ELECTRICITY SECTOR IN CHILE ADJUSTMENT IN TIMES OF CHANGE ENERGY DAY LIMA, JULY 3th, 2012 Vivianne Blanlot Soza

ADJUSTMENT OVER TIME 1990-2004: CONSOLIDATION AND INTEGRATION OF GAS 2004-2010: THE END OF AN ERA 2010-2012: NEW SCENARIOS, NEW REQUIREMENTS GREAT QUESTIONS THE NEED OF AN AGREED STRATEGY CONCLUSIONS

1990-2002: CONSOLIDATION AND INTEGRATION OF GAS PRIVATIZED ELECTRICITY SECTOR MODEL OF PRIVATE DECENTRALIZED DEVELOPMENT IN FULL IMPLEMENTATION HYDROELECTRIC DEVELOPMENT IN CENTRAL AREA AND CARBON IN THE NORTH INTRODUCTION OF ARGENTINIAN NATURAL GAS BETWEEN 2006 AND 2007 - SIGNIFICANT COST REDUCTION IMPLEMENTATION OF NEW ENVIRONMENTAL STANDARDS SINCE 1994

2002-2010: THE END OF AN ERA 2000-2001: CHANGE OF THE ECONOMIC ENERGY MODEL IN ARGENTINA - CHRONICLE OF A DEATH FORETOLD FOR NATURAL GAS IN CHILE 2002-2004: INACTIVITY TO FIRST SIGNS 2004-2007: BEGINNING OF THE "PERFECT STORM" DIFFICULT ADJUSTMENT, THE RETURN OF CARBON. HIGH PRICES OF IMPORTED FUELS CHANGE OF SPEECH: long-term strategy, better planning, diversification.

2010-2012: NEW SCENARIOS, NEW REQUIREMENTS IN THE SOCIO-ENVIRONMENTAL AREA THE EMERGENCE OF SOCIAL NETWORKS AND MOBILIZATION AGAINST INVESTMENTS IN ELECTRICITY SECTOR INSTALLATION OF LOGIC ECOLOGIST IN PERCEPTION OF CITIZENSHIP MAJOR ENVIRONMENTAL REQUIREMENTS CONFLICT BETWEEN ALTERNATIVE ECONOMIC ACTIVITIES LITIGATION OF CONFLICTS

2010-2012: NEW SCENARIOS, NEW REQUIREMENTS IN THE REGULATORY AREA SLOWNESS IN ADMINISTRATIVE PROCEDURES: Concessions and easements Environmental qualification UNCERTAINTY AND RISK IN CRITICAL INVESTMENTS: Transmission Alternative sources

NEW SCENARIOS, NEW REQUIREMENTS GREAT QUESTIONS ENERGY SOURCES: INVOLVEMENT OF NCRE, CARBON, HYDROLECTRICITY, NUCLEAR, LNG. ECONOMIC, ENVIRONMENTAL AND SOCIAL FEASIBILITY: energy-environment conciliation: requirements, rules and restrictions. local and national interest conciliation: local economic development, land use, policy of using natural resources.

NEW SCENARIOS, NEW REQUIREMENTS GREAT QUESTIONS DEGREE OF STATE INTERFERENCE. PLANNING OF TRANSMISSION SYSTEMS DEVELOPMENT PROCESS OF TRANSMISSION SYSTEMS LAND USE PLANNING

NEW SCENARIOS, NEW REQUIREMENTS THE NEED OF AN AGREED STRATEGY INITIATIVES OF ANALYSIS AND STRATEGY PLANNING CADE ENERGY SCENARIOS CCTP

THE NEED OF AN AGREED STRATEGY CADE COMMISSION EXPERT – POLITICAL MAINSTREAMING MANDATE: Long term analysis Resources, scenarios, regulation, environmental and social aspects Proposals for discussion

CONTRIBUTIONS OF CADE: STUDY OF SCENARIOS 2012-2030 Working simulations to assess the effect of various policies, based on possible scenarios and known potential of the alternative sources. Demand growth between 4,5% and 5,5% per year in the SIC Demand growth between 3,5% and 4,7% per year in the SING Base scenario (BAU) with current policies Different scenarios with alternative policies and restrictions

CONTRIBUTIONS OF CADE: STUDY OF SCENARIOS 2012-2030 Advantage of Interconnection SIC-SING In the SIC The most competitive technologies are the large-scale hydraulic power generation, geothermal and mini hydroelectric power plants. Limit the development of large hydroelectric projects increases the cost between 7,0% and 7,5%, and increases the CO2 emissions between 37% and 39% depending on the rate of penetration of NCRE. Without development of large-scale hydroelectric projects, 3.300 MW nuclear and 3.200 MW of carbon are required.

CONTRIBUTIONS OF CADE: STUDY OF SCENARIOS In the SING Depending on demand, the most competitive expansion would be concentrated in carbon, nuclear energy, geothermal and wind technology. Interconnection allows to delay nuclear option if large-scale hydroelectricity is developed.

CONTRIBUTION OF CADE: STUDY OF SCENARIOS 2012-2030 NCRE Good potential of competitive NCRE under current regulatory framework: penetration between 12% and 20% by 2024 20/20 NCREs → additional cost of USD 304 million (1,6%). 20/20 based on quotes of technologies → increased costs of USD 1.600 million (8,8%) Taxes on emissions → surcharge of 0,8% (USD 151 million) → increase (USD 97/MW) of the monomic price. → replace of coal-fired power plants (about 500 MW) by solar, wind, mini-hydro and LNG-fired power plants.

CONTRIBUTION OF CADE: PROPOSALS Planning of transmission: long term-width to ensure solidity of great role system of the State in the identification of systems of public interest. Land use definitions: limited areas – dedicated areas – tendering areas in energy development hubs Improving methodologies and procedures in environmental management

CONTRIBUTION OF CADE: PROPOSALS Discussion participatory systems of energy policies Deepening of dialogue schemes and participation in environmental and social assessment of investment

CONCLUSIONS: THE CURRENT CROSSROAD HIGH UNCERTAINTY TO EXPAND GENERATION: Rejection of projects to administrative and judicial level has increased. It affects all kinds of projects. LONG DEADLINES TO EXPAND TRANSMISSION PROJECTIONS OF THE HIGH COSTS IN ENERGY FOR THE NEXT YEARS

CONCLUSIONS THE COUNTRY NEEDS TO REACH A SUBSTANTIVE AGREEMENTS ABOUT: ENERGY SOURCES ENVIRONMENTAL REQUIREMENTS LAND USE ADVISORY PROCEDURES WITH NATIVE COMMUNITIES THERE ARE ANALYSIS, INFORMATION AND TECHNICAL CAPACITY, BUT… A HIGH-COMPLEXITY DIALOGUE PROCESS AT POLITICAL AND SOCIAL LEVEL IS REQUIRED, FOR WHICH THERE ARE NO PRECEDENTS IN CHILE. WITHOUT IT, THE ENERGY DEVELOPMENT WILL CONTINUE TO BE TORTUOUS AND UNCERTAIN.