AUGUST 2020

Pandemic and energy transitions in LAC

Covid-19 strikes Latin America and the Caribbean during an adverse time for the region, with many of the regional economies experiencing a slowdown in their activity and with strongly compromised fiscal positions. Taking some GDP projections prepared for the region based on the additional impacts of the pandemic, in 2020 the regional economies would observe a contraction between 2 and 15% compared to the product of 2019 and it is probable that the recovery from 2021 is not homogeneous among countries, further widening the existing gaps.

The fall in economic activity has led to a logical contraction in energy demand and an impact on supply. Considering this projected contraction in GDP, final energy demand in 2020 would decline by 9% compared to 2019 and 11% compared to a trend scenario. Transport, industrial and commercial sectors, will show falls in consumption between 13% and 25%, while the residential sector would have an increase of 20% (OLADE, May 2020).

But there is still not enough information available to understand the future evolution of the sector, and to be able to predict the evolution that the energy transitions will have in the region. However, it is expected that consumption patterns in a new normality are more oriented to factors such as people’s health and care for the environment. Consumers may demand products with better energy performance, the accelerated incorporation of new efficient technologies and renewable energies, with the establishment of more active policies to act in the face of climate change. However, the future scenario will also be conditioned by effects potentially contrary to the evolution of energy transitions; a future scenario of low relative oil prices, rising debt in emerging economies, weakened fiscal positions of the economies of the region with a direct effect on the weighted cost of capital of new renewable projects. A trend towards greater use of individual transport could also be observed to the detriment of public transport, and this just to name a few adverse factors.

In this regard, key aspects for the future development of energy transitions in LAC will be the work on active public policies aimed at lifting the barriers that may operate for the establishment of favorable environments for the development of renewable energies, energy efficiency and sustainable recovery. Environments that have not yet been widely developed in many countries of our region and that require additional efforts incorporated into long-term strategies.

The role of regional multilateralism to support countries in public policies that identify energy transitions as the engine of sustainable recovery and in turn solve the problems associated with financing needs in the recovery phase will be a vital and conditioning element for our region. We have an institutional framework that can respond to this need and we must use it by taking advantage of the synergistic efforts between agencies, but a political commitment and the understanding that sustainable recovery integrates public and private efforts in a framework of deep collaboration is also necessary.

 

Greetings from Quito, Ecuador.

Alfonso Blanco,

OLADE’s Executive Secretary

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