The quiet hero of the energy transition

LatAm, with Chile at its core
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By Mark DrydenWIND Ventures

Last year, the US broke a record with 40 percent of electricity generated being zero-carbon. China added 216 gigawatts (GW) of solar in a year, or 14 percent of global capacity. As the world’s largest emitters, this is a cause to celebrate. The EU achieved 44 percent clean energy, with some rapid growth driven by Russian gas turning sour. Bored yet? Like climate tech reporting, I’ve introduced this piece discussing important but over-reported regions. But what about Latin America (LatAm)?

LatAm’s electricity mix is 60 percent renewable, twice the global average. Paraguay generates 99.9 percent of its electricity from hydroelectricity. Brazil has 33GW of solar capacity, and its 113GW of solar energy in the pre-construction stage is second only to China globally. 

Chile ranks second globally for solar photovoltaic potential, and its Magallanes Region is one of the best wind resources in the world, with a potential of 310GW. BloombergNEF recognized Chile as one of the top three developing countries for renewables investment; seemingly earning this title, Chile’s renewables penetration has grown from 43 percent to 63 percent in just three years.

And yet LatAm’s climate leadership is not widely discussed enough; its net zero journey contains many insights and opportunities for the world.

Narrowing in on some opportunities for Chile

Thirty percent of LatAm’s GDP comes from industry, including the massive mining sectors in Peru, Argentina, and Chile. Chile has the largest reserves of copper and lithium globally, and its mining industry produces thirty percent of the world’s lithium.

The energy transition will drive demand growth of 42x for lithium and 3x for copper by 2040; these transition metals are essential for the tremendous growth in EVs, wind turbines, the electrical grid, and more as we decarbonize. However, with great industry comes great responsibility; 20 percent of Chile’s energy is used for industrial heat, which is primarily fossil-generated. Moreover, the opportunity to decarbonize these metals is significant, where green copper, for example, can command a $283/ton premium. Considering a small handful of smelters consume 6 percent of Chile’s energy, Chile’s mining industry, chiefly its heat, is ripe for decarbonization.

The early transition unfortunately categorized “easy to abate” and “hard to abate” industries, only to find some hard things, like decarbonizing industrial heat, are surprisingly easy. Industrial heat storage (IHS) innovators realized 24/7 heat storage is quite simple: charging with renewables and resistance heaters (as in a kettle) and storing heat in cheap, energy-dense bricks.

IHS startups, most less than a decade old, could achieve energy capacity capex costs of just $10/kWh. Compare this to lithium-ion cells, first commercialized in 1991 and only just dipping below $100/kWh. Furthermore, these simple thermal technologies can generate electricity with industry-standard turbines, providing some of the cheapest Long Duration Energy Storage (LDES) available at capex costs of less than $20/Kilowatthour (kWh). LatAm needs these novel industrial heat technologies to decarbonize its mines as they power the net zero transition.

Chile’s solar industry’s rapid growth is quickly surfacing reliability problems, zero-priced electricity during the day, grid congestion, and curtailment. While predictable and experienced elsewhere, the scale and rate of onset of these challenges are high and exacerbated by Chile’s limited grid interconnections with its neighbors and Chile’s long and thin geography. To ensure the reliability of its grid, increasingly powered by intermittent wind and solar, Chile must cheaply and rapidly build out energy storage, starting with ~4-hour lithium-ion batteries. McKinsey research shows that at 70 percent renewables penetration, grids need 12-100 hour+ Long-Duration Energy Storage (LDES) to remain reliable.

Chile is rapidly approaching this point, with 63 percent of generation from renewables in 2023. These grid reliability challenges apply to the region, where excellent renewable resources foment high-growth wind and solar industries, severely challenging its aging, undersized transmission and distribution infrastructure. Despite its small size, Chile will require 500 gigawatt hours(GWh) of long-duration energy storage (LDES) capacity by 2040 to enable a reliable, decarbonized grid.

Energy storage economics in Chile are strong even without subsidies – the arbitrage opportunity between charging during the day and discharging at night exceeds $100/megawatt hour (MWh). The region is an excellent market for LDES, so, to founders, why not build your first commercial LDES plant in Chile, capitalize on zero-priced daytime energy, and prove the resiliency benefits of LDES when integrated into LatAm’s renewable-powered, highly stressed grids?

LatAm’s impact is truly globally significant

While LatAm is blessed with excellent renewable resources, its impact on the climate is relatively small – contributing less than 10 percent of global emissions; Chile’s 0.25 percent share would appear as a rounding error on the global scale. So why does it deserve more reporting, as I’m suggesting, and why should you care? The region’s excellent renewables create a two-fold opportunity for energy export and onshoring energy-hungry industries.

A major challenge for exporting LatAm’s energy is its limited internal and US interconnection. While the EU imports energy from sunny Morroco, only ~0.1 percent of electricity in the US comes from Mexico. A solution is to convert electrons to molecules, like hydrogen, methanol, and sustainable aviation fuels (SAFs). Aviation causes 2.5 percent of global greenhouse gas (GHG) emissions, and air traffic is expected to grow 44 percent by 2040. Still, airlines, averaging 2.7 percent profit margins, will struggle to pay the 3.6x pricing premiums SAFs hold today.

The primary cost component for SAFs is energy, so LatAm should export these fuels using existing global supply chains, thereby valorizing its renewable energy globally. Similarly, methanol, the future decarbonized shipping fuel, should site its energy-intensive production LatAm. Although more difficult to export, green hydrogen needs a price decrease of 80+ percent to compete with the grey hydrogen that fuels industries today. The main lever to achieve this? Electricity prices as well. Capitalizing on its resources, Chile is targeting to be the global lowest-cost producer of green hydrogen and plans to supply 13 percent of global demand.

The opportunities for LatAm to onshore energy-hungry industries are also multifold. Direct Air Capture should be sited wherever energy is cheapest, like LatAm. Data centers contribute 2 percent of global GHGs, and data center energy demand is expected to grow 50 percent by 2027, mainly because of energy-hungry Generative AI. These data centers should be built in LatAm, too. Localized and decarbonized production of transition minerals, steel, and cement are also obvious. Chile’s long coastline means it has ubiquitous access to the ocean for wave-powered desalination and ocean-driven carbon capture. These are just a few examples, but high-energy use applications are numerous, and LatAm is bursting with renewable energy potential to drive them.

LatAm has many other unique ingredients that make it attractive for the energy transition. In 2021, before the global VC contraction we’re experiencing today, it was the fastest-growing tech market, growing 320 percent YoY and attracting $19.5 in venture funding. Its 670M people are younger (63% working age, higher than the US and India) and are some of the heaviest internet users in the world (8.7 hours per day on average in Chile, compared to 7 in the US and 5.5 in China).

According to Atlantico, the region has $3.9T of tech value creation potential catching up to the US. Progressive energy policies, renewable-powered grids, and electrified public transport, combined with progressive consumers and enterprising local talent, suggest that many of the next generation of climate innovators will hail from the region.

Interesting technologies for Latam

Some IHS companies include Rondo EnergyAntora Energy, and Kraftblock; combined with turbines, these can also act as LDES. Similarly, some geothermal companies with LDES capabilities include Fervo EnergyEavor, and Sage Geosystems. Finally, some pure-play LDES companies include Form EnergyNoon EnergyQuidnet Energy, and E-Zinc.

Parting thoughts

While the US, the EU, and China have been loudly leading the energy transition, LatAm has quietly and diligently built its leadership in the space. It has been putting its resources to work, growing its renewables faster than the US and with penetrations higher than the US, EU, and China, driven by economics more than subsidies. In the coming years, LatAm will significantly impact decarbonizing the world, producing SAFs for air travel, hydrogen for fertilizers, lithium for EV batteries, copper for transmission infrastructure, carbon capture, and so much more. It is time to come out of Stealth Mode and beat its chest like the other energy powerhouses of the world.

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