Renewable energy accounts for 65% of the power generation capacity in Latin America (LatAm) and the Caribbean. However, this does not mean that in real time, renewables are delivering 65% of the region’s electricity supply. There is a massive gap between the region’s installed power system capacity and electricity generation.
With each passing day, the world is inching closer to catastrophic climate emergencies. While every effort is being made to transition to clean energy, the reliance on crude oil is sure to continue well into the 21st century. Green energy requires massive amounts of investment and infrastructure, and the lack of these two factors is the key hurdle hindering the widespread adoption of renewable energy alternatives.
Renewable energy accounts for 65% of the power generation capacity in Latin America (LatAm) and the Caribbean. However, this does not mean that in real time, renewables are delivering 65% of the region’s electricity supply. There is a massive gap between the region’s installed power system capacity and electricity generation.
In June 2025, renewable electricity reached a new high, accounting for 71% of total output, with hydropower alone accounting for 51%. However, during the dry season in July, this percentage dropped to 65% or lower. This cyclical variability highlights the system’s ongoing reliance on fossil-fuel-based technologies, such as fuel oil and natural gas, to ensure supply security during specific periods of the year.
The gap between power capacity and generation has been identified as a structural, rather than a temporary problem. The lacunae causing this gap have been attributed to energy storage, limited operational flexibility and inaccurate resource forecasting. There is also a need to strengthen the existing transmission infrastructure, which can generate higher volumes of renewable energy in all weather conditions.
Economists have pointed out that the LatAm region must reduce its reliance on fossil fuels. Spot electricity prices are still tied to thermal generation, especially when the demand for electricity is greater than the supply of renewables. There is also a need to separate electricity prices from gas and fuel oil. Clean energy can withstand price volatility, but increased storage capacity, flexible power grids, and improved regional transmission infrastructure are all necessary for this price stability.
LatAm accounts for the highest oil share in primary energy supply (40%) among Energy Transition Outlook (ETO) regions. But every effort is being made by the countries in the region to expand their green energy capabilities. According to the 2025 energy outlook reports, solar and wind generation capacities are increasing along with strong grids with power storage capabilities.
Energy projects, renewable or otherwise, require huge investments and can prove to be a risky gamble. While investments in oil pay off comparatively quickly, renewable energy projects will only yield results in the long-term, and therefore, investors’ confidence and enthusiasm to pour capital into this sector is low.
To realise the region’s energy potential, a sustained increase in investments in grids is of absolute necessity. Grids are the cornerstones of renewable energy and will facilitate greater renewable integration, make the system more reliable and ensure long-term growth. As renewable power generation surges along with its demand, grids must also be modernised and upgraded to manage variability, minimise losses and also cater to new demands like data centres. Strengthening grid capabilities will also result in increased energy storage capacity, enhancing efficiency and sustainability.
In a matter of ten years, between 2015 and 2025, LatAm’s investments in clean energy jumped 25%, reaching nearly $70 billion in 2025. However, this comprises only 5% of global private clean energy financing, highlighting the obstacle preventing the region from achieving its full potential. The required capital to meet energy and climate targets requires an annual investment of $150 billion in clean energy by 2030.
Along with investment bottlenecks, regulatory and policy frameworks are also hindering the development and modernisation of Latin America’s grid infrastructure, and by extension, the power sector. Policy advisors have pointed out that planning revolves heavily around expanding electricity generation and rarely focuses on grid strengthening. On the other hand, the countries’ tariff structures rarely recover utility costs, leading to low funds for operations and maintenance.
Regulations also often fail to cover provisions for innovation and integration of emerging technologies. Parameters like distributed energy sources and grid management systems are also rarely addressed by these regulations, resulting in licensees without incentives to adopt them. Thereby slowing the deployment of technologies required for a modernised power grid.
2026 has been labelled as an inflexion point for the regional power system, given the demand forecasts. Most of the electricity generated is projected to come from renewable sources like solar and wind energy, but insufficient infrastructure could prove to be an operational bottleneck. While there is ample demand for green energy and power generation capacity, the main drawback of the region’s energy sector is the lack of storage and flexibility.
To address these issues, regional integration via the Mercado Eléctrico Regional (MER) will prove to be crucial. Through cross-border power trading, the MER already makes it possible for more effective dispatch, lower prices, and improved energy security. However, its existing architecture was not designed to handle the unpredictability of intermittent renewable energy sources.
More operational regulatory changes are still needed to enhance dispatch systems, integrate auxiliary services, and allow distributed energy resources to participate. The potential for regional energy integration has been increased by renewable energy, but absorbing big and unpredictable power flows has become much more challenging due to insufficient transmission infrastructure.
In conclusion, the market must evolve to fully absorb renewable energy as the primary source of energy generation, not only across Latin America but also globally. While LatAm has been able to raise considerably large volumes of investments to build its clean energy infrastructure, the region has focused too much on energy generation and not nearly enough on grid modernisation and flexibility.
Therefore, while LatAm stands at a turning point in 2026, the region’s energy priorities must broaden. Ignoring important aspects of grid infrastructure like new technology and market demands will only result in broken progress thanks to these regulatory and structural constraints, which can result in governments abandoning their clean energy targets for crude oil.
