A snapshot of Chile’s energy transition opportunities, challenges

Global professional services firm EY published a report on the energy transition, looking at drivers, implications, hurdles and opportunities. 

One headline takeaway is that an annual investment of around US$4.1tn will be needed by 2050 for low-carbon transition technologies and enabling infrastructure. In 2022, annual investment in low-carbon technologies surpassed the US$1tn mark for the first time.

See the report in Documents box in the top-right corner.

Chile, in terms of the local power grid, has embarked along the energy transition highway and, in the sphere of supplying global markets, is well placed to harvest opportunities in areas such as energy metals and sustainable fuels.

To get a broad brushstroke view of the local context, BNamericas conducted an email interview with Pamela Méndez, climate change and sustainability services lead partner at the Chilean offices of EY.

BNamericas: An EY report forecasts that global estimated annual investment of US$4.1tn will be required in low-carbon transition technologies and energy infrastructure by 2050, which is around four times the current levels. Clearly, this forecast bodes well for Chile, through demand for metals such as lithium and copper. Overall, is Chile considered being in a position, or prepared, to seize this opportunity?

Méndez: Chile’s ability to capitalize on future investment opportunities will depend on its ability to attract them in a timely manner, with collaboration across sectors and its wealth in mineral resources being key to a competitive advantage in this regard.

Collaboration across multiple sectors and the importance of regulatory strength to incentivize investment in renewable energies will be necessary.

BNamericas: The report also states that hydrocarbons will remain with us for longer, so transforming them to be more environmentally friendly is a priority. It seems that for Chile, the local production and adoption of sustainable fuels, such as synthetic gasoline, is highly desirable given the country's need to import fossil fuels and its commitment to decarbonization. For Chile, which has abundant solar and wind resources to produce input green hydrogen via electrolysis, what would be some of the main challenges to make this transition?

Méndez: The main challenges for the energy industry in Chile in the production and adoption of synthetic fuels should consider the following: a) the need for adequate infrastructure, for example, ports for storing and transporting energy, b) maximizing the economic potential of the hydrogen and synthetic fuel industry, and c) reducing their high production costs through learnings from pilot models.

BNamericas: The report states clean energy must be cheaper and better for people and businesses to prefer it. In Chile, this seems to be a technical, political, and economic challenge, as supply costs, at least in the regulated segment, have been increasing and the issue of rates is politically sensitive. 

Méndez: Indeed, the integration of low-capacity factor renewable energies, such as solar and wind, into the electrical grid requires improvements in transmission and distribution infrastructure, as well as investments in storage technologies to ensure supply stability. This has an economic impact. From a political perspective, different interests must be balanced: consumers, energy companies and sustainability goals.

BNamericas: Finally, in the coming decades, what could be the opportunities for investors looking toward Chile? For example, today, there is much discussion regarding energy storage, green hydrogen and solar PV. And it seems that energy efficiency and distributed generation could generate opportunities. 

Méndez: For investors interested in the Chilean energy market, it is important to understand government policies, market trends, and emerging technologies, as well as consider alliances and/or partnerships with local companies and understand regulations. Indeed, there is great potential for the development of energy storage projects through [battery energy storage systems] BESS and public initiatives to generate large energy storage banks.

BNamericas: Any comment you would like to add? 

Méndez: Our country is advancing in its energy transition thanks to the convergence of technological advancements, a rich endowment of renewable resources, and a global market in search of clean energy and supply diversification.

Consumer preferences for more accessible and sustainable energies, the anticipated boom in lithium demand, and the rapid growth of solar and wind energies reinforce Chile’s strategic position as a leader in sustainability and a key supplier in globally redefined supply chains.