How did Chile go from energy crisis to free electricity in two years?

Two years ago, the government of Chile believed it was facing a grave energy crisis, and was wondering whether to build a nuclear power station or a liquefied natural gas terminal to deal with it. Now it has so much energy that producers are being forced to give it away free to domestic users for around a third of the year.

The difference has been made by the rapid growth of solar energy and a collapse in demand from its expected customers.

As recently as 2014 the country believed it was facing a serious long-term energy shortage, largely caused by the expected growth in the country’s energy-intensive copper mining industry.

This was exacerbated by the effect of a drought on hydroelectric production, which was responsible for 33% of generation, and the cessation of gas deliveries from Argentina.

Electricity prices had risen 20% compared with 2010 and the government was predicting a further 34% rise over the coming 10 years.  

As a result, it was decided to prioritise solar projects: in January, it became the first Latin American country to reach 1GW of production, and there is presently 2.2GW more under construction. Together, this adds up to an 18% increase in the country’s installed capacity.

However, a fall in demand in China’s domestic economy led to collapse in the price of copper, and so less demand than was expected.

The overproduction has been exacerbated by structural problems with the national grid. This is split between north and south, and most of installed solar capacity is located in the Atacama desert, where the country’s main copper deposits are.

As a result, the electricity has to be "dumped" on the northern market. According to Chile’s central grid operator, the spot price for power was zero on 192 days of 2015 – a total that is likely to be exceeded this year.

Although this is bad news for investors in power projects, it is good news for consumers, and the rest of Chile’s industry.

The situation may be changed by the construction of a 600km transmission line to connect the two halves of the grid in 2017, and the recent reactivation of a transmission cable connecting northern Chile with the Argentine grid.

Image: Atacama desert, where the bulk of the country’s solar farms are located (Wikimedia Commons)

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