Despite drought, Chile's electricity coordinator doesn't see any risk to supply

Chile faces a difficult rainfall situation that has the potential to stress the country's existing generation matrix.

Last week, the energy ministry and the national energy commission (CNE) published a contingency plan to protect the electricity system from the consequences of a year of exceptional drought and to allow electricity rationing in extreme conditions.

BNamericas spoke with Juan Carlos Olmedo, president of the national electricity coordinator (CEN) about the current state of the Chilean electricity system, the measures the autonomous state body is taking and how it expects the situation to evolve in the coming months.

Olmedo said that it is unlikely that it will be necessary to implement energy rationing, as long as the thermoelectric plants in the system are capable of guaranteeing adequate fuel availability.

“We’ve also made progress in increasing the operational reserve in the reservoirs, to react in the case of contingencies, rising from 60GWh to 169GWh as a result of rainfall in recent days in south-central Chile,” said Olmedo. “It’s a help, but it doesn’t overcome the crisis.”

Chile has been forced to reactivate a coal-fired unit, Ventanas 1, owned by AES Andes, which was retired in early 2021 as part of the decarbonization schedule that seeks to retire all coal plants by 2040.

BNamericas: Could you explain to us the magnitude of the drought that we’re experiencing this year and the impact it is having on the electricity system?

Olmedo: At the beginning of the year, the situation was recovering significantly compared to last year. June was auspicious. However, the increase in hydroelectric reserves was flat, similar to a plateau [as of July], and due to the lack of rain the reserves no longer increased. What was even more telling is that the last week of July we received what is called the first snow route, a process in which snow accumulation is measured at the headwaters of the Maule and Laja reservoirs, located in the south-central zone of Chile. The results showed that the accumulated snow to that date was particularly low, being among the two driest years on record.

This confirmed the serious effects of the drought on hydroelectric input, all of which triggered a series of complementary measures to those that had already been applied. Fortunately, the country's electricity system has enough installed capacity, close to 28,000MW, for maximum demand that today is around 10,500MW. And that backup is basically thermal generation, which is quite a bit.

At the coordinator we had been looking at the issue of fuel stocks for some time, but in July diesel generation began to be strongly activated, due to the drop in the hydroelectric contribution, which reached half of what it was in July 2020. This lower hydro generation was covered by thermal generation – diesel, coal and LNG. To the above, a new element was added that has generated considerable impact, and that is related to the effect of the storm surge on the discharge of fuels for generation.

We had already observed some episodes where ships with cargos of coal and LNG had problems entering the port at the beginning of July, due to the strong waves at this time of year. Even in June, there was a ship that was waiting almost a month to enter port.

Added to the above, we detected that some companies, particularly those that generate based on oil, did not have the necessary fuel to operate, which was made known to the electricity and fuels regulator [SEC], which is the auditing entity, to adopt the corresponding measures. As coordinator, we don’t have oversight powers.

To all this we must add that demand has grown by 10% as a result of the lifting of lockdown measures decreed by the authorities. If we compare with June 2020, which was a very depressed month and with the peak of restrictions [due to the COVID-19 pandemic], it is still a significant jump in demand.

BNamericas: Do you expect the situation to make it necessary to ration energy consumption, as was done in 1998 and as the recently published decree makes possible in extreme cases?

Olmedo: As indicated, and despite the drought situation, we don’t see a risk to the electricity supply for residents and industries. In this scenario, all market players must comply with their obligations and make their best efforts to have all the fuel that’s necessary for the operation of their units, in particular based on coal, gas and diesel.

Additionally, the preventive measures decree promulgated by the authority has a set of proactive actions that will undoubtedly help to improve the country's energy situation.

BNamericas: What signs is the coordinator looking for in the coming months to determine if these conditions are going to improve or become more difficult?

Olmedo: Next week the second snow route measurement will be carried out, with which we’ll be able to know if the rainfall has had an effect on the accumulation of snow, since based on that we’ll be able to project the flows for the period between October 2021 and March 2022. The Maule, Laja and Biobío basins are the most relevant basins for hydroelectric contribution in the October-March period of next year. For this reason, it’s important to have that measurement of the snowpack that is accumulated there, to see what flows we can expect in this period.

BNamericas: The energy ministry has said that the coordinator will seek to provide facilities for projects under construction that are soon to start operations. Can you explain to us which projects could benefit?

Olmedo: We identified that, given that there are transmission restrictions from the north to the central zone, the relevant projects to be anticipated are those that are located south of the metropolitan region. We have focused on identifying which projects were scheduled to start in the next seven months, between September and March-April 2022. Projects for 930MW were identified.

We contacted the owners of the projects to inform us in detail of their status, and what possibilities they had of accelerating their commissioning. To date, we’ve received responses from 11 of those projects, totaling 787MW. Based on the information they gave us, we’re going to see what real possibilities there are that they bring forward their operations. It will be analyzed case by case. Each project has its own unique challenges.

BNamericas: The coordinator has had to recall Ventanas 1 from its strategic reserve status to make it available to generate if necessary. What can you tell us about this decision?

Olmedo: There is a regulation of the law that is decree 62, which in one article states that, if we’re among the five driest hydrologies and the contribution of hydroelectric plants has decreased, we’re obliged to summon the plants that are in a strategic reserve condition. More than a decision, it’s a mandatory provision, because we’re among the two driest hydrologies on record and the contribution of hydroelectric plants has dropped by half compared to the same month last year, and it was expected that this would continue given the snow route.

Therefore, we had no alternative but to recall it, because that is what the law requires. It's as simple as that. If these two conditions are met, we must ask the owning company to be in a position to turn it on if the situation warrants it, something that has not happened so far.

BNamericas: Just because the plant is recalled doesn’t necessarily mean that it will generate. Do you expect this to be necessary?

Olmedo: It depends on the conditions of the system. They informed us that the plant could be ready to go into operation within the 60 days mandated by law. We will see how the system’s situation is on that date.

BNamericas: What other measures is CEN taking to deal with this contingency?

Olmedo: We are taking a series of measures. For example, the preventive measures decree establishes actions that will allow us to increase generation capacity, especially PMGD [small distributed generation].

We’ve also made progress in increasing the operational reserve in the reservoirs, to react in the case of contingencies, rising from 60GWh to 169GWh as a result of rainfall in recent days in south-central Chile. We’ve also made changes in the hydrological modeling, to which we have incorporated new algorithms in which we have been working for months to reduce hydrological uncertainty. We’ve made changes in the hydrological modeling, to which we have incorporated new algorithms in which we have been working for months to reduce hydrological uncertainty.

And we’ve also made adjustments to the maintenance schedule of some thermoelectric plants, which usually carry out their maintenance between October and March, in accordance with what the same companies have informed us. It’s important to highlight the need for companies to do their maintenance, because that is the way to ensure that they operate reliably and safely, mitigating the risk of eventual failures in these plants.

We’ve been monitoring the fuel availability situation for some time, but we’ve increased the monitoring of stock replacement on a daily basis. Finally, in transmission, we’ve prepared a report with measures to be taken that we’ll soon send to the sector authority, the national energy commission [CNE].

In summary, as the national electric coordinator and by virtue of our powers, we are adopting all the necessary measures to mitigate the effects of the drought on the electricity supply of the population and industries.