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Technology Standards/Quota System

Challenges to Investment

In the early 2000s, Chile’s development of non-conventional renewable energy (NCRE) sources – solar, geothermal, biomass, wind, small-scale hydro, and biomass/biogas – was limited, representing a low share of electricity production despite significant natural potential. At that time, large-scale NCRE investment projects faced challenges, particularly high costs and market concentration among a relatively small number of large players. The country lacked a comprehensive incentive structure to help drive down NCRE investment costs. The existing transmission infrastructure was also insufficient to integrate NCRE sources, which are often location-specific (e.g. hydro power must be located near bodies of water). Chile required significant policy interventions to address these challenges and to lower entry barriers for small and new players in the NCRE space.


Approach 

In 2010, Law No. 20.257 came into force in Chile, introducing a quota obligating an explicit amount of electricity generation from NCRE sources. Per the new law, electricity companies generating more than 200 MW were mandated to supply 5% of their marketed energy from NCRE sources over the period 2010-2014. This quota would increase further by an annual rate of 0.5 percentage points after 2015, with a view to reach 10% of supply by 2024. According to the law, NCRE sources were defined as solar, wind, bioenergy, biomass, geothermal, mini-hydro, and tidal. Electricity companies who failed to comply with the law would be subject to a tax for each MWh of deficit versus the quota obligation. Any electricity company exceeding its NCRE obligation could transfer its surplus to another electricity company. On 14 October 2013, Law No. 20.698 increased the quota goal from 10% by 2024 to 20% by 2025. If the overall NCRE deployment target wasn’t met, the Ministry of Energy would be required to offer public tenders to allocate the remaining NCRE capacity. 

 

Key Enabling Conditions 

The Ministry of Energy emphasized the development of NCRE as a key aspect of the National Energy Strategy 2012-2030 for Chile. This commitment demonstrated the credibility and long-term intention of the government and instilled confidence in investors. The establishment of the Ministry of Energy in 2010 further reflected Chile’s dedication to promote NCRE, and created a clear penalty system when the quota was not met. Additionally, investors and stakeholders’ awareness of the geographic potential for renewable energy sources in Chile supported the development and utilization of NCRE. 


Impact / Outcomes

Chile’s quota policy helped to open the market for NCRE, mandating NCRE installation, fostering greater competition and sending price signals that incentivized investment into NCRE technologies. Although the policy also included penalties where the quota was not met, NCRE generation has consistently exceeded the annual quota target, expanding rapidly after the law’s implementation. In 2017, seven years after the law’s implementation, NCRE capacity exceeded the quota of 3,642 GWh by more than three times, reaching 11,087 GWh. By 2020, NCRE accounted for 23.4% of total generation, surpassing the 20% target set for 2025 five years ahead of schedule. 


Additional Sources

Locations
Latin America, Chile
Year published
01 January 2010
Policy type
Energy policy
Policy lever
Target for renewable energy deployment, Incentives for clean energy
Risk category
Political risk, Grid/transmission risk, Power market risk, Technology risk, Policy and regulatory risk

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