Latin America’s Energy Transition Is at Risk. Here’s What’s at Stake for Trump’s Regional Strategy.

Latin America and the Caribbean (LAC) generates more of its electricity from renewables than almost any other region in the world, but that lead is at risk. Significant reliance on hydropower—which is vulnerable to worsening droughts—along with surging electricity demand, rapid urban population growth that is straining aging grids, and underinvestment in clean energy technology all threaten to reverse the region’s hard-won gains. That investment gap has opened the door for China, whose state-owned enterprises now control electricity distribution in Peru’s capital, Lima, about two-thirds of Chile’s power grid, and approximately 12 percent of Brazil’s electricity transmission and distribution network.

The Trump administration has positioned the Western Hemisphere at the center of U.S. foreign and national security policy, but it is unclear if that focus will translate into policy that builds on the region’s clean energy strengths rather than extracts its fossil fuels and critical minerals. This tension is particularly evident in Venezuela, where U.S. efforts to revive the oil sector will depend on improving the country’s failing power grid. So far, the Trump administration has not prioritized Venezuela’s power sector, beyond issuing sanctions waivers that authorize U.S. companies to support existing electricity operations or enter into contingent contracts for new projects—a decision that undermines its own stated objective of rebuilding the country’s oil industry.

This article examines the forces shaping LAC’s energy transition to understand what’s driving these dynamics and what’s at stake.

Surging urban population growth and energy demand

Urbanization is critical to understanding LAC’s energy transition because the region’s fast-growing cities, where most of its population lives, are driving growth in electricity demand. The urbanization rate, which measures the share of a population living in cities and towns, is already 79 percent [PDF] in LAC, slightly higher than in Europe and North America and far ahead of Africa (Figure 1). Unlike Europe and North America, however, LAC urbanized rapidly, often without the infrastructure investment to match.

As a result, energy demand is increasingly concentrated in megacities and other large urban centers. LAC is home to five of the world’s thirty-three megacities, and the majority of its cities have become denser since 2000. Electricity demand in the region grew 87 percent [PDF] between 2020 and 2025 (Figure 2). These densely populated areas are major consumers of electricity and include some of the region’s most climate-vulnerable communities.

As extreme weather events—including floods, droughts, and heat waves—intensify in strength and frequency, the cities and towns where most of the region’s population lives face compounding risks from rising energy demand and aging power grids. Managing this urban energy stress will be critical to whether LAC can meet its clean energy transition goals and achieve long-term energy security.

LAC’s energy mix transformation 

LAC leads the world in the use of renewable energy for electricity generation. In recent years, the region has produced 65 percent of its electricity from clean sources, placing it above most other regions and the global average (Figure 3). This advantage, however, is rooted in history more than recent climate policies. In the mid-twentieth century, Latin America—through deliberate state planning—took advantage of abundant water resources and turned to hydropower. The oil shocks of the 1970s spurred further investment in hydropower. As a result, Latin America began the modern energy transition with a high baseline of renewable electricity generation.

Despite this, fossil fuels still account for about two-thirds of LAC’s total energy mix, driven by demand from industry and transportation. Moving forward, the region faces several energy security challenges: protecting existing hydropower from drought and modernizing aging infrastructure, reducing fossil fuel dependence through diversification, and meeting rising demand with new renewable generation. 

Due to its high use of hydropower, the region has a low carbon emission intensity for electricity generation compared to other parts of the world (Figure 4). According to the International Energy Agency’s (IEA) Latin America Energy Outlook 2023, LAC accounts for about 8 percent of the global population, 7 percent of global GDP, roughly 6 percent of global energy supply and demand, and only 5 percent of cumulative global energy-related emissions.

Solar and wind are the fastest-growing sources of new electricity generation in the region, with output more than doubling over the past five years. During the same period, the share of coal and gas in the mix declined. This growth trend for solar and wind is expected to continue. According to the IEA, the share of solar and wind in electricity generation is expected to increase from 11 percent in 2023 to 40 percent by 2050.

Fossil fuels

Despite LAC’s heavy use of renewables, many countries in the region remain “dually energy-dependent” [PDF]. Several are major exporters of crude oil and coal yet also net importers of oil products and natural gas. According to the IEA, the so-called Americas quintet of top oil producers—the United States, Argentina, Brazil, Canada, and Guyana—is expected to drive much of the world’s non-Organization of the Petroleum Exporting Countries (OPEC) supply growth over the next decade. This growth comes at a time when global demand is shifting toward electrification and lower-carbon energy. These dynamics put many countries in the region at risk of experiencing volatility in prices and supply.

The need for diversification is urgent for new major oil producers like Guyana, where surging oil revenues risk locking a small, climate-vulnerable nation into dependence on a depreciating asset. If the Trump administration is serious about its Western Hemisphere agenda, its energy policy toward major producers will need to consider diversification, grid modernization, and clean energy investment, all of which will contribute to the long-term stability of these partners.

Hydropower

Hydropower accounts for 40 percent of LAC’s electricity generation. Its dominance predates modern clean energy policy, and protecting hydropower assets from climate-related risks is as important to the region’s energy security as securing new sources of renewable generation.

Latin America’s heavy reliance on hydropower leaves the region vulnerable to unique challenges. Rising temperatures, shifting rainfall patterns, increased glacier melt, and more frequent extreme weather events pose significant risks to hydropower generation and infrastructure. Droughts linked to the climate phenomenon El Niño in 2024 and 2025 severely limited hydropower generation, contributing to supply disruptions, power outages, and rising electricity prices across the region.

In addition, aging hydropower infrastructure makes Latin America’s existing electricity grid even more vulnerable to environmental and grid stress. More than 50 percent of installed hydro capacity in the region is over thirty years old, and this share is much higher in certain countries. Latin America’s aging hydro infrastructure further weakens the entire electricity grid, making it less resilient to drought and other extreme weather events. Modernizing this aging infrastructure and building climate resilience, through new investment and emergency preparedness planning, is crucial to the region’s energy security.

Venezuela’s reliance on hydropower, combined with years of mismanagement and corruption, illustrates these risks. Hydropower is the country’s largest source of electricity generation, accounting for 90 percent of total supply. However, Venezuela has experienced regular blackouts for more than a decade due to an ongoing electricity crisis. The failing grid undermines oil production and the prospects for economic recovery.

Since the Trump administration took control of Venezuela’s oil sector in January 2026, new regulations require oil companies to provide their own power plants because the national grid cannot support new oil sector activity. For an administration that has said the Western Hemisphere is a foreign policy priority, failing to address Venezuela’s power sector undermines its own regional agenda.

Lagging investment in renewables threatens energy transition progress

Energy investments across LAC are forecast to grow by 5 percent [PDF] in 2026, building on the approximately $160 billion recorded in 2025, according to the IEA (Figure 7). The region is at a crossroads, as it already generates roughly 65 percent of its electricity from renewables—nearly double the global average—yet investments in fossil fuels continue to outpace those in clean energy. A threefold increase in clean investment is needed by 2030 to meet net-zero pledges made by half the countries in the region.

Investments in renewables, grids, energy efficiency, and electrification reached about $70 billion in 2025, an increase of roughly 25 percent since 2015. Yet the region captures only 5 percent of global private clean energy investment, compared to 8 percent for fossil fuels. Fossil fuel supply investments reached $77 billion in 2025, exceeding spending on renewables.

The geopolitical stakes are elevated by China’s growing presence in the region’s clean energy sector. China already supplies most of Brazil’s solar panel imports and has been actively acquiring regional utilities, while Chinese mining companies have become dominant players in Argentina’s and Chile’s lithium industries. A U.S. energy policy that prioritizes extraction over grid modernization and clean energy investment risks ceding influence to China, undermining the Western Hemisphere agenda that the Trump administration claims to champion.

The Venezuela case illustrates the broader stakes of underinvestment in LAC’s clean energy infrastructure. Fixing Venezuela’s electricity sector—through private investment in renewables, modernization of existing infrastructure, and improved use of natural gas—is inseparable from efforts to recover its oil industry, diversify its energy mix, and integrate the country into the broader regional energy transition. The estimated $15 billion required just to stabilize Venezuela’s grid underscores the damage caused by decades of mismanagement and corruption.

The need for more investment in the region’s energy transition will only grow with time. According to the IEA, clean energy investment could reach $110 billion by 2035 under current policies, but that would still fall short of the $200 billion needed under more ambitious scenarios to meet the region’s climate commitments and bolster long-term energy security.

While LAC’s clean energy advantage is real, it is at risk. Closing the widening investment gap, modernizing aging infrastructure, and diversifying renewables beyond hydropower are critical for LAC’s energy security. Without a serious U.S. commitment to the region’s energy transition—starting with Venezuela—LAC’s clean energy gains will erode, China’s influence will deepen, and the economic and security interests Washington claims to prioritize in the Western Hemisphere will be harder to achieve.

This work represents the views and opinions solely of the authors. The Council on Foreign Relations is an independent, nonpartisan membership organization, think tank, and publisher, and takes no institutional positions on matters of policy.