Indeed, in Central America, the development of a regionally integrated system demonstrated cost reductions and improved energy diversification thanks to the extended interconnection. Likewise, the International Energy Agency (IEA) notes that a more robust power integration accelerates the penetration of storage and renewable energies, which could increase their share to 80% in the region by 2050, by linking diverse resources and weather conditions, thereby enhancing flexibility and supply resilience.23Evidence from other regions reinforces these benefits: for example, studies in the United States project that expanded high-voltage transmission, coupled with new renewables, could cut CO2 emissions by up to 73% and reduce generation costs by more than 30%.24 While the specific figures will vary, similar mechanisms – better use of renewable surpluses, reduced curtailment and more efficient dispatch – are directly applicable to the LAC context. Taken together, these benefits reinforce the role of power interconnection as a key driver of efficiency, decarbonization and regional resilience. Lessons from Europe and Central Asia BOX 2 Other regions offer valuable insights for LAC. In Central Asia, regional energy modelling has demonstrated substantial economic and climate benefits from integration, underpinned by fiscal instruments such as carbon markets and subsidy reforms. In Europe, the adoption of interconnection targets and regional market frameworks has improved security, affordability and renewable integration, though persistent bottlenecks in less-connected areas highlight the challenges of uneven progress. Cross-border electricity projects offer significant long-term economic, social and environmental benefits by connecting countries and promoting trade, mobility and regional integration. However, building the significant energy infrastructure that spans the region presents considerable challenges. Implementing these projects is complex due to the need for coordination among diverse stakeholders, asymmetries in benefits and costs, and differing regulatory and financial sysems.3.2 Common challenges Key factors for electricity integration projects25BOX 3 Innovative financing for cross-border integration BOX 4Cross-border electricity integration projects must meet three key criteria to be successful: (1) a solid economic rationale and efficient planning, with emphasis on distributional analysis, stakeholder alignment and integration with national development goals; (2) strong political support and effective governance, requiring high-level political will, intergovernmental agreements and strong institutional arrangements; and (3) effective financing and management strategies, including tailored financial structures, risk mitigation and the involvement of key sponsors who implement innovative de-risking tools, such as multilateral development banks. Cross-border electricity projects face higher political, environmental and financial risks than domestic ones. To make them genuinely bankable, innovative approaches are needed. Blended finance – combining concessional and commercial capital – can help rebalance risk- return profiles, while strategic public partnerships that mix equity from multilateral development banks, state participation and private financing have shown strong potential. These models can reduce financing costs, increase transparency, and build long-term investor confidence, making regional integration more attractive to institutional capital.Cross-border infrastructure requires the coordinated efforts of many stakeholders – both public and private, at national and regional levels. International financing, consistent regulatory frameworks and demonstration of a balanced distribution of shared benefits and risks are some aspects that need to be addressed. Overcoming these hurdles demands strategic solutions and robust international collaboration. Advancing Latin America’s Power System Transformation 15

Advancing Latin America%27s Power System Transformation 2025