Promoting the Development of Solar Projects in Chile

Marcelo Tokman th Friday April 24 , San Francisco, CA Minister of Energy 2009 National Energy Commission Chilean Context Energy Policy: New Guidelines

Crisis Transforming the energy crisis into an opportunity Origin Measures Outcomes

Towards a New Policy Challenges Strategy Non Conventional Renewables Solar Power

National Energy Commission Context Final energy consumption has grown significantly in Chile

Primary Energy Consumption (2007)

End-Consumption of Energy

300,000

250,000

200,000

150,000

100,000 OIL DERIVATIVES 50,000 ELECTRICITY NATURAL GAS 259.152 TCal BIOMASS OTHERS COAL 0

Since 1990 shows a growth of 4.7% per year The evolution of energy demand has closely followed GDP

GDP Total Energy Consumption Growth Indices (1979 = 100)

Evolution of Primary Energy Consumption with respect to GDP, NEC 2007 & Central Bank

But in recent years is beginning to display a decoupling More than 83% of final consumption is concentrated in three economic sectors

90,000 Oil Derivatives Biomass 80,000 Electricity Gas Others 70,000

60,000

50,000

40,000 Tera calories

30,000

20,000

10,000

0 Transport Industry Mining Commerce & Residential Energy Sector Public

End-consumption of Energy, by sector, NEC 2007 Consumption is concentrated in the following sectors: Transport (35%), Commercial, Public and Residential (25%) and Industrial (23%). Chile has two main electric systems

Electric Installed Capacity (2008) Regulated clients SING 10% 3.573 MW 27% Non-regulated clients 90%

Regulated clients 55% 9.603 MW 72% Non-regulated clients 45% SIC

33,5 MW Regulated clients 100% 0,3% 64,7 MW Regulated clients 100% 0,5% Total Capacity: 13.275 MW Projections indicate that without energy efficiency the consumption in 20 years will grow more than three times

1,000,000

800,000 Other Aviation kerosene Coke and tar 600,000 Natural Gas Gasoline Liquid gas 400,000 Firewood Coal

200,000 Electricity Oil fuels Diesel

Forecasts of End-Consumption by Fuel Type , PROGEA -UCH 2008

End-consumption of energy is projected to grow by an average of 5.4% every year until 2030 We have a high and growing external dependence

Importation Production

Biomass Hydro electricity Coal Primary Production and Importation (1990 – 2007), NEC

Natural Gas

Crude Oil

Primary Consumption 2007, NEC In the primary balance of Chile, the level of imports is equivalent to 68% of consumption Dependence exposes us to price volatility, particularly for fossil fuels

Crude oil

Natural Gas

Coal Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct

Primary Consumption 2007 & Evolution of international prices for hydrocarbons, NEC

73.3% of primary consumption corresponds to fossil fuels This dependence exposes us to risks for all uses including the electricity sector

SIC-SING Installed Capacity (Dec 2008) & Gas Restrictions from Argentina (% of normal requirements), NEC

Gas represents 36% of the installed capacity and there is only one supplier In the electricity sector, the fluctuation of pluviometry is another source of risk

Effective Hydroelectric Potencial Historical Series (GWh)

30.000

25.000

20.000

15.000

10.000

5.000

HYDROLOGICAL YEAR

SIC Installed Capacity (Dec-2008) & Historical series of effective Hydroelectric Potential (GWh), NEC

Hydro generation represents 52.3% of the installed capacity of the SIC, which serves 94% of the population Vulnerability increases when investments do not meet the requirements

Ralco 640 MW

Evolution of installed capacity (SIC+SING), historic data of CDEC updated to 2006, NEC

Several years in the last decade that the projects did not reach significant levels The investments are necessary, but competing for land use

Hydroelectric power plants Biomass power plants Thermal power plants Electric lines Substations Fuel storage Oil pipelines Gas pipelines Indigenous development areas

Indigenous communities

SNASPE

Denomination of origin

Benthic management

Wetlands

Saturated and/or latent Example of Competition for Land, OTERRA 2008 zones

There are many uses for the land The investments have impacts on the environment Gg (1000 ton)

Year

Energy Industrial processes Agriculture FCUS Balance Waste

Emissions of CO2 equivalents in Chile (1984-2003), CONAMA 2003

Chile generates 0.3% of global CO2 emissions. However, some studies project a 130% increase by 2050 as a result of coal-fired power plants Environmental influences on energy development

Coral reefs and mangroves seriously threatened by warmer SST. Mangroves will probably disappear from low-lying coastlines in the worst scenario of a rise in sea level. Amazon: Loss of 43% of 60 tree species by end of 21st century; eastern part will become savannah. Cerrado: 2ºC increase in temperatures will cause a loss of 24% of 138 species of trees. Reduction in land for coffee cultivation. Increase in aridity and scarcity of water resources. Marked increase in extinction of mammals, birds, butterflies, frogs and reptiles by 2050. Severe decrease in water availability and hydroelectric generation resulting from glacier reduction. Destruction of the ozone and skin cancer. Severe land degradation and desertification. Coast of Rio de la Plata threatened by the swell during storms and rising sea levels. Increase in vulnerability to extreme meteorological phenomena.

Impacts of Climate Change on the Electricity Sector, AR4- IPCC (2007)

Climate change will mean lower precipitation, less snow and more frequent “El Niño / La Niña” phenomena with impacts particularly in the central-south of Chile Crisis The crisis arises from a combination of risks that materialized

Cuts in natural gas deliveries Drought

Pluviometric anomaly, Santiago region-Concepción Period: January-December Standardized Units

Increase in costs Failure of important power plants

Nehuenco (11 months)

Unit U-16 (2 months)

Gasatacama Combined Cycle 2 (12 months, partial)

Jan-00 Sep-00 May-01 Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 To confront the crisis was needed to take a package of measures

Stabilization of fuel prices through the injection of US$ 1.26 billion into Fuel Price Stabilization Fund Temporary reduction of specific tax on gasoline Electricity subsidy for the most vulnerable 40% of the population 2009 National Light Bulb Replacement Program Subsidies for poor families The month of April was included in peak hour measurement Rationing decree (reduction in voltage - hydro reserves) Energy saving campaigns Extension of daylight savings time Flexibilization of water use for power generation Installation of back-up turbines and engines Conversion of combined cycles gas turbine to permit their operation with diesel Investment in diesel logistics Financial offers from generators Law to insure supply in case of bankruptcy and Law to permit recovery of taxes on power companies The results were exceptional

There were no interruptions in the electric supply.

There were no interruptions in the gas supply to residential and commercial clients.

Increases in domestic prices due to international fluctuations were mitigated.

Low-income families received support in order to cope with higher prices. Was obtained to replace the natural gas and hydropower for diesel

Small Reservoir Wind Coal Gas Other Diesel Marginal Cost (US$/MWh) hydro

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

SIC generation sources, 2006-2009. Source CDEC-SIC, Systep

• 100% of the natural gas generation capacity was adapted to operate with diesel • Generation capacity was increased through the installation of backup turbines Was reduced energy sales

Monthly Energy Sales SIC – Actual & Projected (GWh)

4500 0%

4000 -2%

3500 % Monthly Deviation -4% 3000 Cumulative Variation 2500 March 2008-February 2009 -6% -10% 2000 -8%

1500 -10% 1000 -12% 500 Monthly Energy Sales (GWh) Sales Energy Monthly 0 -14% Jul-2008 Dec-2008 Dec-2007 Oct-2008 Oct-2007 Feb-2009 Jun-2008 Feb-2008 Apr-2008 Sep-2008 Nov-2008 Nov-2007 Auo-2008 Jan-2009 Jan-2008 Mar-2008 May-2008

Actual Projected Dev % Energy Policy: Just worrying about energy in New Guidelines periods of crisis, is the perfect recipe for a new crisis Transforming the energy crisis into an opportunity We require an energy policy with long-term vision, to ensure sufficient, safe, competitive, sustainable and equitable energy.

National Energy Commission www.cne.cl Towards a New Energy Policy Current Challenges

1. Having sufficient energy available to meet the requirements of a growing country 2. Limiting demand to what is strictly necessary 3. Diversifying the energy mix to avoid supply and price risks 4. Maintaining competitiveness in the face of energy price increases 5. Making energy development compatible with local development and environmental conservation 6. Minimizing the risks and impacts of climate change 7. Taking advantage of international opportunities (technological advances, CDM, public policies, integration, etc.) 8. Ensuring an equitable supply for the entire population 9. Being prepared to deal with critical supply and price situations 10. Putting the necessary institutions and regulatory framework in place to respond to new challenges Emissions of CO2

Total CO2 Emissions Emissions per capita

12 10.3

28,003 10 30000

25000 8

20000 6 12,874 4.28 3.64 15000 tCO2/capita 4 10000

59.84 5000 2 CO2 emissions (Mt of CO2) emissions CO2

0 World OECD Chile 0 World OECD Chile

What explains the low per capita emissions of Chile? Emissions of CO2

Emissions =xEmissions TPES TPES x GDP Population TPES Population GDP Population

World 4.28 2.39 1.80 0.20 8.8 OECD 10.93 2.32 4.70 0.18 26.4 Chile 3.64 2.01 1.81 0.17 11.0

Clean energy More energy Less economically mix efficient developed

Source: Key World Statistics 2008, International Energy Agency Emissions of CO2

Emissions =xEmissions TPES TPES x GDP Population TPES Population GDP Population

World 4.28 2.39 1.80 0.20 8.8 OECD 10.93 2.32 4.70 0.18 26.4 Chile 3.64 2.01 1.81 0.17 11.0

Economic growth will lead to an increase in emissions.

For example, if we: - achieve the level of economic development in the OECD. - are as efficient as Denmark - have a clean matrix as France (80% nuclear);

Our emissions would be: Emissions x TPES x GDP = Emissions TPES GDP Population Population 1.38 0.12 26.4 4.37

Fuente: Key World Statistics 2008, International Energy Agency Current Challenges

1. Strengthening of the Institutional Framework

2. Promotion and Development of Energy Efficiency 3. Optimization of the Energy Mix

4. Compatibility with Sustainable Development

5. Support for Equitable Use

6. Preparation for Contingencies Strategic Priorities

1. Strengthening of the Institutional Framework

2. Promotion and Development of Energy Efficiency 3. Optimization of the Energy Mix

¾ Investment Promotion ¾ Diversification of the Mix

4. Compatibility with Sustainable Development

5. Support for Equitable Use

6. Preparation for Contingencies Even reducing the energy intensity, the highest per capita income will bring higher per capita consumption of energy.

Investments to cover the requirements of growth must be available in due course.

5000

4000

3000 4,863 2000 3,369

1000 1,913 1,140 730 0 2005 2006 2007 2008 2009

Approved projects in SEIA

The energy sector represents more than 43% of the total investment 2008 - 2012 After a period of relatively few projects, there has been a steady increase in efforts

Evolution of installed capacity SIC + SING

Source NEC: updated to 2008 with historical data from CDEC. Accounting for future projects according to plan, construction sites of the knot in April 2009 Price Report Strategic Lines

1. Strengthening of the Institutional Framework 2. Promotion and Development of Energy Efficiency 3. Optimization of the Energy Mix ¾ Investment Promotion ¾ Diversification of the Mix Exploitation of domestic fossil fuels Diversifying Suppliers Coal Renewable Energies Biofuels Solar Collectors Hydro Conventional Non-conventional Electric (NCRE) Option Nuclear Analysis 4. Compatibility with Sustainable Development 5. Support for Equitable Use 6. Preparation for Contingencies Renewable energy is indigenous and clean

Primary Consumption (2006) Electric Generation (2006) Chile

Generación Total= 54 TWh World

Fuente: CNE (2007)/ WEO (2008) Chile has great potential in renewable energy to produce electricity: Wind Potential

Wind Power

Wind Farm Canela-CHILE Rojo = Muy Bueno Azul = Muy Malo Chile has great potential in renewable energy to produce electricity: Solar Potential

Solar Power

• Stirling Solar project Discs • PS10, Solúcar PS10 solar thermal technology by tower • Nevada Solar One,

, Spain one of the solar thermal po

wer of the world ‘s largest running (Nevada, en USA) Chile has great potential in renewable energy to produce electricity: Marine Potential

Ocean Energy Chile has great potential in renewable energy to produce electricity: Small Hydro Potential

Potential projects are located in irrigation works Chile has great potential in renewable energy to produce electricity: Geothermal Potential

Geothermal Energy Despite this great potential, development is not very significant

Until 2005 only 2.4% of installed capacity was NCRE, below the worldwide average of 4%

There are important barriers …

Little information is available. Uncertainty regarding permit processing for new technologies. Regulatory framework is being developed (this began in 2004). Precarious infrastructure (especially access to some resources). Difficulty of access to credit. Uncertainty over technological options, their costs and performance. Few local service providers. Need to adapt system operation for greater presence of intermittent sources. To optimize the installation of renewable energy, the first step was the removal of barriers

1. Improving the regulatory framework

Law 19,940, cross-subsidy benefit Æ exemption from paying toll charges for trunk transmission Law 20,257, between 5% and 10% of energy must come from NCRE Amendment to the Law of Geothermal Concessions

2. Promotion of investment

CORFO funding for pre-investment research and detailed engineering Preferential finance lines (CORFO) National and international promotion Guarantee fund (2009) Risk capital (2009) Promotion of projects with shared transmission lines (2009) Instrument to mitigate the risk of geothermal exploration (2009) ENAP with private participation in geothermal exploration To optimize the installation of renewable energy, the first step was the removal of barriers

3. Capacity Building Renewable Energies Center Training for technicians and researchers Research grants

4. Investment information Assessment of forestry and agricultural biomass resources. Generation of information regarding wind and solar power resources. List of hydraulic projects associated with irrigation works. Generation of geothermal information. Models for technical-financial assessment of projects. Guides on environmental assessment and evaluation of CDM projects. Progress in the implementation of renewable energy have been very significant

By the end of this government, NCRE installed capacity will be more than doubled, increasing from 2.4% (end of 2005) to 4% (end of 2009).

Since 2004, NCRE projects totaling over 1,900 MW have entered into the environmental impact assessment system.

The use of new technologies has advanced: wind power, biogas, geothermal drilling, mini-hydro in irrigation works and photovoltaics for remote areas. By 2020, it is expected that more than 10% of installed capacity comes from NCRE. “Opportunities for solar energy development in Chile” Excellent radiation conditions

Horizontal global radiation

Norte Grande Region Daily average Northern Chile has some of the 0m altitude best solar radiation resources in Entire period 2006 the world. Horiz. global radiation

4 KWh/m² day

4.5 KWh/m² day

5 KWh/m² day

5.5 KWh/m² day

6 KWh/m² day

6.5 KWh/m² day

7 KWh/m² day

7.5 KWh/m² day Source: “High resolution modeling for the purposes of prospecting for NCRE in 8 KWh/m² day northern Chile”, Geophysics Department, Universidad de Chile, on behalf of the CNE. Excellent radiation conditions (ii)

Initial measurements of radiation with solar tracking are showing levels even higher than those modeled.

SUMMARY OF DATA FROM THE METEOROLOGICAL STATION AT POZO ALMONTE

PARAMETERS 2008 2009

Unit August September October November December January February Av. global horizontal radiation 6.15 7.14 8.11 8.41 8.26 8.37 7.6 Av. global radiation +solar tracking 8.99 10.47 11.6 11.95 11.22 11.67 10.3 kWh/m2/day Av. diffuse radiation +solar track. 0.62 0.73 0.81 0.88 1.25 1.08 1.23 Av. direct radiation +solar tracking 8.37 9.74 10.79 11.06 9.97 10.59 9.06 Av. ambient temperature ºC ºC 13.9 14.9 16.2 17.9 19 19.8 20.5 Relative Humidity % 20-80% 20-80% 30-70% 40-75% 40-70% 50-75% 55-80% Av. wind speed m/s 3.3 3.6 3.6 3.7 3.7 Maximum wind speed m/s 10 10 11.5 11.9 11.8 11.7 11.9

Source: Pozo Almonte monitoring station. “Renewable energy in Chile” project, GTZ – CNE. More information at www.cne.cl Availability of land with the right characteristics

Land in northern Chile has the right conditions for developing PV and solar thermoelectric projects

Gradient: ° Viento a 2 m sns: m/s

Norte Grande Region Daily average 2m altitude Entire period 2006 Availability of land with the right characteristics (ii)

It is estimated that there are more than 4,000 Km2 within the SING alone that have the proper meteorological characteristics, road infrastructure and electricity networks for the installation of solar thermoelectric projects.

TOTAL AREA: 4632.42 [km2] Solar energy: energy of the future in Chile

The technology for generating electricity from solar radiation is still not competitive in Chile.

Costs should fall in the medium term, making it an efficient option for the country.

This will not ensure its rapid insertion into the electricity market because of the persistence of knowledge and maturity barriers.

We can make progress in building competencies by carrying out some pilot projects, to help accelerate the development of solar energy in Chile when costs do become competitive. Initial solar projects in Chile

During the beginning of the next semester, the Chilean government will hold a competition to support the installation of the first solar- powered electricity generation projects in the country.

PV project: about 500 KW, integrated into a small electricity system.

Solar thermoelectric project: around 10 MW connected to a larger electricity system. Competition scope

For this initiative to succeed, we expect that three different stakeholders will participate:

¾ Consumer (client): long-term PPA at a known price.

¾ Government: subsidy for the initial investment.

¾ Energy producer: company or consortium with proven experience in solar-powered electricity generation projects.

The competition will be decided by the lowest requested subsidy for investment. Useful information

The following websites have useful information for evaluating projects in Chile.

www.cne.cl: solar radiation measurements, meteorological modeling in the SING (beginning May 15, 2009), 2nd and 4th Regions (July 1, 2009), guide to the electricity market and NCRE, legislation, national policies, etc. www.cdec.cl: SING and SIC electricity systems, networks, supply, demand, etc. www.mop.cl: road infrastructure. www.conaf.cl , www.dga.cl : protected areas. www.dga.cl: water market. www.mbienes.cl: procedures for access to public lands. www.sernageomin.cl: geology, existing mining operations. www.ssn.dgf.uchile.cl: seismic event statistics. Useful information (ii)

Foreign trade policies, dual taxation agreements, statutes, investment platforms, transfer prices, free trade agreements, etc. www.hacienda.cl: Finance Ministry (Ministerio de Hacienda). www.cinver.cl: Foreign Investment Committee (Comité de Inversión Extranjera). www.minrel.gov.cl: Ministry of Foreign Relations of Chile (Ministerio de Relaciones Exteriores de Chile, or RREE).

Policies and instruments for supporting investment: www.corfo.cl: Chilean Development Corporation (Corporación de Fomento de la Producción, CORFO).

Tax, legislation and regulatory structure: www.sii.cl: Chilean Internal Revenue Service (Servicio de Impuestos Internos, SII). Promoting the Development of Solar Projects in Chile

Marcelo Tokman Minister of Energy Friday April 24th, San Francisco, CA 2009

National Energy Commission