www.systep.cl

Social and environmental challenges in power system

development in Chile

Sebastian Mocarquer, Hugh Rudnick

1

2013 IEEE Power & Energy Society General Meeting

Shaping the Future Energy Industry

www.systep.cl

The power of social movements

2

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Perú

Hydroelectric Inambari – 2,000 MW

Brazil

Hydroelectric Belo Monte – 11,000 MW

The power of social movements

3

Social rejection

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The power of social movements

4

Social rejection

Argentina - Brazil

Hydroelectric Garabí – 1,600 MW

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The power of social movements

5

Social rejection

Perú

Hydroelectric Inambari – 2,000 MW

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Outline

Economy, society and energy development

Social challenges and energy policy

Diagnosis

Actions taken to face the crisis

Results and challenges

Final remarks

6

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Chilean Electricity Systems (June 2013)

7

Source: CDEC, 2013

Gross Capacity Electricity Generation Maximum demand Population

Arica y Parinacota 3,955 MW 14,830 GWh 2,016 MW 5.7%

Tarapacá 21.4% 23.2%

AntofagastaTaltal

Atacama

Coquimbo

Valparaiso

Región Metropolitana 14,345 MW 48,868 GWh 6,185 MW 92.6%

Lib. Gral. Bdo. O'higgins 77.7% 76.3%

Bío-Bío

Araucanía

Los Ríos

Los Lagos

Chiloé

Aysén 47 MW 98 GWh 20.4 MW 0.6%

0.3% 0.2%

Magallanes 118 MW 260 GWh 50.2 MW 1.1%

0.6% 0.4%

SINGSistema Interconectado Del Norte Grande

SICSistema Interconectado Central

SEASistema de Aysén

SAMSistema de

Magallanes

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Quick overview:

Chilean electricity market

Based on a competitive market

Private competitive investment

in generation

Regulated private investment

in T&D

Generation developers decide

upon private assessment what,

where, when and how much new

capacity is needed.

Technology neutrality except for

renewable quota (10%)

Must comply with enviromental

regulation by applying for licence.

Little or no land use regulation.

8

23.0%

25.9%

16.2%

13.0%

19.9%

1.2% 0.9%

Hydro Dam

Natural Gas

Diesel

Hydro Run of RiverCoal

Wind

Installed net capacity per technology year 2011

Source: CNE, 2012

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Economy targets: grow, grow, grow…

Policy Target: grow 6 % per year in order to reach the currently

GDP per capita of Portugal and the Czech Republic.

9

Source: Banco Central, CNE June 2013

-2%

0%

2%

4%

6%

8%

10%

0

20,000

40,000

60,000

80,000

100,000

120,0001

99

9

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Energy (GWh)

Energy (GWh) Energy Projected (GWh) Energy growth rate (%) GDP growth rate (%)

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39%

33%

28%

23%22% 20%

19%

14% 15% 14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1990 1992 1994 1996 1998 2000 2003 2006 2009 2012

Indigent poverty Non-indigent poverty

But…outstanding social challenges

Source: CASEN Survey 1990-2012

• Even though poverty rates have been steadily declining, 14% of the population still lives in poverty conditions.

10

• Chile has one of the world´s highest Gini (inequality) index.

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Source: World Bank, INE July 2013

Chile and the world (2012)

11

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000

GDP per capita

Electric power consumption (kWh per capita)

(US$ at current price 2013)

India

United Kingdom

Spain

Germany

France

USA

OECD

Chile 2000

World

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000

GDP per capita

Electric power consumption (kWh per capita)

(US$ at current price 2013)

India

United Kingdom

Spain

Germany

France

USA

OECD

Chile 2000

World

Chile 2010

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000

GDP per capita

Electric power consumption (kWh per capita)

(US$ at current price 2013)

India

United Kingdom

Spain

Germany

France

USA

OECD

Chile 2020 (expected)

Chile 2000

World

Chile 2010

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0 20 40 60 80 100 120 140 160 180

Japón 1

Eslovaquia 2

República Checa 3

Alemania 4

Chile 5

Austria*** 6

Irlanda 7

España 8

Portugal 9

Turquía 10

Bélgica 11

Hungría 12

Suiza 13

Reino Unido 14

Eslovenia 15

Grecia 16

Polonia 17

Francia 18

Holanda 19

Luxemburgo 20

México 21

Dinamarca 22

Finlandia 23

OCDE* 24

Suecia 25

Israel 26

Estonia* 27

Nueva Zelanda 28

Noruega 29

Estados Unidos 30

Korea** 31

Precio energía industrial

050100150200250300350

1 Hungría2 Eslovaquia3 Alemania4 Polonia5 España6 Dinamarca7 Portugal8 Turquía9 República Checa10 Italia11 Chile12 Austria13 Eslovenia14 Irlanda15 Bélgica16 Holanda17 Japón18 Reino Unido19 Estonia*20 Suecia21 Nueva Zelanda22 Grecia23 Luxemburgo24 OCDE25 Finlandia26 Francia27 México28 Israel29 Suiza30 Korea31 Estados Unidos32 Noruega33 Canadá*

Precio energía residencial

US$/MWh

But…can Chile’s electricity market foster

such development?

12

Source: IEA, OCDE 2011

Industrial energy price Residential energy price

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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Gross capacity[MW]

Run of River Dam Coal Gas Diesel Biomass Wind Solar Max Demand

Milestones in the Chilean electricity

system: market mechanisms

13

Natural gas

Gas crisis

OC turbines and motors

Diesel Hydroelectricity

and

coal expansion

Coal and

renewables

1980 2011

1982Statutory Decree Nº1

General Law on

Electricity Utilities

1997Regulations Applicable to

the General Law on

Electricoty Utilities

2004Short Law I

2005Short Law II

2006Technical Standard

on Service Quality

and Assurance

2007Statutory Decree Nº 4

General Law on

Electricity Utilities

2008Law 20.257

ERNC quota

obligation

1985Organic Law of the

Superintendence of

Electricity and Fuels

1982 World pioneer

in deregulation

1996 Natural gas from Argentina

Arrives to Chile

1998 - 1999 Hydro crisis and units failures

Regulatory changes

2004-2005 Gas curtailments to Chile

Auction mechanisms introduced

2008 -2013 Drought scenarios

Social rejection

LNG supply Renewable quota

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2004-2013: Gas crisis, earthquake and dry hydrologies

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Source: CDEC-SIC, June 2013

0

50

100

150

200

250

300

350

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5

2006 2007 2008 2009 2010 2011 2012 2013

US$/MWhGWhRun of river Dam Wind Coal Gas LNG Other Diesel Marginal cost (US$/MWh)

High energy prices for the past seven years.

Perfect storm or market failure?

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Short term challenges

Chilean central system

15

Spot price reached 312 US$/MWh in June 2013

Low reservoir levels → High water value

Power plant failures: Nehuenco II (398 MW) and Santa Maria (342

MW)

Several power plants shut down for maintenance

0

50

100

150

200

250

300

350

0 1000 2000 3000 4000 5000 6000 7000 8000

Variable Cost US$/MWh

Available Capacity MW

Supply curve June 26

Run of riverWind

Biomass

CC - LNG

Minimum demand

Coal

Diesel DieselDam

OC - LNG

Peak demand

Source: CDEC-SIC, June 2013

Supply and demand curve - June 26, 2013 Storage level of the main reservoirs in

the Chilean electric system

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However, widespread rejection to power

plants…

16

HidroAysén

Hydroelectric - 2,750 MW Investment 3,200 MMUS$

May 2012

Coal-fired - 540 MW) Investment 1,100 MMUS$

April 2009

Barrancones

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However, widespread rejection to power

plants…

17

Wind - 112 MW Investment 235 MMUS$

July 2011

Geothermal - 40 MW Investment 180 MMUS$

July 2010

Biomass - 35 MW Investment 95 MMUS$

October 2010

Including renewable projects

Tatio Pichidegua Chiloé

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Example: Organized opposition to large

hydro developments

HydroAysen project

Five hydroelectric plants in two

pristine rivers in Patagonia at a

cost of $3.2 billion

Total: 2750 MW – (18.430

GWh/year)

Flood area: 5.910 ha

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Do you agree with the

construction of HidroAysén?

Agree

31.7%

Disagre

e

48.4%

Neither

agree

nor

disagree

4.0%

Don't

know

15.5%

No

opinion

0.4%

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But what do people want?

Population willing to pay or sacrifice economic

growth to protect the environment

19

Are you willing to pay more for your electricity

bill just to protect the environment?

No

22,79%

Yes

77,21%

Preferences in Brazil, Chile and Peru

Source: Latin America Goes Electric:

The Growing Social Challenges of Hydroelectric Development, IEEE power & energy magazine, May -June 2013

But do they know the real cost of electricity?

Source: Fundación Jaime Guzmán, Survey 2011

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Do people understand the real cost of

energy?

50.2% of the population believes that solar and coal

energy are free.

20

Source: Fundación Jaime Guzmán, Survey 2011

Perception of Chilean society regarding

energy costs of generation technology

Coal Nuclear Diesel Natural gas Hydroelectric Solar Wind

Expensive 15% 65% 68% 57% 54% 27% 25%

Normal 21% 6% 20% 29% 22% 8% 12%

Free 57% 8% 8% 11% 15% 50% 42%

Don't know 7% 20% 4% 2% 8% 13% 21%

No response 0% 1% 0% 1% 0% 1% 1%

Total 100% 100% 100% 100% 100% 100% 100%

Important gap between the public’s expectation and reality.

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Litigious scenario faced by projects

Several energy projects of different technologies have been trapped in approval processes, and most end up in the judicial system.

Coal: Castilla (2,100 MW)

Pacífico (350 MW)

Barrancones (540 MW)

Punta Alcalde (740 MW)

Hydro: HidroAysén (2,750 MW)

Cuervo (640 MW)

Neltume (490 MW)

Wind: Chiloé (100 MW)

Arauco (100 MW)

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Source: SEIA, Systep, press, June 2013

8,139 MW projects have

been rejected or challenged

in court

Technology Projects

Installed

Capacity

MW

Coal 4 3,730

Diesel 1 254

Hydro 3 3,880

Wind 2 200

Geothermal 1 40

Biomass 1 35

Total 12 8,139

Prosecuted projects in recent years

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Goverment actions

Direct intervention in blocking previously approved coal fired plant (Barrancones, 350 MW)

Creation of broad experts commission on energy policy and formulation of National Energy Strategy No direct consequences of these actions

Proposed regulatory changes Transmission concession Law

Transmission Highway

Transmission interconnection

Increase Renewables Quota

None really aiming at the main issue: generation adequacy in this new context.

22

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So where are we?

1. Generalized social rejection

due to environmental issues

2. Projects trapped in approval

processes, often in the judicial

system.

3. Regulatory uncertainty

23

Long term

1. Low hydro generation

(4 consecutive dry years)

2. Transmission constraints

Short term

1. High energy prices

2. Almost no forward

contracts offered

3. Uncertain market

development

4. Stalled generation

expansion

5. Reduced reliability

Chile’s development is

challenged

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Market versus society?

Chile has respondend to different crisis through

intensifying market mechanisms.

However, prices have remained persistently high.

Risk in the market has frozen new power expansion.

New context: empowered public opinion

Awareness fueled by access to readily available

information through internet and social media

Organized opposition and political support

High expectations, similar to rich countries

Open question: Has the market failed in Chile?

24

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Where are we headed?

Projects under construction might not be enough to

supply incremental demand by 2016

25

Source: CNE, SEIA June 2013

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2013 2014 2015 2016 2017 2018 2019 2020

MW

Hydro Coal LNG

Diesel Renewable Incremental demand

Spread 1,243 MW

Projects under construction vs Incremental demand

Gap will probably be filled with expensive LNG, diesel and renewables

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What are our options?

26

Technology

Levelized cost [US$/MWh] Projects with environmental

approval [MW]

Projects under environmental

evaluation [MW] min average max

Hydro run of river 75 93 115 1,687 1,376

Hydro dams 75 96 113 2,750 0

Coal 98 101 105 6,500 0

Small hydro 75 102 140 336 48

LNG CC 96 105 114 929 1,332

Solar (PV) 98 119 147 3,714 1,878

Wind 91 137 184 4,660 2,101

Geothermal 112 138 142 120 0

Oil fired 244 287 329 1,683 0

TOTAL 22,380 6,735

Source: IEA 2011, SEA 2013, CNE 2013, SYSTEP 2013

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HELP! What do we do now?

27

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The not so new context…

The context for new investments has changed for

ever in the developing world (not only for energy)

BAU is not feasible anymore

New challenges of different nature

Educate public opinion as early as possible

An uneducated public may cripple development

Role for governments, but also of the private sector

Strong political leadership is a must

Swift actions and guidance for the market and public

opinion

Need to develop common vision for the future

Danger of partisan positions clouding main issues

28

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The not so new context…

Land use management plans according to

national policies

Overcome conflictive uses of land (population, tourism,

industrial development, indigenous communities, etc.)

Embrace civil society participation in licensing

and approval process

Civil society as a partner and not an enemy

Establish clear mechanisms for compensations to

local communities for local impacts

National interests complementary to serving local needs

29

www.systep.cl

Social and environmental challenges in power system

development in Chile

Sebastian Mocarquer, Hugh Rudnick

30

2013 IEEE Power & Energy Society General Meeting

Shaping the Future Energy Industry