Trends and developments in Chile: Embracing the Energy Transition through expanded electrical transmission

Chile has embarked on an ambitious journey towards energy transition, framed by its commitment to combat climate change and promote sustainable growth. Recognizing the crucial role of the electrical industry in environmental sustainability, Chile is pushing towards a greener energy matrix, by means of robust regulatory reforms and significant infrastructural upgrades. At the center of these infrastructural upgrades is the expansion of Chile’s electrical transmission system.

Electrical Transmission as a Sustainability Pillar

Institutional Framework and Goals

Chile's approach integrates a comprehensive institutional framework aiming at the complete elimination of emissions from electrical energy sources by 2050. This goal requires important modifications across various sectors, with a special focus on enhancing the electrical transmission systems to support a renewable energy-led infrastructure. Key areas identified for improvement include:

• Renewable and clean electrical generation
• Electromobility enhancements
• Energy efficiency initiatives
• Development of green hydrogen technologies

These sectors are critical as they contribute directly to increasing the country's electrification levels, essential for reducing carbon emissions.

Regulatory Evolution

Significant regulatory changes have been implemented over the past decade, with the most crucial updates enacted through the 2016 Transmission Law (Law N°20.936). This law revised the General Law of Electrical Services to promote increased competition and support the growth of renewable energy, marking a pivotal shift in how electrical transmission is managed and expanded.

Key Challenges and Reforms

Current Challenges

Despite these advancements, the implementation of the Transmission Law has surfaced several challenges, particularly concerning the expansion works of the transmission system:

• High costs associated with expansion bids, often exceeding reference prices significantly.
• Frequent occurrence of deserted tender calls, indicating potential inefficiencies or lack of attractiveness in the projects.
• Delays and conflicts in the execution of awarded expansion projects.

These issues highlight the complexities involved in upgrading Chile's transmission infrastructure –a critical element in the nation’s decarbonization strategy.

Legislative Responses

As Chile continues to navigate the complexities of its energy transition, legislative advancements play a crucial role. In this regard, the Chilean Congress is currently debating the Energetic Transition Bill, aimed at further refining the regulatory landscape to facilitate smoother and more effective infrastructural developments. The bill proposes:

• More precise accountability mechanisms for project bidding and execution.
• Revised investment valuation processes to adapt to real-time financial dynamics during project implementation.
• Enhanced roles and responsibilities for private owners and operators in managing tender processes and project executions.

The legislative process of the Energetic Transition Bill begins with its first constitutional procedure in the Senate, where it undergoes debate and voting. If passed, the bill progresses to the Chamber of Deputies for further consideration. This procedural path ensures that the bill is scrutinized at every stage, allowing for modifications that align with the evolving needs of the energy sector and the interests of several constituencies. Even though the bill could vary during the legislative process, some of the relevant changes it proposes are the following:

The bill places the responsibility of developing tender processes and overseeing the execution of expansion work on the private owner, which includes developing the terms and conditions of the tender. Currently, under the Transmission Law, such responsibility is placed on ¬a Coordinating Body, whose role now would be limited to reviewing the terms of the tender, request changes if any are needed, and overseeing free competition during the bidding process.

The bill also introduces a mechanism to review the investment value for which the expansion work was awarded, if it has suffered substantial changes that are not attributable to the private owner and the contract has been terminated early. When submitting its request, the owner will have to propose an updated investment value, indicating its calculation method.

Regarding expansion work that has already been tendered, and whose contracts have been terminated early, the Bill also includes a transitional rule that allows their owners to request the review of the investment value.
The inclusion of transitional rules for projects with early terminated contracts further underscores the bill’s comprehensive approach to addressing ongoing challenges within the sector. By facilitating the reevaluation of investment values under these circumstances, the bill ensures that financial adjustments reflect current realities, safeguarding the interests of both investors and the public.

Implications for the Future

Through these legislative reforms, Chile is setting a robust foundation for a competitive and transparent bidding environment. These efforts are not only pivotal for achieving the nation’s 2050 emission elimination goals but also for enhancing investor confidence, thus driving forward the economic and environmental sustainability of Chile’s energy infrastructure.

The ongoing legislative efforts are expected to streamline project implementations and foster a competitive, yet fair, bidding environment. By addressing the technical and financial asymmetries in the current system, these reforms are poised to accelerate the pace of Chile’s energy transition, ensuring that the country meets its ambitious 2050 goals.

Moreover, these developments are likely to bolster investor confidence by enhancing the transparency and efficiency of the regulatory processes associated with Chile’s electrical transmission sector. As these reforms take shape, they promise to significantly impact the overall sustainability and economic viability of the nation’s energy infrastructure.