Spotlight: Chilean congress pushes plan for accelerated coal retirement

The lower house of Chile’s congress is pushing plans to accelerate the country’s coal retirement plan, turning it from a voluntary agreement with power companies into a regulation imposed by the government. 

A draft proposal, approved by the environmental committee of the lower chamber in early August, would shut down all coal-fired plants by 2025, some 25 years earlier than the deal struck by the government with generation companies last year.

In addition, the bill would call for the immediate shutdown, upon approval, of power plants that have operated for more than 30 years.

The proposal highlights growing risks related to energy policy in Chile, where rule changes have become more common after the widespread riots and protests that erupted last year. Experts and observers have warned that the bill, if approved as it is, could have a series of unintended consequences for the power system.

The text argues that the closure of coal-fired generation is necessary to reduce pollution and help Chile achieve its commitments under the Paris climate accord. In particular, the bill focuses on the risks faced by communities that live adjacent to large-scale coal-fired power plants who face the brunt of the environmental consequences.

During an online presentation to the mining and energy committee of the lower chamber, the executive president of energy regulator CNE, José Venegas, argued against the bill, saying it would unnecessarily increase the system's exposure to risk.

“The simulations we have done and those that have been done by the grid coordinator certainly indicate that this scenario of extreme acceleration [of coal retirement] to 2025 is risky, that it shouldn’t be done. It’s a scenario where one risks much more than one gains,” Venegas said.

He also argued the retirement of the coal-fired plants would result in a significant increase in the marginal cost of the system. This is due to the fact that coal is currently the cheapest generation source available at any time of day and can therefore generate when other sources, such as renewables, cannot. Consequently, early retirement of such plants would lead to the system using more expensive and potentially more polluting commodities, such as diesel.

This could make the system more inefficient and might have an impact on prices to end-users, Venegas said. Furthermore, the change could also impact the price of clean energy. 

This is because lines carrying renewable energy to big consumption hubs would see greater traffic, leading to overused lines, increasing risks for new projects that would force them to offer higher prices in future supply tenders, he said.

The executive also defended Chile’s proposal of offering withdrawn coal plants a “strategic reserve” status. where they would receive payments for making their energy available for five years. He said this was a form of insurance to have backup generation available in case the entities’ projections did not pan out due to severe drought, delays in planned transmission assets or other unforeseen events.

“Maybe it can be done, but we would have to take extreme measures starting now and we would be very tight for many years, between 2026 and 2029, and the situation would be alleviated as new transmission works enter operation,” Venegas was quoted as saying by local daily El Mercurio.

THE ORIGINAL DEAL

Under a voluntary agreement with the country's four biggest generators, the original deal involved the retirement of eight of 28 coal-fired plants by 2024, with the rest being shut down gradually until 2040 as part of a bid to make the country carbon-neutral by 2050.

Private sector players that contract their own power supply have also faced pressure from markets to stop buying such polluting energy. Earlier this month, two mining companies belonging to BHP struck deals with AES Gener seeking early termination of supply contracts linked to the firm's 558MW Angamos coal-fired power plant.  

Pictured: The Bocamina coal-fired plant. Credit: Enel Chile