CCAA Miami Conference

Private Sector Forum of the Americas

Energy Sector Theme

Monday, 4 December 2006

What are the key issues with regard to energy in the Americas?

The recent rise in petroleum prices and the growing appetite for modern energy services throughout the Americas has made this theme a critical one for much of the region. The challenges faced by the countries of the Americas with regard to energy sustainability include a variety of issues, among them:

  • High cost of electricity–The fact that most countries of the region rely on imported fossil fuels for a large portion of their electricity generation has led to electricity prices that have risen along with the rising cost of oil and natural gas. This is a particular challenge throughout much of the Caribbean where many countries are fully dependent on imported petroleum and their electricity. generation systems tend to be small, resulting in even higher power costs
  • Uncertainty regarding energy resources – The lack of diversity in the energy sector throughout the region, also affects the long term reliability of supplies. Risks are greater when there are fewer options for the delivery of energy. Thus, in the case of Chile, for example, when expected supplies of natural gas failed to materialize and the hydro resources were constrained by drought, uncertainty regarding power supplies grew significantly.
  • Environmental impacts of energy consumption – Growing concerns regarding climate change and with local environmental problems (smog, water pollution) result in further constraints on energy supply options. In the case of the Caribbean Small Island Developing States (SIDS), the realities of climate change are already being felt – by way of more frequent natural hazards and sea level rise – leading to heightened awareness of the link between energy use and the climate.
  • Universal energy service provision and poverty alleviation – The provision of modern energy services (i.e. electricity) to the region’s rural poor is a critical challenge for several countries of Latin America. In some cases the electrification rates in rural areas hover at 50% or less. As a result, rural economic development is limited and political stability may by undermined.

The various energy sector challenges currently being faced throughout the Americas may be summarized by the single concept, energy security.

How do the issues of energy security affect the economic competitiveness of countries in the region?

Many of the economies of Latin America and the Caribbean are “developed” or are in advance stages of development. As such, the availability of low-cost, reliable electricity and other forms of modern energy (i.e. fuels for transportation) are essential to the continued growth of the economies and the overall competitiveness of these economies vis-à-vis other economies around the world. High cost and unreliable electricity translates into expensive products and services. Countries with these characteristics offer less than competitive conditions for companies looking to invest in the region. For example, in the Caribbean this may result in non-competitive hotels and tourist services, and is directly linked to the lack of industrial development throughout the region (particularly in the Eastern Caribbean). In Central America, the lack of rural energy development has contributed to rapid urbanization, as rural poor citizens leave agricultural regions in search of economic opportunities in cities.

What options exist for improving the energy conditions throughout the region?

Continued economic growth in Latin America and the Caribbean demands widespread access to low cost, reliable energy services. A number of alternatives may be considered by the region’s energy stakeholders (governments, electric utilities, and project developers) to address the challenges:

  • Diversify energy resources – The development and use of a wider range of energy sources contributes to lower risks and ultimately lower cost electricity throughout the system. For example, countries of Latin America and the Caribbeanare blessed with a wide variety of renewable natural resources that may be exploited for commercial power generation. At the same time, renewable energy technologies have advanced rapidly over the past five years bringing their costs down and reliability up. Governments may encourage the development of renewables by establishing favorable plans and policies (such as renewable portfolio standards, creating transparent rules and regulations, promoting investment incentives, etc.).
  • Increase efficiency of energy production and use–Regardless of the energy resources consumed, it is always advantageous to maximize the efficiency of production and consumption. Countries such as the U.S. have seen significant growth in their economies coupled with dramatic reductions in per capita energy consumption.[1] Public-private partnerships may be developed to promote efficiency in all sectors and encourage savings to the benefit of all.
  • Regional interconnections and policy/regulatory harmonization – The development of new power generation systems is not always the most appropriate way to meet growing demand. Individual country risks may be building or expanding interconnections across borders. Intra-regional power connections enable the development of larger, more cost effective systems where the risks and rewards may be shared by two or more countries. Further, the establishment of common or harmonized standards for energy trade and development is an additional step toward improving the sustainability of the sector.

Next steps:

The Private Sector Forum of the Americasenergy working group will produce a results document that outlines key recommendations for this sector. It is expected that these concrete proposals will be considered in the development of the agenda for the OAS General Assembly (June 2007) and the U.S. Department of Commerce Conference on Competitiveness in the Americas (June 2007).

[1] Total primary energy use per capita in the United States in 2000 was almost identical to that of 1973. Over the same 27-year period, economic output (GDP) per capita increased 74%. In 2000, consumers and businesses spent over $600 billion for total energy use in the United States. Had the nation not dramatically reduced its energy intensity over the previous 27 years, they would have spent at least $430 billion more on energy purchases in 2000. (Source: American Council for an Energy Efficient Economy.)