2014 Santiago Blog: Chile Aims to Stave off Energy Strain with Renewables, Regulation

Chile’s Michelle Bachelet won the presidency late last year on a campaign of reform. Social and constitutional issues received much attention during the campaign season, but the perennial question of energy security in the hydrocarbon-poor Southern Cone country also reared its head during the election debates. While all candidates agreed Chile needs to develop a strategy for cheaper, more reliable energy sources, they differed on approach.

Unlike all its neighbors, Chile produces practically no oil and gas, aside from a trickle in the far south. This leaves Chile, the world’s biggest copper producer, with strained and increasingly costly energy options. These challenges put on hold $43 billion worth of mining projects that were in the pipeline, says Chile’s National Mining Society. Bachelet says electricity prices could rise 34 percent over the next 10 years if no serious action is taken. Chile relied on mining for around 11 percent of its national income in 2013, and while this figure is dropping as a proportion of GDP, making sure mining companies keep the lights on at a competitive price is a clear priority for any government. In fact, one of the drivers for this drop in participation is the mounting cost of running an operation in the country.

To this end, Bachelet announced her administration’s four-year energy plan on May 15. As promised, the strategy was rolled out in the administration’s first 100 days. Made up of seven major points, it included the following measures:

• A redesign of regulations governing the electricity production and utility sector to encourage more competitive private-sector involvement and greater diversity. Chile has two main power grids, one servicing the central region, including Santiago, and the other in the north, home to most of the country’s mines. They are not connected, and three companies control 76 percent of output in the first and 98 percent in the second, says the government report. The government said it will connect the two systems, and make the grid more efficient.
• A focus on liquid natural gas (LNG) imports. These are a relatively clean source of energy compared to most fossil fuels, and the U.S. shale revolution, as well as the bilateral free-trade agreement, ensures a steady supply of shipments to Chile. Furthermore, a third LNG regasification terminal is planned for construction on Chile’s south-central coast, complimenting and reinforcing the two pre-existing plants, located on the central and northern coasts of the country.
• Strengthening state energy company Enap’s role in locating energy sources and sending them to market through an additional $400 million capitalization plan. Enap will also be in charge of administering the building of the new regasifying project.
• Encouraging the use of green energy sources through regulatory, policy, and financial incentives. The government hopes to reach a 20 percent renewable energy threshold in the country’s matrix by 2025. Bachelet said Chile has a “tremendous opportunity to turn itself into a regional force” as it takes advantage of hydro, wind, solar, tidal, and geothermic energy. There will also be a drive to make current energy usage and infrastructure more efficient.
• Improving the energy ministry’s abilities to oversee, plan, and accelerate energy projects. The ministry will also open more provincial offices around the country.
• Directly addressing the public protests many previous projects experienced in the past. “We‘ve learned a very valuable lesson, which is the importance of community participation for the success of an energy project. We know it’s much more efficient to work facing people from the beginning as a way to build agreements that allow the communities that accommodate these projects to benefit from their installation,” said the president.

Read all the details in the government’s plan, and tune in live to AS/COA’s 2014 Chile conference in Santiago, where Energy Minister Máximo Pacheco will deliver remarks.