Adapt or perish

<a href="http://www.ie.edu/IE/php/en/profesores_medios_detalle.php?id=305">Javier Carrillo. Professor. IE Business School</a>

1 April 2008

Renewable energies are revolutionizing the world energy scenario, bringing excellent business opportunities in Latin America, Asia and the US.

It is estimated that world investment in renewable energies broke through the $100,000 million ceiling in 2007, up 40% on the previous year. This trend promises consolidation in the context of unstoppable rises in oil prices and intense efforts to develop renewable energies by the industrialised nations committed to reducing their CO2 emissions.

The growth in turnover is being accompanied by a no less dynamic transformation of the structure of the sector, which is witnessing a progressive concentration of the ownership of once-independent companies in the hands of large multinationals. A growing number of participants in the renewable energy industry are also promoting the search for new opportunities in emerging markets and technologies. Special mention must be made of the Asian and Latin American markets as far as wind energy and biofuels are concerned. Outside the emerging countries, the United States market is also highly attractive, with a stable legislative framework that is becoming increasingly committed to renewable energies and offers an abundance of federal tax incentives for its development.

In the rally for world investment in renewable energies in these locations, the large Spanish energy companies are not lagging behind. IBERDROLA’s 2008-2010 strategic plan includes a consolidation of its position in Latin America, although it states that it is monitoring the opportunities that may arise in the region, mainly in Mexico and Brazil. In Brazil, the company plans investments of €600 million to start up 150 MW of hydraulic power before 2010. It is much bolder in the United States, where it has reached the position of second-largest renewable energy producer in record time thanks to the takeover of ScottishPower. In order to strengthen its leadership, it plans to spend €4,600 million, more than half its investment in renewable energies during this period. UNIÓN FENOSA’s plan for expansion in renewable energies in Latin America, currently with 950 MW of the said energy in the area, includes investments of €1650 million by the year 2011. More specifically, in Mexico, Costa Rica, Panama, Colombia and Brazil, starting up 1400 MW, 55% in wind energy and the remaining 45% in hydraulic power. For its part, in its 2005-2009 strategic plan, ENDESA announced investments of €1900 million by 2009 for the development of 2505 new megawatts for its renewable energy generation facilities. In Latin America, it plans to develop new initiatives in the countries in which it is already present and focuses on the opportunity of flexibility mechanisms to meet the Kyoto protocol. ACCIONA, with a project portfolio of €12,500 million, hopes that Endesa´s healthy position will open up the gates to the region.

According to the estimates of the Inter-American Development Bank, the demand for energy in Latin America will grow 75% by the year 2030. With this progression and its potential economic, social and environmental impacts, the Latin American energy model is currently subject to internal assessments and criticism on different levels. In particular, there is criticism of the lack of good use of the region´s huge potential for developing renewable energies, the insufficiency of its legislation and public support and the discontent of the countries themselves with the resources they have available. The main limitation lies in the low number of projects, which often involve high investment costs and low incentives. We find notable exceptions in Brazil, one of the world leaders in biomass, or Chile, whose hydraulic power generation covers 7% of the nation´s energy consumption. Meanwhile, Mexico has set up a Renewable Energy Assessment Forum in its National Energy Saving Commission.

Whatever the case, it is obvious that Latin America needs to make good use of the expansion of the renewable energy business and the world scenario opened up after Kyoto as an opportunity for developing these sources, transforming its energy model and, consequently, ensuring a better economic, social and environmental future.

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