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We explore sustainable electricity system development pathways in South America’s MERCOSUR sub-region under a range of techno-economic, infrastructural, and policy forces. The MERCOSUR sub-region includes Argentina, Brazil, Chile, Uruguay, and Paraguay, which represent key electricity generation, consumption, and trade dynamics on the continent. We use a power system planning model to co-optimize investment and operations of generation, storage, and transmission facilities out to 2050. Our results show that, under business-as-usual conditions, wind and solar contribute more than half of new generation capacity by 2050, though this requires substantial expansion of natural gas-based capacity. While new hydropower appears to be less cost-competitive, the existing high capacity of hydropower provides critically important flexibility to integrate the wind and solar and to avoid further reliance on more expensive or polluting resources (e.g., natural gas). Over 90% emission cut by 2050 could be facilitated mostly by enhanced integration (predominantly after 2040) of wind, solar, and battery storage with 11%–28% additional cost, whereas enhanced expansion of hydropower reduces the cost of low-carbon transition, suggesting trade-off opportunities between saving costs and environment in selecting the clean energy resources. Achieving high emission reduction goals will also require enhanced sub-regional electricity trade, which could be mostly facilitated by existing interconnection capacities.