Corporate commitments to transition toward a low-carbon economy have gained greater momentum and relevance in recent years. This shift has been driven by sectoral progress, the consolidation of ambitious government policies and targets, and an intensification of climate finance. Corporate issuers were the main market driver in Latin America and the Caribbean (LAC) in 2025 with USD $12B in issuance, led by the energy sector with USD $4.8B.[1] Given the relevance and need to continue scaling climate finance, especially to support the transition of the highest-emitting sectors, HPL seeks to analyze the sectors with the largest GHG emissions in LAC and their decarbonization opportunities. This blog is part of HPL’s blog series on transition pathways for high-emitting sectors.
Following the first blog, which focused on the mining sector, this blog examines the energy sector, specifically the electricity subsector in the Latin American context. It discusses the state of the sector’s transition, relevant technological developments, and how companies in this sector can finance decarbonization.
The energy sector accounts for more than 75% of global emissions, mainly due to the electricity and heat subsector. For example, emissions from residential buildings represent around 30% of energy-sector emissions and approximately 12.5% of global emissions.[2] Electricity generation alone produces more than 40% of energy-related emissions, even though only about 20% of final energy consumption is delivered in the form of electricity. This is mainly due to the continued reliance on fossil fuels, which supplied 60% of global electricity in 2023, primarily coal (36%) and natural gas (22%).[3] Nevertheless, global efforts to decarbonize the sector have strengthened in recent years, and the deployment of renewable energy in power systems has accelerated, led by solar PV and wind.
The energy sector in Latin America
The energy sector in Latin America stands out for its relative sustainability. The region’s electricity mix is comparatively clean, mainly due to abundant hydrological resources and the broader deployment of renewables such as solar and wind. Around 60% of electricity generation in LAC comes from renewable sources, with hydropower as the main source (45%), followed by wind (6%) and solar (1.5%).[4] In fact, the share of electricity in LAC generated from clean sources is above the global average (41%).[5]
Among the largest electricity-generating countries in LAC, Brazil stands out for its generation capacity as more than 80% of its electricity mix is generated from renewable sources.[6] In 2024, the country increased wind and solar generation to 36 TWh, representing 78% of the region’s wind and solar growth and 7% of global growth. Meanwhile, Chile and Uruguay record the highest shares of wind and solar in the region, at 34% and 31%, respectively.[7]
Transition strategies for the electricity sector
Renewable generation has improved significantly in the last few years globally; today, solar generation costs have become competitive with gas-fired thermal generation. Renewable technologies such as wind, batteries, and electrolyzers have progressed rapidly along their learning curves, leading to cost reductions of 15%–20% while doubling installed capacity.[8] As clean energy becomes more competitive, it can surpass fossil-based technologies and motivate supportive policies.
Technological advances
In this regard, a significant opportunity for the power industry is the development of storage, as low-carbon energy systems require meaningful volumes of storage capacity. Several storage technologies exist around the world; three types are outlined below:[9]
- Pumped hydroelectric storage (PHS). This technology uses gravitational potential energy, with water as the medium. Water is pumped to an elevated reservoir using electricity during off-peak periods and stored for later release when electricity is needed. It is the most common storage technology; closed-loop hydropower plants represent 97% of global electricity storage capacity.
- Batteries. There are different types of batteries, but they all stand out for their fast response time. This makes them suitable for enhanced frequency regulation and voltage support, enabling the integration of variable renewables into electricity grids.
- Hydrogen and reversible hydrogen fuel cells. Hydrogen is a carbon-free fuel that can be used for multiple purposes, including power generation and long-duration energy storage for grids. It can be stored in large quantities in geological formations at moderate pressures and, in certain contexts, can help reduce emissions as a cost-effective system option.
Expanding clean infrastructure
The main climate mitigation strategies in the energy sector is to continue shifting from fossil fuels to clean sources. This means increasing investment in renewable infrastructure to reduce dependence on carbon-intensive fuels and thereby lower sector emissions. In addition, increasing the share of renewables in electricity generation not only mitigates GHG emissions but also strengthens energy security and independence.[10]
Regarding energy infrastructure, a stronger focus on grid development has become increasingly important both globally and in the LAC region. In fact, the pace of renewable energy deployment in Latin America has not been matched by the grid infrastructure required to integrate it. In 2024, renewable energy curtailment in the region, driven by grid deficiencies, inflexible contracts, or insufficient demand, reached around 3.2% of total regional generation, implying annual economic losses of approximately USD 7 billion. Transmission capacity saturation is one of the main bottlenecks for regional energy security; grids therefore need to be expanded and modernized not only to reduce costs, but also to improve operational efficiency and support sector growth.[11]
Guillermo Colino, Head of Debt Capital Markets at Iberdrola Group, underscores the global need to strengthen grid infrastructure: “The electricity grid is the ‘hidden treasure’ because, in the data-center world we are moving toward, electricity demand is rising and it won’t only be necessary to have more generation capacity, but also grid infrastructure. That is why we believe that for every dollar invested in generation, one dollar needs to be invested in grids.” As part of Iberdrola’s Strategic Plan 2025-2028, the Group will invest €58 billion for the development of electricity grids and renewable power generation, focusing primarily on the UK and US markets (€20 billion and €16 billion respectively), followed by the Iberian Peninsula (€9 billion), Brazil (€7 billion), and other EU countries and Australia (€5 billion).[12]
Strengthening regulatory frameworks and policies
The electricity sector’s transition depends heavily on the development and implementation of robust policies and regulatory measures, with more ambitious targets and enabling conditions for decarbonization. In this regard, the role of governments and international organizations is essential to enforce emissions reduction targets, incentivize more efficient and sustainable energy practices, and increase investment in clean technologies and infrastructure. For example, Brazil is considering a gradual coal phase-down, while Chile has established a coal phase-out by 2040.[13]
Financing opportunities for the energy transition
Climate finance also plays an important role in the energy transition, driven by both public and private actors. In LAC, some countries have created dedicated trusts or funds for energy efficiency, financed through public budgets or contributions from other market agents.[14]
For example, in Mexico, the Federal Electricity Commission (CFE) is a state-owned utility with operations across generation, commercialization, transmission and distribution. The latter are strategic activities reserved exclusively to the State and carried out by CFE, in accordance with Article 25 of the Mexican Constitution, making it the sole operator of the country’s National Transmission Network (NTN). CFECapital, as an entity that manages trusts that help fund infrastructure projects, supports CFE in financing infrastructure projects aligned with Mexico’s Plan for Strengthening and Expansion of the National Electric System 2025-2030. The plan includes scaling renewable power generation — with 7,500 MW of new capacity under the Mixed Development Schemes framework — and modernizing grid infrastructure through a portfolio of 58 transmission projects, 44 of which will be financed through CFE FIBRA E, the country’s first Energy and Infrastructure Investment Trust and the only one with access to the NTN.
Brenda Pequeño, Manager of Investor Relations, Sustainability and Communication at CFECapital, explained:
“We contribute to channeling financing toward the expansion and strengthening of Mexico’s national electric system, in alignment with the National Development Plan (2025–2030). CFE’s institutional capacity for planning and executing projects, together with CFE Capital’s role in structuring and managing financial vehicles, supports responsible financing and strengthens investor confidence. This is reflected in the performance of CFE Fibra E, which offers the highest dividend yield in the Mexican market while combining sovereign-backed stability with long-term growth potential.”
Additionally, there are numerous examples of green bonds that have been issued globally to finance projects aimed at decarbonizing the electricity mix. For example, Iberdrola is a globally recognized issuer in the green bond market, with more than €13.8 billion issued across more than 20 transactions.[15] Among its green and sustainable operations, the green hybrid bond issued in February 2021 for €2 billion stands out; proceeds were used to finance offshore wind farms in France and Germany.[16] When asked about Iberdrola Group’s experience with thematic debt, Guillermo Colino noted that green bonds have enabled the company to reach a broader investor base and even achieve better pricing.
In summary, the electricity sector is pivotal to decarbonization in LAC, not only because of its emissions footprint, but because a cleaner grid unlocks electrification across transport, buildings, and industry. While the region benefits from a comparatively high share of renewables, the next phase of the transition will be defined by how quickly utilities and governments can scale investment in grids, storage, and efficiency, supported by stable, enabling regulation. This creates a clear opportunity to mobilize capital through thematic finance, but success will depend on credible transition strategies, robust MRV, and transparent reporting. HPL supports public and private issuers, as well as financial institutions across this journey, from designing green bond frameworks and KPI strategies, to strengthening disclosure and impact metrics design, helping clients accelerate a bankable, resilient power transition.
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Natalia Velázquez is an Associate at HPL. She holds a Bachelor’s Degree in International Relations, graduated with honors from the Instituto Tecnológico Autónomo de México (ITAM). In HPL, she has supported 19 consultancy projects related to sustainable finance research, market guidance development, and the preparation and structuring of thematic bonds for development banks, commercial banks, and corporates in LAC. Natalia has also contributed to the execution of sustainable finance studies for multilateral development banks and international organizations.
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[1] HPL’s latest thematic bonds report for LAC available here.
[2] World Resources Institute (WRI) (2024). Where Do Emissions Come From? 4 Charts Explain Greenhouse Gas Emissions by Sector. Available here.
[3] World Nuclear Association (2024). Emisiones de dióxido de carbono procedentes de la generación de electricidad. Available here.
International Energy Agency (2024). World Energy Outlook 2024. Available here.
[4] Organización Latinoamericana de Energía (OLADE) (2020). Generación eléctrica mundial y para América Latina y el Caribe (ALC) y su impacto en el sector energético por la pandemia producida por el COVID – 19. Available here.
[5] EMBER (2025). Latin America and Caribbean Clean power replacing emissions-intensive fossil fuels. Available here.
[6] Organización Latinoamericana de Energía (OLADE) (2020). Generación eléctrica mundial y para América Latina y el Caribe (ALC) y su impacto en el sector energético por la pandemia producida por el COVID – 19. Available here.
[7] EMBER (2025). Latin America and Caribbean Clean power replacing emissions-intensive fossil fuels. Available here.
[8] World Economic Forum (2020). The A-Z of the Energy Transition: Knowns and Unknowns. Available here.
[9] Intergovernmental Panel on Climate Change (IPCC) (2022). Energy Systems. Available here.
[10] Terrascope (2024). Which Sector is Responsible for the Most Greenhouse Gas Emissions? Available here.
[11] Inter-American Development Bank (IDB) (2025). Unlocking the Grid: How to Ensure Reliable and Sustainable Energy in Latin America and the Caribbean. Available here.
[12] Iberdrola (n.d.). Plan Estratégico 2025-2028. Available here.
[13] Organización Latinoamericana de Energía (OLADE) (2019). Energy Efficiency Laws in Latin America and the Caribbean. Available here.
[14] DNV (2025). Energy Transition Outlook 2025. Latin America. Available here.