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Consumers can transform Latin America’s power systems: Here’s how

Around the world, emerging economies are expected to account for the bulk of global electricity demand growth in upcoming decades. Latin America is no exception, with a projected average growth rate of 2% per year from now to 2040.

This increase in demand follows projections of continued economic growth. However, while demand for energy services may rise, requirements for energy itself need not climb at the same rate. Energy-efficient technologies and practices can ensure that services (i.e. heating, cooling, lighting, etc.) are provided efficiently, reducing energy bills as well as unnecessary strains on energy systems and the environment. The challenges of climate change and of providing universal affordable access to energy services warrant serious consideration of these solutions.

The IEA Sustainable Development Scenario (SDS) lays out a pathway to economic growth while securing energy access for all and mitigating the effects of the climate crisis. At the centre of this vision is demand itself. Under this scenario, energy efficiency bridges more than 40% of the gap between the current and revised trajectories, with renewables (including solar PV) covering another 40%. 

Electricity demand growth in Latin America, 2021-2040

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At the same time that energy demand is expected to rise, Latin America’s power systems need to become increasingly flexible. Drivers include the impacts of the periodic droughts that dry up reservoirs in the region’s many hydro-dominated power systems, which are magnified by climate change, the limited flexibility of some of the thermal power fleet, and integration of increasing shares of variable renewable resources. For these reasons, it is vital to increase energy savings and customer flexibility.

Employing energy efficiency, demand response, and other distributed energy resources can reduce network losses and defer or replace increased generation and grid infrastructure investments, reducing overall system costs as well as consumer bills. In other words, these measures can save consumers money while making power systems cleaner, more reliable and more affordable.

For example, distributed diesel-based generators operating at peak hours  in Brazil rose considerably under the “green” tariff structure, which included significantly higher prices at peak hours for mid-size consumers (primarily the services sector). The increase in diesel generators reduced the afternoon peak, deferring distribution grid investments. Energy efficiency and clean demand-response programmes can also serve the same purpose at lower cost, avoiding the local air quality impacts of diesel-based generation and reducing fuel import reliance. 

Just as interconnected devices and wireless connectivity have revolutionised communications, business practices, and behaviour around the globe, they can be used to leverage the power of consumers to save energy and contribute to electricity system flexibility. This was the digitalisation panel’s central discussion topic at the November 2020 Latin American Energy Organization (OLADE) Energy Week, which assembled leading voices from the IEA, Costa Rica, Chile, India, the International Renewable Energy Agency (IRENA) and the Inter-American Development Bank (IADB) to share experiences and challenges, as well as explore opportunities to use digital technologies to seize the “grid edge” and meaningfully engage consumers in modern power systems.

An estimated 400 million Internet of Things (IoT) devices were connected across  Latin America and the Caribbean in 2017, with 1 billion expected by 2023. The potential to use these devices to stimulate innovation in the region’s energy sector is therefore tremendous. At the same time, while a number of smart meter projects are under way, less than 10% of customers are equipped with advanced metering infrastructure (AMI) in several of the region’s major economies.

Several jurisdictions around the world are deploying digital technologies to spur innovation in power system efficiency. In the United States and Australia, long-standing utility-funded energy efficiency programmes are evolving to focus on measured energy savings rather than deemed or estimated savings. This includes jurisdictions where data on time and locational consumption patterns are being aggregated to provide a measurable and predictable resource to power systems. New business models and actors are emerging as a result.

Using rapidly deployable, low-cost demand-side measures to support power systems is nothing new. For instance, in 2001 Brazil instituted emergency energy efficiency measures when critically low hydro reservoir levels led to an energy crisis, and in 2016 Colombia’s government implemented a two-month programme to reduce power demand during the El Niño event. In both cases, penalties and rewards were used to curb demand across sectors.

These programmes not only worked but exceeded expectations, reducing consumption by 1 179 GWh in Colombia and by 18-21% in much of Brazil (compared with the same period the previous year). Nevertheless, while some savings can be sustained, emergency rationing programmes such as these are a blunt instrument rather than a systemic solution and can have high political and economic costs. Energy systems, customers and economies all fare better when energy efficiency is actively incorporated into energy planning.

Digital technologies and smart policies can be used to convert immediate energy savings into long-term, structural improvements that benefit consumers and electricity systems while maintaining – and even improving – the region’s low carbon intensity. A policy package approach could ensure that established energy efficiency policies – such as codes, standards and labelling programmes – are adapted to leverage digital solutions, and that utility regulations and electricity markets evolve to unlock the power system’s full energy savings and demand-management potential.

This is especially important given the trend towards greater electrification of industrial processes and rising ownership of domestic appliances, including air conditioners (ACs).

Growth in global air conditioner stock, 1990-2050

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By 2050, two-thirds of the world’s households could have an AC unit. This means that AC stocks in Latin America and the Caribbean could increase more than sixfold, putting a strain on transmission and local distribution grids. However, more energy efficient ACs could reduce the additional electricity system load, and the remaining load could be cycled to help avoid grid strain during peak hours. Furthermore, coupled with expanding solar PV investment in the region, an AC energy efficiency strategy could reinforce and advance a package of measures to meet cooling needs affordably and sustainably.

What will it take to leverage the full potential of energy savings and demand-side flexibility? In most jurisdictions, the rules regulating utility revenues, electricity markets and data ownership, access and protection all need to be revised. This is true regardless of the stage of market liberalisation or vertical integration of the system. The good news is that many examples of effective reforms are available. Important improvements include performance-based regulation; meaningful integration of demand-side resources into utility planning and investment; and the opening of market rules to flexible demand-side resources.

The IEA is engaging with countries to address many of these questions through international collaborations such as the Digital Demand-Driven Electricity Networks (3DEN) initiative. With the generous support of the Italian government, 3DEN seeks to expand dialogue with countries to transform electricity systems for greater digitalisation and demand-side participation. The Super-Efficient Equipment and Appliance Deployment Initiative and the Power System Flexibility Campaign are other inclusive platforms to exchange best practices and develop solutions to shared challenges.

Finally, dialogues such as the 2020 OLADE Energy Week panel on digitalisation provide forums to share insights, identify challenges and discuss ways forward.