Chile has surpassed an installed capacity of 5 GW of renewable energy in 20191. This is set to be ramped up, with the Chilean government setting itself an objective to reduce its CO2 emmissions by 30% in 2030 by closing several of the existing coal fired power plants2. This would change the energy source mix to be 75% from renewables and the remaining from fossil fuels.
Indeed, Chile has been one of the fastest growing economies in Latin America for the last few decades now; one element that has helped sustain this growth is the privatisation and liberalisation of the energy sector. However, Chile has limited fossil fuel reserves and the country has sustained a several periods of challenges, most recently in 20083 when matters were exacerbated by the loss of natural gas imports from neighbouring countries. This was compounded by droughts in their own country – given that 50% of Chile’s electricity generation comes from hydroelectric power (source: as per previous footnote), the impact can be devastating. This has led the government to rethink their current strategies and put some sustainable and long-term energy policies with measurable targets for 2035 and 20504 in place.
The Chilean Ministry of Energy has set itself an ambitious target to reduce CO2 emissions by 30% by the year 20305. To achieve this, a key milestone was the signing of agreement by four major Chilean electricity producers to end coal-fired electricity generation and oversee the shift away from coal. Chile also put a carbon tax in place in 2014 on carbon dioxide emitted by thermal power plants (in excess of 50 MW of generation capacity)6. There is an emphasis on sustainable energy sources such as wind and solar and the importance of integrating and guaranteeing these energy sources as a key feature in helping reform the market for energy services.
Currently, coal-fired power plants are responsible for about 40% of electricity production in Chile. But according to Generadoras de Chile, Solar will become the primary source of electricity in the country as early as 2030, with expectations that it will cover more than 30% of demand. In 2018, nearly US$ 1.2 billion invested in Solar in Chile up 106% from prior year though wind projects took a massive hit as investments dropped by 96% due to concerns around curtailment and delays to the expansion of the transmission lines7. Thermoelectric plants will still have a quota of 25% in 2030, while the remaining 75% will be covered by renewables - out of which 29% would be covered by Hydro, while Solar Photovoltaic and Wind would add up to 42%. The remaining 4% would be Biomass, Geothermal and Concentrated Solar Power8. One of the possible driving factors for this is the cost of renewable energy technology was found to be cheaper than conventional power as shown in the 2016 distribution tender with Solar leading the way at US$ 29 per MWh versus US$ 31 per MWh for Wind whereas Coal was priced at US$ 57 per MWh9.
Solar panels in Chile. Source: PV Magazine 2018.
It does feel like getting to their target of 75% overall and 42% from Solar and Wind is going to be a big step if the recent numbers are to be relied on. Chile has been one of the largest renewable energy markets in Latin America10 and as of November 2019, in terms of installed capacity renewables accounted for 22% of the total mix (up from 6.3% in 2013 and 12.65% in 201611) and in terms of total generation it accounted for 23.3%12. However, if we dig a bit deeper, we find that the increased production from non-conventional renewable energy was of 20.6% from prior year. What is fascinating is that for a country which has a huge historical connection to hydro related power sources, according to GlobalData13 Chile has grown its installed non-hydro capacity from 0.03 GW in 2000 to 4.5 GW in 2018 and is in line to grow this further to 27.5 GW by 2030 - which means it is going to be a very interesting decade ahead of us.
According to Eduardo Valente, EY partner and energy and mining sector leader, Chile needs to make regulatory changes to improve green energy public policies in the medium term. “The reform of the distribution sector is an excellent opportunity to generate flexible tariffs that allow us to take advantage of solar energy in every way and to make use of unexplored resources in Chile such as residential demand management,” he said. From the beginning of 2016 until the end of 2018, Chile was ranked as the 4th most attractive country to invest in renewables, according to EY’s latest edition of the Renewable Energy Country Attractiveness Index (RECAI)14 Chile is still well positioned amongst leading countries as an investment destination in the renewable energy sector. According to the EY research, despite the lack of these types, Chile is ranked at 6th for the potential to develop offshore wind and marine energy projects, 8th for Concentrated Solar Power and 12th for Onshore Wind, Geothermal and Hydro Power plants.
This is reflected in the number investments in the last 18 months in Chile, with the likes of leading Renewable Energy developers such as Mainstream, Engie, Enel, Acciona, Solar Reserve amongst others all making sizeable investment15 in the region.
At the rate at which projects are being developed and financed in Chile, they should be on track to achieve their ambitious targets. Despite recent events, Chile is still seen a country that has a relatively stable political environment and supports renewable energy, emphasizing the current government’s work and its interest in developing this technology and the decarbonization of the energy matrix.
John Abraham is an Account Director, Renewable Energy GB, Willis Towers Watson.
1 Chile surpasses 5 GW of renewables capacity in June, Renewables Now - https://renewablesnow.com/news/chile-surpasses-5-gw-of-renewables-capacity-in-june-663282/ - 29 July 2019Chile surpasses 5 GW of renewables capacity in June, Renewables Now – 29 July 2019 2 International Climate Initiative - https://www.international-climate-initiative.com/en/news/article/chile_plans_to_close_coal-fired_power_stations/ - 20 September 2018International Climate Initiative – September 2018 3 International Energy Agency - https://webstore.iea.org/download/direct/828 - October 2009 4 Energy Policies Beyond IEA Countries – Chile 2018 International Energy Agency - https://webstore.iea.org/download/direct/265 - October 2018 5 Chile: Plan for decommissioning of coal; solar to become primary energy source by 2030, PV Magazine - https://www.pv-magazine.com/2018/01/30/chile-plan-for-decommissioning-of-coal-solar-to-become-primary-energy-source-by-2030/ - 30 January 2018 6 IReuters - https://www.reuters.com/article/carbon-chile-tax/chile-becomes-the-first-south-american-country-to-tax-carbon-idUSL6N0RR4V720140927 - September 2014 7 Global Trends in Renewable Energy Investment 2019, https://wedocs.unep.org/bitstream/handle/20.500.11822/29752/GTR2019.pdf?sequence=1&isAllowed=y - 2019
8 Chile: Plan for decommissioning of coal; solar to become primary energy source by 2030, PV Magazine – 30 January 2018 9 Renewable energy in Latin America: Chile - https://www.nortonrosefulbright.com/en/knowledge/publications/a130d46e/renewable-energy-in-latin-america-chile - February 2017 10 IRENA (2019), Global energy transformation: A roadmap to 2050 (2019 edition), International Renewable Energy Agency - 2019 11 Renewable energy in Latin America: Chile - February 2017 12 Chile grows renewables capacity, production slightly down in Nov – 23 December 2019 13 GlobalData: Chile’s non-hydro renewable energy reached 4.5GW by 2018 - https://www.power-technology.com/comment/globaldata-chile-renewable-energy/ - 31 July 2018 14 Chile en el Índice de Atractivo País para Energías Renovables: oportunidades y desafíos, EY – 2019 15 Renewables Now – Chile - https://renewablesnow.com/country/chile-493/ - 18 December 2019