Challenges to investment 

In 2015, the Ministry of Energy established Chile’s Long-Term Energy Planning (PELP) to project the country’s energy future in a 30-year horizon through the definition of long-term scenarios. The PELP established a pioneering goal of 70% renewable energy generation by 2050. To reach this goal, Chile required a comprehensive and proactive approach to planning electricity transmission infrastructure, beyond simply mitigating planning uncertainty. Chile’s power system would need to incorporate non-conventional renewable energy (NCRE) and periodically review the transmission grid to effectively respond to changing demand. The new policy would also need to foster a modern, robust, and flexible transmission infrastructure network, given NCRE generation was location-specific and generators paid most of the transmission costs.

Approach 

Chile’s Transmission Law (Law 20.936), enacted on 6 July 2016, aimed to enhance the role of the state in energy planning, transmission system expansion and renewable energy promotion. Among other measures, the law mandated non-discriminatory open access to the transmission grid and shifted the transmission grid costs from generators to customers. As a result, renewable developers could choose areas for NCRE generation that were resource-rich but more distant, enhancing competitiveness for renewable generation. Under the law, small NCRE generators were entirely exempted from transmission toll payments, given their minimal effects on transmission grids. In addition to mandating open access, the law also unified Chile's northern and central/southern power grids; created an independent unified system operator, the National Electricity Coordinator (CEN); ensured that the Ministry of Energy develop a comprehensive energy plan every 5 years; and mandated National Energy Commission (CNE) to develop 20-year forecasts for generation planning. 

Key Enabling Conditions 

Chile’s 2016 Transmission Law incorporated a combination of centralized expansion planning and market mechanisms, including tenders for the supply of energy to regulated customers, quotas, and notably, auctions, to ensure efficient transmission investments and the entry of new transmission companies. By utilizing ex ante market competition, the payments for new installations were determined, mitigating potential tariff regulation issues. The participation of both the regulator and interested parties allowed for improved electricity generation and consumption forecasts through stakeholder inputs as well as social acceptance in civil society. 

Impact / Outcomes 

Benefitting in part from open access (but also from dedicated tax benefits, high power prices and efficient regulatory framework), the national power system saw a significant increase in NCRE contribution to overall generation. By the end of 2021, NCRE generation accounted for approximately 35% of the total generation, a substantial rise from less than 15% in early 2016. Increased NCRE generation also spurred increased investment in the transmission network, with 31 projects under construction as of May 2021, encompassing a total line length of 652 km and investment of $634 million. Of these projects, 64% were transmission line projects, while the remaining 36% were substation projects. As part of the 2020 expansion plan, a total of 46 grid projects were identified for launch by 2023, with an estimated investment of $511 million. By May 2021, the CEN was expected to initiate the tendering process for an additional 200 new transmission construction projects, with a total value of $3,200 million over the next five years.

Additional Sources

• Fuentes, F., & Serra, P. (2022). Chilean electric transmission regulation: from a merchant approach to central planning. Energies, 15(12), 4336, https://www.mdpi.com/1996-1073/15/12/4336/pdf
• IEA (2018), Energy Policies Beyond IEA Countries: Chile, https://iea.blob.core.windows.net/assets/8c16efa0-41b1-47be-b12a-a29483a0c635/EnergyPoliciesBeyondIEACountriesChile2018Review.pdf
• Nasirov, S.; Silva, C.; Agostini, C.A. (2015), Investors’ Perspectives on Barriers to the Deployment of Renewable Energy Sources in Chile. Energies, 8, 3794-3814. https://doi.org/10.3390/en8053794
• Nasirov, S., Agostini, C., Silva, C., & Caceres, G. (2018). Renewable energy transition: a market-driven solution for the energy and environmental concerns in Chile. Clean Technologies and Environmental Policy, 20, 3-12, https://ficpubs.uai.cl/files/823_Nasirov_etal2018.pdf
• Serra, P. (2022). Chile's electricity markets: Four decades on from their original design. Energy Strategy Reviews, 39, 100798, https://www.sciencedirect.com/science/article/pii/S2211467X21001814
• Troncoso, S. L. (2022). The Chilean Case Improving Power Transmission within the Non-Conventional Renewable Energies Paradigm. Energy LJ, 43, 267, https://www.eba-net.org/wp-content/uploads/2023/01/4-Luengo267-297.pdf
• https://www.climateparl.net/post/2016/08/26/ley-de-transmisi%C3%B3n-en-chile
• https://energyandmines.com/2016/01/what-do-chiles-new-transmission-regulations-mean-for-mines-and-renewables/
• https://reglobal.org/paving-way-for-renewable-integration-in-chile/
• https://www.windpowermonthly.com/article/1401700/chile-approves-significant-transmission-law