Research and analysis

Chile: expansion of renewable energy

Published 28 November 2014

This research and analysis was withdrawn on 3 August 2016

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Chile

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Chile

Summary

Chile is rapidly expanding its renewable energy production, in part due to greater domestic policy support. This is important for global climate change goals and opens up commercial opportunities for the UK.

Detail

Chile is a treasure trove for renewable energy. The country has a very good investment climate, high energy prices, some of the highest solar radiation in the world in the northern Atacama desert and increasingly, a supportive policy environment. Solar and marine energy resources could each provide ten times the entire installed electricity generation capacity. Being on the ‘Ring of Fire’ Chile also has substantial geothermal potential, as well as good wind and hydro resources.

Renewable energy generation is expanding rapidly. This year Chile will add a gigawatt (GW) of renewable energy (out of a total electricity capacity of 18GW). In total, renewable energy currently makes up 41% of the matrix. This is diversifying from established hydro electricity; other types of renewable energy have doubled in the last two years, to 10% of installed capacity. This is mostly wind and biomass, but the pipeline is strongest in solar. There are currently 855MW of all types of renewables projects under construction.

This year has seen a spate of high profile ceremonies for large renewable energy projects. The latest was last month, when President Michelle Bachelet launched the construction of a 141MW solar project, said to be the largest of its kind in Latin America. However, the President has also stopped some controversial large hydro projects. Some mining companies, which use 40% of Chile’s electricity, have recently financed large renewables projects to supply their energy-hungry mines. Whilst renewables projects are bounding ahead, last month also saw one of Chile’s largest energy companies postpone a 740MW coal plant, partly because ‘supply of, and preference for, renewable energy projects has increased considerably’.

Policy support for renewable energy is also increasing. A year ago, Congress approved doubling the renewable energy target to 20% by 2025. Electricity generators have to source an increasing proportion of renewable energy, or pay fines, meaning there is an implicit price support to renewables. The government introduced a carbon tax in September. And last month, it approved a reform allowing small scale renewables projects to feed directly to the grid and receive payments for the surplus electricity generated. However, . access to grid interconnection points and acquiring land use permits can still be problematic. Positively, financing for renewable energy is also increasing, given support from the state economic development agency, but also private banks (one following concessional renewables financing from the European Investment Bank).

There is a geopolitical angle to renewable energy in Chile. The country has few domestic fossil fuel resources and therefore imports over 60% of its primary energy requirements. This leaves it exposed to international price movements and temperamental suppliers. Greater renewables production would mean greater self sufficiency and lower risk to Chilean energy supplies.

Comment

Rapid deployment of renewable energy in Chile is important for global climate change goals. It also provides commercial opportunities for UK firms.

British companies are playing a crucial role in the development of the Chilean renewable energy industry. RAME Energy has developed 12% of all Chilean wind energy projects to date and is now expanding in to solar. ACTIS, a British private equity firm, is investing £1bn in wind and solar here over the next three years, to develop 600MW of renewables projects. Ernst and Young, PWC and KPMG all have a renewable energy side to their business here. And smaller companies such as marine energy experts Aquatera have also set up in Chile. The Chilean government is very open to further investment from the UK in the energy sector, as the Energy and Mining Ministers have mentioned recently.

Our policy engagement to help spur renewable energy development can open up opportunities for UK companies. There are export opportunities for UK firms in the renewables sector, particularly in professional services (financing, consultancy, engineering etc) and the supply chain for renewables equipment. Energy supply to mining is a key component of our High Value Opportunity in Mining.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.