Challenges to Latin America’s geothermal boom

Geothermal energy prospects remain largely untapped in many parts of the world. Latin America with its numerous volcanos and seismic activities along the Pacific Ocean has a particularly high potential to develop this renewable resource. What is holding it back? Rebecca Bertram reports.

Geothermal energy, often referred to as the ‘hidden gem’ of renewable energy sources, is gaining global momentum. Geothermal resources are reservoirs of hot water below the earth, which can be used for heat and electricity generation. It is usually referred to as the most stable form of renewable energy as it does not depend on specific climate or weather patterns. More developed countries in Europe and North America have begun to tap into geothermal resources. Yet areas, where the resource is more abundant, such as Latin America, are only slowly following suit. Why is that so?

Latin America has abundant geothermal resources, primarily located along the Pacific Ring of Fire, which is a string of volcanos and sites of seismic activity along the Pacific Ocean. This makes the continent ideal for geothermal development. According to Inter-American Development Bank (IADB), Latin America has the potential to produce up to 7000 MW of electricity from geothermal resources. Yet to date, only about 1500 MW have been developed in Mexico, Costa Rica, El Salvador, Guatemala and Chile combined.

The benefits of geothermal energy are manifold: besides being more stable than wind and solar, some estimates suggest that the lifecycle emissions going into building a geothermal plant are up to four times lower than solar PV due to the materials used in the plant construction. Another benefit of geothermal is its high capacity factor: geothermal power plants can reach a capacity factor of up to 97 percent, meaning it produces electricity on average with its full installed capacity during almost every hour of a year. Weather-dependent solar or wind installations in the best locations can use their full installed capacity only during up to 32 percent or up to 40 percent of all hours during a year.

The biggest hurdle for the geothermal boom in Latin America has been the cost issue. The U.S. Energy Information Administration (EIA) suggests that the capital expenditure (CAPEX) for geothermal plants per kilowatt (kW) of installed capacity is almost USD 1,300 and USD 1,700 more expensive than wind and solar respectively. The biggest cost driver lies in the fact that geothermal projects require substantial upfront investments for exploration, drilling and infrastructure development. According to the World Bank, exploration and drilling of up to five geothermal wells can cost up to USD 30 million with uncertain returns. This is significantly riskier than conducting a wind resource assessment at USD 50,000 at the most.

Private developers are usually unable to mitigate such risk on their own and depend on government or other public finance support mechanisms. This deters investors from investing in geothermal, especially in Latin America where public financial resources tend to be scarce. As such, of the 1500 MW installed geothermal plants, only about 250 MW have been developed by the private sector. Since geothermal technologies are not as well established as wind and solar projects, regulations and legal requirements for its build-out are often missing. This is leading to further insecurities in the permitting process.

This is particularly true for Mexico, which is often regarded the geothermal powerhouse in Latin America with its Cerro Prieto geothermal field being one of the largest in the world. Yet the build-out of geothermal – as other renewables – has been slow, with Mexican news outlet Energía a Debate estimating that the country is receiving just around 1.5 percent of its electricity from geothermal today. One main reason for this is that energy market reforms in Mexico have been slow, leaving much room for improvements for involvements of the private sector in developing renewable energy projects in the country.

Costa Rica offers some hope. The small Central American country has made a name for itself as a pioneer in renewable energies in recent years and produces almost 100 percent of its electricity from renewables. Of this, geothermal provides around 14 percent of its electricity generation despite making up just 7 percent of installed capacity. Geothermal potential for Costa Rica is estimated at 875 MW of which around 260 MW have been developed to date. Yet the country is expecting hardly any substantial increase in its electricity demand in the coming years. Unless it can set up policy instruments to incentivize direct use of geothermal energy, electrifying other sectors and export parts of its electricity to neighbouring countries, further build-out of geothermal energy in Costa Rica may well remain a pipe dream.

Chile on the other hand is actively pushing geothermal not only to balance with variable power coming from wind and solar but also to turn the country into a green hydrogen superpower. The country has a 3800 MW geothermal potential and is home to South America’s first geothermal plant Cerro Pabellòn, which began operations in 2017 in a national effort to increase domestic renewable hydrogen production. Policy makers there have realised the vast potential that geothermal has to help maintain the backup power in a highly flexible power system. Other than Mexico and Costa Rica, Chile also sees an enormous role for direct use of geothermal heat as around 36 percent of the country’s secondary energy consumption goes into the heating sector.

The example of Mexico, Costa Rica and Chile illustrate well what lies behind Latin America’s slow build-out of geothermal energy. In many Latin American countries, geothermal is merely one of many renewable sources, and its proponents have to constantly compete for policy makers’ attention. While the continent is one of the most geothermal resource rich regions in the world, challenges, such as high upfront costs, resource uncertainty, and regulatory hurdles remain. Only if the governments and the private sector share a long-term vision and are able to work together to define and adapt to adequate regulatory and financial measures can Latin America reach its full geothermal potential.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.



Rebecca Bertram works as a freelancer and consultant on energy and climate issues in Guatemala. She used to work for the Heinrich Böll Foundation both as the Director for the Energy and Environment program in the Washington D.C. office and as the Senior Policy Advisor for European Energy Policy at the Foundation's Headquarters in Berlin. Before that, she worked on international energy issues both for the German Ministry of Environment and the German Foreign Ministry. She holds a Master's degree in International Affairs and Economics from the Johns Hopkins University's School of Advanced International Studies (SAIS).

Leave a Reply

Your email address will not be published. Required fields are marked *