Chile: Energy Transition Without Subsidies

Until 2013, the country largely depended on expensive energy imports (especially gas and coal)  – that didn't always work smoothly, as Chile felt bitterly post-millenial. At that time, neighbour Argentina turned off their gas supply claiming personal use and the lights went out in the capital of Santiago de Chile.

This blackout led to a rethink. The Chilean government teamed up with experts from around the world to draw up a plan for the country's future energy supply – and found excellent conditions for the expansion of renewable energies: Although hydropower has always played a major role in the energy mix, the focus has now shifted to solar energy. Nowhere else in the world the sun's intensity is greater than in the northern Chile Atacama desert – not even in the huge African deserts. In addition to a generally dry landscape in large parts of the country, the altitude in the Andes is also high enough to produce strong levels of radiation.

No wonder, then, that Chile now hosts one of the most effective solar power plants in the world. However, geothermal energy and wind power have also come increasingly into focus in recent years and are being strongly expanded. Since the first projects were completed in 2014/15, the share of solar and wind energy has already risen from 6 to 19 percent. And further expansion targets look ambitious: By 2025, 20 percent of the energy mix is to be generated from renewable sources. By 2035 this figure is to be increased to 60 and by 2050 to 70 percent, as Germany Trade & Invest (GTAI) - a company responsible for the foreign trade and location marketing of Germany - says. Unofficially, it is even assumed that this figure could be raised to 90 percent.

The Atacama desert has the highest solar intensity in the world (Picture: Pixabay)

Success proves the government right. „What our country is currently experiencing is not only an energy transition, it is an energy revolution," says Chilean Energy Minister Andrés Rebolledo enthusiastically in an interview with German media outlet SVZ. Tenders have been issued in Chile since 2013, with the prime premise of creating a reliable and affordable energy supply, while climate protection is less important. That's why invitations to tender are open to all technologies – it's the only price determining the winner of the contract. However, in times when wind and solar energy can keep up with the prices for fossil fuels, the energy transition has been stimulated by these measures.

There are no subsidies paid at all, the state merely acts as a supervisory and control body and lays down legal foundations such as expansion targets and feed-in regulations. The bidders apply by stating the quantity of electricity and their price proposal. The most favourable projects are awarded the contracts which are carried out until the amount of energy required for a period of three years has been met. Remuneration is variable according to market mechanisms. The system has been working well so far, with approval of large parts of the population as well as politicians. "Our energy policy is a consensus from the far right to the far left," emphasizes Rebolledo.

At first sight this landscape appears to be hostile, but it is well suited as a location for renewable energies (Picture: Pixabay)

One company that was awarded the contract in the latest call for tenders is Fotowatio Renewable Ventures (FRV) from Spain, specialising in renewable energy projects. After having implemented Latin American projects in Uruguay and Mexico, the company has participated in an auction in Chile and won a contract for 540 GWh. This corresponds to 25 percent of the total electricity tendered (2,200 GWh). 224,000 households are to be supplied with renewable energy after completion of the projects.

FRV says Chile is a "key region" for the energy industry worldwide. Manuel Pavón, Managing Director of FRV for Latin America, explains why: "The award is good news for FRV's expansion plans in a market as attractive as Chile, given its economic and political stability and proven management experience in initiatives of this scale."

In addition, the good geographical conditions are ideal for another premiere: FRV plans to set up their first hybrid solar-wind project in Chile, combining photovoltaic and wind energy technologies. Andrea Fontana, Managing Director of FRV's Wind Energy Division: "Solar and wind technologies have a lot in common and a high degree of maturity, so that they can lead the transition to clean energy worldwide. At FRV, we see wind energy as a natural progression of our consolidated solar experience and we will continue to invest in it.“