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State of Affairs in Chile Country Context
History
Chile is a was one of Latin America’s fastest growing economies over the past decade, and has reduced the population living under the poverty line from 30% in 200 to just 6,4% in 2017. Much of this growth could be attributed to the performance of copper mining in the country, with 32.8% of the GDP originating in the industrial sector [48]. However, after growing by 4% in 2018, GDP growth fell to 1.8% in H1 2019 due to difficult external circumstances, poor climatic conditions and a delay in some Government reforms – this was exacerbated by the 2019 cost of living protests and subsequent cancellation of COP25 [49,50].
The twelve-month rolling central government deficit remained at just 1.7% of GDP in the first half of 2019, yet despite the GDP growth slowdown, electricity demand is expected to continue to grow as the population is more wealthy [51]. Although Chile is still recovering from the effects of copper prices bottoming out, greening the electricity sector is strong opportunity for the Chilean economy [52].
In 2018, Chile’s energy production was 13 Mtoe, whereas the total primary energy supply was 39 Mtoe, covering a final consumption of 76.99 TWh [53]. To cover demand, Chile is currently reliant on commodity imports, importing 45,875,000 TJ of natural gas and 825,000 Mtoe of coal in 2017 [53]. Despite some low-grade coal deposits in the country, extraction costs are too high and Chile imports up to 85% of the coal it uses [54]. Chile also imports all the natural gas it uses, and the diplomatic crisis of the mid 2000s between Argentina and Chile severely curtailed electricity production from natural gas in Chile [55]. When trade restarted in 2018, it was seen as lifeline for Chile to wean itself off coal as renewable energy was installed in the following decade [56].
As the electricity sector is privately owned, investment must come from private sources. The introduction of the renewable energy law (Law 20.257) saw an increase in investment with a spike of USD$2 billion in 2012 to meet the requirements of the Law. However, given the considerable potential of NCRE in Chile, convincing financial institutions to provide loans for the high initial cost projects was difficult, despite the significant positive and negative impacts on economic output and CO2 emissions respectively [57]. Insufficient financing schemes and system integration barriers were again identified as a key barrier to implementation of the approve projects, as well as volatile energy prices, insufficient local products, and regulatory barriers [58]. However, by the end of the decade, $14.8B had been invested in renewable energy, with the majority of that after 2014 [59]. Although much of the country is state owned land, the Ministry of State Assets is actively looking to hand out concessions for renewable energy projects to facilitate NCRE deployment [60].
Electricity Sector Profile
The electrical system is privately owned. Before 2017, the grid was split into 4 regions, with the SIC and SING grids accounting for the vast majority of demand. In 2017 Chile connected the SING and SIC grids to form Sistema Electricidad Nacional (SEN). The main transmission grid operator is Transelect, whilst the main distributors are ENEL Distribución, Companía general de Electricidad Distribution, Sociedad Austral de Electricidad, and Chilquinta Energy [61]. A more complete list of the main operators can be found below in Table 1. The electricity market is divided in three: regulated customers (clientes regulados), unregulated customers (free customers), and the spot market [62]. As such, the investment is, in the end, fronted by the private sector, who bid at auctions for contracts (see below Figure 1).
In 2018, installed capacity was 23.315 GW, and end demand was 69.323 GWh, made up 49% of regulated customers and 51% free customers.
Compared to just 5% a few years ago, NCRE (excluding large hydropower) now accounts for 20.8% of the country’s energy supply [64]. This success was in part due to the energy auction system in Chile. The full generation mix is seen in Figure 2 [65]. Before 2005, prices were regulated by the CNE. In 2005, an auction system was created in which potential suppliers would bid to supply energy at a certain price, and the technology for the supply would not be revealed in the bid; most recently, the 2019 auction saw bids for supplying up to 5.6 TWh for the years 2026-2040 [66].
If energy auctions do not meet renewable targets, separate renewable auctions may be held, although in the last 4 years renewable energy has dominated auctions [62].
Compared to other South American countries, Chile has a few unique features. In Brazil, energy auctions are, for example, A-3 or A-5 as they must begin operation within 3 or 5 years [67], and from these PPA are determined and signed by the respective parties, normally for 20 years for wind and solar and 30 years for hydropower. Peru has technology-specific pay-as-bid sealed-bid auctions, so renewables have their own auctions [67].
Chile has similar auctions, yet the main differences are that Chile has no start date deadline, and Chile has time block based auctions as well to allow NCRE to be more competitive, allowing, say, solar to provide power just in the daytime [66]. This was revolutionary in the rise of NCRE in Chile, and was instituted in 2014. The situation in Argentina is different. Auctions are held specifically for renewable energy in the RenovAr energy auction, where up to 400 MW of capacity is auctioned at a time in Mini-rounds and more in larger rounds (although for 400 MW opened up in 2018, 269 MW was won) [68,69]. Three rounds have been completed, and the fourth is due to come live soon.
Due to geographical limitations imposed by the Andes mountain range, Chile has limited power connections with other countries in the region. Currently there is a 700 MW interconnection with Argentina, and a planned 300 MW interconnection with Peru from 2021/22. However, in December 2011 Argentina revoked the electricity export license for Salta (the border town) so there is currently no trade [63]. The cost of production for electricity in Chile is higher than in Peru, so it is likely that in the near term Chile would be a net importer of electricity from Peru [70].
Potential
Chile has excellent solar resources, especially in the Atacama desert which receives unusually high levels of solar irradiation equivalent to 2400 kWh/kWp per year [71]. Although PV technology will likely continue dominating investments in the region in the coming years, and makes up roughly 1/7 of all projects in the global project pipeline, Chile has the highest number of CSP projects in the project pipeline in the world, with an estimated 5500 MW in the pipeline [72]. The most notable current examples are the SolarReserve Tamarugal Solar Plant, a 450 MW project approved and to be operated by USA company SolarReserve, and Cerro Dominador at 110 MW. Chile also has a considerable project pipeline for wind energy, ranking 4th globally for wind capacity under development at approximately 8.4 GW of on-shore capacity [73].
Chile’s raw potential to electricity from renewable energy sources (rather than NCRE) stands at 12 GW for hydroelectric, 1 TW for solar, 40 GW for wind and 16 GW for geothermal [74].
Overall then, Chile has favourable geographic conditions for renewable energy, political conviction backing industry and an attractive regulatory environment, with just a few barriers impeding the deployment.
Institutional Environment
Table 2 below provides a summary of the institutional environment in Chile with key institutions, plans & strategies, pledges and targets, laws and regulations. Below Table 2 is a deeper dive into how the institutions are relevant for the research topics of this paper, as well as supporting evidence for the analysis that has been conducted on the institutional environment. It is important to evaluate the institutional environment for two reasons. First, renewable energy introduction in Chile was heavily influenced by legislation, and this trend looks to continue. Second, the results of the thesis are compared to the NDC for Chile, a policy document which is a result of the collaboration of all aspects of Chilean society.
According to the NDC the intended emissions shall not exceed 1175 MtCO2eq cumulative between the years 2020 and 2030, and intend to reach a peak of in the year 2027 (excluding the LULUCF sector) [91]. This sets a definitive metric of comparison for the GHG emissions results of each scenario.
The Minister of Energy, Juan Carlos Jobet, is the head of the main policy decision maker in the company, and is committed to sectoral mitigation with his steadfast backing of Energía Zero Carbon, Chile’s plan to be carbon neutral by 2050, stating “the main mandate is to facilitate the development of clean generation capacity and a balanced matrix that serves the people” [92]. The focal point for the Ministry of Energy for climate change and renewable energy is the head of the Sustainable Development and Climate Change Division, at a mid-seniority level [42,93].
Recently, the sector has given priority to climate mitigation and renewable energy installation through various plans and measures: the Council for Minister for Sustainability adopted the “Mitigation Plan for the Energy Sector” to align sector plans with the NDC, whilst on June 05th the Ministry announced a radical decarbonisation plan that would see coal completely removed from the matrix by 2040. This accompanied the rapid uptake of renewable energy by electricity providers after the introduction of the Energy Agenda 2050 and the Chilean auction structure [94]. Priority was also given to climate mitigation in Energía 2050, Ruta Energética, Estrategía Nacional de Electromobilidad, and Guía Chile Energía.
Ministry of Energy uses the 2050 carbon neutral long-term target and feeds this into short-term policy implementation. The 2018-2022 Energy Pathway is structured into 7 axes, the fourth of which details low-emission energy, and uses this policy document to realise the (at the time) target of 70% renewables by 2050. Distinct short-term planning based on long-term targets are seen elsewhere in policy too, such as in the National Energy Policy which is split into three time frames: short-term (to 2022), medium term (to 2035) and long-term (to 2050) [80,95].
The Chilean electricity and heating sector’s GHG emissions are covered in the national inventory, and other transparency framework measures are reviewed on an individual basis and presented in the BUR, major policy documents such as the National Energy Policy, and on individual websites. The most prominent of review mechanisms seems to be “MRV de politicas y acciones de mitigación del sector energía” [MRV of mitigation policies and actions in the energy sector] [96].
Overall, the institutional environment shows strong support to the deployment of non-conventional renewable energy (solar, wind, small hydro, biomass), and there are both regulatory organisation ensuring targets are met, and laws to guarantee that Chile’s energy mix moves to a great NCRE share [27,75,76,82,85].
Methodology
The purpose of modelling energy systems is typically to gain insight into future performance of the system based on historical data to aid decision making [97]. This is not just for accounting though; it also aids in the optimisation of energy resources, and can also be conducted with limited historical data if sound scientific assumptions are made. This thesis uses OSeMOSYS to model the system. Scenario and M odelling A pproach: O pen Source Energy M odelling System (OSeM OSY S)
Origins of the OSeMOSYS model
OSeMOSYS is of the family of bottom-up, or techno-economic, models designed for long-term energy planning. Unlike other models, such as MARKAL/TIMES, OSeMOSYS is completely free to use as the code is written in GNU MathProg or Python (both open source), and uses the free solver GLPK to calculate results, whilst MoManI (Model Management Infrastructure) is used as an interface [11]. Furthermore, the model allows the user to include the existing capital stock and its remaining lifespan. However, the model faces several weaknesses including operational requirements, governmental regulations/institutional conditions and socioeconomic situations, broader economic context and external shocks (such as the 2008 financial crisis).
In order to define the optimal pathways, the model uses the given technologies for production and necessary associated fuels to match the demand given to the model over the relevant time period, all of which is given as an input. The model allows for users to add constraints to the system, and with these three-broad categories of inputs, creates and solves a system of linear equations. The original design of the system was in “blocks” of functionality to allow for users to update and modify the system easily to their own requirements. The seven original blocks were: objective (function); costs; storage; capacity adequacy; energy balance; constraints; and emissions [98]. The overall structure can be seen in Figure 3, whilst a detailed description can be found in the Annex for how the blocks interlink to minimise the objective function.
Techno-economic parameters used in the model
There are two distinct sets of data in the model: time dependent, and time independent.
Time independent is the data which is constant across the modelling period, but may vary for each technology. Table 3 below describes the time independent parameters, as well as their units [99].
Designing a Reference Energy System for Chile
A Reference Energy System (RES) is a graphic of the particular energy system to be modelled. As standard, technologies are depicted as blocks whilst services (such as fuels) are depicted as lines [98]. This allows the designer to have a clear visual representation with which to model their system, and also allows those analysing the results to see the model set up without having to go into the code or interface itself.
Scenarios
Chile has committed to removing coal from the energy matrix by 2040, and to be carbon neutral by 2050 [81]. In order to answer the research question, “What will be the GHG emissions and investment costs if Chile achieves its goal to be coal free by 2040?”, this thesis used three scenarios. First was a (1) B usiness as U sual scenario, including just the 2040 coal plant decommissions. This scenario includes power purchase agreements (PPAs) up to 2026 which includes coal and natural gas production. The volume of the production from coal and natural gas was taken from historical production, as seen in the Anuario Estadistica [65].
Table of contents :
1 Introduction
1.4.1 Policy for renewable energy investment and GHG emission
1.4.2 Power system modelling tools
1.4.3 Power system models in the global context
1.4.4 Power system and related models in Chile
2 State of Affairs in Chile
2.1.1 History
2.1.2 Electricity Sector Profile
2.1.3 Potential
3 Methodology
3.1.1 Origins of the OSeMOSYS model
3.1.2 Techno-economic parameters used in the model
3.1.3 Designing a Reference Energy System for Chile
3.1.4 Scenarios
3.2.1 Global assumptions
3.2.2 Specific data sources and assumptions
3.2.3 Sensitivity Analysis
4 Results
Scenario 2: No Power Purchase Agreements Scenario
Scenario 3: Non-Conventional Renewable Energy Scenario
Results of sensitivity analysis
Model calibration
5 Discussion
6 Conclusion
7 Further research
8 Annexes
Model calibration
9 References
