Advancing Latin America%27s Power System Transformation 2025

Policy message 2 Foster greater predictability and cost recovery The following measures could help address frequent policy changes and unpredictability in regulations, while also providing sufficient cost recovery: –Ensure stable and forward-looking regulation, providing long-term predictability to investors and confidence in terms of a fair return on investments made by operators – not only supporting anticipatory investments but also guaranteeing that capital expenditures are fully repaid within a reasonable timeframe and at a fair rate of return. –Encourage demand response mechanisms and implement hourly and flexible tariffs providing sufficient cost recovery for grid expansion and upgrades and making investments more attractive for utilities. –Invest in regulatory sandboxes (see case study 1). CASE STUDY 1 Brazil’s tariff sandboxes12 Building on Brazil’s experience with tariff sandboxes, several countries in the region are exploring controlled environments to test innovative billing and pricing models that support grid modernization. These pilots aim to evaluate new approaches such as time-of-use, dynamic and prepaid tariffs; multipart pricing structures tailored to low-voltage users; and smart metering combined with demand response mechanisms. By reducing regulatory and technical uncertainty, these sandbox pilots offer a flexible framework for managing emerging consumption patterns and enable a more responsive and efficient power system. Advancing Latin America’s Power System Transformation 8