Latin America invests in renewable energy to reduce its dependence on fossil fuels

In accordance with the Paris Agreement, Argentina has pledged to significantly reduce its greenhouse gas emissions to less than 349 MtCO2 by 2030. To achieve this, the country will need to increase the share of renewable energies in its energy mix, while overcoming a major obstacle: the instability of its banking sector and entire financial system.

Efforts to diversify Argentina’s energy mix

With backing from AFD, the Argentinian bank for investment and foreign trade (Banco de Inversion y Comercio Exterior – BICE), is supporting sustainable development and transition initiatives in the energy sector.

AFD has been operating in Argentina since 2017, where energy efficiency has previously been the main focus. This approach now requires a rethink, following a significant reduction in government subsidies in the sector, with a shift toward more sustainable energy consumption. “The low cost of electricity led to widespread use of air-conditioning and heating, while many buildings in the country remain very poorly insulated,” explains Tomás Le Louarn, AFD Project Leader in Argentina. 

See also: "Atlas" of Latin America and the Caribbean: 17 Sustainable Development Initiatives

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BICE has granted a credit line of €50 million which has been used to finance seven energy projects. For example, the Pacuca Bio Energía biogas plant in Buenos Aires now supplies energy to almost 3,000 Argentine households. AFD’s support covered 70% of the plant’s construction costs.

BICE also provided financing for the Ullum IV solar park project in San Juan, in northern Argentina. “This solar park produces clean energy that is fed back into the grid, thus diversifying the energy mix,” says Lucrecia Payer, the company's communications manager. While the country offers huge potential for greater use of renewable energies, these sources are currently under-exploited. Nonetheless, “this type of energy is very environmentally-friendly, especially in desert areas like this,” says Orlando Bustos, manager of the solar farm that currently supplies electricity to over 14,000 Argentine households.

At the ENRECO biogas plant, “farm waste is used to produce energy which is 100% sustainable, as this waste is transformed into raw materials,” says its CEO, Cecilia Debenedetti. As a result of this investment, this farm is now operating exclusively in the circular economy, while also helping to reduce greenhouse gas emissions.

See also: 5 projects driving renewable energies around the world

One major obstacle to the energy transition is transmission capacity. According to Tomás Le Louarn, “Argentina has massive potential to produce local renewable energy, a field we must continue to invest in, but the national grid does not have the capacity to absorb all the energy generated.” In 2023, AFD signed a loan to finance the construction of medium-voltage power lines, in a country with a surface area of over 2.7 million km².

In Latin America, situations vary but challenges remain the same

“The situation varies widely in different areas of the American continent,” says Fernando Cevallos, Energy Task Team leader for AFD’s energy projects in the Andes. While the energy mix is becoming greener, dependence on fossil fuels remains high. AFD is thus faced with the challenge of supporting this energy transition, while at the same time ensuring that it does not disadvantage local populations. 

For example, in Colombia, AFD has launched the Gemmes program, a technical support initiative organized with various ministries to quantify the impact of the energy transition on local people. “The idea is to support those who lose out in the transition, to help them adapt and ensure a more equitable share of the benefits,” says Fernando Cevallos. It should be kept in mind that, while access to electricity in Latin America is generally universal, energy poverty is still an issue in certain areas. 

See also: Colombia: a key tool for the energy transition

Many renewable energy projects already being financed on the continent

“AFD’s green energy strategy is based on three key pillars: energy efficiency, universal access to electricity and a modern, low-carbon supply of electricity,” says Fernando Cevallos. In Mexico, for example, AFD is supporting the clean energy transition through a partnership with the Federal Electricity Commission (CFE). Since 2022, AFD has been supporting the country to drive energy reform, through technical cooperation programs, to help Mexico reach its target for low-carbon electricity production, requiring clean energy to make up 50% of its total electricity production by 2050, while combating energy poverty.

In Bolivia, AFD granted €60 million as part of a co-financing agreement to construct the Oruro solar park, the country’s first-ever power plant, whose output has exceeded the expectations of experts. On a continent which “has fallen behind in terms of solar and wind power, with hydroelectricity being the main source of renewable energy”, according to Cevallos, AFD has adopted an investment strategy geared toward these two key power sources.  

AFD is supporting other projects to improve energy efficiency, like its initiative in the Galapagos Islands. In this archipelago situated to the west of Ecuador, together with the Euroclima+ program, AFD is cofinancing a sustainable building project, focused on constructing climate-resistant infrastructure through knowledge transfer.