Chile Energy Sector Needs a “Rainmaker”

Chile Energy Sector Needs a “Rainmaker”

SANTIAGO – Over one hundred representatives from Chile and across the hemisphere gathered in Santiago to assess ways to advance the government’s energy road map at the Institute of the Americas’ Chile Energy Roundtable on June 24.

Energy Minister Maximo Pacheco, during his keynote address, underscored the difficulty in finding an element that had a greater impact on Chile’s productivity than energy, and particularly energy costs.

With a persistent drought and high electric prices as a backdrop, Chilean President Michelle Bachelet announced her administration’s energy agenda in mid-May, in advance of the 100 day deadline. While geographically distant, the US energy revolution and potential access to a new source of – hopefully cheaper – natural gas exists in close proximity to Chile’s energy policy dialogue.

The energy agenda set off intense debate over the role of the state in Chile’s energy market, how to reduce prices and finding the right approach and model to collectively overcome the challenges facing development of critical energy projects. Lost on no one was a strong emphasis on increasing Chile’s commitment to the global natural gas market through liquefied natural gas (LNG) imports, but also domestic exploration and production in the country’s south.

Indeed, there is no lack of optimism across many facets of the Chilean government and industry for tapping into the US energy boom and LNG exports. Noting the benefit of its free trade agreement with the United States, Chilean officials including the minister spoke highly of the option for not just increased expansion of Chile’s LNG import capacity but also from US Gulf of Mexico export projects soon to come online.

Recently appointed ENAP CEO, Marcelo Tokman, also underscored the role for natural gas as part of the energy agenda and the possibility for expanded import infrastructure but also a role for ENAP to leverage natural gas for power generation. More distant, but part of the mix he suggested, are efforts to boost exploration of unconventional natural gas resources in southern Chile.

Near consensus was evident among roundtable participants on the need for Chile to continue its efforts to develop a diversified and sustainable energy system.

Perhaps most importantly, there was almost no dissent as to the need for a paradigm shift in how the energy sector – government and industry together – develops projects and engages communities, not just in Santiago but across the diverse regions of the country. A more proactive government role and clearer rules and regulations vis-à-vis zoning figure prominently in the energy agenda and were reiterated by industry participants as critical. But, differences of opinion arose as to the best approach for increasing diversity of Chile’s energy matrix while also striving to reduce prices.

The importance of water for Chile’s energy outlook coursed through much of the discussion. Panelists called hydroelectricity a key piece of any sustainable energy system, and noted that water was Chile’s “fuel.”

One panelist remarked that what Chile really needed was a “rainmaker.” The reference to a need for a break in the drought hammering the country was obvious but also implicit in the comment is the need for an increase in energy investment in the country.

Renewable energy, or more specifically what in Chile is referred to as nonconventional renewable energy resources, or NCREs, has increasingly vocal and strong support in the country. As part of the energy agenda, the Bachelet administration highlighted its commitment to the previously established goal of 20% of electric generation from NCREs by 2020.

The importance of interconnecting Chile’s anachronistically unconnected northern and central electric systems (SIC and SING) was agreed to by most, but when pressed as to the timeline there was little optimism for completion of the effort during the current Bachelet administration. Some pointed to early 2020s as a realistic timeline.

Not to be discounted, some argued, are the increased regional interconnection efforts being embraced in Chile, most notably the Alliance of the Pacific framework but also regional energy markets and the opportunity to develop regional electric interconnection stretching from Colombia through Ecuador and Peru to Chile.

In Search of a Rainmaker: Energy Policy in Chile

In Chile no single element has had a greater impact on productivity than energy, and particularly energy costs. Electricity costs have doubled in the last seven years, according to the Chilean Energy Ministry. At the same time, a persistent drought has tested the country’s hydroelectric capacity — hydropower accounts for 32 percent of the electric matrix— shifting generation toward more diesel and coal. Add to this the fact that Chile imports around 97 percent of its fossil fuels, and some observers fear the country is headed for a crisis.

In Search of a Rainmaker: Energy Policy in Chile

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