Message from Ambassadors

CHILE: The Renewable
Energy Factory
Julio FiolAmbassador of the Republic of Chile to Japan
H.E. Mr. Julio Fiol was assigned as Ambassador to Japan in December 2018 with a 34 year career in the diplomatic service.
Before his arrival was appointed as DCM in Washington D.C. and serving as Consul in New York and Miami. His assignments
have represented Chile to Italy and Mexico, the Social Division of the UN, the hemispheric Security Conference, the Academyof International Law in The Hague, and the Committee on Constitutional and Legal Affairs at FAO. In Santiago he was Chiefof Staff of the Directorate General of Consular and Immigration Affairs and National Director of Frontiers and Borders of Chile
under the Chilean Foreign Ministry and later Vice Director General for Disarmament Affairs and International Security. He isa graduated lawyer and added courses at the Institute of International Studies, both from the University of Chile.

I am sure most of you are familiar with Chile, arelatively small however interesting country withits singularities. Monetary interest rate and inflation
have been under control for at least the last 3
decades. Sovereign ratings are only comparable tofully developed OECD economies.
Our performance lays on strong institutionalpillars: Rule of law, solid institutions, clear government
politics & macroeconomic stability. Global rankings
continue considering Chile as the leading economy inLatin America in terms of Economic Freedom1, justbelow Germany as for Business Environment,
according to EIU2. Best Countries for Doing Business3
and WEF4 has been ranking Chile as the #1 mostcompetitive nation in Latin America for the last 20years !!!
Our high standard Sovereign Ratings5, including
since this year the JCRA6, have set us for a long time
as reliable partners in an attractive investment
environment which has defined a strong inward FDIof abt 20 billion USD (annual average). In a global
point of view a healthy, stable world class economic
performance country for at least the last 3 decades.
Stability and not volatility is in the core of ourcountry policy.
Our country was born naturally isolated, with
the Andes on our back, the Atacama desert in theNorth, Antarctic icelands in the South and ourcommon Pacific Ocean in the west. As so, the focus
had to be shifted to be driven for years by322019.9

recognizing and connecting opportunities on ourexternal sectors. In this case is sharing theinvestment opportunities in the new energies sector,
specifically the electric sector and its relation withworld’s SDGs7, a critical strategy for the planet.
The basic concept of our electric market has
been called “active transparency” in a cost efficiency
structure. This is enforced by the ministry of Energy
by means of it’s regulatory and control institutions:
the National Energy Commission (CNE) and theSuperintendency of Electricity and Fuels (SEC).
They relate to the overall regulation and standards.
The third key player is directly involved withthe operation of the system in its whole acting. It is
the National Independent Electric Coordinator,
known as Coordinator. It coordinates 4428 generation& transmission companies in a joint operation atminimum cost. In the short term defines capacities
on demand, determines on line spot transaction tolls
among generation companies on instant marginal
costs and in the long run it develops studies andreports about expansion needs and future trends
which will be called in public tenders wheneverneeded. This is its mandate: to assure sufficiency
and security of the national electric system,
guaranteeing access to all transmission systems foreveryone who requires it, providing full, open online information for everybody in order to guarantee
transparent decisions.
Public tenders are called to supply energy to theregulated sector9. Prices of these tenders have beenfalling the last years significantly and, according to
the last figures, it was roughly over USD 32/MWh.
This is one of the most competitive prices of energy
in the world.
As for those clients, whose connected power
exceeds 5000KW10, the law provides full pricefreedom, assuming their negotiation power and thepossibility of providing electricity on a self-generationbase or with direct supply from generators.
Strictly speaking there is a mid condition inthis group of free clients. When connected capacity
is greater than 500KW and under 5000KW, they
can choose which regime to subscribe (free orregulated), for a period of 4 years. During the last 2
years regulated clients have increasingly migrated
due to the free system. Lower generation costs
coming specially from solar farms have allowed
this trend which is expected to continue increasing.

Generation segment is an attractive open
marketplace
The matrix of our national electric system is mainly
based on a thermo - hydro generation. Total installedcapacity (May 2019)11 is 25.1GW and anual growthrate has been in average about 3%. Gross generation
cummulated during 2018 was 75.541GW with ananual growth rate of 2%. As per May 2019, 47% of
our matrix is coming from renewable sources,
almost 27% from hydropower, part as traditional
big reservoirs and the rest in many run-off or bypass generation companies, 10.4% solar, 7.7% windand 1.8% biomass energy, geothermal energy isminimum.
The other two main sources are non renewable :coal (22%) and LNG12 (19.4%). Diesel or oil
derivated fossil fuels have been decreasing, however
they still represent 11.4% of the grid, basically insome more isolated areas of our territory or asbackup.
Regarding new renewable sources, private
investors make decisions based on signals,
information and business environment. It is widely
known that it has been steadily growing and now

represent almost 20% of our national grid. It grew
3 times during the last years. In 2014 only 6% ofour grid came from solar. In 2018 over 13% of ourenergy comes from solar sources.
If we only concentrate on projects underconstruction, the next chart illustrates their estimatedsingularities in terms of timings to be operating,investment figures and unitary costs13.
Solar and wind projects accomplish over 85%
of the total renewable power pipeline14. They also
have shorter construction timings to operate andlower gross investment figures.
The highest investment is still solar thermal
generation (CSP & other) however these sources
have other conditions that make it a very favorable
option. They operate as a large electricity storage
systems which avoid, at a low cost, the intermittencyof non conventional renewable energies.
The first CSP project in South America (CerroDominador) will start operating in the next years
with CSP-tower technology that flattens energy
supply, solar during the day and thermal during thenight. Asian and multilateral funding is consideredin it’s finantial strategy. Another thermal-solar
plant (Valhalla), a pumped hydro storage plant will
operate a 600MW PV15 solar during the day topump seawater that is returned for generating hydroenergy during the night. This is now considered
one of the most innovative infrastructure projects
in the world.

Decarbonization strategy will lead future
trends for investment
Last June President Sebastian Piñera announced
the initial phase for decarbonization of our nationalgrid. No more coal based plants will be opened andthe first 1.047MW, about 20% of the actual grid
will be gradually closed starting this year with 2old plants.
This process has placed a special pressure toassure future demand. Last outlooks carried on by
the National Electric Coordinator indicate that in2038 demand will have increased around 57%,
mainly guided by the increase of free clients growth.
2019.933

As it can be seen the main
additional sources considered in thisforecast are solar and wind. In ahighly dependant hydro grid, 2 main
scenarios are considered for climate
and specially low precipitation
situations. By 2030, in the normal
situation (Scenario 1) additional solar
penetration is estimated to be between
6.5GW to 11GW and wind power
between 2GW to 5GW. For theclimate stressed scenrio, additional
supply must be doubled reaching
additional supply of about 30GW. All
this must be carried with a competitive
insertion of storage technologies, thenext technological revolution to allow
this massive growth, and one of the“biggest private mportunity in all ofhistory”16.
These renewable sources will
help cleaning footprints for mining
industry processed in Chile, andthis will be the key element forelectromobilty revolution. Greenenergy for green copper and green
batteries for electric vehicles.

Estimated consumption (MWh)freeregulated

Scenario 1

Scenario 2

1Heritage Foundation (2018)

2

Economist Intelligence Unit

3Forbes (2018)

4

World Economic Forum14

CNE: Monthly report ; May 20195

Moody (A1 stable); S&P (AA- stable); Fitch

15

Photovoltaic solar plant		(A stable); JCRA (AA- stable)

16

Al Gore (1975)

6

Japan Credit Rating Agency (2019)7

Sustainable Development Goals (in relation		to Environment)

8

CNE: Monthly report ; May 2019

9SMEs and residential customers; End users		

whose connected power is less than or equal		

to 5000 KWh

10Free clients

11Gigawatt = 1,000 MW = 1,000,000 KW

12Liquified Natural Gas

13

Fuel cost not included

34

2019.9INVESTCHILE - Embassy of Chile to Japan
Vicente PINTO - Investment Commissioner for Asia
vpinto@investchile.gob.cl / www.investchile.gob.cl
Shiba Koen Hanshin Bldg. 7F, 3-1-14 Shiba,Minato-ku, Tokyo 105-0014, Japan