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Chile: Keeping the lights on

Chile: Keeping the lights on

Posted by Juan Gavasa on May 16, 2014

On May 15th Chile’s president Michelle Bachelet unveiled her energy policy for the next four years, describing the country’s current energy situation as “not the best”. It was a wonderful piece of understatement.

Chile is desperately short of cheap fuel. It produces virtually no oil and gas of its own and for years relied on imported natural gas from Argentina. But the Argentines proved to be fickle suppliers. When their own domestic demand grew, they closed the valves on the huge gas pipelines running through the Andes, leaving Chile high and dry.

The Chileans toyed with the idea of going nuclear, but the Fukushima disaster of 2011 put paid to that idea. Chile is every bit as prone to earthquakes and tsunamis as Japan.

In theory, the Chileans could import gas from neighbouring Bolivia but in practice history and politics rule that out. The Bolivians refuse to sell gas to Chile because of a border dispute dating back to the 19th century.

Chile has hydro-electricity in abundance but has been hit by severe droughts in recent years. And as the green lobby has grown stronger, companies have found it increasingly difficult to get environmental approval for new energy projects.

All of which leaves Chile in a bit of a pickle. The average electricity bill has jumped by 20% since 2010 and the government says it will rise by another 34% over the next decade if nothing is done now. Chile’s vast copper mines already pay twice as much for their electricity as their peers in neighbouring Peru.

In a bid to tackle these problems, Ms Bachelet announced a series of new measures. She wants to unify Chile’s two electricity grids, the SIC (which serves Santiago and the central heartland) and the SING (which supplies the mines in the north). They are currently divided by a 600km stretch of desert.

She plans to open up the grid to further competition. At the moment, three companies (Endesa, Colbún and AES Gener) control 76% of installed capacity on the SIC and 98% on the SING. Ms Bachelet says her measures will reduce marginal costs on the SIC by 30% over the next four years.

The president also said Chile would build a new liquid natural gas (LNG) terminal on its southern coast to complement the two already in operation in the centre and north of the country. Importing LNG has been a key part of Chile’s energy-diversification strategy in recent years.

And the government sees an increased role for solar, wind and geothermal power in the production of electricity. Ms Bachelet promised that between now and 2025, 45% of new installed generating capacity in Chile will come from non-conventional renewable sources.

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