New Chilean Energy Agenda: Renewable Energy, Energy Efficiency and Power Market Interconnection Play Key Roles

May 22, 2014

Chilean President, Michelle Bachelet, unveiled her Administration’s Energy Agenda in mid-May 2014, aimed at providing for Chile a “diversified, balanced and sustainable energy matrix”.  The new Energy Agenda contemplates seven pillars, three of which focus on (i) developing domestic non-conventional renewable energy (RE) resources, (ii) promoting energy efficiency (EE) in the energy sector, and (iii) achieving greater electrical connectivity.

Nexant discusses below the RE-, EE- and connectivity-related pillars of the Bachelet Administration’s Energy Agenda:

  • RE Pillar.  The Energy Agenda emphasizes the significance of developing domestic, non-conventional RE, noting that Chile is poor in hydrocarbon resources in comparison to other Latin American countries, but is rich in hydro, solar, wind, geothermal and wave energy resources.  In the new Energy Agenda, the Bachelet Administration asserts that it will, inter alia, (i) support sustainable hydroelectric development, (ii) stimulate further integration of non-conventional RE into the Chilean energy matrix, (iii) promote the development of non-conventional RE self-supply, and (iv) promote geothermal energy development.  In regard to (ii), the Bachelet Administration notes that it will undertake obligations contemplated under a law signed by former Chilean President Sebastián Piñera in October 2013 (i.e., Law 20/25), which sets a goal for electricity generated from non-conventional RE at 20 percent by 2025, and requires the Ministry of Energy to hold public tenders for the provision of set amounts of energy generated from non-conventional RE.
  • EE Pillar.  The Energy Agenda stresses the importance of energy efficiency, pointing to the magnitude of possible energy savings resulting thereof.  In the new Energy Agenda, the Bachelet Administration states that it will, inter alia, (i) design a law before 2016, prescribing the regulatory adjustments necessary for greater energy efficiency in industry, mining, the residential sector, small- and medium-sized enterprises (SME), and the public sector, (ii) increase energy efficiency project development activity, and (iii) support municipalities’ energy management, particularly in regard to energy efficiency in public lighting.  The Bachelet Administration estimates that implementation of the energy efficiency measures contemplated under its Energy Agenda will allow Chile to consume 20 percent less energy through 2025 as compared to the baseline scenario that does not consider these measures.
  • Connectivity Pillar.  The Energy Agenda highlights the significance of greater transmission system interconnection, asserting that such interconnection would allow for a diversified power generation matrix, better end-user rates and environmental sustainability. In the new Energy Agenda, the Bachelet Administration notes that it will achieve, inter alia, (i) greater electrical connectivity, including the establishment of a new regulatory framework for power transmission, (ii) a reform of the power system operator, (iii) rule changes on the operation of power infrastructure to allow for better integration of non-conventional RE, and (iv) the interconnection of domestic and regional power grids, a topic about which Nexant has recently blogged.

 

The remaining pillars in the Energy Agenda seek to: (i) redefine the role of the state in energy development, through institutional strengthening and modernization of and improving corporate governance in certain state energy-related bodies; (ii) reduce energy prices through greater market competition, efficiency and diversification, including the promotion of liquefied natural gas (LNG) as a substitute for diesel in power generation; (iii) drive investment in domestic energy projects, including through tenders for the use of public lands on which to develop such projects; and (iv) involve communities in and improve land management for energy projects, including the development of a territorial zoning regime and the design of standards and institutions for community participation in energy project development.  The new Energy Agenda reflects high-level priorities for the Bachelet Administration’s term; however, President Bachelet noted in remarks to the press that she hopes that the seven pillars contained therein serve as a foundation for a Chilean state energy policy that will last years beyond her stay in office.

That the Bachelet Administration seeks long-term continuity of policies affecting Chile’s energy future is laudable; however, it is worth noting that the issuance of the Energy Agenda is a largely hortatory document that fulfills a first-100-days-in-office campaign promise.  Whether President Bachelet is able to achieve the goals contained in the Energy Agenda depends on several factors beyond the control of her Administration, e.g., the acquiescence of lawmakers in a divided Chilean parliament to back targeted pieces of energy- and environment-related legislation.  Nonetheless, President Bachelet having promised to continue pursuing the goals of a Piñera Administration law (i.e., Law 20/25) certainly sets an example to follow in regard to policy continuity.  What will remain unclear for years to come is whether her successor will be similarly willing to provide such continuity to Bachelet-era energy policies.