Chile energy legislation, regulations: What’s happening and what’s pending

Next year could see the topic of deep power sector reform return to center stage in Chile after several years of price stabilization, transmission and energy storage largely dominating the legislative and regulatory agenda.

Space could become available on the calendar, given the government’s transmission-focused energy transition bill was recently approved.

In parallel, a revenue-raising subsidy bill, designed to mitigate the impact on vulnerable clients of unfreezing electricity rates, is also advancing, but what may exit congress could be different to what entered. A committee has voted down a measure establishing a special rate access mechanism for SMEs, while a proposal that involves using some revenue from PMGD distribution plants – which themselves receive a de facto subsidy – is due to be voted on. 

Elsewhere on the regulatory and legislative landscape, connection and coordination rules, the last chunky piece of the energy storage regulatory jigsaw, are due for publication. Calls have also been made for greater clarity concerning usage of energy storage systems for provision of ancillary services, while tweaks were announced to ease the development of some kinds of battery storage projects. 

In a related development, lowering the bar to access the nonregulated market, to 300kW from 500kW currently, appears likely after Chile’s competition court issued a report concluding that it saw no signals of competition erosion. The energy ministry is empowered to make a final decision following this consultative step. Reducing the minimum requirement is supported by some stakeholders but opposed by others. 

A power sector decarbonization roadmap could also be finalized next year after recently being put out to public consultation. 

Against this backdrop, many players will be hoping 2025 is the start of a fresh chapter for the sector, following the uncertainty generated by government rate measures – particularly the subsidy bill – which added to financial woes created by rising curtailment. 

Power sector reforms

Distribution reform and a revamp of the wholesale power market are seen as priorities in the country but considerably complex undertakings that may require much early-stage consultation and consensus-building to help ease their progress through congress. 

On top of this, Chile’s renewables and storage chamber Acera is urging measures that reignite interest in regulated supply auctions, impacted by a confluence of factors such as price stabilization, curtailment, limited grid flexibility and uncertainty surrounding the potential lowering of the bar to the nonregulated market.

In terms of power sector reform, while debate may advance before Chileans head to the polling booths next November to vote for a new president and a chunk of congress, the challenge of getting legislation onto the statute books is a hefty one. 

With the current distribution model largely limited to ensuring electricity flows from power plants to consumers while minimizing costs, calls are growing for an overhaul to broaden the role and remit of the industry given the demands that the energy transition is creating.

Boosting grid resilience – following this year’s brutal windstorm that left millions without power – and preparing the system for growth in bidirectional electricity flows and penetration of distributed assets will likely be among the priorities.

Giuseppe Turchiarelli, CEO of generator and distributor Enel Chile, which came under fire following the outages, said during a recent investor event that the company was keen on ramping up distribution investment provided there is an “appropriate regulatory framework and fair remuneration.”

Calls have been made to spur adoption of smart meters and time of use electricity rates, to help consumers better manage consumption and make better use of abundant daytime renewable supply.

In terms of wholesale power market reform, grid coordinator CEN published a report that recommends the creation of a new wholesale power market based on bids for electricity, capacity and complementary services.

The document falls under the framework of CEN’s roadmap for an accelerated energy transition, which establishes a series of enabling conditions on the journey of preparation for a system that can operate with 100% renewables during some blocks of hours by 2030.

Consultancy ECCO International was contracted to devise a proposal for the implementation of a wholesale power market based on supply, encompassing energy, ancillary services and, if required, capacity.

Shifting from a model based on audited costs – what is used today – is seen as a necessary enabler of Chile’s energy transition.

CEN advisory board member Blanca Palumbo said earlier this year: “It’s crucial to recognize that this change is not just in response to the growing participation of renewable energy and batteries in our system but also to the need to promote competition via the entrance of new agents, as in the case of the demand side.

“We firmly believe a change like this will bring a series of benefits, including optimization of programming of generation units with fixed costs.”

Meanwhile, two reform bills, designed to improve the processes surrounding environmental and sectorial permitting, something urged by the energy sector and others, may also advance through congress. 

In parallel, calls for increased electrification of the economy, particularly in the spheres of copper and lithium mining, could grow louder, along with demand for solutions that permit increased flow of clean energy after the sun sets to displace thermoelectric output.

Officials are also working on regulations and updates related to green hydrogen and its derivatives, a complex undertaking that will continue through 2025.

Energy transition bill

The energy transition bill approved is a different beast to the one first presented in congress.

Amid strong market appetite for storage, a measure establishing a government auction was removed, given the lack of need for it.

The approved text concerns mechanisms to accelerate the development of urgent transmission works, newbuild and expansion, particularly those that will bolster zonal systems in regions such as Ñuble.

For example, auction processes for expansion works currently conducted by CEN would be managed by the owners of the assets.

Some projects will be remunerated by power plants that use and need them, compared with the current regime where everything is bundled into end user rates.

Chile’s association of nonregulated clients, Acenor, welcomed the approval, underscoring that, based on its estimates, the original text may have resulted in up to 11 pesos/kWh (US$0.011/kWh) being added to client bills.

Acenor executive director Javier Bustos said a next necessary step was reviewing how all transmission works are remunerated, “to be assured that it is the most efficient way possible.”