RENEWABLE ENERGY OVERVIEW:

CHILE
Prepared by Nicolas Marchant
MBA Renewable energy candidate

December 12, 2016

Beuth University of Applied Sciences

MO2 Energy Policy and Economic Framework

Renewable Energy Overview, Chile

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Contents
Introduction ............................................................................................ 2
Research Question .................................................................................. 3
Energy context ........................................................................................ 4
Grid infrastructure .................................................................................. 6
Renewable energy situation in Chile ....................................................... 7
Current regulations and policies in the energy market ........................... 8
Limitations to renewable energy expansion ......................................... 10
Policy recommendations....................................................................... 11
References ............................................................................................ 12
Bibliography .......................................................................................... 13

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Introduction
Latin America is a region full of challenges but also opportunities. This is not different in the energy
market. The regions population is near 600 million growing at 1% per year approximately, and its GDP
more than doubled between 1990 and 2013. Nonetheless, per-capita electricity usage in the region, at
1,987 kWh, is still a third below the world average, and 29 million households do not have access to
residential electricity. The growing energy demand, fossil fuel dependence from many countries including
Chile and, in some cases, the potential for export, provide a fertile ground for the deployment of
renewable energy technologies.
As a result of ongoing demographic and socioeconomic structural changes, the demand for electricity in
the region will double by 2030 and triple by 2050 [1] with some investment estimations hovering around
the $350 billion mark in new power generation assets between 2013 and 2030.
Growing international concerns about climate change and global regulations regarding GHG emissions
have made environmental sustainability a central point of discussion to any new energy development.
Understanding the challenges involved and therefore, facilitating the development is of utmost relevance
for all nations.
Chile is a member of several worldwide organizations that include, but are not limited to, the Asia Pacific
Economic Corporation (APEC), Organization of American States (OAS), World Trade Organization (WTO),
the Inter-American Bank Development (IADB), Old Dominion Electric Corporative (ODEC), and
Organization for Economic Cooperation and Development (OECD) [2]. The membership to these
organizations allows Chile to collaboratively seek solutions, create policies, and supplement growth and
prosperity. Sustainable development and growth for Chile is more accessible with these ties to
international organizations and other countries. Overall, the integration of international relations enables
Chile to become more accessible to foreign partnerships and economic investment.
Chiles pioneering liberalization reforms in the energy sector, specifically in electricity in the 1980s and
1990s, served as a role model for many other countries. The progressive policies and economic reforms
during this period allowed the country to maximize energy investment and expand its energy
infrastructure in an extraordinary way. Considering the last few years, it is possible to correlate that
period with the current situation in the renewable energy market. Chiles reforms and new policies are
set to promote a clean and sustainable development not only in the country but in the region.
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In terms of renewable energy potential, Chile has one of the best possible scenarios including solar
energy in the vast deserts in the north with an impressive DNI (Direct Normal Irradiation) approximately
3000 kWh/m2 per year [3], biomass and hydraulic power in the forests and rivers in the central and south
regions, strong winds across the country, 10% of the worlds active volcanoes for geothermal energy, and
more than 6,000 km of coastline for tidal and wave power (table 1).
Table 1. Chiles renewable energy potential estimation

Chiles rising attractiveness for renewables investment cannot be better illustrated than by its fast rise in
the EY Renewable Energy Country Attractiveness Index, ranked in ninth position as of September 2015,
up from thirty-third position in the February 2013 index. Business Monitor Internationals latest Power
Risk / Reward ratings rank Chile as the number two power market in Latin America, immediately after
Mexico [4].

Research Question
Chile has demonstrated a strong support for the development of renewable energy and it has increase
dramatically the national and international investment in clean technology. Under this circumstances,
would Chile be capable to maintain and even expand this growth?

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Energy context
In 2013 Chile had 18.16 GW of installed electricity generation capacity (up from 16.97 GW in 2011.
Generation from Nonconventional Renewable Energy (NCRE) sources almost tripled in 2014 and reached
455 GWh in December 2014. Its main sources were wind (172 GWh), followed by bioenergy (104 GWh),
mini hydro (89 GWh), and solar PV (89 GWh) [5]. Compared to its neighbours, it is the fifth-largest
consumer of energy in South America.
Chile imports 60% of its primary energy, most of which comes from Argentina in the form of natural gas.
This heavy reliance on energy imports puts the country at risk of global market trends.This dependence
resulted in a crisis in 20072008 when Argentina stopped exporting oil to meet domestic demand.
In 2013, Chile imported over 300,000 bbl/d of oil, half of which was refined petroleum products and the
other half crude oil. Its imports of crude oil are overall regional, from Ecuador, Brazil, Colombia and
Argentina. However, most of the refined petroleum originates in the United States (143,000 bbl/d in
2013). In the same year, Chile imported 140 Bcf of natural gas, most of which was in the form of liquefied
natural gas originating in Trinidad and Tobago, Qatar and Yemen. It also imports most of its natural gas
from Argentina. Chile plans to increase natural gas supplies in order to meet its growing demand. It
currently has two regasification terminals: Mejillones, located in the north, and Quintero, located near
urban centres Valparaso and Santiago. [6]
Chile is also highly dependent on coal imports (97%). Despite strong local opposition, a new large scale
coal mine began operations in 2013 and is expected to meet 30% of Chiles domestic demand.
The energy market in Chile is regulated by the recently created ministry of energy who have been a key
player in the expansion of renewables during the last few years. The following scheme shows the public
actors (light blue) and the most important private companies in charge of generation, transmission and
distribution.

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Figure 1. Structure of the energy market

Earlier this year, the Chilean government released its energy strategy under the document Energy 2050,
which set a target of generating 70 percent of the countrys electricity from renewables by 2050 with one
of its tasks the design and execution of a long-term Energy Policy with social, political, and technical
validation [7]. Two pathways were identified: one short-term and one medium- and long-term. The
short-term was to discuss the work areas in terms of the standards, policies, and regulations that will
guarantee the technical feasibility and sustainability of the energy matrix. The long-term was to discuss
strategic and technological aspects that will define the energy matrix that Chile will promote from now to
2050.
The Strategy is built on six main goals, namely strengthening the non-conventional renewable sector,
promoting energy efficiency, supporting a stronger and sustainable hydropower sector, a great attention
to grid expansion and public transmission projects, moving towards a competitive electricity market and
encouraging the regional electricity interconnections to neighbouring countries.

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Grid infrastructure: A key factor for the expansion of renewables

The Chilean electricity grid is based on four separate systems that are situated based upon the geography
of Chile. Within each system there are three segments: generation, transmission and distribution. The
generation segment involves the production of electricity. Thermoelectric power plants and hydroelectric
power plants are examples of the generation segment. Transmission segments include power lines and
distribution transports electricity to end users. The four electricity grids are unbalanced and fragmented
due to regional demands, the geographical distribution of the population as well as the cost limitations to
connect the systems. Since the SIC (Central interconnected system) system primarily depends on
hydroelectric supplies, there is a concern in times of draught, as sufficient electricity supply must be
maintained.
The Interconnected System of the north (SING) and the SIC supply 99% of the total electricity supply in
Chile. SING provides 27.5% of the countrys energy supply. This system supplies 90% of the total mining
and manufacturing industries in Chile. Approximately 99.64% of the generation is derived from
thermoelectric power and 0.36% is from hydroelectric power. SING supplies power to 270,000 clients. SIC
provides 71.5% of the countrys energy supply. This system supplies 90% of the total population with a
53.46% of the generation from SIC is derived from hydropower (Figure 2).

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Figure 2 Transmission lines in Chile

Renewable energy situation in Chile

In June 2016, 47 renewable energy projects were declared under construction by the national energy
commission (CNE). The total installed capacity by these technologies will reach 12.65% (2.55 MW) with
almost 90% connected to SIC. The total contribution by renewables to the energy matrix was 670 GWh
which corresponds to 10.82% of the total generation. Bioenergy led this increase with 131 GWh (table 2).
Table 2 Renewable energy contribution to the energy matrix 2015
Biomass
131 GWh

Wind energy

Solar energy

Mini hydro

125 GWh

121 GWh

97 GWh

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As mentioned previously in this report, the renewable energy potential is different for each region. The
energy demand also is asymmetrical since the large percentage of the population resides in the central
area but the energy intense industry (mostly copper mines) are located in the north. Consequently, Solar
PV and CSP dominate this area with more than 60% of the new installed capacity (2015). In the central
regions, solar, biomass and wind lead the new energy matrix (figure 3).

Figure 3 National energy matrix 2015-2016. Source CDEC-SIC / CDEC-SING and CNE

Current regulations and policies in the energy market

In 2008 the Non-Conventional Renewable Energy Law came into effect with the clear intention to fulfill
future energy requirements by developing non-conventional renewable energy sources such as
geothermal, wind, solar, tidal, biomass and small hydroelectric plants.
The law requires electricity generation companies to curtail electricity from non renewable sources in order
to provide a certain percentage from renewable energy sources. The energy can be produced by their own
plants, or by contracting from third-parties.
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The quotas came into force at the start of 2010, and until 2014 will require 5% of electricity to come from
non-conventional renewable energy sources. Starting from 2015, the obligation will be increased by 0.5%
annually, reaching 10% in 2024. However, due to a progressive political agenda, the law was reformed and
mandates that electric utilities with more than 20MW operational capacity should generate an ambitious
20% of electricity from renewable sources by 2025 and includes a non-compliance fines 0.4 UTM ($28 USD)
per MW not obtained from NCRE sources per year.
In order to fully comprehend the current energy framework, a brief description of the countrys
regulations is provided;
Obligation quotas: Chiles main support scheme for renewable electricity. In 2013 the Law 20/25
increased the quota (for contracts signed after July 2013) to 5% in 2013, with yearly increments of 1%
until reaching 12% in 2020. Thereafter, yearly increments of 1.5% would bring the quota up to 18% in
2024, followed by a 2% increase to reach 20% in 2025
The quota applies to all electricity sales and has a noncompliance penalty of approximately USD
32/MWh, which can go up to USD 47/MWh after three years of non-compliance. In 2013 Law 20/25
increased the quota (for contracts signed after July 2013) to 5% in 2013, with yearly increments of 1%
until reaching 12% in 2020. Thereafter, yearly increments of 1.5% would bring the quota up to 18% in
2024, followed by a 2% increase to reach 20% in 2025
Energy auctions: In Chiles power auctions, developers offer to provide a certain amount of capacity at a
specific price, without disclosing the type of renewable power plant they are planning to build. Bids are
listed from cheapest to most expensive, and distribution companies select the lowest-cost proposals
available until reaching their target capacity and allows renewable energy producers to sign long-term
PPAs with distribution companies.
Net metering: The aim of the law (effective 2014) is to provide electricity customers with the right to
generate and consume their own electricity and to feed excess electricity into the grid. The law only
applies for tariff-regulated customers whose connection power is below 2 MW. Moreover, the producer
owns the renewable energy credit associated with generation and can sell it to any company in order to
allow them to fulfil the renewable energy mandate.
Carbon tax: In conjunction with Mxico, Chile has the only carbon tax in Latin America. The yearly tax of
USD 5/tonne CO2 applies to emissions from power plants of 50MW or more (except biomass) and will

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start in 2017 targeting large factories and the electricity sector. The tax will apply to about 55 percent of
the nations carbon emissions. At this price, a mere USD5/tonne CO2 Chiles tax is lower than the
USD5/tonne CO2 price in the European Unions carbon-trading system, which has often been criticized as
too lax Even though it is higher than a carbon tax introduced in Mexico early this year.

Limitations to renewable energy expansion

The financial markets in Chile are not yet favorable for renewable energy integration. This is due to the
lack of understanding from the financial sector regarding renewable energy. Doubts about long-term
profitability, the unpredictable prices of renewable electricity in the spot market, unattractive low prices
in power purchasing agreements and the availability of alternatives in the conventional sector with lower
risks and higher profitability (as in many other countries, in Chile environmental externalities are rarely
incorporate in the cost of energy production of this sector. Indeed, there is a noteworthy absence of state
measures providing financial incentives including subsidies or purchase guarantees.
Another factor to mention is the highly-concentrated electricity market: 90 percent of electricity
generation and commercialization is in the hands of three companies and their subsidiaries. [8] There
exists a potential conflict of interest between the state and the private sector since is not uncommon to
see influential individuals who move frequently between public and private administrative positions. This
is true not only for Chile but for all Latin America, as the presence of large, diversified business groups
blurs the division between politics and the private sector, giving much political leverage to these groups.
[9]
As a consequence of being one the most Geo-active zones in the world, earthquakes severely affect
energy security in Chile. Most of Chiles electricity grid was severely affected by the earthquake that
shook the country in February 2010. This, coupled with a lack of investment, is blamed for blackouts and
other constraints that still affect Chile. There are concerns that the grid is unable to accommodate
intermittent renewables generation. Further investment in the system will be required if Chile is to add
targeted 8000MW of new capacity (renewables and conventional) by 2025.

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Policy recommendations
One of the key policy reforms that must be implemented in Chile is the diversification of the energy
market, allowing for a fair participation of new, smaller actors.
Raising the quota of renewable energy by statute to the target of 20/20 and possibly extending the quota
system onto final energy consumption will increase competition among generation companies and
incentivize large generation companies to engage in renewable energies while encouraging the
participation of smaller market actors.
As many other Latin American countries, transparency and conflict of interest is a constant struggle. In
this sense, a transparency law must strictly regulate financial interests in the electricity sector amongst
policymakers and judges. Operators of the electric system must be transformed into wholly independent
bodies, autonomous from the generation and transmission companies as well as from the largest
consumers to ensure impartiality in the operation of the electricity sector.
Even though there have been significant improvements in public funding, the investment in R&D, and
feasibility studies, must be expanded. Since the private sector, specifically the mining sector, is one of the
main energy consumers and GHG emitters, financing of R&D from the private sector must be improved
and facilitated. [10]
Environmental and social costs of conventional resources must be internalized in their pricing, only then
can the real costs of different generation technologies be properly assessed. A strengthening of the
environmental regulatory framework results pertinent if Chile is serious about its commitment with the
latest global agreements regarding climate change.
Public participation in renewable energy projects-community based and large scale- ensure social
commitment with the development of these technologies. Furthermore, surveys and public awareness
campaigns can serve to inform the local communities about the social, environmental, and economic
benefits of renewables.
So far PV and wind power reforms are predominantly targeting large producers and consumers. The
recently approved regulations regarding net metering and quotas are a step in the right direction, yet not

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enough to make these technologies economically viable for the small consumer. For these reasons,
financial reforms and fiscal incentives are needed to overcome the current limitations.

References
[1] Economic Commission for Latin America and the Caribbean ECLAC.
[2] Global Energy Network Institute., [Online]. Available: http://www.geni.org.
[3] Global-Horizontal-Irradiation-GHI-in-Chile, [Online]. Available:
(https://www.researchgate.net/figure/285036957_fig2_Fig-2-Global-Horizontal-Irradiation-GHI-inChile-34), .
[4] "Nortonrosefulbrigh," [Online]. Available:
(http://www.nortonrosefulbright.com/knowledge/publications/134773/renewable-energy-inlatin-america-chile/).
[5] CIFES, 2015. [Online]. Available: http://cifes.gob.cl/wp-content/uploads/2014/06/02-2015.pdf.
[6] IEA, 2009. [Online]. Available:
https://www.iea.org/publications/freepublications/publication/chile2009.pdf.
[7] CNE, "Energia 2050," 2016. [Online]. Available: (http://www.energia2050.cl/wpcontent/uploads/2016/08/Executive-summary.pdf)..
[8] G. J. E. a. I. A. A. Rodrigo P. Behnke, "Las Energas Renovables No Convencionales en el Mercado
Elctrico Chileno," CNE, Santiago, 2009.
[9] B. R. S. a. D. Soskice, "Inequality in Developed Countries and Latin America: Coordinated, Liberal,
and Hierarchical Systems,," Economy and society, 2009.
[10] Susana Jimnez, "Energia Renovable No-Convencional: Politicas de Promocion en Chile y el
Mundo," Libertad y Desarrollo, Santiago: September 2011, 2011.
[11] Energy International Association, [Online]. Available:
http://www.eia.gov/beta/international/?fips=ci.

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