Renewable energy law and regulation in Chile

Chile’s unique geographical conditions are increasingly more favourable to the development of energy projects based on non-conventional renewable energies (NCRE) – including biomass, hydropower, geothermal, wind and solar.

The progress of NCRE has been faster than predicted. Lower cost and construction times for these projects, along with their contribution to the reduction of global emissions in the electricity sector, show that NCREs have great growth potential in Chile’s electricity matrix.

During the last ten years, Chile turned from coal plants to cleaner energies. During 2018, renewable energies accounted for an average of 18.2% of the energy matrix (with a peak of 20.7%). And while the goal is to reach 20% in 2025, that goal could be met sooner.

In 2019, Chile was ranked as the most attractive country for clean energy investment, according to the “Climatescope 2018” report by Bloomberg New Energy Finance. The study covered 103 developing nations and Chile was the top scorer. The annual survey analyses variables such as opportunities, fundamentals and experience.

Chile has achieved this leadership position for several reasons, including: a very good business environment; government policies that have made it possible to improve the entry of new NCRE players to the market, making it more competitive; and a commitment to de-carbonization of the matrix.

In 2019, the Chilean government unveiled a key milestone in the energy sector: a plan for the gradual withdrawal of more than 5,300MW in installed coal capacity in Chile, which will be replaced mostly with NCRE. It is an ambitious plan that, in addition to the challenge it implies for all players, will require significant investment in both generation and transmission.

The government has said that by 2040 – when all coal-fired plants must be closed according to the plan – the investment will amount to between USD 13bn and USD 25bn in new generation capacity alone. The difference is explained by the forecasting of demand: in a scenario of greater growth, the investment will be at the top of the range and vice versa. But, if the investment that will be required in transmission is added, the costs could increase by between 10% and 20%. This means the total investment would vary between USD 15bn and USD 30bn.

The development of NCRE in the country has faced several problems due to a lack of transmission capacity. However, in June of this year, and thanks to an investment of more than USD 1bn, the “Cardones-Polpaico” electrical transmission line was introduced. This line improves the country's energy security, advances the decarbonisation of the matrix, and completes the interconnection of the National Electrical Power Grid, thereby enabling the large-scale entry of renewable energies into the energy matrix.

Specifically, this line would allow about 1,300MW of NCRE to be transferred from north to south. In addition, the line will feed the demand of around 5.7 million homes with green energy. Every hour of solar energy prevents nearly 1,430 tonnes of CO² from being emitted. The line also avoids the problem of the decoupling of marginal costs due to transmission restrictions.

According to the International Renewable Energy Agency, the total costs (entire useful life) of photovoltaic solar energy projects have fallen by around 73% since 2010. Total installed costs of solar power concentration projects have dropped 33% in the same period. The installation costs of wind projects on land have reduced by 22%.

Chile has enormous potential for the development of renewable energy, which is estimated at 1,865,000MW for solar, wind and hydropower. The Atacama Desert has one of the best levels of solar radiation in the world.

The Chilean government developed a determined short-, medium- and long-term public policy in the 2050 Energy Agenda. It includes goals, a new role for the government, carbon taxes and an extensive legislative agenda, and brought certainty to investments in the sector.

Chile’s auction system for time blocks has been praised and imitated in other countries. There are two time blocks: hourly and quarterly. Although auctions have been defined as technologically neutral, they were established in a way that gives advantages to technologies such as solar in the daytime blocks, and hydro and wind in the seasonal (quarterly) blocks. This format allows intermittent technologies to maximise their potential without having to incorporate the still expensive energy storage technologies.

The Chilean government has given assurances that, in 2019, mining activity would register an increase with the completion of large investment projects.

The portfolio of mining projects in the country is at its highest level in three years. According to the Chilean Copper Commission’s Investment Cadastre of Chilean Mining for 2018-2027, current activity involves 44 initiatives with a total value of more than USD 65bn.

In addition, the cadastre of projects to be developed in Chile will reach USD 63bn for the five-year period between 2018-2022. That is USD 4bn more than in the previous report in which mining involves the greatest amount of resources for the period, reaching USD 18.66bn, equivalent to 30% of the total projects.

In terms of estimated employment, the mining sector continues to lead the way, with a peak requirement of 27,000 workers for October 2019.

The lithium industry has been gaining strength in the country. Chile is the second-largest lithium producer in the world, with an annual output of 14,100 tonnes. According to Reuters data, Chilean exports of lithium carbonate reached USD 949m in 2018 and forecasts predict that global demand for lithium will quadruple by 2025. The portfolio of initiatives exceeds USD 1.8bn.

In 2019, the Chilean government signed an agreement with the leading lithium mining company, Albermarle Corp, to give the manufacturers access to cheaper lithium and attract the industry to manufacture their batteries for electric cars in Chile. Chile expects manufacturers to start installing lithium processing plants by the end of the year and, as a result, to become a centre for manufacturing rechargeable batteries for electric vehicles.

This year, a new government bill to reform the Environmental Impact Assessment System (SEIA) entered the Chamber of Deputies, the lower house of Chile's bicameral Congress. The purpose of this initiative is to speed up the granting of permits and give greater legal certainty to companies.

Under the Ministry of Economy, the Sustainable Project Management Office formally functions as the Secretary General of the Advisory Board on Sustainable Projects, created on 14 May 2018. The board is composed of the undersecretaries of the economy, defence, public works, health, agriculture, mining, national assets, energy, environment and culture portfolios.

The Sustainable Project Management Office carries out the following activities:

• Support for investors – the office acts as the first point of contact between project owners and the state and coordinates project evaluation with the various responsible state agencies. It provides support for the owners of investment projects during the entire process, coordinating between them and the offices of evaluation.
• Project monitoring – the office has an updated list of investment projects that are engaged in the environmental or industry-wide authorisation process, which allows it to monitor them transparently, both for the general public and for those involved in the public and private sector.
• Proposals and recommendations – the office proposes regulatory or management process modifications, to increase the efficiency of the process and maintain the environmental requirements and good relationships between the projects and the communities.

Macroeconomic stability, growth prospects and low levels of risk are among the most promising factors of the Chilean economy.

Chile was the first South American economy to become a member of the OECD, is leading Latin America in competitiveness and has a solid basis for economic dynamism, with sustained policies that have allowed it to have the best GDP per capita in South America. It is a nation with a dynamic business environment, and keeps maintaining its leadership position in Latin America.

Chile has signed a significant amount of Free Trade Agreements with various nations. Chile’s free trade agreements allow access to 86.3% of global GDP under privileged tariff conditions, reaching 4.3bn potential consumers. Chile also has agreements with 32 economies to avoid double taxation.

In addition, Chile produces 28% of the world's copper and has 54% of the world's lithium reserves. It has become the ideal environment for clean energy, placing itself at the forefront in the fight against climate change in the region. The country leads Latin America in the Global Connectivity Index - GCI 2018 (Huawei).