Last week, I analyzed the first three components of the six pillars that make up the new National Energy Strategy (2012-2030) which Chilean President Sebastian Piñera and Energy Minister Rodrigo Álvarez recently made public. The first two of those three items –Energy Efficiency and Non-Conventional Renewable Energy*—are positive signals that Piñera’s administration is getting serious about advancing Chile’s clean energy potential. The last of the three, Conventional Energies is an unfortunate throwback to the very same types of resources that have caused so much political controversy, social unrest, environmental damage and electricity insecurity in recent years.
While the first three topics addressed generation resources, the second group focuses on getting the generated energy to consumers in a fair and affordable way – in other words, on transmission and distribution, and the rules that govern both. Overall, the pages devoted to these three pillars are filled with solid ideas and attainable legislative and normative fixes to existing problems. Yet the text is largely descriptive, with very little in the way of specific strategies, metrics, timeframes or goals.
New Focus on Transmission
Decades of a highly privatized and market-oriented energy sector operating with minimal government oversight have had significant impacts on Chile’s present-day transmission grids, and this section makes no bones about it. It begins by describing the current state of Chile’s transmission sector: “Today, electric transmission exhibits significant levels of fragility and creates serious difficulties for [energy] projects’ completions, potentially affecting our entire system.” It points out that access to the grids for non-conventional renewable energy (NCRE) projects, particularly those that are far from the main lines, is difficult and limited. The solution, according to the Strategy, is for the government to take a more active role in the future development of the grids, and it specifies four main areas in which it will do so:
- Encouraging the Parliament to pass a bill that would streamline the process by which electric concessions are granted to project developers;
- Creating “public transmission corridors” or parcels of land where the government could expropriate land for transmission use in the name of public or national interest;
- Modifying policies and regulations about the main transmission line, sub-transmission and additional transmission so that they coherently support the government’s new focus on a public transmission line (or literally translated as a “public electric highway”); and
- Improving the ability of small generators to connect to the grid and exploring the potential for smart grid pilot projects.
Increased government oversight of and participation in the transmission grids will be important steps to help improve the reliability and flexibility of the system. The President’s public transmission line project, a proposed government-built line to allow smaller generators to connect to the grid, seems to be the prime manifestation of the state’s plan for increased involvement. However, the project itself –where it will be, who will be allowed to connect to it, etc. – is never specifically described. If the project’s purpose is to provide smaller and NCRE projects with affordable access to the grid, then will larger or conventional energy generators also be allowed to connect? The President and his administration need to detail the specifics about how the “public electric highway” will work in practice to ensure NCRE generators have access to the electricity market.
President Piñera during his annual national speech, May 21, 2011, when he announced the "public electric highway."
Towards a More Competitive Electricity Market
Chile was the first country in the world to privatize its electricity market, and although that system allowed the sector to grow at incredible rates (the installed capacity of Chile’s main grid quadrupled in the past twenty years while that of the second largest grid grew by a factor of six) it also had the perverse effect of ultimately limiting competition in the sector to just three or four powerful companies. The authors write, “We are convinced that the regulatory framework should foment and facilitate the entrance of new actors into the system, with the resulting diversification of participants, moving towards a more competitive and efficient electricity market.” This section offers solutions to this situation:
- Replacing the current Dispatch Centers (called the CDEC) with new autonomous and transparent Independent Operation Centers;
- Improving the conditions for competition through: better tendering processes, giving regulated clients (anyone buying electricity from the grid) more flexibility in their electricity rates, and new models to calculate distribution charges; and
- Passing a Net Metering law.
The creation of Independent Operation Centers is a very important step – one that was called for by both the Citizens’ Technical and Parliamentary Commission (CCTP) and the Advisory Commission for Electric Development (CADE) in late 2011. The CDEC, the body that presently decides which plants are dispatched when and at what capacity, is controlled by the same companies that own the plants, building bias into the dispatch system. This change is sorely needed, and President Piñera should make it a priority.
Improved competition could help spur NCRE development by unleashing the purchasing power of Chilean industry. To do this, Chile should also transform the “free client” market to incentivize or mandate the direct purchase of increasing amounts of NCRE options by large end users.
The Net Metering law will allow end users, such as families or businesses, who have small NCRE generators to hook up to the grid, and use the energy the produce and/or inject it into the grid and receive a payment for it. This has been on the books since 2008 in Chile, and fortunately passed both houses of Parliament in January this year. Piñera must now make it a priority to sign it into law and ensure his government quickly develops the regulations that will allow the law’s implementation.
Advancing Options for Regional Electric Interconnection
This final topic is brief and unspecific, describing how Chile “aspires to develop interconnected infrastructure with other countries in the region…” Ideas are presented, such as building a better connection with Argentina, deepening links to Peru, Bolivia and Ecuador, and Colombia’s efforts to build lines in to Central America. Yet Piñera’s Strategy is no more specific than that, and provides no timelines or concrete plans. As Chile continues to consider potential regional interconnections it will be important that any environmental and social impacts are fully and carefully considered.
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Overall, the new National Energy Strategy presents some solid, encouraging ideas in its six-pillared approach. Boosting energy efficiency and non-conventional renewable energy both rightfully deserved to be listed first in the document. Increasing competition in the electricity sector is also going to be critical if the government hopes to create a dynamic, stable and growing market. Improvements in transmission are also vital to that end.
The major failing of this Strategy is its continued support for conventional energies – large hydro and coal fired-power. These technologies are, simply put, out-dated for a grid that could be driven by cleaner, more distributed and modern technologies. Despite the strategy’s stated intention of boosting energy efficiency and NCRE source, if Chile continues to push large hydro and thermal plants it will divert resources from its cleaner and more sustainable options. Fortunately, the President gives himself an out at the very end by writing that “this process will require permanent revisions and evaluations in order to be open to incorporating changes and new challenges or needs that could arise in the future.”
Let’s hope that during one of these “revisions and evaluations” Piñera and his administration see that large hydro and coal are not the way to build a cleaner, healthier and more stable future for Chileans.
In the meantime, Mr. President, you’ve presented some good ideas. Now let’s see some action.
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*In Chile, the phrase “Non-Conventional Renewable Energy” is used to exclude large hydropower projects from the category; “Renewable Energy” does include large hydro.