IEA commends Chile on significant achievements in energy policy and recommends clearer regulation for long-term investment to integrate environmental costs

“Chile has made remarkable strides to strengthen energy security and improve energy policy over the last few years”, said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA) today in Santiago at the launch of Energy Policy Review – Chile 2009. He highlighted that the country successfully overcame a double crisis of energy supply in 2007/08, when Chile lost most of its gas imports from its sole supplier, Argentina, at a time when its hydroelectric production was severely affected by drought. “IEA member countries and other countries can learn a lot from the Chilean experience when it comes to implementing emergency measures,” Mr. Tanaka added.

The present development of the LNG regasification terminal in Quintero, and the opening of the terminal in Mejillones next year, will greatly increase diversity of supply for the country. “Chile should continue diversifying its energy sources and suppliers to enhance energy security, and actively develop both energy efficiency and its indigenous energy resources such as renewables,” Mr. Tanaka said.

Significant potential in renewable energy and energy efficiency should be tapped

Chile has developed an emerging energy efficiency policy portfolio with determination and vision, not just in times of shortages but as an underlying pillar of energy policy. Looking to the future, the 2010-2020 Energy Efficiency Action Plan should set clear policies, targets and responsibilities for relevant sectors. “At the same time, the country should ensure long-term, broad-based political support for energy efficiency so that it remains a political priority,” said Mr. Tanaka. Chile has yet to establish minimum energy performance standards for energy-related equipment and appliances as well as for commercial and public buildings.

With regards to renewable energy, the IEA commends Chile’s all-encompassing approach, which includes assessment studies, a law for the development of non-conventional renewable energy (NCRE), specific financial support measures and strengthening R&D activities. However, given the country’s outstanding renewable potential [estimates by the National Energy Commission (CNE) indicate that in the long term a total capacity of 12 000 MW of NCRE could be installed using existing technologies], Chile should consider accelerating this process even further through market-based mechanisms such as production tax credits, as adopted in several states of the United States, or the introduction of tradable green certificates as in the United Kingdom and in Italy.

Reorganisation of institutional framework important step forward

“The IEA strongly supports Chile’s effort to strengthen the institutional framework of the sector to improve policy making instruments,” Mr. Tanaka said, referring to a law introduced in March 2008 in the Chilean Congress. The law proposes the creation of a Ministry of Energy, thereby centralising the functions of formulation and evaluation of public policies. The proposed Energy Ministry will be supported by the creation of two executing agencies: the Chilean Energy Efficiency Agency and the Centre for Renewable Energy. Mr. Tanaka added that within this new framework, the CNE should also be provided with the necessary resources to ensure the effective operation of its regulatory functions.

System operators need greater independence

The IEA report recommends that Chile considers transforming the two electricity system operators into wholly independent entities. “This could be done following the model of independent system operators found in the U.S., Canada, Europe and Australia, where the boards of system operators have no financial interest or ties to any company doing business in the wholesale electricity markets they administer,” said Mr. Tanaka. He noted this would ensure that decisions made by the two system operators are impartial and represent the interests of all users, including consumers.

Reformulation of long-term energy policy should be completed

“The release of the National Energy Commission’s Energy Policy: New Guidelines in 2008 is an important first step in policy reformulation,” said Mr. Tanaka. “The government should now finalise its new long-term energy policy as soon as possible.” Furthermore, in recent years, Chile has started defining a more comprehensive energy policy, including the sustainable use of biomass, R&D priorities, stronger statistics and modelling capabilities, and the creation of a multi-dimensional rural energisation programme, among others. “The proposed Ministry of Energy should maintain and expand its focus on these important energy issues, in close collaboration with relevant public agencies and other stakeholders,” noted Mr. Tanaka.

Clearer regulation for long-term investment needed to integrate environmental costs

Environmental sustainability is an increasingly important feature of any energy security policy. Investment in new coal-fired power plants is expanding at a much faster rate than in renewable energy sources. “Chile should create a framework so that long-term investment decisions will be based on long-term cost/benefit analysis, including environmental aspects and the downward cost-curve of certain technologies, thereby containing the share of fossil fuels in electricity generation,” recommended Mr. Tanaka. Environmental costs in Chile are partly integrated in the current regulatory framework. But absolute emission standards for thermoelectric plants do not yet exist.

Chile has recently published a National Action Plan on Climate Change, setting measurable objectives for the next four years. “Chile should now consider formulating a national greenhouse gas emissions mitigation strategy with indicative objectives, both nationally and at the sector level, to prepare Chile’s economy for a possible post-Kyoto international climate agreement,” said Mr. Tanaka. This would avoid the risk of “locking-in” future CO2 emissions in the electricity sector. “This recommendation also applies to other sectors, such as transport. The application of fully cost-reflective pricing of transport fuels, roads and transport modes will facilitate the transition to a more sustainable energy system,” he concluded.