Hydropower remains a cornerstone of South America's energy mix, providing 45% of the continent's electricity in 2023. Yet, as the International Hydropower Association's 2024 report highlights, ageing infrastructure, climate change impacts, and declining foreign investment threaten its future.
Providing 45% of electricity supply in South America, hydropower stands "as a cornerstone of the region's energy infrastructure", the International Hydropower Association reports in its 2024 World Hydropower Outlook. With total hydro generation reaching 728TWh in 2023, an increase of around 16TWh from 2022, the IHA says it remained a "robust source of energy throughout the year", despite drought conditions causing a temporary drop in generation in the first half.
Challenges faced by South America last year have highlighted the need for greater resilience in hydropower infrastructure in the face of climate change. As Uruguay's worst drought for over 70 years impacted several hydropower reservoirs, Brazil also had to temporarily halt hydropower operations at the 3568MW Santo Antonio plant due to low water levels. The IHA says that investing in the modernisation of ageing hydropower plants across the continent, where more than 50% of installed capacity is over 30 years old, will increase climate change resilience and ensure hydropower continues to play a key role in energy production here.
Foreign direct investment (FDI) in the hydropower sector in South America is also reported to have declined in recent years. From 2005 to 2022, the IHA says hydro only attracted 4% of total FDI in the renewable energy sector, despite considerable Chinese investment, where, for example, Chinese firms acquired stakes in 304 Brazilian hydropower plants, equal to 10% of the country's national energy generation capacity. Bolivia, Brazil, Ecuador and Peru have also received significant Chinese investment.
As the IHA report states, investor hesitancy due to environmental and social concerns associated with large-scale hydropower initiatives is one of the factors associated with such a decline. In addition, the investment landscape has been further complicated by the evolving challenges posed by climate change - such as shifting rainfall patterns and prolonged droughts. Innovative regulatory frameworks are needed to address these and to ensure they no longer act as a deterrent to potential investors from committing to long-term projects.
Argentina
Looking across the region, Argentina, along with an increasing number of other countries in South America, is facing up to the challenge of renewing hydropower agreements that are set to expire in the next five years. Four Argentine hydropower projects, equating to 4380MW or 42% of the nation's total hydropower capacity, faced contract termination in late 2023. Although the country's Secretary of Energy granted an extension for these, it raised concerns about future operational continuity.
As the IHA report states: "The uncertainty regarding the government's next steps - whether to reassume control or initiate new concession bidding - adds complexity to ensuring sustained energy infrastructure reliability."
Other big news from Argentina is that the 750MW Río Grande de Córdoba plant, the region's largest pumped storage project, is set for a major upgrade. Currently operating at only 50% efficiency due to ageing infrastructure, a US$100 million investment aims to modernise the facility, restoring its full operational potential. In addition, the 1310MW Santa Cruz River hydropower development has reached 50% of construction progress. This large-scale, almost US$5 billion investment is 70% financed by the China Gezhouba Group Company Limited, in partnership with Argentine firms.
Currently only utilising about 20% of its estimated hydropower potential, to help support further development, Argentina has implemented several policies and incentives, including feed-in tariffs and PPAs, specially targeting small hydro schemes up to 30MW.
