Renewable energy in Chile: barriers and the role of public policy.

• Author: von Hatzfeldt, Sophie
• Position: GLOBAL PUBLIC POLICY NETWORK ESSAY - Report

Chile has a dire need as well as a vast potential to expand renewable energy production and the government has recently introduced regulatory reforms and incentives to facilitate their development. Nevertheless, the governance structure of the electricity sector poses significant barriers to the attainment of national energy aims. Actors from the state, private sector, as well as civil society must tackle the main constraints to provide a cohesive and targeted policy response to the issue.

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In the face of rising energy prices and scarcity of energy resources, due to a world increase in demand, energy security is a crucial concern of states and the private sector alike. In a context made additionally complex by concerns such as environmental sustainability and demands for public participation that are added to the traditional issue of supply security, policies that shift energy supply towards renewable energy sources have become increasingly central. Understanding the opportunities and challenges involved in systematically enhancing their expansion is of utmost relevance.

Chile has a dire need as well as a vast potential for the development of renewable energy and has recently formulated national aims to promote its expansion. However, the current governance structures of the electricity sector--based on a market economy with minimal regulations--put the fulfillment of these aims into question. A study is required to detect where the shortcomings of the market are, and in which way those factors prevent actors from developing renewable energy projects. Inferring from an analysis of the constraints to the development of renewables, one can develop policy recommendations for the government, market actors, as well as other stakeholders such as civil society, in order to provide incentives to remove barriers and make significant advances.

Since 2010, Chile has been a member of the Organisation for Economic Co-operation and Development (OECD), which increases its responsibility to shift towards a more sustainable economic development. This not only has implications at the national level but also at the international level, as the country aims to expand sustainable development. Chile's pioneering liberalization reforms in the energy sector, specifically in electricity in the 1980s and 1990s, served as a role model for many other countries. Chile's reforms to promote renewable energy can also function as an exemplary model for other countries in Latin America and beyond.

CONTEXT AND RESEARCH QUESTION

Chile imports around 70 percent of its primary energy supply, due to having limited domestic energy resources. (1) However, since 2010, growth in Chile has had high annual rates of 5 to 6 percent, and the demand for electricity to feed this growth continues to rise at an annual rate of 6 to 7 percent. (2) With a relatively high energy intensity concerning electricity (Chile is at 0.42 compared to the OECD average of 0.27), Chile requires high levels of electricity input to produce an increase in its GDP, revealing a low energy efficiency of its economy (increasing the GDP by 1 unit requires an almost 1.5 unit increase in the electricity supplied). (3) To feed Chile's future development, the country faces the challenge of designing suitable energy polices to safeguard the country's national autonomy, secure its economic growth, and maintain its living standards. Energy crises in recent years--the latest being in 2008, when Argentina unilaterally cut off gas lines to Chile--have increased the country's reluctance to rely on volatile import conditions and have strengthened national energy debates and investments into the country's energy security.

To rectify the imbalance between national energy supply and demand as well as Chile's dependence on predominantly imported conventional resources, Chile is increasingly emphasizing the promotion of alternative domestic energy sources, most notably that of renewable energies. (4) Stretching across a length of 4,300 km and tucked between the Andes Mountains and the Pacific Ocean, Chile is endowed with potentially rich and varied renewable resources for energy generation, including solar energy in the vast deserts in the north, biomass and hydraulic power in the forests and rivers in the south, strong winds across the country to generate wind energy, 10 percent of the world's active volcanoes for geothermal energy, and 6,400 km of coastline where tidal and wave power could be harnessed. (5) In this light, the Chilean government has on several occasions in recent years declared its aims to diversify energy production by including a significant proportion of renewable energies.

Small changes in regulations have facilitated the process with an aim of producing 10 percent of the electricity from renewable resources by 2024. (6) The National Energy Strategy 2012-2030, launched in March 2012, places the promotion of renewable energy as its second highest priority. (7) The president of Chile has even raised the target to 20 percent by 2020, which is unofficially referred to as the "target 20/20." This target is currently under discussion in parliament. (8)

While studies show the feasibility of renewable energy in terms of its potential and the competitiveness of its electricity prices, the actual level of renewables in the electricity matrix is lagging heavily behind aspired goals. While the law demanded 5 percent of electricity to come from renewable energy sources in 2010, in that same year only 2 percent had been reached. It is projected that if the country continues on its current trajectory, by 2030 only 8.5 percent of electricity will be generated from renewable sources. (9) It is therefore doubtful that the proposed national target of 20/20 is possible under the current electricity sector governance structures, since both the prevailing market forces and the regulatory system that govern the energy sector seem to hinder the development of renewable energy. It is vital to understand these and other impediments to the development of renewables in Chile if one wants...