Latin America's Energy Transition: Regulation, Investment and Regional Integration

The current panorama of renewable energies in Latin America varies significantly in each country. The region has exceptional cases such as Paraguay, Costa Rica and Uruguay which produce more than 90% of their electricity from renewable sources. However, this is not the case in countries such as Bolivia, as well as in Central American countries that rely heavily on non-renewable sources.

In countries in which there has been a positive development of renewable energy, the sources vary greatly depending on the strengths each country has because of its territory. For example, by 2023, Brazil was able to obtain almost 50% of its total primary energy supply from renewable sources such as hydropower and sugarcane products. Chile is one of the leaders of the region with regards to solar energy, benefiting from the energy that can be produced from the Atacama Desert.

Other countries, such as Bolivia, have shown their intention to renew their energy matrix towards a more sustainable one. According to Bolivia’s Electricity Expansion Plan 2024–2050, Bolivia set a target of generating 65% of its electricity from renewable sources in 2026, and 75% from 2032 onwards. Although there has been an increase in the reliance on renewable sources, such as biomass and hydro energy, Bolivia’s dependence on non-renewable sources remains clear, and the difficulties in achieving the goals for 2026 are becoming evident.

Although there is a disparity in the development of renewable energy in the region, according to the Director-General of the International Renewable Energy Agency (IRENA), “South America has contributed strongly to this global trend in renewables expansion, with 23 GW of renewable capacity added in 2024, confirming its position as one of the world’s most competitive regions for clean energy.” This leading position is consistent with Latin America’s favourable geographic position. Following IRENA’s report on South America’s energy transition outlook, “South America hosts some of the world's most abundant renewable energy resources and competitive renewable energy resources.” 

Regulatory initiatives: Brazil

As previously noted, Brazil is one of the leaders in renewable energies in the region.

The country has successfully implemented different structures in order to promote renewable energies within its territory. It was one of the first countries to implement auctions for contracting both existing and new generation capacity from several technologies. According to a report published by the Inter-American Development Bank in 2019, auctions have become Latin America’s favourite tool for renewables, and Brazil has been implementing this since 2005.

Following the trend of leading the development of renewable energy, the Brazilian government has recently enacted different laws and programs in order to further enhance the use of renewable sources in the country.

In 2024, Brazil enacted the Fuels of the Future Law (Federal Law No. 14,993/2024), which provides incentives for biofuels (ie, ethanol, biomethane and sustainable aviation fuel) with the objective of reducing Brazil’s CO2 emissions. 

In January 2025, the Brazilian government also enacted the Programme for the Acceleration of Energy Transition, aiming to accelerate low-carbon projects, including those focused on solar energy and wind power. In January 2025, the government also approved Law No. 576/2016, which provides the legal framework for offshore wind energy projects.

Regulatory initiatives: Bolivia

Bolivia offers a notable case study. In May 2026, the government formally submitted a draft New Law on Electricity and Renewable Energy, triggering a multi-stage legislative process. The proposed reform explicitly positions the country within the global energy diversification trend, promoting renewable sources and recognising universal access to electricity as a right. Notably, the government has adopted the concept of “energy diversification” rather than “energy transition” – a deliberate policy choice reflecting the view that hydrocarbon resources remain an essential component of the energy mix and a critical source of fiscal revenue.

The renewable energy agenda under the proposed law encompasses technologies suited to Bolivia's diverse geography: solar energy in the high-altitude departments (administrative regions) of Oruro and Potosí, biomass-based thermoelectric generation leveraging sugarcane production in the tropical regions, and potentially wind and geothermal sources elsewhere. The agenda also introduces the concept of distributed generation, enabling households with rooftop solar panels to sell surplus energy back to the grid – a mechanism that would be formalised and regulated under the new framework.

Beyond the technology-specific provisions, the draft electricity law introduces structural reforms with direct implications for renewable energy investment. These include opening electricity generation, transmission and distribution to private participation under clear rules; the creation of an independent energy regulator (ERE) designed to eliminate conflicts of interest; and the implementation of competitive auction mechanisms modelled on Colombian and European precedents. For renewable energy developers, a well-designed auction framework would provide a transparent pathway to market entry and a bankable contractual basis.

The foundational principles articulated by the government to underpin the proposed law further signal the direction of regulatory travel: energy sovereignty and security, legal certainty grounded in the pacta sunt servanda principle, regulatory stability to protect investment planning, operational efficiency, active promotion of public and private capital participation, and sustainable development with the progressive reduction of environmental impacts and the adoption of cleaner technologies.

Interest in renewable energy investment (CAF – IDB)

The modernisation and expansion of Latin America's electric system demands an estimated USD48 billion in annual investment – an amount that cannot be covered exclusively by state resources and therefore requires long-term corporate capital. The Inter-American Development Bank (IDB) currently manages a regional energy portfolio of USD5 billion, with transmission and distribution representing its highest-funded subsector. In parallel, the Economic Commission for Latin America and the Caribbean (ECLAC) estimates that the region must invest between 7% and 11% of its GDP annually until 2050 to sustain green growth, with energy among the most critical sectors.

The International Energy Agency (IEA) warns that annual investment in clean energy across the region must quadruple between 2026 and 2030 relative to the previous decade if trajectories are to align with global climate objectives. Investment in electric grids should nearly double globally over the same period. The costs of inaction are significant: a coordinated regional electric integration reaching 80% renewables would save USD23 billion and 0.7 gigatons of CO₂ equivalent by 2030. Latin America already has one of the world's cleanest energy matrices, with 60% of its electricity generated from renewable sources – double the global average – yet this potential cannot be maximised without a substantial increase in financing flows.

Five financial innovation trends are reshaping the investment landscape for the energy transition in the region. First, blended finance structures combine concessional resources from climate funds with commercial debt and multilateral guarantees, making novel projects – such as hybrid plants, large-scale storage and offshore wind – bankable even in countries with elevated sovereign risk. Second, structured investment vehicles are being designed to attract institutional capital from pension funds and insurance companies, which manage enormous long-term savings but maintain low exposure to energy infrastructure in the region. Third, long-term power purchase agreements (PPAs) are being monetised as financial assets, enabling competitive financing without recourse to sovereign balance sheets. Fourth, green and sustainability-linked bonds tied to performance indicators (emissions reduction, rural electrification and installed renewable capacity) are aligning financing costs with measurable outcomes. Fifth, financial digitalisation – through blockchain, smart contracts and pay-per-use solar models – is opening new pathways for distributed financing, particularly in rural and off-grid areas.

The Development Bank of Latin America and the Caribbean (CAF) holds comparative advantages that position it as a key actor in mobilising capital toward the region's energy transition. Its presence in 18 countries enables it to identify and support smaller-scale, high-impact projects that are often overlooked by other multilateral banks. Its intermediate balance-sheet position – combining a solid credit rating with the flexibility to assume subordinated tranches – allows it to act as a strategic bridge between AAA-rated multilaterals and private market participants.

On the IDB side, the bank's strategy articulates its three operational windows (public sector, private sector and innovation hub) to structure schemes that mitigate regulatory and macroeconomic risks. As a concrete example, the IDB's private window has deployed USD185 million with Genneia in Argentina for the development of solar parks and battery storage.

Battery Energy Storage Systems

Battery Energy Storage Systems (BESS) are emerging as the dominant project trend across the region, driven by the increasing share of variable renewable generation – primarily solar photovoltaic and wind – which requires storage solutions to maintain grid stability and optimise energy dispatch during peak demand hours.

Chile is experiencing a significant increase in BESS developments, positioning itself as a regional leader in battery storage. Additionally, regulatory changes to the stabilised pricing regime applicable to small distributed generation projects (Pequeños Medios de Generación Distribuida, or PMGD) are reshaping the market. The prior regime created systemic distortions in which generators not subject to the special pricing mechanism were forced to compensate those that were, generating a problem that regulators are now addressing.

Brazil expects a major BESS auction by the end of the year, representing substantial investment opportunities. Battery-based plants are expected to have a transformative impact on the rationalisation of renewable energy use. By storing power generated during off-peak periods and deploying it when demand peaks, battery-based plants reduce the need to dispatch electricity from large hydroelectric plants or non-renewable sources. These benefits are especially significant in Brazil given its unique challenges – vast renewable generation capacity located at long distances from major consuming centres, transmission restrictions and insufficient energy injection during peak hours. The national transmission network will become considerably more efficient and reliable once significant BESS capacity is installed near major cities.

Argentina's national government has conducted two major storage tenders in neuralgic zones of the grid, both of which have already been awarded. The programmes – ALMAGBA and ALMASADI – represent concrete government commitment to building battery storage infrastructure at scale in strategic locations.

In Peru, the growing share of renewable generation (solar PV and wind) is prompting regulatory requirements to incorporate batteries in order to compensate for the loss of frequency regulation capacity that accompanies the displacement of conventional generation. This regulatory push ensures that system stability is preserved as the energy matrix becomes increasingly reliant on variable sources.

The BESS trend across these jurisdictions confirms a clear regional pattern: as renewable penetration rises, storage becomes not merely desirable but essential for maintaining operational reliability and maximising the economic value of clean energy investments.

Regional integration

Regional energy integration is gaining momentum as Latin American countries recognise the economic and environmental benefits of interconnected systems. According to available estimates, a co-ordinated integration reaching 80% renewable supply could generate savings of USD23 billion and avoid 0.7 gigatons of CO₂ equivalent by 2030 – making the case for cross-border co-operation not merely environmentally friendly but financially compelling.

Bolivia's central geographic position in South America, combined with its existing pipeline infrastructure – currently underutilised due to declining domestic gas production – provides a natural foundation for regional energy integration. The country has the potential to transition from a net energy importer into a transit and trading node, leveraging infrastructure originally built for hydrocarbon exports to serve new purposes in the evolving regional energy architecture.

Cross-border interconnection projects are being actively explored across the region. Bolivia's government has expressed interest in arrangements whereby neighbouring countries' gas could transit through Bolivian infrastructure while the country rebuilds its own production capacity. The gas-in-transit model currently being developed to connect Argentina, Bolivia and Brazil represents a concrete example of this approach – repurposing existing infrastructure for regional benefit rather than relying exclusively on greenfield investment.

Regional integration extends beyond hydrocarbons to encompass electricity. Strengthening generation capacity, developing cross-border transmission lines and enabling energy exchange between neighbouring countries would improve system efficiency, reduce costs and accelerate the energy transition across the continent. For investors and developers, these integration projects represent an emerging class of opportunities that combine infrastructure scale with the policy tailwinds of decarbonisation commitments across multiple jurisdictions.