Billions at Stake: Why Latin America's Renewable Energy Potential Is Failing to Attract Investors

A study by the IDB and CGD reveals that regulatory uncertainty, infrastructure gaps and costly financing are slowing renewable energy investment in Latin America despite its vast clean energy potential. The report urges governments and development banks to simplify regulations, expand affordable long-term financing and strengthen infrastructure to unlock private investment and drive sustainable economic growth.

Latin America and the Caribbean have enormous potential to become global leaders in renewable energy, but regulatory uncertainty, infrastructure shortages and expensive financing are preventing the region from attracting sufficient private investment. A 2026 study by researchers from the Inter-American Development Bank (IDB) and the Center for Global Development (CGD) warns that weak institutions and unpredictable policies pose greater obstacles to clean energy expansion than technological limitations. The report, Investor Perceptions of Barriers to Renewable Energy Investment in Latin America and the Caribbean, authored by Eduardo A. Cavallo, Arturo J. Galindo, Cristina Querubin and Liliana Rojas-Suarez, calls for urgent reforms to attract investment, strengthen energy security and support economic development.

The findings come as the region faces an estimated $2.2 trillion infrastructure investment requirement through 2030, equivalent to at least 3% of regional GDP annually. Around one-quarter of this requirement is linked to the energy sector. With public funding insufficient to meet these needs, governments must create conditions that encourage private companies and international financial institutions to invest in renewable energy infrastructure.

Solar Power Leads Investment, but Profitability Drives Decisions

The study surveyed 22 industry participants, including eight associations and 14 companies operating across nine Latin American countries and Spain. Nearly half of the respondents were senior executives, providing insights into investment priorities.

Solar energy attracted interest from approximately 96% of respondents, followed by battery storage at around 80% and wind energy at 50%. Green hydrogen, electric transportation and bioenergy attracted considerably less interest.

Profitability emerged as the strongest investment driver. Approximately 69.9% ranked market demand and expected returns as their leading consideration, while only 14.3% prioritized environmental sustainability.

Brazil emerged as a preferred destination for biofuels, attracting 41.7% of relevant mentions. Chile led energy storage preferences with 39.3%, while Mexico ranked highest for solar investment with 25%.

For policymakers, these findings highlight that renewable energy expansion depends on commercially attractive projects, predictable electricity markets and stable investment policies rather than environmental commitments alone.

Regulatory Delays and Financing Costs Threaten Clean Energy Growth

Regulatory uncertainty and infrastructure limitations were each identified by approximately 60% of respondents as major investment obstacles. Regulatory distortions were also frequently cited, while 42.1% identified financing constraints.

Only 4.5% believed existing regulations strongly encouraged renewable energy investment, compared with 45.5% who said regulations somewhat discouraged it.

Investors highlighted lengthy permitting procedures, unclear approval requirements, inconsistent enforcement and insufficient electricity transmission capacity.

Financing remains another serious challenge. Half of respondents answering the relevant question identified access to financing as a major barrier, while 43.8% reported difficulties obtaining long-term bank loans.

High borrowing costs and short repayment periods make renewable energy projects harder to finance, even when their long-term commercial potential is strong.

These obstacles can delay electricity infrastructure, increase project costs and weaken industrial competitiveness. Governments therefore need simpler approval systems, better grid infrastructure and predictable regulations lasting 15–20 years.

Development Banks Could Unlock Billions in Private Investment

International development institutions have an important role in addressing these challenges. Approximately 85.7% of respondents considered multilateral development banks critical for renewable energy investment.

Around 70% wanted expanded financing instruments designed specifically for renewable projects, while 65% supported stronger partnerships between development banks, governments and private investors.

Institutions such as the IDB, World Bank and Development Bank of Latin America and the Caribbean could help through long-term loans, guarantees, blended finance and risk-sharing mechanisms.

Such support could encourage commercial banks, pension funds and institutional investors to finance renewable energy projects.

Development partners can also help governments improve permitting procedures, strengthen regulatory institutions and develop local financial markets.

However, financing alone cannot solve the problem. Without transparent regulations, reliable transmission networks and effective coordination, even well-funded projects may face costly delays.

What Governments and Investors Must Do Next

The report recommends that governments prioritize faster permitting, transparent bidding, stronger transmission infrastructure and stable long-term energy policies.

Development banks should expand affordable financing, support local-currency capital markets and help governments implement regulatory reforms.

Private investors should strengthen local partnerships, improve risk assessments and explore co-investment opportunities to reduce uncertainty.

Successful reforms could improve electricity reliability, support manufacturing, strengthen energy security and create opportunities across renewable energy supply chains.

The researchers caution that the survey's small sample reflects investor perceptions rather than the entire regional market.

Nevertheless, the findings offer an important policy message: Latin America's renewable energy future depends not only on attracting capital but also on building reliable institutions, improving infrastructure and creating predictable investment conditions. Addressing these barriers could help turn the region's vast renewable resources into sustained economic growth and long-term development.