US, EU, and China, driven by economics more than subsidies. In the coming years, LatAm will significantly impact decarbonising the world, producing SAFs for air travel, hydrogen for fertilisers, lithium for EV batteries, copper for transmission infrastructure, carbon capture, and so much more. It is time to come out of stealth mode and beat its chest like the other energy powerhouses of the world.

Mark Dryden is an investor at Copec WIND Ventures