How geothermal energy can take off in Latin America

Geothermal energy holds great potential for Latin America if long-term political and economic uncertainty is reduced and governments create specific mechanisms to support its development, according to an expert.

Other regions around the world with comparable potential, such as Japan, Indonesia, and parts of Africa, are experiencing a geothermal boom, while interest in investing in Latin America remains relatively timid, Enrique Manuel Lima Lobato, executive officer at West Japan Engineering Consultants (WJEC), the engineering arm of Japanese power generation firm Kyūshū Electric Power, told BNamericas.

Geothermal power is still in its infancy in Latin America, with only four projects online in Mexico, one in Chile (Cerro Pabellón), and smaller units in the Caribbean. But the region’s geothermal potential is staggering – anywhere from 55GW to 75GW of potential capacity, according to the Inter-American Development Bank, with only 1.8GW currently being exploited.

“There are some economies in Latin America that do not yet instill enough confidence for a long-term commitment,” said Lima.

Confidence is extremely important when it comes to geothermal power as projects take longer to build, require high up-front investment and become financially viable over longer periods of time. Conversely, wind and solar projects come online much faster and for a lower up-front investment, making them more attractive in the short term.

The countries in Latin America that currently are the most attractive for geothermal development are Chile, Peru and Colombia, according to Lima. 

A 50MW geothermal project that WJEC studied in Mexico got sidetracked partly as a consequence of political instability and changing rules in the electric power sector, he said.

However, political and regulatory stability is only part of the equation. The strength of geothermal power is its consistency: it can generate constantly at full capacity, making it a great complement to more variable technologies such as hydroelectric, wind and solar. Its largest competitor in the future, as grids around the world eliminate carbon emitting generators, is likely to be battery storage.

A major issue for geothermal is therefore the fact that it is more expensive than fossil fuel-based alternatives that provide a similar service to the grid, such as natural gas generation. It also has difficulty competing in auctions dominated by low-cost power provided by wind and solar units, such as those regularly held in Chile and Colombia.

According to Lima, the solution is similar to that often touted to encourage large-scale incorporation of battery storage: to introduce market incentives that reward a project’s ability to provide consistent output that is capable of balancing out the variation of renewables, as BNamericas has reported previously.

“As a country, I need a base, a base of electric supply that gives me security. If that knowledge and that intention is present, the offers will come,” said Lima. “And only then will geothermal energy be allowed to compete on appropriate terms. There has to be an appreciation of what this energy brings to the table,” he added.

As Chile moves towards the goal of retiring all of its coal-based generation by 2040 or earlier, and as wind and solar grow in participation every year, geothermal may become an increasingly viable option, as it can replace the role of thermal plants while being carbon-free.

Chile would benefit from anticipating future changes to the power grid and encouraging the development of new geothermal projects, according to Luis Urzúa, an advisor for geothermal science and business development at WJEC.

“When you’re looking for capacity, this is when geothermal energy starts to make sense,” Urzúa told BNamericas. "Batteries have a limited capacity whereas geothermal can generate 24/7. It doesn’t matter whether there is wind, sun or rain.”

In the US state of California, which has a commitment to have a grid of 100% renewable power by 2045, geothermal has made inroads. Last year, the state contracted energy from two new geothermal plants - the first to be built in a decade. 

The state’s Public Utilities Commission has also said that the need for grid reliability and the retirement of old capacity may lead California to contract 1GW of new geothermal capacity and 1GW of long-duration battery storage by 2025.