(Bloomberg View) -- With 5 million people and no standing army, Costa Rica is hardly a powerhouse. Lately, however, this Denmark-sized country on the Central American isthmus has drawn attention for a less obvious virtue: The hemisphere's cleanest power grid. In 2016, more than 98 percent of the country's electricity came from hydropower, wind, sun, biomass and even geothermal energy (harnessed, say, from volcanoes) -- the second year running that most of its energy came from renewable sources.
Costa Rica has company. From the windblown Atacama desert to the sun-beaten Brazilian northeast, clean energy has come of age. Although slow-starting energy market reforms in Mexico, a credit crunch in Brazil and infrastructure bottlenecks in Chile and elsewhere dented investments last year -- down 30 percent region-wide from 2015, according to Bloomberg New Energy Finance (BNEF) -- Latin American and Caribbean nations have become low-carbon energy pacesetters. More than a quarter of the region's primary energy now comes from renewable sources -- better than twice the global average.
Ramping up renewable energy can be a double win for Latin America, leading to a cleaner, smarter power grid. Long overlooked by state planners in favor of expensive oil wells and huge hydropower (which is renewable but not always green), low-carbon energy enjoys scant incentives and often sketchy regulatory frameworks. As a result, clean energy has had to compete to survive -- a tough business model that's also a plus in a region whose resource nationalism has cursed it with crony capitalism, profligacy and a lack of transparency.
Look no further than Petrobras, the Brazilian oil major brought low by massive graft and statist ring-fencing. Clean energy is hardly immune to corruption: Consider Italy's "lords of the wind," who gamed public tenders to corner big contracts. But in Latin America, the renewable market is wide open; there's no Solarbras or Windmex to stifle competition. From 2010 to 2016, more than 40 percent of "disclosed investment" in local clean energy initiatives came from outside the region; Brazil alone pulled in $53 billion to its burgeoning market. This makes Latin American clean energy one of the friendliest markets in the world to international capital, BNEF reported in March.
There's plenty to be friendly about. The sun beats down from the Andean cordillera to the Atlantic shores, and Patagonia is a wind farm waiting to be harvested. Some of this potential has already been tapped. Since the early 1970s, ambitious regimes with grand visions of converting backwater nations into world powers hurled up great hydroelectric dams, which together kick in two-thirds of regional electricity. Brazil was an early adapter of biofuels. Since the early 1970s, its clean-burning ethanol has replaced 2.4 billion barrels of oil (close to Brazil's yearly output), and kept 1 billion tons of carbon dioxide out of the atmosphere, energy expert José Goldemberg, president of the Sao Paulo Research Foundation, told me.
As in other regions, however, Latin America's enthusiasm for renewable energy has wavered. After all, for decades the drilling platform was the monument to sovereignty, and petroleum an elixir of populists from Mexico's Lazaro Cardenas (1934 to 1940), who enjoined his compatriots to pawn their jewels and cattle to pay for the national oil company, to Venezuela's Hugo Chavez, who turned the state oil company PDVSA into a cash box for Bolivarian socialism. Brazil's discovery of "pre-salt" oil under the continental shelf -- a "winning lottery ticket," former President Luiz Inacio Lula da Silva extolled -- extended petroleum's reign.
Brazil never gave up on hydropower, but the reliance on oil, especially when prices fall, has dirtied the power grid. In 2012, just six percent of electricity was thermal. But by 2014, Brazil was drawing almost a quarter of its electricity by thermal plants, which burn carbon-spewing diesel oil, coal or gas. "Brazil's electrical grid is carbonizing," said Goldemberg. Misguided fiscal policies have added to the folly. By artificially capping gasoline prices earlier this decade to contain inflation, the Brazilian government undercut the competitiveness of fuel ethanol, forcing dozens of distillers to shut down.
Lately, however, policymakers are scouring for alternatives. The oil bust has left big drilling nations like Ecuador, Venezuela and Mexico strapped for export revenues. Moreover, the consensus is growing that unless planet-warming carbon gases are curbed, Latin America will pay dearly. No other region ranked the risk of ruinous climate change higher than Latin America, and especially Brazil, the Pew Survey found last year.
Adversity and political resistance also have helped, encouraging innovation and investment in cleaner energy. Under pressure from protesters and lawsuits, governments are looking to scale back big hydropower, whose huge dams displace villages and drive up carbon emissions as flooded forests decompose. Across the region, other forms of low-carbon energy are gaining traction. Between 2006 and 2015, non-hydropower renewable capacity has more than tripled in Latin America, BNEF concluded.
Better technology has also converted iffy plays on harnessing the wind, waves and sun from exorbitant do-gooder dreams into competitive viable energy options. With the price of producing electricity from photovoltaic panels plunging, four Latin American countries rated among the top eight on Bloomberg's 58-country Climate Scope index of low carbon energy.
Not that renewable energy is free of obstacles. For starters, there's the inherent fickleness of wind and sun, which make for unsteady power supply and greater investor worries about risk. Another major hurdle is the lack of transmission lines, which haven't kept pace with the supply of wind and solar projects, leaving some new plants idle, Bloomberg News reported. But these are not dead ends but growing pains in what a leading green energy authority has called "some of the world's most dynamic renewable energy markets."
Winners include billionaire Mario Araripe, who built his fortune on wind power. And yet while investors and a few visionaries have stood out, policymakers are blazing the way. A decade ago, none of the electricity that powered Rio Grande do Norte, a small Brazilian state about the size of the Dominican Republic, came from the strong winds that blow over the northeast. Thanks to forward-looking policy, new technology, and subsidized loans from the national development bank, 85 percent of the state's power grid comes from nearly 1,000 wind turbines, many of them Brazilian-made, former state energy secretary Jean-Paul Prates told me.
Prates, who heads the renewable energy think tank CERNE, said Brazilian wind power now competes in public auctions with electricity generated by coal, nuclear power, natural gas, and even small hydropower. "Historians tell us that Brazil was discovered thanks to Portuguese navigators fleeing the doldrums of Africa, who steered west, caught the currents off the Americas and found this part of the New World," Prates said. Half a millennium later, a rediscovery borne on the wind has just begun.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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