Overcoming the Challenge of the “Last Mile”

Tuesday, December 19, 2017

Latin America is doing a lot of things right on the energy front, both in terms of policy and technology, according to David L. Goldwyn, Chairman of the Energy Advisory Board at the Atlantic Council’s Global Energy Center. But often it’s the “last mile” that’s the most difficult, he said, as countries that have already made considerable progress strive to become even more efficient and have even cleaner energy.

“As a region, Latin America is leading the world in clean energy penetration,” said Goldwyn, who helped to organize a recent workshop in Argentina (see related story). In an interview with the Energy and Climate Partnership of the Americas (ECPA), he said that at the subregional level, the Southern Cone countries have made the most progress along those lines, while more challenges remain in Central America and the Caribbean.

“The major economies in the region have really had tremendous success in attracting investment in wind and solar energy by having smart policies in place,” said Goldwyn, who served as Special Envoy for International Energy Affairs in the State Department during the administration of President Barack Obama. The right policies will attract private investment, which is critical for any country seeking to address today’s energy challenges, according to Goldwyn.

“If a private developer can have confidence that if they build a power plant they will be able to charge a rate for the electricity which will cover the cost of capital plus a reasonable return, then they’ll invest,” he said. “But in countries where you’re not guaranteed access to the grid, or where there is a dominant player there that does not welcome competition, or where there are subsidies that are so extensive that it’s unlikely that you will be able to recover your costs through a fair tariff, then private capital will not invest.”

The “smart policies” Goldwyn has seen in the region include clean-energy mandates, auctions and tenders for renewable energy, feed-in tariffs to incentivize investment, net metering, carbon pricing, distributed generation, reduced subsidies, easier technology imports, investment guarantees, energy efficiency incentives, and increased use of natural gas to diversify from coal and diesel.

Although the policy component is essential to attract investment, it’s not always enough. Small Caribbean island nations, in particular, may need support from multilateral development banks to access private capital. In the wake of the recent hurricanes, Goldwyn believes that the Caribbean will move toward a new model for electricity that relies more on “microgrids” instead of a single central grid. This could lead to more affordable and sustainable energy options, he said, but it would require a strong policy framework and some creative financing from development banks—not necessarily huge loans to cover the entire cost of every project, but just enough capital to provide private investors with confidence.

Even for countries that have already made major strides toward clean energy, the “last mile” tends to be the most difficult and most expensive, both in the case of literal distance—as in the last stretch of an electric power line—or in a figurative sense. Goldwyn used the analogy of fuel efficiency for vehicles, noting that once major technological leaps have been made in miles per gallon, it’s harder to tweak the technology to achieve more gains. If you’ve reached 80 percent of a goal, in other words, the last 20 percent is likely an uphill climb.

In addition to some of the smart policies mentioned above, Goldwyn talked about three other areas where countries can work to “bridge that final gap” and meet their targets on reducing emissions in the electricity sector:

Energy market design—This refers to creating the right balance of energy sources to both ensure reliability of supply and provide incentives for investments in renewables. If a country’s main source of electricity is hydropower, for example, it needs to decide what energy sources to use for backup, how much capacity to build, and how it should design its energy systems and tariff structure to ensure plenty of backup while encouraging more renewables. Political factors can come into play in these decisions, Goldwyn said, as countries look for ways to improve energy market design without bankrupting existing utilities.

Regional integration—Trading energy across borders can create new efficiencies in some cases, as is starting to happen with the Central American Electrical Interconnection System (SIEPAC). More integration could also benefit when it comes to liquified natural gas (LNG), Goldwyn said. With regional variations in weather and seasons, not every country needs to have its own LNG storage system, he explained, adding that a legal framework would have to be created so that countries could trade or exchange gas supplies.

Grid modernization—Bringing digital technology to the electric grid produces better data about how, where, and when electric power is being used, which in turn drives better decision-making, Goldwyn said. For example, by having immediate information about line losses, an operator can see whether the system might need repairs; likewise, better data can show patterns of consumption by time of day, which makes it possible to create a system that better targets actual needs.

“If you had that information in a central place, then you could design solutions for the grid which could avoid the need to build the next power plant, or might reduce costs by better matching supply with demand,” he said. This sort of “smart grid” technology is only just starting to appear in some corners of the region, Goldwyn said, but it’s the way of the future.

“Governments and utilities and regulators need to get smart on this issue to understand how it can save them money and save them carbon.”