Chile’s energy transition

Chile makes renewables progress but will it meet its targets?

Chile is continuing its push into renewable energy. In June 2021 alone Chile attracted filings for three large-scale renewable projects totalling USD 945 million, according to the Environmental Evaluation Service (“SEA”). Coupled with potential investments in small-scale projects, the total figure could be as high as USD 1.1 billion.

According to a senior executive of an energy generation company in Chile, “What is most striking in recent months is that the industry is promoting changes that go beyond what is strictly required by regulations or regulators.” Two developers we spoke to also agreed that the sector was developing faster than they had anticipated and that this had been driven by industry rather than the government.

“What is most striking in recent months is that the industry is promoting changes that go beyond what is strictly required by regulations or regulators.”

Executive, energy generation company, Chile

A number of national regulatory reforms implemented in 2014 and a favourable international context are behind Chile’s boom in the renewable energy sector, consolidating the country as the second largest in the region after Brazil. Low renewable energy prices, a stabilised price regime, open tenders to contracts and a rapid expansion of the national renewable energy generation park are behind this trend. Chile also has a privileged geographical location with the Atacama Desert registering the highest solar radiation levels on the continent and substantive geothermal and wind power potential.

Chile will hold presidential elections in November 2021 amid comprehensive ongoing political reform. At present, there is a wide consensus among the main candidates to strengthen the use of renewable energy in the country, albeit at different levels. Sebastián Sichel, independent candidate, wants to increase hydropower generation; Daniel Jadue, of the Communist Party, advocates to increased taxation for polluting sources; the liberal Ignacio Briones wants to strengthen public-private initiatives to advance the sustainable energy generation agenda. Only Joaquín Lavín, of the centre-right UDI, has not defined his sustainability agenda.

Electoral declarations in Chile should be taken with more than a pinch of salt, according to a local political analyst, “The manifestos of the candidates who won the primaries will become irrelevant as initial promises are never upheld and the electorate rarely read them anyway. Investors should pay close attention to the management capacity of the new government and the technical abilities of the key appointments and their advisors.”

“Investors should pay close attention to the management capacity of the new government and the technical abilities of the key appointments and their advisors.”

Political analyst, Chile

Regardless of the outcome of the election, both the political and the energy executive believe that Chile remains an attractive location for investment, “Chile is a fiscally responsible country with strong geographic advantages for renewables and a large number of high-qualified energy professionals.”

Chile ambition is to have a 100% renewable power grid by 2050 and it has become an example of how a middle-income country can embrace a comprehensive renewable energy strategy. At present, one of the main challenges for the industry in the country is to address its poor record on environmental local community engagement, a widespread issue throughout Latin America.

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