As Chile reduces coal-generation footprint, investment in gas-fired assets deemed vital

Natural gas generation will continue in Chile over the coming years but investment will be needed in existing plants, some of which are older than the coal-fired power stations that are gradually being closed or converted.

That was one of the takeaways from a seminar discussing prospective analysis work carried out by local complex engineering systems institute ISCI and consultancy SPEC into the role of gas in Chile’s energy transition.

Gas-fired plants are playing a part in supporting grid stability as the country weans itself off coal-fired baseload generation and as non-conventional renewables plants (NCRE) account for a growing share of the capacity pie. Installed gas generation capacity in Chile stands at about 5GW.

“The bulk of combined-cycle plants were built between around 1997 and 2004 and today they have some 20 years of operation,” panelist Jorge Moreno, partner at local energy consultancy Inodú, told BNamericas.

“And over the next 10 years, they will be subjected to quite demanding operations, with frequent start-stop operations practically every day, and, in this context, you need to see how to maintain, in a healthy way, the operation of combined cycles where they experience quite high demand from the system.”

Combined-cycle plants are not designed for frequent stop-start operations.

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During the event, hosted by the faculty of engineering and sciences of Universidad Adolfo Ibáñez (UAI) and the higher education institution’s energy transition research center Centra, Thomas Keller, UAI business school senior fellow and former CEO of generator Colbún, touched on the topic.

“I’m worried that the investment being made in these combined-cycles, given the age they have in Chile, is not in line with what we see here [today] is necessary, and the reason this is happening is because there are not enough price signals for private companies to invest the requisite resources to maintain this capacity operative,” Keller said.

“This is an important challenge in terms of public policy. It’s necessary to bolster combined-cycles in order to have that backup, and today that’s not happening.”

PROSPECTIVE ANALYSIS

The central pillar of the research – commissioned by Chile’s natural gas association AGN – looks at what investment may be made through 2040 under different scenarios and the role of gas.

Under the base scenario, coal plants would be fully retired or converted by 2035, with demand for gas-fired generation trending up from around 2030.

Gas generation is estimated to trend down through 2030 to 5TWh/y, before climbing and stabilizing at around 7TWh/y through the rest of the 2030s.

Post-2035, the generation park would be around 95% renewables-based and the balance gas and diesel, with curtailment stabilizing at about 6%.

Grid operation costs, chiefly linked to fossil fuel consumption, are expected to trend down, falling by more than half.

Closure of the coal fleet would require investment of around US$30bn in 2026-36, the research found. And if the country were to exit gas and diesel, too, this would require an additional US$26bn in 2030-35, chiefly corresponding to additional storage capacity.

Chile’s national energy policy establishes a goal of achieving an emissions-free generation park by 2050, which would take the country into unchartered power generation territory. Care must be taken to ensure that power sector decarbonization does not impact supply reliability and stability or create price fallout, the event was told. 

Keller questioned the approach of achieving decarbonization “at any cost,” adding that a wider view was needed, citing the importance of supply security and the potential of other emissions-reduction solutions such as tackling methane emissions from landfills. 

Chile is working to retire or convert its roughly 5.5GW fleet of coal-fired power plants by 2040 at the latest.

Today, coal capacity stands at around 4GW and NCRE at 18GW. Eleven coal units for a combined 1.66GW have been retired, eight for a combined 2.0GW are due to be closed or converted by the end of 2029 and the closure/conversion dates of eight more, for a combined 1.54GW, are pending.  

Chile is betting big on battery storage plants to help mitigate the intermittency of NCREs and combat curtailment, with capacity expected to hit around 2GW in 2026 and continue growing.

Sara Larraín, director of sustainability organization Fundación Chile Sustentable, urged the creation of pathways to achieving a 100% emissions-free grid and not being complacent with maintaining oil and gas in the mix.

Fundación Chile Sustentable-ISCI research work into grid flexibility solutions is being carried out, Larraín said. “What are the technologies that we would need to start seriously considering to be able to support, give flexibility and stability to this system based on variable energy? We’re talking [for example] about synchronous condensers, grid-forming.”

Eventually converting gas plants to sustainable fuel usage has been mulled. As things stand today, supply and cost are two central challenges.

Referring to general decarbonization efforts, Daniel Olivares, director of Centra, told the seminar that Chile could best contribute by focusing on blazing, methodically and carefully, an energy transition trail that others could then follow and, in turn, achieve their own goals faster.

GAS PROJECTS

In terms of the pipeline of new greenfield gas capacity, 3MW is in the construction phase. 

Elsewhere on the project map, Engie Chile plans to convert 377MW coal plant IEM into a natural gas unit, work that is expected to cost around US$75mn and be completed in 2026, rating agency Fitch said in a statement.

SPACE FOR DEBATE

The dean of UAI's faculty of engineering and sciences and former executive president of local power industry association Generadoras de Chile, Claudio Seebach, said providing forums for debate and discussion was vital. 

“There is an important mission, which, as a university, we aim to be a space for coming together and for dialogue, based on science and evidence in the challenges we face as a country. In this case, it's about energy transition and the climate crisis, which is a central strategy of the faculty as one of the major issues we seek to address,” Seebach said.