1. CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of The Birchman Group is strictly prohibited. The Birchman Group “Non-Fossil Fuels in Chile Cambridge Energy Forum October 21 st, 2010

2. Knowledge Integrity Pragmatism Focus Partnership Contents 2 Energy Policy Priorities Energy Supply Security Carbon Footprint Critical Issues on the Energy Agenda Opportunities for Non-fossil Fuels Critical Developments in the Next 5-10 Years.

3. Knowledge Integrity Pragmatism Focus Partnership Energy policy based on three priorities: 1. Energy Sourcing Security. 2. Carbon Footprint of Energy Sector. 3. Competitive energy prices. Stated Goal: “By 2020, non-fossil fuels should amount to 20% of total energy consumption” 3 Energy Policy Priorities in Chile

4. Knowledge Integrity Pragmatism Focus Partnership Energy supply breakdown 4

5. Knowledge Integrity Pragmatism Focus Partnership 5 Growing Demand for Electric Energy  Electric power system in 2008: Installed capacity: 12,847 MW Gross generation: 55,912 GWh.  Demand for electricity grows at faster rate than GDP, and will remain doing so in the foreseeable future

6. Knowledge Integrity Pragmatism Focus Partnership 6 Energy Supply Security Chile’s energy supply is vulnerable:  High dependence on imported oil, natural gas and coal Price volatility Unreliable sourcing  High growth in energy demand together with lack of back-up and alternative sourcing.  Mix change over recent years: From natural gas and hydro to diesel and coal Argentina natural gas incident Environmental impact holding back large scale hydro

7. Knowledge Integrity Pragmatism Focus Partnership 7 Carbon Footprint of Energy Sector Growth rate in GHG: GHG Emissions: Annual % Growth Rates 1990-2007 Chile3.67 OECD0.93 Latin America3.08 World1.9 This is a serious problem for Chile’s exports

8. Knowledge Integrity Pragmatism Focus Partnership 8 Critical issues on the Energy Agenda  Reduce dependence on imported energy sources.  Reaching 20% of energy from non-fossil fuel sources will require investment of US$ 12.5 billion  Electricity framework (bill No. 20.257): Goals for SIC and SING grids -  5% renewable by 2010  10% renewable by 2024

9. Knowledge Integrity Pragmatism Focus Partnership 9 Diversidad de Suministro

10. Knowledge Integrity Pragmatism Focus Partnership 10 Critical issues on the Energy Agenda  Reduce dependence on imported energy sources.  Reaching 20% of energy from non-fossil fuel sources will require investment of US$ 12.5 billion  Electricity bill (No. 20.257): Goals for SIC and SING grids -  5% renewable by 2010  10% renewable by 2024  Increase portfolio of non-fossil fuel project s:  reduce regulatory barriers  open market through more competitive and realistic pricing  reduce barriers for connecting to the grid  develop promotion and subsidy instruments

11. Knowledge Integrity Pragmatism Focus Partnership 11 Increase portfolio of non-fossil fuel projects: TipoEn OperaciónEn ConstrucciónAprobadosEn Trámite NºMWNºMWNºMWNºMW Mini Hidro26186,25957,440314343 Eólico6166,98120261.904257 Solar----19128 Biogás12313,14128-- Biomasa9153,8347,77137-- Total4250916138,2752.3926128 Present status:

12. Knowledge Integrity Pragmatism Focus Partnership 12 The Cost Challenge  The Electric Power bill with its ERNC requirements and fines should make funding available for these projects.  Solar and tidal (wave) energy appear too expensive.  Micro-hydro, wind and geo-themal become competitive in a fine scenario.  Wind requires a plant factor in excess of 28%; micro-hydro sites need to be close to the transmission grid.

13. Knowledge Integrity Pragmatism Focus Partnership Critical Developments in the Next 5-10 Years 13 Passing the 20% NCRE by 2020 bill Improve transmission grid that will make feasible more micro-hydro projects Develop clusters of micro-hydro Solve environmental issues around gethermal in national parks and tourism attraction – in depth studies on the impact on geysers Pass stronger air pollution regulations outside the metropolitan Santiago area(to increase hurdle on coal) Hard to get project finance for projects < 100 MW

14. CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of The Birchman Group is strictly prohibited. MUCHAS GRACIAS!