Diversification of the energy matrix in the metropolitan region of Santiago de Chile with focus on renewable energies

Master's Thesis, 2011

109 Pages, Grade: 1,3



List of abbreviations

0. Introduction

1. Cities & their relation to energy
1.1. Historical Context
1.2. The development of Santiago in the context of Latin American cities
1.3. Project Context
1.4. Urbanization & Energy

2. Energy Situation
2.1. Introduction and development of energy matrix
2.2. Concepts of Energy Security

3. The electricity sector
3.1. The electricity grid in Chile
3.2. The reform process until
3.3. Post-Privatization period and the electricity market structure
3.4. Framework for Renewable Energy Integration
3.5. Technology Approach – Smart Grids
3.6. Approaches to Electricity Security and Recommendations

4. Diversification Options
4.1. Demand Side Options
4.1.1. Energy Efficiency
4.2. Transport Sector
4.3. Commercial, public and residential sector
4.4. Industry Sector
4.5. Regulatory measures
4.6. Supply Side Options
4.6.1. Renewable Energies
4.6.2. Renewable Energies in the Chilean context
4.5.3. Hydropower
4.6.4. Geothermal Energy
4.6.5. Wind Power
4.6.6. Biomass & Biofuels
4.6.7. Ocean Energy
4.6.8. Solar Energy
4.6.9. Indigenous Resources
4.6.10. Nuclear Power

5. Recommendations and Outlook

6. Bibliography

7. Appendix

List of abbreviations

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0. Introduction

The Republic of Chile is located in the south west of America with Peru, Bolivia and Argentina as neighboring countries. The geographical profile includes 39 grades of latitude with an north-south extension of 4300km which provides diverse climatic and geographical conditions. Located in the north, the driest place on earth, the Atacama desert, with an N-S extension of nearly 1700 km. The central region, where the majority of Chilean population lives, is characterized through a Mediterranean climate with the highest point of the Andes called “Ojos de Salado” reaching 6880 meters. In the southern zone predominates a rainy temperate climate with yearly precipitation of 5000 mm.[1]

Chile is one of the most successful countries in the southern hemisphere in terms of political stability, economic growth and pioneered a market reform process in the electricity sector. With the end of the Pinochets’ dictatorship in 1990 the economy regained its pace and since then grew faster than any other country in the region. The economy is largely based on abundant mineral resources mostly located in the north as well as agriculture, forestry products and fishing. By 2008, Chile had signed trade agreements with 58 countries including the United States, China, the EU and Japan as the most important trading partners. Due to its liberal free market policy thinking export share has risen in two decades from 26 to 45 percent in 2006. Sound monetary policies and anti-fiscal management enabled a fast recuperation through stabilizers such as the Economic and Social Stabilization Fund as well as the Copper Stabilization Fund with savings of more than USD 21 billion (12 percent of GDP, because of high copper prices in the last two years) by the end of 2008.[2] The unemployment rate remained near nine percent with a low inflation rate of three percent. Due to the vigorously reducing interest rate from 8.25 percent to 0.5 percent the central bank has set an impulse on the monetary side in the first half of 2009 that permitted an strong incentive for investments to stimulate the economy after the property markets crash in the United States.[3] In total numbers Chile has been developed very successfully reaching the highest GDP per capita in PPP term of USD 14500 in 2008, ahead of Brazil and Argentina which totaled 236 billion US-Dollar in the same year.[4] This has lifted the share of people that came out of poverty from 54.9 percent in 1987 to 86.3 percent in 2006.[5] For its merits on economic sound policy making and political stability Chile has become the first OECD member in South and Central America by January 2010. This membership marks a milestone and can be seen as model for other countries in the region.[6]

On the other side, a high growth demands more energy and causes more environmental impacts. This work will investigate the energy situation of Chile. The country has suffered from three severe energy crisis in the past two decades and is highly dependent on imports of fossil fuels that contribute a high percentage to the primary energy matrix. The focus will be on the central electrical grid, the SIC,[7] which has an extension of more than 2000 kilometers and provides more than the half of the overall energy for around 90 percent of the population living in Chile.

The work is embedded in the ‘Risk Habitat Megacity’ project, with Santiago de Chile as model city for investigation, more detailed explained in the first chapter. Urbanization and energy consumption are closely related, especially considering the fact, that the majority of the Chilean population lives in urban areas. The phenomena is not only observable in Latin American Countries (LACs), but is a world wide trend, as well as the evolution of the Metropolitan Region of Santiago de Chile (MR). The chapter briefly describes the historical development of Santiago and its relevance today. It shows the immense importance of cities, such as Santiago, in terms of today's economy and what make them important in the context of their possible contribution to a sustainable development.

Chapter two examines the historical and current energy situation with respect to security of energy supply in Chile. It describes the three most recent energy crisis and the reasons for this developments. The different concepts of energy security are employed and applied on the Chilean case.

Chapter three examines the basic characteristics of the Chilean electricity grid. The deregulation and privatization process in the longest running in history and serves in the world as example for a developed and developing countries alike. The first reform steps were undertaken in the late 1970s with the foundation of the National Commission of Electricity and a law of 1982. In a first step the reform process until 2000 is examined. Then the policy framework has changed in favor of NCRE, especially in the recent decade. The Post-privatization process follows with an analysis of the challenges and opportunities to improve the electricity market. The last part introduces approaches to electricity security and closes the electricity section with recommendations and international experience of RE implementation.

The increased or additional energy and electricity demand can by covered in very different way concerning the demand and the supply measures, detailed analyzed in chapter four. In this context the a sector analysis of the MR is done to figure out the potential contributions of the MR to lower the energy needs. On the demand side intelligent Demand Side Management (DSM) programs, smart grids and integrated energy efficiency measures as they are implemented, for example, in California or Italy in the electricity sector. At the supply side, Chiles indigenous natural resources will be analyzed that could cover a part of the future energy demand, the implementation of renewable energies such as hydropower, geothermal energy, solar power, wind energy, biomass as well as ocean energy and the possible option of nuclear energy are discussed. The final section concludes the previous outcomes.

The work aims to develop an energy policy approach, that is so far by June 2011 non-existent. A perspective for the year 2030, where all measures are integrated that will result in a significant improvement for the energy security, especially the implementation of these measurements will contribute to the ultimate governments goals of economic efficiency, social and environmental sustainability and energy security.[8] The second target is largely expressed in the 2008 program to fight climate change, which would co-benefit of the implementation of NCRE in the SIC grid lowering the GHG emission in comparison to fossil resources. The government has to consider, that the development of an integrated comprehensive approach for energy and electricity security is not only important for an uninterrupted functioning of the economy, the supply security for consumers and pathway for sustainable development but as well as the way to keep the energy costs in the long-term perspective at a reasonable level with less influences from the world market, as the energy generation will be more independent in future.

1. Cities & their relation to energy

1.1. Historical Context

The phenomena of cities is not an occurrence of recent history. The first human settlements already existed in Mesopotamia 3000 to 4000 B.C. Since then, most of the important evolutions of human mankind have occurred in cities.[9]

Hereby, the two processes of urbanization and population growth are closely connected with each other. During the European apogee epoch, which coincides more or less with the Middle Ages, most cities and settlements have been established. The next surge in growth of cities was caused by the European industrialization and the increased need for labor in these settlements, firstly started in England and then spread around in the rest of continental Europe. Therefore, the University of Liverpool was the first to established the first formal course dealing with cities. In 1909 a degree program for town and country planning was establish and at the same time the MIT established a course in urban planning.[10] This process of industrialization, beginning in the 18th century, historically never seen before, caused a high demand for workers and thus sped up the population growth. Today, the share of people working in the industrialized sector is less important, due to the growing service sector, but in countries like Brazil or Chile, the industrial employment is higher creating a large share of the economic growth. Since the industrialization, the pace of every additional billion human beings on earth has happened in ever shorter periods of time. Earlier, this amount of people was absorbed by rural and urban areas alike until the point, when metropolitan areas became known for their opportunities to find better jobs, better health care and several other reason that make people move to cities or to live there, so that more than 60 percent will habit in urban areas.[11] This has pushed the emergence of more and more megacities.[12] While in 2000 worldwide existed only 15 cities of that size, in five decades there are to be projected 54,[13] with increasing problems of congestion, health problems and an increased social spatial separation as some negative consequences related with the evolution of megacities. The other challenge is to meet the energy requirements of future cities, discussed in chapter 1.4, which is one of the vital tasks for (local) governments, as most cities were not contrived for such an massive growth of population in modern cities in LA, Asia and Africa. In 2008 for the first time in history, urban and rural population where equal with an increasing population living in urban areas, see figure 1. The next development step is the evolution of new emerging megaregions with China’s Hong Kong-Shenzen-Guanzhou, an agglomeration of 120 million or Sao Paulo-Rio de Janeiro with 43 million inhabitants.[14]

Figure 1: Estimated and projected size of the world’s urban and rural population (1950–2030)

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Source: Cohen (2006), p. 69.

1.2. The development of Santiago in the context of Latin American cities

One of the trends discussed above if the population growth and the urbanization process. Today, cities gain around 70 million people a year or more than a million per week. However, cities are obviously not always beneficiary for their residents. A lot of developing countries lack sanitary sewage disposal and around 50 percent have no adequate supply of drinking or water supply at all.[15]

Latin American cities are, unlike their African or Asian counterparts, already highly urbanized. While in 1950 already 41.9 percent in LA and the Caribbean have lived in urban areas the share will increase to 84.6 percent in 2030,[16] so the total urban population in LA has increased from 59 million in 1950 to 306 million in 1990 or with a growth of 4.2 percent per annum. Average population in LA will grow from 520 million in 2000 to 768 million in 2050, with an expected slight decline after 2050.[17] Today, North America has the highest urbanization rate, but while the principal urbanization in the past has taken place in North America and Europe, the following decades are determined by strongest urban growth in Africa and with the most of the people living urban area in Asia, see trends in figure 2.

Figure 2: Regional trends in urbanization

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Source: WEO (2008), p. 180.

The development of Santiago de Chile is no exception in this context. In 1865 already more than a fifth population out of 1,8 million Chileans have lived in cities. While urban population grew by 481 percent between 1885 and 1930, the rural grew only by 40 percent in the same period, with the consequence, that by the middle of the 20th century more than the half of the population have lived in urban environments.[18] This trend has continued in the 20th century, where Santiago had 1.41 million inhabitants in 1950 and today the MR remains the largest agglomeration with 6.5 million or 40 percent of the national population.[19] Today, around 85 percent of the whole Chilean population live in urban areas, with the MR as being the cultural center, which generates nearly the half of the Chilean GDP.[20] See the urban center of Chile map 3. It is worth to state, that there is so far no internationally common definition for a city or urban agglomerations. The WEO (2008, p. 181) refers to an urban area, ranging from megacities to small towns, where in the Chilean context urban are the “populated centers which have definite urban characteristics such as certain public and municipal services.”[21]

In the 1970s the city experienced a quite aggressive expansion. The barriers of rural and urban were removed so that the expansion towards the periphery, an additional push for the expansion of the city especially in the north east region. Today, the city expands in the suburban, while the core of Santiago has a zero growth or is slightly declining.[22]

Map 3: Principal Urban Agglomerations in Chile

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Source: http://upload.wikimedia.org/wikipedia/commons/b/b7/Cl-cities.png, (June 15th 2011)

After the period of the dictatorship in 1990, the MR of Santiago[23] grew with 8.5 percent over national average per year until 2000. This development has enabled a success in coping with poverty and especially with share of indigent people. Between 1987 and 1996 the share of people living in absolute poverty has significantly decreased in whole country, but the population living in poverty in Chile was nearly double compared to the MR, see graph 1. This is one of the multiple reasons, why people move, for better opportunities, to cities beside the fact that the Chilean population is growing at a rate of about a percent per year, which accelerates additionally the share of urban population.

Graph 1: Poverty in the MR and the rest of Chile (percentages)

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Source: Dockemdorf et al. (2000), p. 175.

The Metropolitan Area itself is structured into 39 municipalities, where 37 are located in the Province of Santiago and each one in Cordillera and Maipo, while there exist the MR which has 52 so called comunas, which have more responsibilities.[24] In administrative and political terms, Santiago can not be considered as a city.[25] This is quite common for LA cities, where there is no single authority which administers the whole urban area. Due to an administrative reform in 1982, local governments have received a considerable scope of responsibilities and are directly elected for four years. The management and a good governance is vital for a successful transformation of a city into a more sustainable future, under consideration of principles of a good governance and emerging imperatives for the 1990s. There are three tendencies observable, first democratization process has also evolved new ways in managing cities, second, a political shift towards greater decentralization and devolution, and finally, a better transparency in the budgeting of public services. In conclusion, none of the LA cities has fulfilled all the principles of good governance, but the management of Santiago de Chile comes closest in fulfilling the criteria.[26]

In spite of the positive economic development and a Human Development Index (HDI) of 91, which is highest of all LACs, Chile has a very high inequality in income distribution. Its Gini-coefficient[27] is one of the highest in LA with 0.52 in 2006 and has just slightly improved from 1990 levels.[28] One of the consequences of this income difference is the development of gated communities or so called condominios, considering the higher security requirements. By 2004, there existed 2,323 of these gated-communities in the 39 comunas of the MR covering 0.92 of the total surface which equals 2,730 hectares.[29] Furthermore, environmental and energy considerations and as consequence, a massive use of space per capita, which created gated-cities built for 50,000 inhabitants or more with own highways, which have let to a growth of the north eastern part of the city of 15,000 ha in the decade of the 90s and have let to an increased automobile use.[30]

1.3. Project Context

The research is embedded in the ‘Risk Habitat Megacity’ project, which is a comprehensive research program of cities initiated by the German government, probably oriented on the publication of the UN-Habitat 2004 and 2006, with cities as general object of research. In their completeness there are three German projects concerning the topic cities and their possible contribution to a sustainable development:

(a) Future Megacities

(b) Megacities and Megachallenges, Informal Dynamics of Global Change and

(c) Risk Habitat Megacity.[31]

Megacities per narrow definition of the UN-Habitat are cities with and population of more than ten million inhabitants, with currently 19 and projected 26 in 2025.[32]

While (a) is a research project of ten different megacities, mainly located in Asia and Africa with only one research object, (b) is focused on the informational structures of megacities, (c) is the most comprehensive approach with focus on one model city, Santiago de Chile. The principal objective is to develop strategies for sustainable development in urban agglomerations considering seven investigation categories. The areas ‘Governance’, ‘Risk concept and Management’ as well as ‘Sustainable Development’, that are cross sectional fields influencing all the other fields of research. These are transport systems, air pollution, social issue and energy systems. The latter one is focal point of this Masters thesis. The importance and interrelation between the growing urban spaces and population in relation to their energy needs is part of the next section.

1.4. Urbanization & Energy

“Cities are civilization,”[33] dynamic and an inspiring source of diversity of cultures and people, which represent technological progress and are mostly the important centers of economic development. For LACs, cities are more than a cultural and inspirational source, they represent the opportunity of finding any new or better employment and often better medical coverage, access to basic infrastructure like water or electricity, which is often not guaranteed in remote areas. As the city of Santiago is growing strongest in the north-western part, where a system of gated communities has evolved. This increased per capita space use is consuming energy, which ranges from industries and financial businesses to the single household and personal customer habits. While around two centuries ago, London was the only city with more than a million of inhabitants, today the world counts with 408 cities, an ever increasing number, if trends continue.[34] Cities currently use two-thirds of the world energy and emit around 70 percent of the world’s carbon dioxide emissions. This share continues to increase until 2030, according to the World Energy Outlook 2008.

Considering energy consumption and the relation between energy and the share of population living in cities, that consume a higher amount of energy per capita. Newman and Kenworthy (1991) conducted a study between the relation gasoline consumption and population density. Their conclusion is, that with the increase of population density from 1000 to 3000 inhabitants per square kilometer the gasoline consumption per capita would be reduced by the half. This potentials can be applied to other sectors of a city or an economy, but finally one factor has to be considered at the end, that the standards of living, value systems and the education considering environmental decisions are an important determinant in analyzing a city metabolism. An investigation between the relation electricity consumption and population density in the provinces of Quebec has resulted a five percent lower electricity in the highly populated areas.[35] These energy conserving potentials should be conducted for various sectors to exploit the overall potential in energy conservation not only in the case of population density as well as the general plan in city planning and construction or in case of modifications and expansions. Basically all infrastructure like power plants, houses, transport systems are constructed for several decades and more. In 2050, when five billion people will habit in cities, there is a large potential in contemplation these large potentials in the initial phase of the, for example, expansion of a city. Decisions, made by the city government about urban form and structure have impacts lasting more than a century.[36] The case of Santiago has grown considerably in the 90s were basically the city expansion took place in the north eastern parts where the city expanded by 15,000 hectares. There newly built communities with high security were constructed, so called gated-communities that are up to 50,000 people with their own infrastructure like shopping facilities, school and universities inside of this little towns with own highway that connects the home and the work place.[37] These construction on the one hand side, reduces traffic congestion, which is one of the major problems in large cities, but at the other hand promote individual traffic, which is the least efficient form of a transport system. As the Kingsley Davis has stated, that “the urbanization of the human population” will always be linked with more congestion, air pollution, sprawl, exhaustion of natural sources and other consequences of the outrageous urban agglomeration growth.[38] In 2030, urban settlements will be home of 60 percent of the world population with an primary energy consumption of 73 percent, according to UN projections.[39]

Figure 3: Cities and their GHG emissions in relation to the country level

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Source: Urban World (2009), p. 15.

But cities are not only large energy consumers, a source a waste and a growing complex form, it is as well the chance to develop intelligent city structures involving the public in order to manage the challenges to come and to pave the way into a ‘more’ energy friendly future, so the cases of Barcelona and New York considering their greenhouse gas (GHG) emission that are far less than the rest of the country, see figure 3.

Decisions that are made today, will affect future generations and are an initial set up for sticking to the old governance structure or to open the way for new way in managing a city.

An approach to the unlimited growth of cities is the „movement“ green urbanism. The whole idea is already from the beginning of the 20th century and was developed by the Scottish biologist Patrick Gaddes. His idea was simply, a systematic approach that is adopted to natural systems. This was the evolutional stage for more and more design ideas in this area. Cities in this sense, were various exist for example in Europe, that “strive to live their ecological limits, fundamentally reduce their ecological footprints, and acknowledge their connections with and impacts on other cities and communities and the larger planet.”[40] The sustainability debate has received a boost from the Conference in Rio de Janeiro in 1992 and the resulting Agenda 21 and initiatives such as Local Government for Sustainability Initiative (ICLEI).

The European Commission and the Council of Sustainable Development have developed a line of measurements in order to achieve more urban sustainability.[41] Especially trends of suburban growth, increased sprawl and the growth in automobile use are current trends in LA cities that also includes Santiago.

According to the Latin American Green City Index report of the Economist’s Intelligence Unit (2009), the overall performance of Santiago is just average, with only one city that reaches the above average raking, Curitiba in Brazil. Santiago has its successes in waste, water and sanitation, while having an average performance in environmental governance, air quality and land use, but especially the ranking in the category energy and CO2 of Santiago is well under average, the worst ranking possible as only city, so the improvement potentials are high. As already mentioned above, the MR is using about 40 percent of the overall energy of the country. It is quite important, that in comparison with the other 17 studied cities in LAC, the energy consumption of Santiago is 1,200 megajoules per USD 1000 of GDP, which is considerably higher than average with 761 or compared to Mexico City with 279 megajoules per USD 1000 of GDP, not using half of average. The CO2 emissions shows a similar picture and is more than twice as high as the average with 463 kilograms per person per year of the cities surveyed.[42]

Table 2: Performance of Santiago in comparison to other cities in LA

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Source: EIU (2009), p. 47.

One reason for the increased energy demand in the transportation sector is the expansion of the city, especially the Greater Santiago, combined with a population growth of 14.2 percent between 1992 and 2002. The motorization rate in Chile between 1992 and 2002 increased from 86 to 147 vehicles per 1,000 inhabitants. A survey of 2001 indicated that 42 percent of people use the bus while 38.1 percent used the car. This is a radical change to the picture in 1991, when these percentages were 59.6 percent and 18.5 percent, respectively, even in a context in which the authority established policies with a clear disincentive for car ownership. Or measured in absolute terms, bus travels have increased by 20 percent while car use has increased in an unexpected amount of 248 percent in the same period.[43] The growth of Greater Santiago is expected with 11,000 hectares between 2002 and 2012, which implies another increase of personal transport towards the suburbs with population losses in the city center, like that around Plaza Italia.[44]

Map 2: Expansion and migration movements of the MR (1992-2007)

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Source: Hidalgo et al. (2008), p. 117.

Only a mixture of energy conservation, the promotion of Renewable Energies and an integrated city planning approach will lower the energy demand and at the same time support the governments plan to fight climate change and to lower the ecological footprint of the city.

The next chapter will analyze the energy matrix of Chile, that has suffered from three severe energy crisis. It also introduces the different concepts of energy security with a detailed analysis of the existing demand and supply situation in Chile.

2. Energy Situation

2.1. Introduction and development of energy matrix

This chapter describes the energy situation of Chile of the recent three decades. Chile has performed, in economic terms, quite impressive due to market liberal leaders in advisory positions in the government. A consequence of a growing economy always leads to an increased energy and electricity demand, where Chile is no exception.

The energy sector of Chile has three essential characteristics. In comparison to neighboring countries like Bolivia or Venezuela, Chile’s natural indigenous energy resources are limited. As a result, most of fossil fuels have to be imported. Fossil fuels account for 80 percent of the country’s the total primary energy supply (TPES). 98.7 percent of crude oil, 95.8 percent of coal and 54.8 percent[45] of natural gas of primary consumption were imported in 2007.[46] This situation has not changed significantly in the past decade, see figure 4. And thirdly, Chile has, for several reason explained later in detail, suffered from insufficient energy security and supply three severe energy crisis that have affected the economy negatively.

Figure 4: Energy import dependency of Chile (2000-2008)

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Source: Garcia et al. (2011), p. 2078.

Therefore, diversification is one of the most vital issues related to Chiles energy situation especially in the last two decades. The government has set security, efficiency and sustainability as its strategic target, in meeting the current challenge of energy security.[47] Problems arise from insufficient gas supplies, high oil prices and the vulnerability of droughts that affects the hydroelectric power generation and makes Chile’s economy vulnerable.[48]

In 2007 the TPES amounted 30.8 Mtoe, see table 3. The energy mix consists predominantly of fossils fuels, lead by oil with 56 percent, followed by natural gas and coal each accounting for eleven percent. The contribution of renewables were dominated by biomass and hydroelectricity making up sixteen and six percent, respectively.[49]

Secondary energy for the production of gasoline originates principally from petroleum. Chile has three refineries, located in the regions Valparaiso, Bio Bio and one in the Magallanes with a combined refining capacity of 34,300 cubic meters per day. For electricity power generation the principal sources are hydroelectricity, and fossil fuels, mainly coal used in thermoelectric plants.[50] The overall installed capacity by December 2010 was 15,558MW. The largest grid, the SIC, had the dominated with 11,845MW or 76.1 percent of installed capacity, followed by the northern SING with 3,575MW, and the two small southern grids Magallanes and Hydroaysen with 89MW and 49MW, respectively. Interestingly, wind power installed capacity in the SIC has doubled from 78MW by the end of 2009 to 160.5MW by the end of 2010.[51] Historically, hydroelectric power has been the dominant source in the SIC to cover power and electricity production, while industrial and residential sector were highly dependent from oil until the mid 90s.[52] This has changed due to changes in governmental policy to lower the dependency of one source beginning to diversify its energy mix.

Table 3: Chiles energy balance 1973-2007

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Source: IEA (2009), p. 27.

In the second half of the 80s, together with a sharp decline in energy prices have been strongly influenced by ideas of privatization, deregulation and market-liberal thinking, that where particularly strong in Chile, already during the Pinochet period, and later also spread to Argentina and Brazil.[53] In 1973, Chiles energy production was about 5.08 Mtoe with imports of 3.39 Mtoe. This has changes drastically in the year 2007, where production not even doubled but imports have risen by more than 600 percent to 24.13 Mtoe.[54] This has changed slightly in the 1980ies, where around two-third of TPES was produced in Chile covering the residual part of energy supply by imports. In 1990, the share of imports has increased, reaching its peak with an import dependence of about 70 percent by the year 2000 and is since then remained constant at a high level. The increased energy demand is only a part of the explanation for the high import dependency. Beginning in 1982, the domestic crude oil production fell from 32 percent of total oil supply to around three percent due to less off-shore resources. The coal imports rose for reason of decommissioning coal mines with poor quality and low energy content supported by the agreement with Argentina to deliver natural gas.[55]

In the mid 90s Chile started to diversify its energy mix mainly by substituting oil for natural gas with Argentina as main supplier. The liberalization and deregulation of the Argentinean gas and oil industry in the early 90s facilitated the integration of both countries’ infrastructure. This was fixed in a contract between the two countries to deliver natural gas, beginning in 1995. However this relation with its neighbors is quite complicated. Due to historical dispute with Bolivia, which has abundant natural gas resources, gas cannot be purchased directly. Argentina imports natural gas from Bolivia to cover its own energy necessities and exports their own gas resources to Chile. In case of energy shortages from Bolivia, Chile is always indirectly affected with the risk of energy shortages from Argentina. The increased dependency on Argentine gas, as sole supplier, on one side, together with one of the most severe droughts in years has lead to the first energy crisis in the SIC grid in 1998/1999, due to its high hydroelectricity production. This crisis was triggered by various factors, therefore the price in the SIC has risen significantly. The regulatory authorities have set the wrong price signals and thus worsened the situation. The node price[56] in the SIC decreased almost twenty percent during the energy shortage.[57] This has set an incentive to the consumer to expand their energy use as it is cheaper, but electricity is a very inelastic good, so that the effect might not have been significant, but economically it makes no sense to offer a scarce good for a lower price. Furthermore, this was aggravated by several delays in the entry of a new gas plant (Nehuenco), which would have increased the installed capacity by five percent. This has left the SIC vulnerable with reserves below the minimum operating conditions forcing the authorities to approve three Electricity Rationing Decrees. This was repealed due to improved hydrological conditions in May 1999.[58] Furthermore, an unusual amount of melting ice in the winter has let to larger amounts of released water, so the basins were more than full, some water had to be released, with a loss in generation and additional sediments, that had negative impacts on the turbines.[59] The second crisis of 1999 was caused by two large disturbances which has led to partial blackouts in the SING. The grid has principally large consumers such as the mining sector, which consumes 90 percent of the total energy. Inadequate norms for coordination between the large generation units and entry of new capacity, considering that the largest company’s peak load is with 1,567MW around 50 percent of the installed capacity of the SING.[60] The third energy crisis has evolved out of the high gas import dependency from only one supplier, Argentina. Out of all additional installed capacity between 1996 and 2004, both in the SIC and SING, gas represented 72 percent, that by 2003 half of the electricity production was generated by gas. Due to a economic recovery in Argentina, energy demand has risen. In August 2005 gas exports were cut by 59 percent, in May 2007 by 64 percent,[61] which has caused several blackouts in Chile, forcing the electricity plants to switch to expensive diesel power generators.[62] Additionally, Argentina has fixed the natural gas delivery in long-term contracts in US-Dollar, which means that the gas arrives at a price of USD 2.5 MBtu, compared with USD 0.6 MBtu in Argentina.[63]

Figure 5: System Marginal Cost in the SIC 1997-2009 (USD/MWh)

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Source: IEA (2009), p. 144.

Besides the fact, that Argentina has increased its natural gas export tax from 20 to 45 percent, which might cause more difficulties in future to cover natural gas needs at a reasonable price,[64] and due to low rainfall and a prolonged dry period in the first half of 2008, prices for electricity generation have increased explosively in the short term, see figure 5.

Out of this experience, Chile tried to diversify in the way to substitute natural gas for Liquid Natural Gas (LNG) with the advantage, that the existing gas infrastructure can be used without a lot of additional infrastructure investments. Before LNG was imported, Chile was almost completely dependent on Argentinean natural gas. This has raised the gas related electricity production from former one percent in 1997 to nearly 33 percent in 2004. In the same year, Chile signed a preliminary contract with Indonesia for the delivery of LNG starting in 2007.[65] Since then two LNG terminals have been built, one in the SIC and one in the SING. The Quintero terminal was built 155 kilometers north of the MR with a capacity of ten million cubic meters a day, which equals about 2,300MW of generation.[66] A second, the Mejillones terminal, went on-stream in April 2010,[67] fulfilling the energy needs of the mining industry in the north.[68] Since then, in the SING 27 percent of the energy needed could be covered by LNG, liberating the SING from Argentinean gas imports, allowing 5.5 million cubic meters of gas imports a day or a 1,100MW of generation equivalent.[69]

The latest price developments especially for electricity generation in the SIC are worrying. In February 2011 the energy prices were the highest in three years. In some sub-systems prices have risen to more than 200USD/MWh, the second highest after the energy peak price in 2008. This is partly explicable due to higher oil prices, but as well hydroelectricity generation was down to 42 percent of total output in February. Marginal costs of the electricity system increased 75 percent compared to prices a year ago.[70]

2.2. Concepts of Energy Security

The construct of energy security is highly complex and interrelated, expressed in a recent UN paper, that states: “Emerging global energy security risks stem from a complex diversity of political, social, economic, financial, legal, geographic and technical factors, including ongoing civil strife, ethnic conflicts and growing international tensions; these also include international terrorism as an important factor menacing global energy security.”[71]

As shown in the previous chapter, in Chile so far no exist an integrated energy planning, where the CNE (2008) guidelines are an initial step but no complete integrated approach to secure the energy supply with a prospective long-term strategy.

The general definition what is energy secure does not exist, just as concept that is adapted for various aspects in different contexts. There are many actors involved and the topic is vital for all well-functioning economies, with a high complexity. All services and goods consumed require energy in the production process or are demanding energy while using or both, which can be divided in direct services like lighting, heating, etc. and indirect services like cloth, furniture food and other. Furthermore, the economic growth of Chile in the last three decades has enabled a larger share of the population, through a larger purchasing power, access to consumer goods like refrigerators, air conditioning or the change to electrical stoves that enhances the quality of life but on the other hand create new demand for electricity.[72] So observable, that in Chile energy demand has increased less than electricity demand which grew about seven percent in the recent years. All this relations are vital in understanding the relations between energy services, energy, quality of life and growth of an economy over time.

Figure 6: The three dimensions determining the energy consumption

illustration not visible in this excerpt

Source: Haas et al. (2008), p. 4018.


[1] UNEP Country Profile Chile.

[2] IEA (2009).

[3] OECD (2010a).

[4] IEA (2009).

[5] CNE (2008), p. 36.

[6] OECD (2010b).

[7] Central Interconnected System – Sistema Interconectado Central (SIC), the acronym in Spanish.

[8] Rudnick (2010).

[9] This also includes the diseases like the pest in the 14th century, which provoke higher standards for hygiene and the important observation of basic necessities of people sharing a quite compact space.

[10] LeGates/Stout (2003), p. 13.

[11] UN-Habitat (2009/2010).

[12] In terms of UN definition, cities with more than ten million inhabitants.

[13] Rogers et al. (2008), p. 323.

[14] UN-Habitat (2010/2011).

[15] Rogers et al. (2008), p. 86; A more comprehensive overview of pros and cons of large cities, see table 2 in appendix.

[16] Cohen (2003).

[17] Gilbert (1996); UN (2004).

[18] Grove (1983), pp. 82, 185.

[19] Out of these 5.8 million live in the city of Santiago and another 700.000 in the MR.

[20] IEA (2009), p. 25; ITAS (2010), p. 1.

[21] UN (1980).

[22] Harms (1997).

[23] Located in the central part of the country with the five principal comunas Las Condes, Vitacura, La Barnechea, Providencia and La Reina, see map 1 and 3 in appendix.

[24] Borsdorf et al. (2006); See comunas of Santiago, see map 1 in appendix.

[25] Dockemdorff et al. (2000), p. 172.

[26] Gilbert (1996), pp. 31-32, 45.

[27] The Gini-Coefficient measures the income distribution of the 10 percent of the population with highest and lowest income. A value of zero means total income equality, and one a complete inequality.

[28] UN-Habitat (2009/2010).

[29] Borsdorf et al. (2006).

[30] Borsdorf at al. (2007); Dockemdorff et al. (2000).

[31] Ehlers (2009), pp. 14-15.

[32] UN-HABITAT (2008/2009), p. 6.

[33] LeGates/Stout (2003), p. 21.

[34] Rachel (2007).

[35] Larivíere/Laffrance (1999).

[36] For further information, see WDR (2010).

[37] Borsdorf et al. (2007).

[38] Davis (1965), p. 25.

[39] WEO (2008).

[40] Beatley (2003), p. 401.

[41] Some of these are: compact urban form, preservation of open spaces, reduced automobile use, reduced waste and pollution, reuse and recycling of materials improved social equity, see Wheeler (2000).

[42] EIU (2009).

[43] Curauma (2005).

[44] See map 6 in appendix for expected expansion of the MR until 2012.

[45] The ‘relative’ low level of gas imports is due to export restrictions from Argentina as principal gas supplier.

[46] Méndez (2009).

[47] Tokman (2009).

[48] Martin (2007); In the energy crisis 2007/2008 the spot price for electricity has risen to 350 USD/MWh in the SIC, which has a high percentage of hydroelectricity generation, IEA (2009).

[49] IEA (2009).

[50] EU/Government of Chile (2007), p. 7.

[51] CNE – installed capacity December 2010.

[52] EU/Government of Chile (2008), p. 2.

[53] Rosa (2009).

[54] See Table 3 for detailed information.

[55] Ortega et al. (2010).

[56] The regulated customer’s price has two components: “a node price, at which distributors buy energy from generating companies, and a distribution charge. The node price is equal to the sum of the marginal cost of energy, the marginal cost of peak power and the marginal cost of transmission”, Bitran/Serra (1998, 948); in detail explained in electricity market analysis in chapter 3.

[57] Watts/Ariztía (2002).

[58] Fereidoon/Pfaffenberger (2006).

[59] J. Barton, University of Chile, personal communication.

[60] Fereidoon/Pfaffenberger (2006), p. 100.

[61] See import dependency of natural gas from Argentina reach partially over 90 percent in 2007/8, see figure 23 in appendix.

[62] Enerlac Magazine, No.1, October 2009, p. 14; see outrage cost Chile’s industry was confronted with in: Serra et al. (1997) discuss a planned energy shortage which leads to lower cost for the economy.

[63] Crisis Energética, In: Acontecer, Publication of the Instituto Tecnológico de Buenos Aires, May 1st 2004.

[64] The Encyclopaedia of the Earth, “Energy Profile of Chile,” available at: http://www.eoearth.org/article/Energy_profile_of_Chile, (accessed March 27th, 2010.)

[65] See ‘Govt. reportedly signs MOU with Indonesia for LNG supplies - Chile ’, Business News America, Julian Dowling, November 25th 2004.

[66] LNGWN (2010).

[67] www.globallnginfo.org (update April 2010).

[68] In the short term, LNG is an interesting solution to diversify the energy matrix, but as the international market tightens the prices will probably go up in the near future as more and more countries use LNG. Furthermore transportation costs remain relatively high, because of process inherent energy needed and terminal infrastructure; For a detailed discussion on LNG, see Jensen (2004).

[69] Jensens (2011).

[70] Seitz (2011); Diaro Financiero (2011).

[71] UNECE (2007), p. 6; In the definition of the IEA, a secure energy supply is fulfilled when it is adequate, affordable and reliable, see IEA/OECD (2007).

[72] Haas et al. (2008), p. 4015.

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Diversification of the energy matrix in the metropolitan region of Santiago de Chile with focus on renewable energies
University of Cologne  (ITT Köln und Universidad Autonoma San Luis Potosí)
Master in Technology & Resource Management
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diversification, santiago, chile, Energy Security, Renewable Energies, Energy Matrix
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Diplom Volkswirt Christian Altrichter (Author), 2011, Diversification of the energy matrix in the metropolitan region of Santiago de Chile with focus on renewable energies, Munich, GRIN Verlag, https://www.grin.com/document/178706


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