An Analysis of Chile's New National Energy Strategy (2012-2030) - Part 1
Posted March 7, 2012
Chile’s President Sebastian Piñera and Energy Minister Rodrigo Álvarez released a National Energy Strategy (2012-2030) for Chile last week, a much-anticipated step since the International Energy Agency’s Energy Policy Review recommended in 2009 that the country create a national energy policy. The new plan, called “Energy for the Future” outlines six priority areas the administration will focus on to make Chile’s electricity sector cleaner, more secure and more cost-effective in the long term. The Strategy hits the bull’s-eye in listing Energy Efficiency and Non-Conventional Renewable Energy* as priorities number one and two. It also smartly identifies the need to create independent system operators to replace the current dispatch system and avers that the current government of this seismically-active country will not pursue nuclear energy options. Unfortunately, the Strategy struck out on two major points: its thinly-veiled support of the massive hydropower project in the Patagonia, HidroAysén, and continued reliance on dirty coal plants.
Here’s a quick look at the first three components of the National Energy Strategy (I’ll discuss the second three in my next post):
“Growth with Energy Efficiency”
This plan is one of the first signs from Piñera that he understands the benefits that energy efficiency can provide. Since taking office in March 2010, the government has consistently responded to its own high future energy demand projections with calls for more and more generation; very rarely has it seriously mentioned energy efficiency—the fastest and cheapest option—as a part of the solution. So energy efficiency’s place at the top of the list is a very encouraging advance.
The Strategy first sets the goal of reducing the total national projected energy demand for 2020 by 12 percent, including displacing the need for 1,122 MW of electricity. This is a significant reduction from earlier government estimations that “energy efficiency could cover up to 20 percent of the country’s increase in demand by 2020,” which technical experts believe is feasible.
The measures the government will look to adopt to boost efficiency in the electricity sector are:
- adopting an Energy Efficiency Action Plan for 2012-2020 that identifies specific actions for the private and public sectors;
- creating an Energy Efficiency “seal” awarded to companies making significant efficiency advances;
- establishing Minimum Energy Performance Standards (or MEPS) for appliances and equipment, plus a residential and public efficient lighting program; and
- launching an Inter-Ministerial Energy Efficiency Policy Development Commission that would report directly to the President.
One key policy that is absent is decoupling, a mechanism separating distribution companies’ profits from the amount of energy they sell. Without decoupling, electricity distributors will have little incentive to encourage their clients to be less wasteful in their consumption of energy. This idea has been around since 2009, but has gained little traction. To ensure Chile reaches this new energy efficiency goal, Piñera’s government must now prioritize getting a decoupling bill through the legislature.
“Launching Non-Conventional Renewable Energies (NCRE)”
Chile has remarkable solar, geothermal, wind, mini-hydro, ocean and biomass/biogas resources, yet they currently only make up 3 percent of the national electricity production. A legislative effort is currently underway to raise the national renewable portfolio standard for non-conventional renewable energy (or NCRE, for brevity’s sake) from 10 percent by 2024 to 20 percent by 2020 – an idea initiated by Piñera himself in 2010, though he has stepped back in his commitment to it. Surprisingly, the proposed legislation is never explicitly mentioned in the Strategy, but there are several other ideas that could help Chile reach that goal, including:
- new rules for tenders that would allow NCRE projects or investors to sell their energy output collectively as blocks to get better prices and be more competitive;
- the creation of a new “Geo-Referenced Platform,” or database containing all the relevant geo-referenced information investors would need to make decisions about siting a project;
- a new renewable energy institution (in addition to the existing Renewable Energy Center) and new financial instruments to support the sector’s growth; and
- the development of technology-specific strategies to address the variety of obstacles specific to each type of NCRE, plus new subsidies and incentives for pilot projects.
The “20 by 2020” proposal was passed by the Senate in mid-January, and the House of Deputies should vote on it within the coming months. A legislative proposal for a net-metering law, which would permit smaller, independent NCRE generators to connect to the grid, is in the same situation. Piñera should demonstrate his commitment to boosting non-conventional renewables by supporting these bills as they move through Parliament and quickly signing them into law once they are in his hands.
“The Role of Traditional Energies”
In contrast to the two fairly detailed sections above, the third one is comprised of two very general and mostly descriptive parts. The first part gives unwavering support for aggressive development of hydropower: “Our firm conviction is that the hydroelectric component of the grid should continue steadily growing in time and that hydroelectric energy continues to be…the principle source of electric generation in Chile in the next decades.” Vague statements about the need for environmental safeguards, particularly in Patagonia, and ideas for how to minimize impacts follow.
This section is a thinly-veiled justification for the government’s support of HidroAysén, a trans-national venture to build five mega-dams on two of Chile’s wildest rivers in the heart of pristine Patagonia. The highly controversial project would also require a 1,200 mile long direct-current transmission line to connect the power plant to the main grid near Santiago. Although an “overwhelming majority of Chileans” are against the development of large hydro in Patagonia, and technical studies have proven that the dams are not necessary to meet the country’s future energy demand, the Piñera administration has thrown its weight behind the project, and gave the five dams environmental permits in May 2011. The Supreme Court is presently considering the appeals case filed against the permits, and the court’s decision will be followed by a vote from the Council of Ministers. The transmission line still needs to go through the environmental impact review process, which is expected to start in June.
The Baker and Nef Rivers in Aysen converge at HidroAysen's proposed Baker 1 Dam site.
The second part justifies continued development of coal-fired power plants, stating that, despite the new focus on NCREs and efficiency, “our projection for the future grid cannot do without, among other fossil fuels, coal.” With almost no domestic sources of fossil fuels, Chile must import all of the coal, diesel and natural gas it uses. Logically, one of the main goals iterated in the Strategy is creating an energy independent grid, which would argue against future reliance on these imports. Yet the authors cite the historic importance of coal and the number of fossil fuel projects already approved and in the pipeline as reasons to continue using these dirty, imported resources. They do not contain a plan for decommissioning old, expensive and highly contaminating existing plants. While the Strategy does include statements about investing in cleaner coal options such as carbon capture and storage and the gasification of coal for use in combined cycle plants, these are noncommittal and vague statements that promise very little follow-through. What’s more, many NCRE projects could come on line much sooner than widespread carbon capture and storage would be economically viable in Chile, highlighting that continued reliance on new coal plants is simply not the smart way to go.
The first three pillars to the six-part Energy Strategy demonstrate that the Piñera administration is taking an “all of the above” approach to energy generation sources (a popular approach among Presidents these days?), with the exception of nuclear. While that is a solid tactic for the variety of NCRE technologies, energy efficiency and efforts to make existing coal plants cleaner, continuing to support large traditional dinosaur plants –such as HidroAysén and the massive Castilla coal proposal– would set Chile on a path not into the future but towards the past.
*In Chile, the phrase “Non-Conventional Renewable Energy” is used to exclude large hydropower projects from the category; “Renewable Energy” does include large hydro.
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