Chile: Energy Resources

Extend network

National electrification rate (2007): 99% In urban areas: close to 100% In rural areas: 93.5%.

Energy procedure

The Ministry of Energy through the National Energy Commission (CNE) is responsible for planning functions. The CNE was created in 1978. http://www.cne.cl

Energy debates

Debates turn around the energy crisis linked to the reduction of imports of gas from Argentina and how to diversify Chilean energy sources.

In early 2003 a law, the so-called ‘Ley Corta’ (or Short Law), was debated in parliament and passed in January 2004. This law addresses some of the most pressing shortcomings of the Chilean electricity system (see below).

The "Short Law 2", passed in May 2005 defined a legal framework which favours the promotion of new investments in power generation, including alternative energy.

Apart from renewable energies, Chile may diversify its sources with nuclear. On this front, Chile’s interior and energy ministers claim that nuclear power could be a viable, long-term solution for meeting energy demand. But they face formidable opposition from environmental leaders who consider nuclear energy development an unnecessary hazard given the country’s abundance of other energy sources.

There is Bill that introduces amendments to the Law 19.657 on concessions for geothermal energy.

Currently it exists in the Senate a parliamentary motion that solves the limitations of the Law 20.257 (modificaciones a la Ley general de servicios eléctricos respecto de la generación de energía eléctrica con fuentes de energies renovables no convencionales), establishing a quota of 20% Non Conventional Renewable Energy (NCRE) on 2020, which would add 20,000 GWh of renewable energy and clean national to the matrix on that date. Additionally, the legislative proposal incorporates the interconnected systems in providing medium NCRE, ensures that all electrical systems incorporating renewable energy sources and clean.

Energy sources

Total installed electricity capacity (2010): 15.94 GW Thermo-electricity: 64,9% Hydro-electricity: 34% Other renewables: 1-4%

Chile is a small oil producer, with 10.8 thousand barrels per day in 2009. Production has been declining in the past 20 years.

Production of gas has also been declining over the past 20 years while consumption has quadrupled in the same period.

Regulatory roles

The CNE undertakes most of the regulatory functions for the energy sector, including proposing policies and strategies, tariff regulation, setting service standards, supervision of electricity dispatch and setting operational criteria for sector enterprises. It also undertakes indicative planning and may recommend state financing of generation or major transmission projects that are not being pursued by the private sector.

The Superintendence of Electricity and Fuels (SEC) has evolved over decades as an oversight authority under the Ministry of Economy for technical and operating (including safety) compliance of sector entities with  legal and regulatory requirements.

Competition

There is a high level of concentration in generation and also a degree of vertical integration between generators and distributors (no unbundling).

Privatisation included open access to the wholesale electricity market. But although the wholesale market is theoretically open, it is relatively small and large companies constitute a virtual monopoly.

Electricity generators compete for the supply of energy to electricity distribution companies. Since 2008, power generators are free to participate in public bids to sell power to distribution companies under long-term contracts (up to 15 years) at a fixed price. Also a ‘spot’ market exists for power transfers between electricity generators.

Finally, generators and distributors compete for the supply of energy to large end-users (with demands of more than 2 MW per year). Distribution networks must provide open access in exchange for a negotiated service fee.

Retail distribution (commercialization) is considered a public service. A concession or permit is usually required for systems greater than 1,500 KW. The Ministry of Economy authorizes concessions for an indefinite period. The distribution concessionaire is required to provide service to captive consumers (but not deregulated consumers) requesting it within the defined service territory.

Energy efficiency

Both the industrial and commercial sectors offer opportunities for Energy Service Companies in Chile. The industrial sector consumes an estimated 59% of the country's electricity and contains many opportunities for improved energy efficiency. Studies to date on energy efficiency potential have looked at the copper mining industry and textile.

Capacity concerns

High diesel prices combined with droughts, natural gas restrictions, rising energy demand, and delay in the development of new projects increase the likelihood of energy shortages and will keep electricity prices on an upward trend for the next couple of years. 

In 2009, thermal-electric power plants were under construction and planning stages, as Chile is investing to diversify its power-generating infrastructure.

Government agencies

Chilean Energy Efficiency Agency (Agencia Chilena de Eficiencia Energética (ACHEE)) created in 205 http://www.acee.cl/576/channel.html

The Ministry of Environment is the environmental protection agency established in 2010 with jurisdiction over environmental issues for the sector.

Renewable Energy Center (Centro de Energías Renovables CER) http://www.cer.gob.cl/

Chilean Nuclear Energy Commission (Comisión Chilena de Energía Nuclear CCHEN) http://www.cchen.cl/

Energy regulation role

The Ministry of Economy authorises concessions, approves and publishes tariffs proposed by National Energy Commission and generally oversees the economic regulation of the sector.

The Ministry of Finance handles privatisation procedures as well as maintaining an oversight role in the financial performance of the enterprises in which the state has an ownership share.

Ownership

Electricity market Chile was the first country in the world to implement a comprehensive reform of its electricity sector in 1982.

The electricity industry is now fully privatised.

Degree of independence

The National Energy Commission Board has 7 members and an Executive Secretariat appointed by the President. The size of staff and the budget is set annually by the Ministry of Finance.

The independence of CNE has been highly questioned. It seems to be impaired because of ministerial involvement, insufficient staffing and expertise, and because the regulatory role of CNE is not absolute, but depends on the ministries and shared responsibility with the SEC. In addition, SEC enforcement is not strict enough, probably due to the strong and vocal political influence wielded by sector enterprises. The regulatory agencies face difficulties in obtaining the necessary level of detailed information from sector enterprises, particularly regarding costs, that may impede them from performing effectively on issues dealing with pricing and competition. Recent studies are focusing on changing CNE’s structure, trying to provide it with more independence and reducing the influence of the different parties in its operation. A change in this condition would be slow due to the structure of the legal framework in Chile; the law is very detailed, which leaves the regulator little discretionary power.

The President appoints the Superintendent of SEC. The SEC has a relatively large technical staff.

Energy debates

Catholic University of Chile Power system group: http://www2.ing.puc.cl/power/

Michael Pollitt, Electricity Reform in Chile: Lessons for Developing Countries, University of Cambridge, September 2004.

Chile Needs a Great Energetic Reform http://www.energiaciudadana.cl/docs/capitulos/00Resumen.pdf

Energy framework

The Proyecto de Electrificación Rural (PER) started in 1994 to overcome poverty, improve quality of life and integrate rural areas into the economic and social development of Chile.  Under the umbrella of PER, a new project was developed between 2001 and 2008 (Removal of Barriers for Rural Electrification with Renewable Energies). Its main goals were to: create a market for renewable energies (including rural electrification); standardize and certify renewable energy equipment; build capacity; implement financing mechanisms to reduce investment risks; introduce market evaluation; collect data on renewable resources; and develop rural electrification investment projects.

In order to complement the reform of the electricity sector, the new long-term program Programa País de Eficiencia Energética (PPEE) was launched in January 2005.

Reliance

Chile´s dependence on imported energy had been increasing for the last 30 years.  In 1980, approximately 58% of energy was supplied by indigenous production and 42% from net imports. However in 2005, this proportion has reversed, with 71% from imports and the remainder from indigenous production.

Chile has a mutually dependent relationship with Argentina. In Chile, hydro-electric generation from Andean rivers is the largest source of electricity, whereas in Argentina electricity is generated mostly through thermal plants. Chile exports energy to Argentina during the summer season, while Argentina exports thermally-produced electricity to Chile during the winter. Argentina exports most of its surplus natural gas to Chile.  In 2004, Chile relied on Argentine gas to generate 30% of its power. However, this relationship was strained by Argentina’s 2004 energy crisis, when Argentina repeatedly reduced natural gas exports to Chile in order to make up for domestic shortages. Argentina is Chile’s sole source of natural gas imports, and the continued supply disruptions have created considerable tension between the two countries.

Role of the government

The Ministry of Energy is the highest organ of cooperation of the President in the functions of government and administration of the energy sector.

The National Energy Commission (Comisión Nacional de Energía CNE), and the Chilean Nuclear Energy Commission (Comisión Chilena de Energía Nuclear CCHEN) relate to the President of the Republic through the Ministry of Energy (Ministerio de Energía).

Regulatory framework

In January 2006, new legislation was passed to apply the benefits included in Short Laws I & II to renewable energy production. The new regulation provided for exemptions in transmission charges for new renewable energy sources (i.e. geothermal, wind, solar, biomass, tidal, small hydropower and cogeneration) below 20 MW of capacity. It also simplified the legal procedures for projects below 9 MW.

A law of March 2008 obliges new energy projects to generate an escalating percentage of total energy from renewable sources – or face fines. This initiative also follows the so called 'short law' passed in 2004, which set standards and allowed small generators to connect to the national grids.

The law requires new energy generation contracts to include 5% generated from renewable sources starting in 2010, with possible fines in place starting in 2014. That quota of renewable energy will then increase, starting in 2014, by 0.5% each year through to 2025, when generators must secure 10% of power generated through renewable sources. The law gives a fairly broad definition of renewable energy, and includes hydropower projects under 40 MW of installed capacity. The National Energy Commission (CNE) has approved Resolution N.386, a piece of legislation that will allow regulated final consumers to receive economic incentives to reduce their electricity demand.

Regulatory barriers

Most barriers are of a financial nature, combined till recently with the lack of, or insufficient, policy and legal frameworks.

Energy regulator

Superintendence of Electricity and Fuels (Superintendencia de Electricidad y Combustibles - SEC) created in 1985. http://www.sec.cl

Renewable energy

Renewable energy is currently mostly used for rural electrification or other small-scale power generation. Chile has nevertheless huge solar, wind and geothermal potential.

Solar energy The Atacama Desert gets up to 9.28 kilowatt-hours of sun daily per square meter, among the world’s highest.

Wind energy Wind power has been used mostly for rural electrification purposes. It is estimated that 25 GW could be generated from wind energy. But wind energy's largest potential is in the South of Chile, in the remote area of Patagonia: the distance to the central SIC energy grid makes a large wind farm in Patagonia unprofitable as local demand is still low. In other parts of Chile, several large scale wind parks are under construction.

Chile installed new wind turbines in the year 2010 (2,6 MW).

Geothermal energy Chile also has 10% of the world’s active volcanoes, highlighting an abundant potential for geothermal Energy – with the potential to generate 16 GW. Since 2000, special legislation and subsidies promote the development of geothermal energy, which has been officially designated the country’s strategic priority. Seven 40 MW geothermal generation projects are planned to be built between 2016 and 2020. In January 2009 a new bill was proposed to congress which provides incentives to companies seeking to invest in the development of geothermal projects.

Biomass energy Biomass accounts for around half of Chile´s installed renewable energy production. Power generated from biomass projects in Chile are currently added directly to the grid, mainly through electrical co-generation plants that use industrial waste from the pulp and paper industry. Biomass is commonly used for cooking.