Chile’s Transition to Clean Energy Matrix

By Thomas Andrew O’Keefe*

Giant wind turbines in Northern Chile

Parque Eólico Canela in Coquimbo, Chile, one of many wind-producing farms in Northern Chile. / Wikimedia / Creative Commons

Since Michelle Bachelet’s return to the presidency in March 2014, Chile has aggressively pursued an ambitious program to transition the country’s energy matrix toward non-conventional renewable resources.  The emphasis on non-conventional includes mini-hydro facilities with a generating capacity under 20 Megawatts, geothermal, solar, wind, biomass, and potentially ocean currents.  Chile aims to generate 60 percent of its electricity from domestic renewable energy resources (including all forms of hydro) by 2035, and 70 percent by 2050.  To encourage that transition, Chile is one of only two Latin American countries (the other being Mexico) to establish a carbon tax, under which energy-intensive industries and utilities that exceed mandated emissions levels are charged US$5.00 per ton of CO2 emissions.  Chile’s drive to adopt a cleaner energy matrix is motivated as much by a desire to reduce greenhouse gas emissions as it is to enhance energy security.

  • During the mid-1990s, Chile faced consecutive years of severe drought that had hugely detrimental impacts on the country’s dams, responsible at the time for around 50 percent of the country’s electricity. An abundance of natural gas in neighboring Argentina led to the construction of pipelines across the Andes and new thermal generators in Chile, but Argentina began cutting natural gas exports in 2004 (and eventually stopped them altogether) because disastrous policies there had caused domestic shortages.  Bolivia, in turn, rebuffed Santiago’s entreaties to purchase its gas unless Chile granted it territorial compensation for the loss of Bolivian access to the Pacific after the 19th century War of the Pacific.  Chile had to build two expensive receiving terminals to import Liquefied Natural Gas (LNG) from East Asia as well as Trinidad and Tobago.  The Chileans were also forced to use more coal and diesel, exacerbating the already precarious air quality in many Chilean cities, particularly during the winter.

In recent years, more than half of all investment in non-conventional, renewable energy in Latin America and the Caribbean has been directed to Chile, primarily to build solar and wind parks to supply the mining industry in the north of the country.  The shift to renewable energy has largely been financed by the private sector, with no subsidies other than reimbursement for small-scale photovoltaic and other nonconventional contributors to the grid at the full retail price (and no transmission charge).  Chile’s antipathy to subsidies reflects the country’s market-based economic orientation and a conscious decision to prioritize state-of-the-art renewable technology sourced from elsewhere rather than encourage the development of its own industry.  The recent investment boom in renewables was driven by the business-friendly climate, the fact that Chile is not a significant hydrocarbons producer, and the inflationary impact of the last three years of drought on the price of hydroelectricity.

Chile has several other things going for it in achieving its goals, including a good regulatory framework and resources that are in growing demand.  Chilean regulators allow generators to sell electricity in only one of three time blocks during the day — giving solar and wind power a competitive edge in public purchase agreement auctions.  This more than halved the bidding price offered by generators and made solar power competitive with natural gas and even electricity sourced from hydro.  In the near future, as the country’s energy matrix shifts to greater reliance on solar and wind power, Chile intends to utilize hydroelectricity to supply peaks in demand for electric power (usually in the evening hours) to make up for intermittencies in sunshine and wind.  (At the moment, fossil fuels provide that function.)  New developments in storage technology will also help.  Chile is one of the world’s largest producers of lithium, needed to make storage batteries.  The interconnection of Chile’s northern and central grids in 2018 should also facilitate greater use of different renewables and redirect the electric power generated from them to where it is most needed.  Chile, already a leader in Latin American alternative energy production, is poised to enhance that position.

September 11, 2017

* Thomas Andrew O’Keefe is President of Mercosur Consulting Group, Ltd.  He taught a seminar on “Energy and Climate Cooperation in the Americas: The Role of Chile” at Stanford’s Santiago campus during the summer 2017 quarter.

Malvinas-Falklands: Just More Demagoguery

Photo credit: blmurch / Foter.com / CC BY

Photo credit: blmurch / Foter.com / CC BY

The UK’s recent referendum in the Malvinas-Falklands suggests that neither side in the dispute is serious about finding a lasting solution.  Few observers were surprised that the overwhelming majority of the islands’ residents – all but three of the 1,517 persons casting ballots – would vote to “retain their current political status as an Overseas Territory of the United Kingdom.”  Since the war in 1982, London’s decision to station 8,000 troops (more than four times the local population) and decentralization of control over fisheries have enabled islanders to enjoy one of the hemisphere’s highest standards of living.  The UK government has encouraged a blossoming of British identity on the islands.

British and Argentine political leaders couldn’t resist the opportunity to demagogue the results of the referendum.  Prime Minister David Cameron said the islanders are “British through and through and that is how they want to stay,” and he warned that Argentina should take “careful note” because “we will always be there to defend them.”  In a series of 27 tweets in two hours, President Cristina Fernández de Kirchner ridiculed the referendum.  “An English territory more than 12,000 kilometers away?” she asked.  “The question is not even worthy of a kindergarten of three-year-olds.”  She called the residents of the islands a “transplanted population.”  Foreign Minister Hector Timmerman threatened legal action against firms helping explore for oil around the islands, and both houses of the Argentine Congress voted unanimously to condemn the referendum.  Washington has stayed on the sidelines despite its strategic alliance with London and tensions with Buenos Aires.

Both countries have changed greatly since 1982, and the chance that the rhetoric will escalate into greater tensions seems remote.  But nationalism, symbolism and opportunism continue to dominate the Malvinas-Falklands issue 30 years after a war and in the second decade of a new century.  With their economies in bad shape, the current governments in both London and Buenos Aires may welcome the international distraction.  The prospect of rich offshore oil deposits around the islands has raised the stakes, with both countries accusing the other of wanting the islands merely for their natural resources.  Argentina, moreover, seems intent on pushing its neighbors into supporting its stance on the islands, exposing them to the contradiction between the two important principles at play – a historical claim of sovereignty versus a current referendum of clear popular will rejecting it.  Of the two corners that the UK and Argentina have painted themselves into, Argentina’s is more complex and will require a more patient, long-term approach involving, perhaps, United Nations mediation.  Kirchner has expressed hope that the new Pope could act as a mediator in the Falklands-Malvinas dispute, yet his Argentine nationality and past comments that the islands belong to Argentina make that implausible.  It is clear that putting the issue on the front burner and trying to drag the rest of the continent into the debate has not served Buenos Aires’ interests well.  The UK’s referendum is unhelpful, but President Kirchner still has room to tone down the rhetoric and threats, and avoid letting a tactical setback lead to a strategic blunder.  Chances of that happening are better under her successor, and the next election isn’t until 2015.