Bottom-up energy transitions: Managing the rise of energy communities in Latin America

Energy communities, or community-led energy projects, are increasingly being used in Latin America as a tool to build more resilient and inclusive electricity systems. These initiatives look to provide long lasting energy solutions built on promoting active community participation in all the phases of a project. In parallel with other existing policy efforts, these initiatives are helping address a range of challenges in the energy sector, including energy poverty, the continued use of contaminating fuels for electricity generation and poor reliability of the electricity grid. As a result, the applications and structures of energy communities vary significantly depending on the local context. Existing examples showcase diverse models such as co-operatives, local energy trading schemes, and shared renewable energy installations. Synergies between benefits and potential drawbacks, including financing burdens, maintenance and operations logistics, and minimum technical standards for equipment, should be carefully examined in a case-by-case scenario before implementing energy community schemes. 

Stable and affordable energy supply is crucial to human well-being and to a country’s economic development. Even though electricity access for Latin America and the Caribbean (hereafter “LAC”) stands at about 97%, with a few countries reaching close to 100%, some regions still face challenges with the coverage and quality of the service, with rural areas and underprivileged neighbourhoods often experiencing unreliable access to electricity. Central America and the Caribbean, for example, have below-average electricity access rates of about 92% and 83% respectively, while the access rate growth across LAC has not improved for the past decade.

While LAC made considerable progress on electricity access in the first decade of the 2000s, the situation has not improved over the last years.

Electricity network losses for the region average 16%, as opposed to 6% for OECD countries. In 2019, it was estimated that power outages in in LAC lasted 16 times longer than in the European Union and were 10 times more frequent. In addition, illegal connections to the electricity grid in urban areas increase non-technical losses, placing operational and financial challenges for distribution companies, while subjecting users to fire hazards and low quality of service.

Traditional efforts deployed by countries across the region to address the electricity access and reliability challenges include the extension of the central grid, grid maintenance and refurbishment programmes, and the installation of subsidised off‑grid solutions, both fuel-based and renewable. As a complement to these strategies, which so far have fallen short in solving the remaining electricity access gap, the region has witnessed an expansion of community-based energy initiatives over the past few years. These initiatives not only aim to close the access and service quality gaps but also seek to enhance energy democracy and encourage the active participation of users in their energy systems, thereby ensuring the longevity and sense of ownership of the projects.

Several countries in the region have already introduced programmes to support the creation of community-led energy initiatives (see table below). Chile, for instance, has a robust track record in promoting citizen engagement in the energy sector with initiatives like Energy Commune (Comuna Energética) and Energy Community (Comunidad Energética). The Energy Commune programme draws inspiration from European initiatives, where municipalities play a central role in forming collectives that engage citizens in a variety of energy-related projects, including renewable energy generation, energy efficiency improvements, and educational programmes. The Energy Communities programme, on the other hand, is a periodic competition organised by governments that finances energy-related and sustainability projects proposed by grassroots organisations, universities, and community groups.

Brazil and Costa Rica have a long-standing experience with citizen-led energy co-operatives that have supported the expansion of electricity access in rural areas since the 1960s. Recent legislation, including Resolution N. 2 (2021) in Brazil and Law 8345 (2003) in Costa Rica, has continued to improve the operating conditions for co-operatives, further promoting community-based energy projects as solutions for increasing electrification rates. These co-operatives are now integrating variable renewable generation sources and adopting a more participatory model.

Panama has introduced the Solar Champions Programme (Programa de Campeonas Solares), which highlights the importance of education for advancing grassroots energy initiatives. This programme focuses on training indigenous women with the skills necessary to install, operate, and maintain solar PV systems in their communities, ensuring the longevity of these projects in remote regions.

One example of a successful community-led energy projects was that of RevoluSolar in Brazil. RevoluSolar is an organisation bringing solar energy to families in Rio de Janeiro’s favelas and the Amazon through co-operative models. These projects are financed by public and international co-operation funds, and members can join the co-operative at no cost. They benefit from reduced electricity bills through net-metering schemes and contribute part of the savings to the co-operative fund to help finance the initiative further. The initiative actively involves community members with ongoing training and education programmes, providing a more stable electricity service.

Another example is a project led by RESEX, which replaced diesel-powered generators with solar PV systems that are now managed by communities in the Brazilian Amazon. The new electricity system enabled economic growth in the community due to the stability of the connection and reduced spending on fuel. Thanks to the newly installed refrigeration systems, the community was able to increase their annual production of freshwater fish (pirarucú) by over 160%. The added income, coupled with community training programmes, enabled the residents to take ownership of the project and maintain the system for the long run.

While energy communities offer an opportunity to enhance energy democracy and expand access to clean and reliable electricity, their deployment needs to be carefully overseen by energy planners and policymakers, to ensure smooth co-ordination with existing regulation and the seamless operation of the central system. Comprehensive and dedicated policy frameworks are needed to support the development of energy communities, and there are a number of aspects that policymakers can consider to facilitate the process:

Conflicts and voids in regulatory frameworks need to be addressed: Most of the countries across the region have developed regulation for decentralised on-grid and off-grid energy generation. Although this represents an important starting point, such regulations fail in addressing the specificities of energy communities. To ensure an orderly expansion of energy communities, it is crucial to establish minimum standards that these initiatives must observe, including technical requirements for the equipment used and rights and responsibilities of users. Regulatory frameworks should clearly define the forms of ownership and the administrative obligations of these communities as service providers, covering aspects such as billing, financial management, technology adoption, regulatory compliance, transparency, and accountability. Furthermore, these frameworks should outline the distribution of benefits, ensuring that initiatives primarily benefit disadvantaged populations, targeting vulnerable populations. Finally, guidelines for democratic community collaboration should be included to foster inclusive and participatory decision-making processes.

Lessons could be garnered from Colombia, which stands out as the first country in the region to have enacted a regulation for energy communities. The decree defines the legal nature of the associations, outlines their objectives within the Colombian electricity system, details the types of activities they can carry out, and establishes a regulatory body. Additionally, the decree charts the financial resource management for these projects, providing a comprehensive framework for the development of energy communities.

The projects need to be financially sustainable: In Latin America, energy communities often aim to close the energy access gap in rural areas or to improve service provision in deprived urban regions. This differs to their use in developed economies, where the focus might be more on enhancing energy resilience and sustainability, intrinsically targeting different types of users. In light of this, regulators must define the appropriate financing schemes to ensure citizens are able to afford and can reap the benefits of such initiatives without placing undue burdens on public funds. Pinpointing the suitable compensation method for on grid solutions (net-metering, feed-in-tariffs, or other remuneration methods) and defining appropriate subsidies for electricity and equipment, for example, can ensure the projects are benefiting targeted groups. Government-led procurement schemes can also facilitate more affordable prices for system components and enable economies of scale. Furthermore, mechanisms to finance the capital expenditures (CAPEX) should potentially involve a mix of public and private funding, to safeguard the long-term sustainability and scalability of energy communities. Public expenditure on these programmes should be assessed within the specific regional context, balancing the need for economic efficiency with social equity.

Operational guidelines need to be lucid: While many communities are eager to take on these initiatives, it is essential to address the operational challenges they may face, such as lack of technical expertise, financial mismanagement, and logistics of ongoing maintenance requirements. Clearly defining roles and laying out a financial plan is crucial for their long-term success of energy communities. E-tools and digitalisation play a vital role in enhancing the efficiency and traceability of these projects. By leveraging digital technologies, communities can improve the monitoring and management of their energy systems, ensuring reliable operation and facilitating transparent reporting and accountability.

Training and education to build strong communities: Energy communities stand out within distributed energy generation schemes for their participatory component, where training and education are important elements that can encourage further community engagement. Local training programmes about the regulatory frameworks and business models for distributed generation, as well as system maintenance, are excellent ways to promote a communities’ involvement in projects. Vulnerable groups in particular benefit from these economic and professional training opportunities, tackling self-employment and underemployment issues head-on.

International co-operation to exchange experiences: Collaborative learning can contribute to better understanding the role that energy communities can have in the region. Currently, there are independent grassroot efforts forming energy communities throughout LAC, opening the possibility to foster spaces to exchange best practices. Building on positive characteristics and learning from past mistakes can fast-track the process to building a replicable energy community model. International co-operation is also a stepping stone to make the electricity grid more resilient in the long run.