Storage rules front and center in Chile energy transition bill debate

Chile’s government presented in July an energy transition bill that is chiefly focused on transmission and energy storage. 

The draft legislation, which entered congress via the senate, includes a variety of measures aimed at spurring Chile’s energy transition by tackling transmission shortfalls and incentivizing energy storage use.

An associated measure is designed to help partly ease the financial stress experienced by some generators – chiefly pureplay renewables firms operating in the country’s north – impacted by curtailment and price decoupling. 

The overall aims of the draft legislation have received general support, but multiple areas will need work and consensus building. 

Major transmission projects, as things stand, are typically subject to lengthy development times – partly because of drawn-out and complex permitting processes – while storage systems are seen as being relatively easier and faster to get built. The bill paves the way for a government auction of storage systems. All eyes are on what model is adopted, for example, how projects will be remunerated and operated.

To find out more, BNamericas conducted an email interview with Daniel Salazar, managing partner of Chilean energy consultancy energiE.

ALSO READ Chile’s energy storage sector: The state of play
ALSO READ How much energy storage does Chile need – and where?

BNamericas: The government recently presented its energy transition bill, which covers different areas. Are there any aspects or pillars of the bill that stand out in terms of impact or importance?

Salazar: The draft bill is divided into three pillars: electricity sector and climate change; efficient transmission development, and promotion of storage combined with enhanced competition.

By far, the matter that generates the most controversy is the proposed model for encouraging storage investments, since it is a model that merges business practices from both the generation and transmission segments. The bet on promoting storage under a logic of central planning will inhibit private storage evaluation and development already underway, whether intended or not.

Moreover, the costs and revenue risks of storage are transferred to the demand side; and finally, an attempt is made to place the operational management of these assets under the jurisdiction of the market operator, crossing the boundaries of its role. In other words, there are many fronts or defects that are identified in the proposed bill on this matter.

BNamericas: The consulting companies energiE and DOMO Legal recently hosted a discussion event titled “Energy Transition Bill: Scenarios and Impacts,” featuring executives from the electricity sector. What were the main takeaways/conclusions?

Salazar: We observe that a large majority of the industry stakeholders perceives that the bill covers an overly broad set of matters, most of which could be addressed through non-statutory solutions. Consequently, the bill should focus on high priority issues that would require changes in law, which could contribute to making the processing more expeditious.

As for the redistribution of congestion revenues – another point of increasing relevance – the bill sets forth vague rules, resulting in unpredictable outcomes. However, while this aspect of the bill may not have a significant impact in terms of relief for some renewable companies, it could still be fine-tuned.

BNamericas: There is an important pipeline of renewable energy projects in Chile, and it will surely continue to grow, especially given the country's decarbonization goals and its regulatory and economic stability. Given that there is already congestion in the transmission network, do you think transmission and storage projects on the way will be sufficient to keep pace with this growth, or would more be needed?

Salazar: Chile's ambitious goals in the electricity sector, particularly in phasing out the coal-fired power plant fleet, both stimulate new investments in renewable energy and exacerbate issues like nodal risks and day-night price differentials. The required investment volume for the upcoming decade is nearly 2,000MW per year, far exceeding the previous decade's average of about 1,000MW per year. This will present challenges in land use, institutional permitting capabilities, and financing, among other areas.

BNamericas: Are the challenges in the transmission space spurring any changes regarding the technological configuration – wind, solar, hybrid, for example – and location of new projects?

Salazar: Solar development has focused principally on the northern part of the country, where the majority of transmission constraints and solar curtailment are triggered. We notice a shift towards wind development in the southern regions and on the hybridization of solar parks through battery storage solutions.

BNamericas: And finally, is there a consensus in the industry regarding the mitigation measures announced by the government: the reallocation of congestion revenue, or tariff income, as it is sometimes called, and the auction of storage systems? That is, do industry players see them favorably, etc?

Salazar: The storage proposal requires major adjustments for both technical and political viability. Until then, a legislative process that will be difficult to navigate is anticipated. In the case of the congestion revenue reallocation, some improvements are also required. While they may not be as extensive, they should enhance certainty and predictability of their effects and impacts.