Market Information Report: Chile

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1 July 2015 MaRS Market Insights Chile Market Information Report: Chile MaRS Advanced Energy Centre Authors: Simeran Bachra, Mieka Buckley-Pearson, Nina Da Nobrega Garcia and Meg McQuillan Project Manager: Kathleen Gnocato Supervisors: Ron Dizy and Jesika Briones

2 INFORMATION REPORT: CHILE Country Profile: Chile Country Snapshot Figure 1. Chile. Source: U.S. Department of State Population million Nominal GDP (USD) $277.2 billion GDP per capita, PPP (USD) $21,911 Major cities Santiago (capital), Vina Causino, Antofagasta, Vina del Mar, Valparaiso Official language(s) Spanish Currency Peso (CLP) Exchange rate 1 CLP = CAD Unemployment (%) 6% Major exports Copper, ores, fruit and nuts Export destinations China, United States (US), Japan Major imports Crude and refined oil, coal, gas and lubricants, machinery Import destinations US, European Union Market Information Report: Chile 2

3 INFORMATION REPORT: CHILE Executive Summary The Going Global series provides a 360-degree view of the energy system in international priority markets for export-ready Canadian energy companies. Each report not only examines the energy and electricity landscape of a particular market, but also the business environment, the social, political and legal frameworks, and the country s macroeconomic drivers. Developing In short, the analysis is meant to help companies answer two key questions: 1 Are our Canadian capabilities a good fit for the market? 2 What are the opportunities and barriers to doing business, and do the former outweigh the latter? In preparing this report, its authors examined a set of quantitative indicators adapted from third-party sources (the World Bank, the REN21, the U.S. Energy Information Administration, and the United Nations). These indicators measure six key considerations for understanding the challenges and opportunities for energy innovation in Chile: energy security and independence; quality and resilience of electricity supply; control over rising electricity costs; support for demand growth; environmental sustainability; and the business environment. In addition, the report identifies the scope of support for cleantech offered by national governments and utilities. At the beginning of each section, the authors provide a high-level qualitative assessment of the market. This research is also distilled into graphs that allow for a visual comparison of Chile s market in comparison to other priority markets, and Canada as a benchmark. The graphs are meant to provide the reader with a snapshot of where a market stands in comparison with other key markets. Each graph is followed by an analysis of the indicators, which provides more nuanced information. Notably, this analysis is taken from third-party sources and verified by energy experts in these markets. a comprehensive understanding of the barriers to deployment will provide a common understanding for future Canadian program There are limitations to design, and create the insights this type of new pathways for report can provide. The information presented is deployment of from secondary sources, and innovative there are often details that can only be gathered from a physical solutions. presence in the market. The report is therefore intended to serve as an initial resource in understanding whether a market is suitable for your startup. The report will prompt more specific questions and should be supplemented by a mission or visit to the market in question. It is also important to note that within the cleantech market, the report focuses mainly on the smart grid, and does not discuss technologies related to other cleantech subsectors (e.g., waste and renewable energy). Market Information Report: Chile 3

4 Key findings Opportunities In Cleantech Limited domestic energy resources Electricity demand growing with high annual growth rates Energy crises (e.g., 2008 spike in electricity generation costs) have strengthened Chile s investment in energy security, with an emphasis on renewable energies High renewable energy (RE) potential Strong regulatory support: The National Energy Strategy prioritizes promotion of RE Sole country in Latin America requiring electricity companies to fulfill RE quota Barriers To Cleantech Lack of available financing for RE projects due to lack of understanding about non-conventional sources and unattractive prices in power purchasing agreements The structure of the electricity market is highly concentrated: 90% of electricity generation and commercialization is controlled by three companies Transmission access is challenging, with resources often located in isolated areas (Increasing connection costs) or in areas with weak lines Obtaining permits is a lengthy process (an environmental licence is common to all technologies) Business Opportunities Highest credit rating in Latin America due to macroeconomic stability and integration with global capital markets Attractive destination for foreign direct investment Lowest taxes in Latin America No minimum local participation requirement for companies incorporating in Chile Barriers To Cleantech A high degree of competition between foreign firms results in the necessity for companies to have an in-country partner A physical presence as well as relationships are key to business success Lowest share of skilled labour force relative to OECD regions https://books.google.ca/books?id=9a4x5-ynwf0c&pg=pa46&lpg=pa46&dq=skilled+labour+force+chile&source=bl&ots=7_j81qepn-&sig=0cor_jzizkja01qb3qrd8xbr-wu&hl=en&sa=x&ei=j3 kuvebsm8p8yqs7miggda&ved=0cgqq6aewcq#v=onepage&q=skilled%20labour%20force%20chile&f=false 3 Market Information Report: Chile 4

5 Table of contents Country considerations Highlights of analysis Page Methodology... 6 Chile s electricity market snapshot Overview of electricity market... 8 Electricity sector structure... 9 Market regulation...10 Security of energy supply Generation and consumption...12 Energy imports and exports...13 Proven reserves...13 GDP growth...14 Network connectedness...15 Quality and resilience of electricity supply Access to electricity...17 Reliability/quality...18 Resilience...19 Value lost...19 Exposure to severe weather...19 Efficiency of energy supply (control over rising electricity costs) Wholesale market prices...21 Household prices...21 Industry prices...22 Power transmission and distribution losses...22 Support for demand growth Urban population growth...24 Change in electricity demand...25 Environmental sustainability Renewable energy capacity...27 Pollution levels...28 Climate change targets...28 National strategy for renewables...28 Smart grid overview...28 Business environment Corruption and government response...30 Ease of doing business...30 Political stability...31 Foreign direct investment...31 Financial system overview Foreign policy...32 Canada-Chile relations...32 US-Chile relations...33 Infrastructure...33 International organization membership and engagement...33 Government and regulatory environment Financial incentives for renewables...35 Legislation and programs...36 Appendix Administrative structure: Chile Institutions in the electricity sector...42 Additional resources...43 Market Information Report: Chile 5

6 Methodology This report looks at Chile from the standpoint of six national energy considerations and measures the support for the adoption of innovation energy technologies within Chile s government and major utilities. The purpose of this analysis is to help Canadian cleantech companies identify potential opportunities and understand barriers to energy innovation in Chile. The report assesses six challenges (or, country considerations ) using a total of twenty-seven metrics (see table below). To remove any subjectivity or bias in our depiction of the indicators, they are presented as raw data obtained from trusted third-party sources - including the World Bank, International Energy Agency (IEA) and U.S. Energy Information Administration (EIA) - and compared to other priority markets for reference. Each challenge is represented visually and assessed qualitatively in its respective section of the report. The analysis demonstrates areas of opportunity, as well as challenges, in deploying cleantech in Chile. Canada is referenced in each chart as a benchmark for Canadian entrepreneurs to contextualize each comparison market. Note: The source of each metric has been hyperlinked in the table below. Consideration Metric Description SECURITY OF ENERGY SUPPLY QUALITY AND RESILIENCE OF ENERGY SUPPLY Total electricity generation Electricity consumption Proven fossil fuel reserves Net electricity imports GDP growth Access to electricity Duration of interruptions Frequency of interruptions Value lost due to outages World risk index rating Residential electricity price Industrial electricity price Electricity, billion kilowatt hours Gross production + imports exports losses Billion barrels Annual percentage growth rate of GDP at market prices Annual percentage growth rate of GDP at market prices Percentage of population with access to electricity Average outage duration for each customer Average number of interruptions that customer experiences Percentage of sales lost due to power outages Measures susceptibility, coping capacities, adaptive capacities, exposure to national hazards and vulnerability Climatescope average commercial electricity prices Climatescope average industrial electricity prices EFFICIENCY OF ENERGY SUPPLY (control over rising costs) ENVIRONMENTAL SUSTAINABILITY Electricity transmission and distribution losses PM10 particulate levels Climate change targets Losses in transmission between sources of supply and points of distribution and in distribution to consumers, including pilferage (percentage of output) PM10 measures fine suspended particulates <10 microns in diameter. Estimates represent annual exposure level of the average urban resident to outdoor particulate matter Official climate change targets (such as reduction in greenhouse gas emissions) Renewable energy target Percentage of total energy mix by 2020 Targeted share of renewables Share of renewables Targeted share of renewables in electricity generation by 2020 (excluding hydropower) Share of renewables in electricity generation (excluding hydropower) Market Information Report: Chile 6

7 Consideration Metric Description SUPPORT FOR GROWING ENERGY DEMAND QUALITY OF BUSINESS ENVIRONMENT GDP growth Urban population growth Per capita usage Ease of doing business Corruption Foreign direct investment Regulatory quality Political stability Rule of law Roads paved GDP growth, annual percentage Urban population refers to people living in urban areas as defined by national statistical offices, annual percentage Measures year-on-year change in energy use (kilogram of oil equivalent per capita) The World Bank Group ranks economies on ease of doing business from 1 to 189. High scores (where 1 is the highest) mean the regulatory environment is more conducive to starting and operating a local firm Transparency International Corruption Perceptions Index ranks countries based on how corrupt a country s public sector is perceived to be. Scores: 0 (highly corrupt) to 100 (very clean) Net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of investor. Net inflows (new investment less disinvestment) in reporting economy from foreign investors Governance indicator capturing perceptions of the likelihood of political instability and/or politically motivated violence, including terrorism Governance indicator capturing perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development Governance indicator capturing perceptions of the extent to which agents have confidence in and abide by the rules of society (quality of contract enforcement, property rights, the police, and the courts) as well as the likelihood of crime and violence Infrastructure indicator, roads paved (percentage of total roads) The report also assesses the degree of support for cleantech in Chile, relative to other countries. To gauge support levels within the government of Chile, the report looks at the factors outlined in the table below. GROUP MEASURING SUPPORT Description GOVERNMENT/ REGULATORY SUPPORT National strategy for renewables Financial incentives Public financing Regulatory policy Is there a national strategy for renewables? Capital subsidies, grants or rebates; tax incentives; energy production payments Public investment through loans or public competitive bidding Feed-in-tariff programs, utility quota obligations, net metering, tradable renewable energy certificates, obligations and mandates Identifying and understanding Chile s relative energy considerations and levels of support can help Canadian cleantech companies to identify key opportunities and recognize barriers to doing business in Chile. Market Information Report: Chile 7

8 Chile s electricity snapshot OVERVIEW OF ELECTRICITY SYSTEM Chile has a privatized electricity market, in which generation, transmission and distribution are all financed by private investment. Generation and commercialization activities are competitive markets, while the transmission and distribution segments of the market are subject to a regulatory framework that establishes investment requirements, sets prices for access, and ensures third-party access. 4 The sector is divided into four distinct (non-connected) power systems, as shown in Figure 2. Sistema Interconectado del Norte Grande (SING) Installed capacity: 4607 MW Annual generation: GWh Maximum demand: 2226 MW Average load growth : 7.2% Regulated/non-regulated clients: 10%/90% 100% thermal 49% coal 42% natural gas 9% oil Demand is 85% mining industry Population: 6.3% Aysén Installed capacity: MW MW Annual generation: GWh GWh Maximum demand: MW MW Regulated clients: clients: 100% 100% Population: Population: 0.6% 0.6% Sistema de Magallanes Installed capacity: 118 MW Annual generation: 291 GWh Maximum demand: 51 MW Regulated clients: 100% Population: 0.96% Sistema Interconectado Central (SIC) Installed capacity: MW Annual generation: GWh Maximum demand: 7282 MW Average load growth : 5.1% Regulated/non-regulated clients: 55%/45% Thermal/hydro/others: 51%/42%/7% Demand: 92.2% of total population Figure 2. Chilean electricity system. Source: Ministerio de Energia, Chile and Centro de Despacho Economico de Carga, Sistema Interconectado Central (2015) 4 https://www.iea.org/publications/freepublications/publication/chile2009.pdf Market Information Report: Chile 8

9 ELECTRICITY SECTOR STRUCTURE Figure 3 illustrates the structure of the electricity market. Government agencies are indicated by light blue shading and private companies by no shading. POLICY REGULATION GENERATION TRANSMISSION DISTRIBUTION National Energy Commission (CNE) National Energy Commission (CNE) Superintendency of Electricity and Fuels (SEC) 33% ENDESA 42% TRANSELEC 44% CHILECTRA 16% AES Gene 14% CGE 24% CGE Tariffs: National Energy Commission (CNE) 16% Colbum 44% Others 42% Others 35% Others Figure 3. Structure of the electricity sector. Source: Vagliasindi and Besant-Jones Power Market Structure: Revisiting Policy Options Hydro Coal HFO/PetCoke Chile s generation mix has changed significantly since 1999, with a rapid expansion of natural gas and a steep decline (10%) in coal-based production between 2000 and Between 2007 and 2008, Argentina restricted its natural gas exports to Chile, causing Chile to boost its domestic exploration and production of oil and coal. 6 Gas/Diesel Oil Natural Gas Wood Figure 4. Breakdown of electricity generation by fuel type. Source: IEA 2012 Besant-Jones Power Market Structure: Revisiting Policy Options 5 https://www.esmap.org/sites/esmap.org/files/report%20lac%20electricity%20challenge%20octubre%202010%20lesmap%20final.pdf 6 Market Information Report: Chile 9

10 MARKET REGULATION The National Energy Commission the regulator in charge of setting distribution and transmission tariffs was created through Law in Following this, Chile s power sector underwent liberalization beginning with the 1982 Electricity Law, which separated the provision of electricity into three distinct activities: generation, transmission and distribution. The concept of two categories of consumers was also introduced with the Electricity Law, which reflected: 1 Regulated customers: Customers of local distribution companies who pay regular distribution prices plus a node price of energy, based on the marginal cost of energy, a capacity charge and transmission charge 7 2 Non-regulated customers: Customers with maximum demand above 2 MW that are free to negotiate directly with generators for power supply The Electricity Law also introduced a spot market with marginal pricing that offers exclusive access to generators, and opened the power sector to private investment. Between 1983 and 1989, a wave of privatization of state-owned electricity utilities occurred. 8 Generation is organized around the four grid systems outlined in Figure 2. These systems are not integrated, due to the long distances between them. While electricity companies are unregulated, they are obliged to organize their operations through the CDEC (Economic Dispatching Center), which is an independent entity made up of members from each utility to ensure that the grid is efficient and supply is secure. 9 Generators operating in each regional power market declare their availability and marginal operating costs every hour to set the spot price. Regulated prices for electricity generated are determined based on expected spot prices over a four-year period and this price is calculated and remains fixed for six months in April and November. 10 Chile s regulatory framework has weaknesses that have been highlighted by drought events and unexpected supply restrictions (in 2004, Argentina reneged on its natural gas contracts with Chile). As a result of these events, Chile has transitioned to predominantly coal and diesel-based generation. Fragilities in the regulatory framework combined with delays in important electricity infrastructure projects have lead to increasing public concern about the security of Chile s energy matrix. 11 As a result, the Electricity Act has been amended three times in 1999, 2004 and 2005 after the country witnessed electricity shortages. These amendments, most importantly Law and Law , are detailed in Table 1 below. Through its National Energy Strategy, the government of Chile has committed to the long-term diversification of the country s energy matrix and to creating the conditions to make energy cleaner and safer. The strategy prioritizes the incorporation of non-conventional renewable electricity (NCRE) sources and the development of electricity. NCRE sources defined by Chilean law include biomass, geothermal, small hydro plants ( 20 MW), solar, tidal and wind. Table 1. Development of Chile s electricity sector following deregulation 12 LAW GAS IMPORT PROTOCOL 1995 PRIVATIZATION 1995 DROUGHT Creates the Superintendency of Electricity and Fuels, which is responsible for compliance Gas import protocol begins with Argentina (100% dependency) Privatization of generation, distribution and transmission continues Worst drought in history causes energy crisis and the government response is electricity rationing 1999 In response to electricity rationing, a law was enacted forcing distributors to compensate customers for energy losses during electricity rationing. This created incentives to assure supply REDUCTION OF GAS IMPORTS 2004 LAW LEY CORTA 2004 LAW LEY CORTA II 2005 Following Argentine power cuts, Argentina reduced gas exports to Chile causing the country to substitute fuel oil for gas in the midst of a drought. This led to the construction of Chile s first liquid natural gas regasification plants in 2007 Changes calculation of transmission tariffs to address expansion issues, and creates a panel of experts for dispute resolution of technical issues Improves competition conditions in generation activities, distribution agents are required to buy energy through public auctions munoz_and_wolak.pdf 9 Electricity_Sector_Restructuring_in_Chile.pdf National-Energy-Strategy English.pdf. 12 https://books.google.ca/books?id=ogyxvufmqrsc&pg=pa141&lpg=pa141&dq=averag e+frequency+of+interruptions+chile&source=bl&ots=gnjhllgo7j&sig=ahwvkwmn_ FXcp05nw5e7izP3JHI&hl=en&sa=X&ei=YgoTVdfbJIifyQTEmIH4BA&ved=0CDMQ6AE waw#v=onepage&q&f=false Market Information Report: Chile 10

11 Security of energy supply Indicators Total generation (billion kilowatt-hours) GDP growth (2013) 4.1% Net electricity imports (2012, billion kilowatt-hours) 0 Total consumption (billion kilowatt-hours) Reserves (billion barrels) 0.2 Electric network connectedness (low-high) Low SUMMARY OF KEY FINDINGS Security of energy supply is the resilience of the energy system to unique and unforeseeable events that threaten the physical integrity of energy flows or that lead to discontinuous energy price rises, independent of economic fundamentals. (OECD) Relative to Canada, Chile s energy supply is insecure, falling behind China and on par with Colombia. Contributing factors include poor fossil fuel reserves, resulting in Chile s reliance on imports to generate around 60% of its energy. Due to low regional network connectedness, Chile is unable to import or export much electricity, and instead relies on fossil fuel imports and domestic generation. Alongside dependence on imports for supply, demand in Chile is projected to increase 6-7% by These factors create an opportunity for greater integration of renewables, which have the potential to reduce Chile s exposure to global market forces and contribute to a more secure energy supply. TOTAL ELECTRICITY GENERATION AND CONSUMPTION (BILLION KILOWATT-HOURS, 2014) Chile Colombia Canada Generation Consumption Figure 5. Total electricity generation and consumption, billion kilowatthours, Source: EIA and IEA. Note: Data for China not available. Market Information Report: Chile 11

12 Table 2. Electricity imports and exports, billion kilowatt-hours, Source: EIA (billion kwh, 2012) Country Electricity imports Electricity exports Electricity net imports Canada Chile China Colombia PROVEN FOSSIL FUEL RESERVES (BILLION BARRELS) Canada Colombia China Chile Figure 6. Proven fossil fuel reserves, billion barrels, Source: EIA. GENERATION AND CONSUMPTION According to the U.S. Energy Information Administration, in 2013 Chile had GW of installed electricity generation capacity (up from 16,970 MW in 2011 it has quadrupled since then). Generation from NCRE sources almost tripled in 2014 and reached 455 GWh in December Its main sources were wind (172 GWh), followed by bioenergy (104 GWh), mini hydro (89GWh), and solar PV (89 GWh). 13 The Central Interconnected System (SIC) provides 75.2% of the electricity consumed in Chile, and reaches the majority of Chile s citizens (around 46,095 GWh). In addition, 23% of Chile s energy consumption is concentrated in the Northern Interconnected System (SING) (generating 15,872 GWh). The SING is in charge of providing electricity to the country s largest consumer, which is the mining industry, largely located in the north. In 2014, Chile s electric consumption was billion kw. 14 Compared to its neighbours, it is the fifth-largest consumer of energy in South America. 15 But its energy demand is expected to increase significantly in the coming years. Estimates project that electricity consumption will increase from 6% to 7% from 2012 to 2020, 16 and that the country needs to increase its energy supply by 8,000 MW of new projects to meet this demand. Gross Generation (GWH) 70,000 60,000 50,000 40,000 30,000 20,000 10, Wind power Derivatives Biomass Coal Natural Gas Hydroelectric Figure 7. Generation by the SIC and the SING, Source: Energy Ministry, CDEC-SIC, CDEC-SING https://www.iea.org/publications/freepublications/publication/key-world-energy-statistics-2014.html, p Market Information Report: Chile 12

13 ENERGY IMPORTS AND EXPORTS Chile imports 60% of its primary energy, most of which comes from Argentina in the form of natural gas. 17 This heavy reliance on energy imports puts the country at risk of global market trends and uncontrollable climate events. This dependence resulted in a crisis in when Argentina stopped exporting oil to meet domestic demand. OIL As a relatively small producer of fossil fuels, Chile depends heavily on energy imports. In 2013, Chile imported over 300,000 bbl/d of oil, half of which was refined petroleum products and the other half crude oil. Its imports of crude oil are overall regional, from Ecuador, Brazil, Colombia and Argentina. However, most its refined petroleum originates from the United States (143,000 bbl/d in 2013). 18 NATURAL GAS In 2013, Chile imported 140 Bcf of natural gas, most of which was in the form of liquefied natural gas originating from Trinidad and Tobago, Qatar and Yemen. It also imports most of its natural gas from Argentina. Chile plans to increase natural gas supplies in order to meet its growing demand. It currently has two regasification terminals: Mejillones, located in the north, and Quintero, located near urban centres Valparaíso and Santiago. 19 It is looking into other import options, including LNG from the US and other South American countries, mainly made possible by the expansion of the Panama Canal. ELECTRICITY In 2013 Chile had GW of installed electricity generation capacity, one third of which is attributable to hydroelectric plants. Wind and solar capacity have both grown significantly and are expected to have substantial potential. Most of Chile s non-hydroelectric electricity supply is provided by fossil fuels. According to statistics from the Comisión Nacional de Energía, power generation from coal and natural gas has increased in recent years as oil-fired generation has fallen. 20 COAL Chile imports most of the coal it consumes (97% in 2012). In an attempt to curb its dependence on coal imports, Chile approved the Mina Invierno coal-mining project, which began production in 2013 and is expected to meet 30% of Chile s domestic demand eg_main_ pdf https://www.iea.org/publications/freepublications/publication/chile2009.pdf PROVEN RESERVES Chile is poor in fossil fuel resources. In 2013, it was estimated that Chile s had 15 million bbl/d of proven oil reserves. For natural gas, its current proven reserves are bcm. HISTORY CHILE CENTRAL & SOUTH AMERICA WORLD RANK CHILE Proved Reserves (Billion Barrels) , Proved Reserves (Trillion Cubic Feet) , Figure 8: Chile s proved oil reserves (in billion barrels) and proved natural gas reserves (in trillion cubic feet) Source: U.S. Energy Information Administration, Chile (2013) Chile is also home to large shale reserves but its current ability to tap in to this energy source is limited. Moreover, shale gas is located far from urban and commercial centres so it would be costly to ship. Market Information Report: Chile 13

14 GDP GROWTH Demand for electricity may be positively correlated with income and negatively correlated with price. This has been found to be true in an analysis of GDP and price coefficients conducted by the World Bank Group for Latin American countries, including Chile. Between 1986 and 2010, Chile grew at a rate of 5.4%. From 2010 to 2011, Chile s economy experienced one of the fastest growth rates in Latin America, 6.3% year-on-year. However, in 2014, the Chilean economy grew by 1.4%, its lowest rate in the previous five years. One factor that explains this slowdown is China s deceleration, which translates into lower copper and other metal prices, and which impacts Chile s main export sector. Despite sluggish growth in 2014, estimates suggest that the GDP will grow by 2.8% in 2015 and 3.7% in Future growth will be driven by increasing domestic demand and by favourable labour market conditions. 22 Chile s GDP is estimated to grow by 3.7% in 2016 GDP % GROWTH, ANNUAL e 2015f 2016f 2017f Chile Latin American & the Carribean Figure 9: Projected GDP growth, : Latin America and the Caribbean, and Chile. Source: World Bank Country Data Market Information Report: Chile 14

15 NETWORK CONNECTEDNESS Chile s electricity system features two major regional grids, the Northern Interconnected System (SING) in the north, and the Central Interconnected System (SIC) in the centre of the country. An additional eleven isolated mediumsized systems (located in the south, known as the Aysen and Magallanes systems) account for a combined 0.8% of the country s electricity production. 23 Because of Chile s geography, it is impractical and expensive to connect these four distinct networks to one another. Transelec, the main electricity transmission company in Chile, owns 50% of SIC transmission capacity. The SING power system is owned by several companies that each own around 10% to 20% of the transmission capacity. In 2000, Transelec suggested connecting the two major networks but later determined that it was not financially viable. Furthermore, reports suggest that connecting renewable energy generation projects to Chile s electrical grids remains challenging. 24 The government has recently suggested it will play a role in creating utility corridors to facilitate the integration of renewables into the grid https://www.iea.org/publications/freepublications/publication/key-world-energystatistics-2014.html Interconnection in construction Interconnection currently in Planned interconnection Studies Figure 10: Planned interconnection lines between Bolivia, Peru and Chile. Source: Meeting the electricity supply/demand balance in Latin America and the Caribbean, The World Bank, Market Information Report: Chile 15

16 Quality and resilience of electricity supply Indicators Average frequency of interruptions (per connection) 10 Average duration of interruptions (hours per connection per year) 16 Value lost due to electrical outages (% of sales) 1.3% Exposure to severe weather High Access to electricity (% of population) 99.6% SUMMARY OF KEY FINDINGS While the vast majority of Chilean residents have access to electricity, affordability remains a considerable issue particularly in rural and remote areas. Data on the duration and frequency of interruptions in Chile, last available in 2005, indicates that the average duration of electricity interruptions per connection is nearly three times as high as the rates in Canada. The IEA has reported that in Chile, electricity generation is fairly resilient, but transmission and distribution networks are more fragile. Despite being highly exposed to severe weather, ranking 26th on the World Risk Index Rankings, Chile has developed coping and adaptation mechanisms to protect the electricity supply. Though frequency of interruptions per connection per year are five times the Canadian rate, the value lost due to electrical outages accrues to only 1.30% of sales (on par with China). AVERAGE DURATION OF ELECTRICITY INTERRUPTIONS PER CONNECTION (HOURS) Colombia Chile China Canada Figure 11. Average duration of electricity interruptions per connection (hours per customer). Note: information for Chile is out of date (2005) as recent data is not readily available. Source: World Bank Group Benchmarking Analysis of Electricity Distribution in Latin America and the Caribbean, and the University of Waterloo (2014). Market Information Report: Chile 16

17 AVERAGE FREQUENCY OF INTERRUPTIONS PER CONNECTION (NUMBER OF OCCURRENCES PER YEAR) VALUE LOST DUE TO ELECTRICAL OUTAGES (% OF SALES) Canada 0.13% 15 China 1.30% Chile 1.30% Colombia 1.80% % 1.0% 1.5% 2.0% 0 Colombia Chile Canada Figure 13. Value lost due to electrical outages (as a percent of sales). Source: World Bank, Figure 12. Average frequency of electricity interruptions per connection (number of occurrences per year). Note: information for Chile is from 2005 as recent data is not readily available. Source: World Bank Group Benchmarking Analysis of Electricity Distribution in Latin America and the Caribbean, and the University of Waterloo (2014). percentage of rural households with electricity increased by 48% between 1982 & 2002 Table 3. World Risk Index Rankings, measuring exposure to severe weather (where 1 is greatest exposure). Source: United Nations University, Institute for Environment and Human Security. Country Rank Canada 143 Chile 26 China 78 Colombia 79 ACCESS TO ELECTRICITY Between 1982 and 2002, the percentage of households with electricity increased by 48% in rural areas and by 3% in urban areas. 25 In order to ensure access in remote regions, the government and private sector established a rural electrification program to provide investment subsidies of roughly US$1,500 per household to encourage electricity coverage in remote areas. While the electricity network has been extended across the country, affordability remains an issue. 25 Market Information Report: Chile 17

18 RELIABILITY/QUALITY 75 - South America (GRP2) Recent data measuring the reliability of Chile s grids is not readily available. Average duration of interruptions per connection in Chile rose slightly between 2000 and 2005, with interruptions per connection totalling 13 hours in This is roughly similar to the duration of interruptions per connection experienced in Brazil over the same period, but significantly longer than in Argentina or Mexico. Data on the average frequency of interruptions per connection in Chile was only available for , at which time Chile s average was 10 interruptions per connection. Figure 16 plots the most recently available Chilean data on the System Average Interruption Frequency Index (SAIFI) and the average outage duration per customer served (SAIDI) against the operating expenditure per unit of energy sold. Chile s SAIDI decreased between 2001 and 2005, although the duration rose slightly between 2003 and BOL CHL year ECU - South America (GRP2) PRY URY Figure 14. Average duration of interruptions per connection (hours/year). Source: LAC Electricity Benchmarking Database, The World Bank year BOL CHL ECU PRY URY Figure 15. Average frequency of interruptions per connection (number per year), Source: LAC Electricity Benchmarking Database, The World Bank Numbers/customer, hours/customer $ cents/kwh SAIFI SAIDI Total opex per unit sold Figure 16. Quality of electric service in Chile. Source: Vagliasindi, Besant-Jones. Power Market Structure: Revisiting Policy Options Market Information Report: Chile 18

19 RESILIENCE According to a 2012 IEA report, electricity generation in Chile is fairly resilient, while transmission and distribution networks are more fragile due to the radial nature of the two major power systems. 27 The systems have limited transfer capability in place with some network paths being served by single lines, exposing the system to weaknesses. A 2011 trunk transmission study trunk studies are conducted every four years identified and advised on new regulated investment to be undertaken in Chile s transmission infrastructure. Once identified in these trunk studies, projects are tendered and winning tenderers have five years to complete their project. After the 2011 study, 21 projects worth approximately US$880 million were tendered, an investment level that more than doubles average annual transmission system investment levels. 28 Several studies on the integration of Chile s two major power systems (the SIC and the SING) have been conducted in the past. These studies have concluded that the economic benefits are insufficient to justify a regulated investment. VALUE LOST Technical and non-technical (theft) losses have fallen sharply in Chile since Value lost to electrical outages (in terms of percentage of total sales) was 1.6% in 2006, which fell to 1.3% by Value lost to electrical outages was 1.6% of total sales in 2006 & 1.3% in 2010 EXPOSURE TO SEVERE WEATHER The World Risk Index measures country s vulnerabilities and exposures to severe weather, disaster risk and environmental degradation. According to the World Risk Report (2012), relative to other countries, Chile has a very high level of exposure to natural hazards, including earthquakes, storms, floods, droughts and sea level rise. Chile is exposed to relatively frequent droughts, which increases the likelihoods of blackouts in the country. Blackouts such as the one of September 2011 have a major impact on the country s mining and, specifically, copper operations. State copper company, Codelco, lost more than 1,400 tonnes in output in 2011 due to the drought. 30 Chile ranked 19th out of 173 countries on the World Risk Index. Although it is very exposed to natural hazards, the World Risk Report sees that it has generally effective coping and adaptive capacities. There are largely due to effective governance and a low level of susceptibility, given the country s significant experience in responding to severe weather and natural hazards. Chile s scores per the 2012 World Risk Report 31 Exposure = 30.95% (very high): Related to exposure of population to natural hazards, earthquakes, storms, floods, droughts and sea level rise Susceptibility = 20.95% (low): Measures public infrastructure, nutrition, income and economic framework Lack of coping capacity = 57.84% (low): Measures governance, medical care and material sector Lack of adaptive capacity = 40.01% (low): Related to future natural events and climate change Vulnerability = 39.6% (low): Sum of susceptibility, lack of coping capacities and lack of adaptive capacity enc=info%3aofi%2fenc%3autf-8&rfr_id=info:sid/summon.serialssolutions.com&rft_ val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=chile+faces+blackout+ risks+on+frail+grid&rft.jtitle=the+globe+and+mail&rft.date= &rft.issn= &rft.spage=b.6&rft.externaldbid=gbml&rft.externaldocid= https://www.ehs.unu.edu/file/get/10487.pdf Market Information Report: Chile 19

20 Efficiency of electricity supply (Control over rising electricity costs) Indicators Residential prices (US$/MWh) $ Industrial prices (US$/MWh) $ Power transmission and distribution losses (2011) 7% SUMMARY OF KEY FINDINGS Chile s residential and industrial energy prices are some of the highest in Latin America, and much higher than other member countries of the Organisation for Economic Co-operation and Development (OECD) such as Canada. Prices are impacted by lack of connection between the two main regional grids, as well as the varying prices of imports and availability of hydropower resources. Chile s transmission and distribution losses have improved significantly in the past few years. At 7%, Chile s losses are less than half of the Latin American average (16%), and are approaching Canada s average which sits at just under 6 per cent. While relatively low transmission and distribution losses help control electricity costs, high prices driven by other factors may motivate consumers to seek alternative energy sources, creating opportunities for cleantech companies and innovative energy technologies. ELECTRIC POWER TRANSMISSION AND DISTRBUTION LOSSES (% OF OUTPUT) Canada Chile Latin America & Caribbean Figure 17. Transmission and distribution losses, as percent of output ( ). Source: World Bank Group. Market Information Report: Chile 20

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