Subscriber Login

Features

Chile Grid Initiatives: Regulatory framework to support RE projects [free access]

September 9, 2016

In recent years, Chile has emerged as a leader of Latin America’s renewable energy (RE) market. However, at present, the country’s RE industry is struggling due to slow economic growth, declining demand from mining and copper industries (which have been the key consumers of solar energy) due to the slow global economic growth, and limited development of transmission network, all of which have reduced the spot power prices significantly in the country. During the first quarter of 2016, the spot price of RE reduced to zero, due to which companies are struggling to generate revenue and cover the costs of maintaining their power plants.

 

Chile’s transmission sector has suffered from years of underinvestment, which has led to congestion on the main routes. As per the energy ministry, there are at least seven or eight points in the country’s transmission network that are collapsed and blocked, and enormous challenges are associated with bypassing the choked points in the network.

 

Chile has four regional networks, namely, the Sistema Interconectado Central (SIC), the Sistema Interconectado del Norte Grande (SING), the Aysen electric system (including Port Aysen and Coyhaique), and the Magallanes electric system (including Punta Arenas, Port Porvenir and Port Natives). These four systems are not interconnected. Due to this, oversupply in one region cannot be absorbed by other parts of the country. Majority of the solar power generation is concentrated in the northern region of the country in Atacama, which is also home to the copper industry and is being served by SIC. Solar capacity in the region has more than quadrupled to 770 MW since 2013. During the last year, the total installed capacity in the region grew by 5 per cent, half of which was solar energy based, whereas the demand shrank significantly with the 1.8 per cent fall in industrial production in the region. This has created a huge mismatch between power supply and demand in the SIC region and being an isolated power network, excess power cannot be sent to other parts of the country.

 

Considering this, the government is now focusing on strengthening the country’s power transmission network. In this regard, it recently approved the Power Transmission Bill to create a new regulatory framework for electricity transmission. The bill's main aim is to facilitate the transportation of electricity generated by renewable energy sources to consumers, reduce electricity prices for households and businesses, and foster a competitive market with the entry of more players.

 

With plans to interconnect the SIN and SING grids, for which projects are underway, the bill proposes to create a single independent coordinator for the two systems known as Coordinador Independiente del Sistema Eléctrico Nacional (CISEN). The new coordinator will have a seven-member board of directors, elected by a yet-to-be-defined public–private committee. The board will have members representing the interests of generators, distributors and consumers. The CISEN is likely to be up and running by January 1, 2017.

 

In addition, the country is investing in various power transmission projects to support the existing and upcoming power generation capacity. Based on the cost of the projects mentioned in the Plan de Expansión del Sistema de Transmisión Troncal 2015, more than USD9.24 billion is likely to be invested in Chile’s power transmission network during 2016–23.  

 

Existing power transmission network

One of the early adopters of electricity sector reforms, Chile began to privatise its electricity sector in the 1980s and since then has become a model to follow for most other countries in Latin America. Presently, the electricity generation, transmission and distribution sectors are completely in private hands. The state has only a surveillance role and regulatory powers, especially over the determination of certain tariffs.

 

Transelec S.A., Transnet S.A., AES Gener S.A., and E-CL S.A. are the transmission companies operating in the country. Transelec, which was formed in 1993 after the restructuring of Chile’s National Electricity Company ENDESA, operates the largest share of the network. As of 2015, it owned 91 per cent of the SIC trunk system and 100 per cent of the SING trunk system and spent almost USD1,030 million on their expansion during 2007–15.

 

As of 2015, Chile’s transmission network comprised 18,435 km of 100 kV to 500 kV lines. More than 59 per cent of Chile’s network was at the 220 kV level, 27 per cent was at 110 kV, 5 per cent each were at 154 kV and 500 kV, and the rest was at the 345 kV and 100 kV levels.  Between 2006 and 2015, Chile’s transmission line length increased at a compound annual growth rate (CAGR) of 3.2 per cent. Chile’s grid is interconnected with that of Argentina via a 345 kV link.

 

Upcoming power transmission capacity

During 2016-31, a total of 6,662 MW of new power generation capacity is likely to be added in the country. Of this, about 1,728 MW is expected to be added between 2016 and 2020 and another 1,144 MW between 2021 and 2025. The majority of this capacity will be renewable energy, to support the government’s ambitious renewable energy target of 20 per cent of total generation by 2025. However, given the rapid development of wind and solar projects in the country, Chile is likely to achieve its target before 2025.

 

To support this generation capacity, CDEC-SIC’s Plan de Expansión del Sistema de Transmisión Troncal 2015 mentions 24 key transmission projects at the 220 kV and 500 kV levels, which are likely to add over 2,837 km of line length and 12,975 MVA of transformer capacity during 2016−25. Of this, 2,038 km or 72 per cent will be added at the 500 kV level, and the remaining at the 220 kV level.

 

Investments in the country’s power transmission network aim at strengthening the domestic grid, connecting renewable energy projects, and setting up high voltage interconnections. Investments will also support projects aimed to curb congestion and connect large-scale power generation projects to the grid.

 

Some of the key projects are the SIC–SING interconnection, Aysén–SIC interconnection Phase I, the Pan de Azúcar–Punta Colorada–Maitencillo line, the Energía Austral transmission system, the Andean power interconnection project and the Chile–Peru interconnection project.

 

Chile has already awarded the SING–SIC interconnection project to Transmisora Eléctrica de Norte (TEN), a joint venture between Chile-based companies Red Eléctrica Chile (REC) and E-CL. REC is owned by Spain’s Red Eléctrica de España and E-CL is owned by France’s ENGIE (formerly known as GDF-Suez). This project involves the construction of about 580 km of transmission lines at an estimated cost of USD860 million and is scheduled to be fully operational in 2017.  

 

In addition to this project, a 500 kV line has been awarded, which is expected to reduce the congestion in the northern portion of the SIC and will also help in the transmission of large amounts of renewable energy. This is the Polpaico–Cardones line, which will also allow the SIC–SING interconnection to function at maximal capacity. This USD1 billion project is being developed by InterChile, the local unit of the Colombian transmission firm Interconexión Eléctrica (ISA). It includes 753 km of lines from the Cardones substation outside Copiapo in the northern Atacama region to the Polpaico substation outside Santiago. The project is expected to be completed by 2017. 

 

Centro de Despacho Económico de Carga del Sistema Interconectado del Norte Grande (CDEC-SING), the operator of SING, is also part of the Sistema de Integración Eléctrica Andina (SINEA) Interconnection Project or the Andean power interconnection project, which aims to link the power grids of SINEA countries including Chile, Ecuador, Colombia, Peru and Bolivia. CDEC-SING has reportedly conducted three technical and economic feasibility studies in Chile as part of the SINEA project. The studies have been conducted for a possible power interconnection with Peru.

 

Outlook

Being one of the fastest growing economies in Latin America, Chile holds vast investment opportunities for power sector investors. The country’s efforts to reduce its dependence on energy imports and increase the share of renewable energy in its total energy mix will be the key drivers for investment in the power transmission network. To tap these investment opportunities, the country must follow a systematic approach to developing its power transmission network in tandem with generation capacity. In this regard, Chile’s effort to connect its key power transmission systems, SIC and SING, is an important step. According to the government, this will reduce electricity prices, increase renewable energy generation and boost competition in the electricity sector.

 

A well-functioning transmission system is necessary for the development of an efficient energy market. Chile’s proposed reforms are thus in the right direction. The Power Transmission Bill is expected to lead to greater efficiency and transparency, improve competition, and reduce energy costs for end consumers. It is also expected to lead to the timely completion of projects, as pre-planning by the state will avoid the environmental and community conflicts that are currently delaying several private sector initiatives.

 

Box 1: Chile’s Transmission Bill

The bill grants greater powers to the state and more incentives to build new lines. It facilitates authorities to build a robust transmission network to transport energy between Arica in the far north and Chiloé Island in the south, under the SIC–SING grid interconnection project.

 

The law allows for energy supply to regulated clients at lower prices, which will have a direct impact on electricity bills and reduce the risks currently perceived by investors in the sector. Investment in transmission is expected to increase significantly over the coming years.

 

Under the reforms, the state will formulate long-term plans that will define the strategic transmission corridors in line with the government’s future energy strategy. The new expansion projects will be considered in regions where there are resources or where there exist specific conditions for the efficient production of electricity.

 

The state is also responsible for carrying out early consultations and for implementing public participation processes for new transmission lines, holding land-zoning discussions, as well as securing environmental permits. The routes will then be auctioned to private developers who will design the final paths, negotiate with landowners for rights-of-way, and undertake the construction and operation of the projects. The bill also establishes new transmission line categories, namely, national (trunk), zonal (sub-transmission) and dedicated (additional) systems. The transmission costs will be allocated to consumers through a postage-stamp method, unlike in the current system where generators pay for transmission costs. 

 

Table 1: List of key upcoming transmission projects in Chile

Project

Voltage (kV)

Line length (km)

Cost (USD million)

Scheduled completion

Pan de Azúcar–Maitencillo line

500

201.60

              1,000

2018

Maitencillo–Punta Colorada–Pan de Azúcar line

220

197.14

 NA

2021

Polpaico–Pan de Azúcar line

500

404.00

 NA

2018

Carrera Pinto–San Andrés–Nueva Cardones line

220

156.00

                    78

2021

Diego de Almagro–Cumbres line

220

NA

                    60

2019

Los Changos–Cumbres–Nueva Cardones line

500

589.00

 NA

2018

Las Palmas–Pan de Azúcar line

220

154.22

                    80

2021

Las Palmas–Nogales line

220

171.52

                    92

2021

Rapel–A. Melipilla line

220

117.10

 NA

2018

Polpaico–Lo Almendros–Alto Jahuel line

500

116.20

 NA

2022

Charrúa–Ancoa line

500

197.00

                  140

2017

Charrúa–Mulchén line

500

60.00

                    88

2023

Mulchén–Cautín line

500

144.00

                  144

2023

Cautín–Ciruelos line

500

115.00

                  134

2022

Ciruelos–Pichirropulli line

500

71.00

                    88

2023

Note: NA – not available

Source: CDEC SIC