The principal laws that regulate the ownership and structure of the electricity sector in Chile are:
Beginning in the 1980s, the generation, transmission and distribution segments were owned by private capital, and the State had a regulating, overseeing and subsidiary function. The only exception to this rule is the Empresa Nacional del Petróleo (ENAP) after Law No 20,897 broadened its purview to generation. In Chile, the generation, transmission and distribution segments are considered to be separate economic activities. The players of the segments can participate in the ownership of the other segments, except for the segment of transmission, where transmission companies are prohibited from participating in the generation and distributions segments. The generation segment is a competitive market that receives its revenue from the sale of energy and power. Transmission and distribution are regulated monopoly markets, which receive their revenue in accordance with rates established by the following laws:
The principal private companies by segment are as follows.
In accordance with information from the Chilean Electricity Market Generator’s Association Bulletin, March 2018 – Enel Generación with 6,348 MW, AES Gener with 4,133 MW, Colbún with 3,310 MW and Engie with 2,053 MW.
In accordance with information from the Electricity Company Association – Transelec is the principal owner of the transmission networks in Chile, with 15,986 MVA. The rest of the market is distributed among various players: CGE with 8,506 MVA, Enel Distribución with 8,350 MVA, Celeo Redes 3,464 MVA, SAESA 1,764 MVA, Chilquinta 1,706 MVA, TEN 1,500 MVA and Interchile 100 MVA.
In accordance with information from the Electricity Company Association – the principal distributor in the country is Enel Distribución with 43% of the market, followed by CGE with 37%, SAESA with 37% and Chilquinta with 8%.
There is only one state company in the electricity sector, which is ENAP.
Chilean legislation does not contain any special restrictions or protection regarding foreign investment in the electricity industry.
Law No 20,848 on Foreign Investment, which replaced Decree Law No 600/1974, establishes the requirements to become a foreign investor in our country. By means of the foreign investor certificate, the investor will be able to remit the capital overseas, the net profit generated by its investments; the certificate provides access to the formal exchange market, guarantees no arbitrary discrimination and exemption from the Tax on Sale of Goods and Services when importing capital goods.
In short, the foreign investment regimen guarantees equal opportunities for foreigners who invest in various sectors, granting equality of rights and obligations as if they were local investors.
Additionally, it must be noted that Law No 20,720 (Law on Reorganisation and Liquidation of Companies and People), which modified Law No 20,220 (Law on Security of the Supply to Regulated Customers and Sufficiency of the Electric Systems), introduced a series of stipulations that modified the Electricity Law, such as to not put at risk the electric systems, security of the supply and the economic operation of these in the event that a generator, transmitter or distribution company goes bankrupt. As a specific measure, it mentions the designation of a temporary administrator appointed by the Superintendence of Electricity and Fuels (SEC), who will continue with the operation. It also considers mitigation measures in the event that the supply to regulated customers is affected.
In the process of purchases or mergers of companies in the electric sector, as in other sectors, it will be necessary to comply with the regulations that govern free competition, contained in Decree Law 211/1973 (Antitrust Law). The primary function of the Antitrust Law is to guarantee and promote free competition in all markets in Chile. The Antitrust Court (TDLC) and the Antitrust Division of the Department of Justice (FNE) are responsible for applying the Antitrust Law to guarantee competition in the markets. In the case of a merger or the purchase of a company in the electric sector, the relevant legislation is Law No 20,945 that modified the Antitrust Law, established in May 2017 a mandatory notification to the FNE and a two-stage merger control, restricting the acquisitions process. Additionally, it must be kept in mind that Article 7 of the Electricity Law establishes that generation or distribution companies can participate in the national transmission segment, but subject to the following limitations: (i) their direct or indirect participation cannot exceed 8% of the total investment value of the national transmission system, and (ii) the joint participation of generation, distribution companies and free customers in the national transmission system cannot exceed 40% of the total investment value of the national transmission system. These limitations are extended to business groups, natural persons and legal entities that form part of transmission companies or have agreements for common action with transmission, generation and distribution companies.
Lastly, the same Article 7 establishes a prohibition for companies in the national transmission segment such that they cannot in any way participate in generation or distribution activities.
More information on Antitrust Law and Law NO 20,945 can be found at www.leychile.cl .
In Chile there are different authorities that participate in the supply of energy, such as in the development of the planning of transmission to ensure the reliability of the electric system and due satisfaction of the demand or energy. The Ministry of Energy must move forward with the long-term energy-planning process every five years for the different energy scenarios of expansion of generation and consumption, for a 30-year horizon.
In Chile, the Ministry of Energy has been the highest authority regarding energy matters since its creation in 2009. The National Energy Commission (CNE) is a technical entity and the main advisor of the Ministry, responsible for the creation and co-ordination of the policies necessary for the operation and development of the industry. Regarding transmission, it is also responsible for planning for a 20-year horizon and, regarding distribution, it must carry out the bidding processes for the supply of energy of regulated customers. The Superintendence of Electricity and Fuels (SEC) is responsible for supervising the correct operation of electricity, gas and fuel services, and compliance with the electricity regulations.
Furthermore, the function of the Independent Electric System Co-ordinator (the Co-ordinator) must be noted, a technical and independent entity that does not form part of the administration of the state and was created by Chilean legislation in Law 20,936 (Transmission Law), replacing the former Economic Load Dispatch Centers (CDECs). The Co-ordinator is an entity that follows the model of an Independent System Operator, and has the objective of fulfilling certain specific functions such as the co-ordination of the electricity market, guaranteeing open access, ensuring the security of the electric system, monitoring competition and the chain of payments, the co-ordination of energy exchanges, ensuring the performance of the electric system and of the security levels, among others. The functions and obligations of the Co-ordinator are overseen by the SEC, which can order the corresponding corrections and rectifications, and can apply the pertinent sanctions.
Law No 20.936, which establishes new electric power transmission system and creates a co-ordinating entity independent of the national electric system (the Transmission Law), mandates the creation of the Transmission Law's regulations. To date, most of said regulations have been enacted, only the National Electric System Co-ordination and Operation Regulations and the Transmission Assessment and Remuneration Regulations are pending of enactment. It is also worth mentioning the Supplementary Service Regulation that governs the remuneration of certain services, such as storage, voltage control, frequency control, determining new income sources for different sectors of the electric market.
As for transmission, this year (2019) the Ministry of Energy is working on a bill for Improving the Power Transmission Law to overcome some difficulties that have arisen in connection with the currently applicable law, almost three years after enactment thereof. The bill proposes improvements which relates to open access (greater flexibility for new connections and free access treatment to telecommunications facilities), transmission planning (other works, storage systems, and certain infrastructures will be incorporated into the planning aside from electrical substations and transmission lines), transmission remuneration (in connection with urgent and necessary works other than expansion works, that may be remunerated as of their operation start-up), evaluation of the facilities (the evaluation process for electrical installations to be more certain and accurate) and transmission assessment (to improve the investment value concept, the use of the scope economy concept, incorporation of a mechanism allowing the National Energy Commission to assess value for electrical installations based on the information and methodology contained in the most recent assessment survey, which will be applied until the next survey).
As to the distribution segment, bills have been submitted to modify electricity distributing companies’ profitability, the rate-setting procedure determining the distribution added value (DAV), to increase the quality and service standards, to create contingency plans to cope with power supply outages, establishing faster user compensation mechanisms.
As regard to the generation segment, initiatives intended to modify Supreme Decree No 244, of 2005, which governs the small distributed generating power units (SDGPU) and those connected to the national or area transmission (SGPU), have been presented. The main change by this bill, if enacted, would focus on the modification of the stabilised price, which would be determined on time trenches.
More information can be found on Law 20,936 and Supreme Decree No 244 at www.leychile.cl .
During June 2019, the Ministry of Energy, jointly with the main generating companies in Chile (Colbún, AES Gener, Engie and Enel), announced the schedule for the first stage of decommissioning coal-fired power plants, initialising the decarbonisation process in Chile. This first phase considers the decommissioning of eight coal-fuelled power plants accounting for 1,047 MW, which will gradually start to cease to operate between 2019 and 2024. Such coal-fired plants represent 19% of the total installed capacity of this kind of power plants.
The decarbonisation plan will allow for a reduction in the emission of greenhouse gases and the development of non-conventional energies that, as projected in Chile’s energy agenda, should reach 75% in 2030.
This announcement is also in line with the country's objective of boosting electro-mobility. To accomplish the above, the Ministry of Energy is working on energy efficiency in electro-mobility, including the power to set energy efficiency standards for the vehicle population. These standards would consist of average energy performance goals, which could be defined as km/lt equivalent gasoline, and their equivalence in grams of CO2.
In addition, the project contemplates the Minister of Energy's power to regulate the electric vehicle charge system used on the network, such that the charge infrastructure may be homogeneous, access to public vehicle chargers being thus ensured.
The new Transmission Law allows the construction of a robust transmission system that will promote the development of new renewable energy generation projects. The State will have a decisive role in planning the expansion of transmission, overcoming the bottlenecks and restrictions that have historically affected the Chilean electricity system, where the transmission infrastructure lags behind the growth in demand. The new law will drive the development of hydroelectric projects in the south of the country and solar projects in the Atacama Desert.
The principal aspects contained in the Chilean electricity regulatory framework that makes it an attractive market for investors are the high interest and promotion of the development of non-conventional renewable energy (NCRE) thanks to the high potential for generation of renewable energy and flexible regulation regarding the use of land, which facilitates the development of projects.
Additionally,, Chile has the highest credit rating in Latin America, due to its macroeconomic stability and global integration, capital markets with simple foreign investment processes and low taxes. Furthermore, there is no minimum local participation for companies incorporated in Chile and no R+D in power in Chile, which creates opportunities for foreigners investors who are cost-competitive.
In the field of distribution, the auction mechanism provides stable signs for long-term prices, facilitating investment. Finally, there is the possibility of generating power purchase agreements directly with consumers, which increases the bankability of projects.
The structure of the electricity market and its prices are regulated by the Electricity Law and its Regulations.
There are two large levels at which energy is bought and sold. The first level corresponds to the electricity generation level and within it there are two major markets – spot and contracts markets – each with its own prices. The second level corresponds to distribution which considers the node price, which is explained below.
The spot market: this market corresponds to an electricity purchase and sale market and is restricted only to generating companies, which together form part of a pool. Other players are not permitted to participate in the trading or brokering of electricity. The energy generated and injected into the system can only be injected and withdrawn exclusively by generators and can be sold on the spot market to other generators or on the contracts market to other generators, distribution companies or free customers.
The prices of electricity correspond to payments for energy equal to the short-term marginal costs resulting from the instant balance between the supply and demand of energy. Additionally there are payments for power (or capacity prices) which are determined by the authorities every six months, as the cost of developing the supply of energy with the cheapest technology in the peak demand hours. The payments for energy and for power sold on the spot market correspond to those volumes of energy and power that a generator has available and has not been able to secure in a direct sale with a free customer or with a distribution company.
The contracts market: in this market the prices are established freely between the parties.
Law No 20,018 incorporated a public bidding process system to the Electricity Law that is open, non-discriminatory and transparent, for the supply of regulated customers. Through Law No 20,805, the CNE now designs, co-ordinates and directs the bidding processes instead of being this done by the distribution companies.
In accordance with Article 131 of the Electricity Law, the distribution companies must continuously ensure the supply of energy necessary to satisfy the total consumption of its regulated customers within its concession area, consumption that must not be covered by the supply awarded in a prior bidding process, and that does not include free customers. With this objective, distribution companies must sign long-term energy supply agreements (PPAs), which are regulated in the bidding process.
It must be noted that beginning in 2015 the conditions of the bidding processes changed, allowing a determined quantity of contracted supply to be offered on the basis of times, facilitating NCRE generation, which is intermittent in nature. In 2017, a bidding process of blocks by stations was carried out, in order to supplement the generation of the hydroelectric plants.
The principle laws are:
International exchanges of energy and cross border interconnection of electrical systems are regulated in Article 82 of the Electricity Law, which establishes the international exchange of electricity services, that is, the export and import of energy and other electrical services through the electric systems located within Chilean territory. For an exchange of energy to take place, the regulation requires prior authorisation from the Ministry of Energy, which must be granted by Supreme Decree after reports, as may be applicable, from the SEC, CNE and the Co-ordinator. In this regard, Decree No 142/2016 of the Ministry of Energy establishes specific terms and conditions for energy exchange requests of electricity and other services.
It must be noted that the Ministry of Energy, through Decree No 7 – published in the Official Gazette on 19 June 2015 – authorised AES Gener to export energy through the Andes-Salta 325 kV transmission line (belonging to AES Gener) to the substation of Salta in Argentina. On 12 February 2016, GasAtacama started supplying 110 MW from its power plant in Chile to Argentina.
Chile is a member of the Andean Community (CAN), a multilateral entity that is currently developing an international agreement called the Andean Electricity Interconnection System, whose objective is to deepen and expand international exchanges of energy.
According to the National Energy Commission (CNE), Chile's installed capacity is 23,389.25 MW, which is distributed through three electric systems as follows: National Electric System (SEN), with 23,218 MW, corresponding to 99.27 %; Aysén Electric System (SEA), with 64 MW, corresponding to 0.27%; and Magallanes Electric System (SEM), with 107 MW, corresponding to 0.46%. 52.76% corresponds to thermoelectricity, 14.14% to conventional hydroelectricity, and 18.3% to non-conventional renewable energies (NCRE).
As regard to the SEN, which is the country's main electric system, the net installed capacity by technology is as follows:
There are no specific concentration limits established in the law for the supply of electricity. However, Article 7 of the Electricity Law establishes limitations on the percentage of individual and joint participation in the market for generator and distribution companies and free customers. Individual participation in the market cannot directly or indirectly exceed 8% of the total investment value of the national transmission system, and joint participation (for example, between a generator and distribution company) cannot exceed 40% of the total investment value of the national transmission system.
Additionally, Chilean legislation, through Decree Law No 211/1973 (Antitrust Law) promotes free competition, so as to avoid collusion or concerted practices, barriers to entry, market concentration, or vertical integration or abuse of a dominant position. The Antitrust Court and the Antitrust Division of the Justice Department (FNE) are responsible for applying the Antitrust Law to safeguard competition in the markets. Additionally, the Co-ordinator is responsible for collaborating with the FNE in monitoring competition in the electricity market.
As indicated, Decree Law No 211/1973 (Antitrust Law) promotes free competition, so as to avoid collusion or concerted practices, barriers to entry, market concentration or vertical integration or abuse of a dominant position. The TDLC and the FNE are responsible for applying the Antitrust Law to safeguard competition in the markets. In the electrical sector, Law No 20,936 authorised the Co-ordinator to monitor competition and this entity must report to the FNE or to the pertinent authorities if it detects indications of actions that could be attacks on free competition.
The FNE carries out the investigations and may request information from public or private entities and from any person. When dealing with serious and specific cases that involve the conduct indicated in the Antitrust Law, Article 3 letter a), the FNE, with the assistance of the Chilean Detective Force or the Chilean Police Force (which must be previously authorised judicially), can search public or private locations, seize and check documents, background and objects, intercept communications and order communication companies to provide copies and records of communications transmitted.
The TDLC can apply fines if a violation of the free competition regulations is demonstrated, corresponding to 30% of the sales associated with the line of products or services connected with the violation during the period in which the violation occurred, which can reach up to the double of the financial gain. If the value cannot be determined, the court can apply fines of up to USD54 million. The FNE can also apply criminal fines and sanctions, in the case of hiding information, or if the information provided in the procedures is false.
Law No 20.417, which amended Law No 19.300, (the Environmental Act), created the Ministry of the Environment (MMA), Environmental Assessment Service (SEA) and Environment Authority (SMA). According to this Environmental Act, the MMA is in charge of proposing policies and design plans, programmes and plans of action on climate change. In 2017, the Climate Change Department (DCC) was created, as part of the MMA's organisation. This entity's mission is to contribute to sustainable development, creating a low-carbon economy in the country by integrating and promoting more and better sectoral public policies allowing, at local level, for climate change to be faced and mitigating actions implemented. In addition, this entity is responsible for advising and implementing the Vienna Convention and the Montreal Protocol on Substances that Deplete the Ozone Layer, thus boosting synergies between actions for protecting the ozone layer and coping with climate change.
The MMA also considers the competencies of other sectors by way of the following entities: the Council of Ministers for Sustainability; the Agency for Sustainability and Climate Change (2016); and Regional Committees on Climate Change.
Chile has subscribed to international agreements to address climate change, and has developed a set of public policies on the matter. As regard to international commitments, there is also the Kyoto Protocol, which commits industrialised countries to stabilising greenhouse gas emissions, and the Paris Agreement on Climate Change, whose enforcement is to begins in 2020. Chile has subscribed to an NDC (Nationally Determined Contribution) within the scope of the Paris Agreement. Together with reducing its emissions of greenhouse gases, this NDC intends to reduce poverty and inequality, with the purpose of moving forward to a more sustainable, competitive, inclusive, resilient and low-carbon growth.
As regard to public policies, it is worth mentioning the National Plan of Action on Climate Change (PANCC), whose purpose is to establish a public policy instrument intended to integrate and guide all actions on climate change, and the National Plan for the Adaptation to Climate Change and sectorial plans to adapt to climate change, including the energy sector. As to the currently enforceable regulations on the matter, of relevance are: Law No 20.257 on the Promotion of Non-Conventional Renewable Energies (NCRE), as modified by Law No 20.698, of 2008, which provides that, by 2025, 20% of the energy produced in Chile shall come from renewable sources; and Law No 20,780, of 2014, which is a part of the Tax Reform, where the so-called 'green taxes' that levy the emission of local contaminants and CO2, were established.
In addition, the Government, through the process referred to as 'Energy Route 2018-2022', has sought to define the route and priorities in currently existing energy matters. Its design involved the greatest citizen participation and dialogue ever held in the country. This 'route' will be an effective tool for following up objectives, actions and specific goals that will mark the navigation chart over the coming years. The commitments set forth in this plan include the gradual Decommissioning of Coal-Fired Power Plants throughout the country, as announced by the Chilean government, and which is to be completed in the year 2040. Within the scope of this plan, the eight oldest thermal power plants will be gradually decommissioned, considering environmental variables, economic and social impacts, and international experience.
As for thermal power plants, an emission standard for this type of power plants has been in place since 2011 (Supreme Decree No 13/2011). This standard regulates the emissions of particulate matter (MP2.5), sulphur dioxide (SO2), nitrogen oxides (NOx) and mercury and, although it does not set limits for CO2 emissions, it establishes continuous monitoring of this gas in each chimney. In accordance with currently applicable environmental regulations, environmental quality and emission standards must be reviewed at least every five years. As a result of the above, and in compliance with the commitments contained in the 'Energy Route 2018-2022', environmental regulations must be updated in order to take advantage of thermoelectric generation flexibility and higher levels of renewable penetration must be set, in co-ordination with the Ministry of Environment.
The principal laws are listed below:
During June 2019, the Ministry of Energy, jointly with the main generating companies in Chile (Colbún, AES Gener, Engie and Enel), announced the timeframe for the first stage for decommissioning coal-fuelled power plants, the decarbonisation process having then been started in Chile. This first phase contemplates the decommission of eight coal-fuelled power plants accounting for 1,047 MW, and which will gradually start to cease to operate between 2019 and 2024, plants that, combined, represent 19% of the total installed capacity of this kind of power plant. The second stage will be started as of 2025, and the use of coal-fuelled power plants will be eradicated in 2040.
It must be noted that the early decommissioning of coal-fuelled plants is a voluntary agreement between the Chilean Government and the above-mentioned electric companies. Within this context, said companies will not be compensated for the decommissioning of their power.
The decarbonisation plan will contribute to reducing the emission of greenhouse gases and to the development of non-conventional renewable energies, which, according to the projections in Chile's energy agenda, should reach 75% in 2030.
The principal law are set out below:
The Ministry of Energy has carried out different initiatives to encourage non-conventional renewable energies (NCRE) projects. In past years, it implemented a soft loan programme for up to USD25 million to develop large-scale projects and to encourage energy efficiency and self-generation using NCRE technologies. Also worth mentioning is the work of the Manufacture Development Corporation (CORFO), which, in January 2016, jointly with the German bank KFW, launched a credit facility to fund NCRE projects of up to 20 MW, to a USD15 million cap.
Lastly, and in the tax area, No 20.780 (Tax Reform Law) established the so-called 'green tax', which levies polluting sources of particulate matter, nitrous oxide, sulphur dioxide, carbon dioxide, among others, which will serve as an incentive for developing NCRE projects.
Through Law No 20.780, the establishments being subject to the green tax, such as certain power plants operating on fossil fuels, must submit to the Environmental Authority (SMA), a report on emission monitoring in order for said establishments to comply with applicable regulations on emissions.
The green tax levies the emissions, into the atmosphere of particulate matter (PM), nitrogen oxides (NOx), sulphur dioxide (SO2) and carbon dioxide (CO2), as produced by establishments whose fixed sources, comprising boilers or turbines, either individually or combined, add up a thermal power being greater than or equal to 50 MWt (ie, thermal megawatts), considering the top limit of energy value of the fuel.
The tax rate applied to any establishment being located in a borough that, in turn, is part of a zone that has been declared a saturated zone or as a latent zone due to concentration of particulate matter, nitrogen oxides or sulphur dioxide in the atmosphere, as provided under Law No 19.300, will be assigned an additional factor. This tax is applied to both individuals and legal entities.
To said effect, the Ministry of the Environment has the obligation to publicise, on an yearly basis, a list of establishments being in said circumstance and the boroughs that have been declared as saturated or latent for purposes of this tax, and the SMA has the obligation to oversee compliance with the obligation to monitor, record and report (Law No 20.780 – https://www.leychile.cl/Navegar?idNorma=1067194).
The main laws that regulate the construction and operation of generating facilities are: the Electricity Law and its Regulations; the Regulations for the Independent Co-ordinator of the National Electric System (Decree No 52/2017 of the Ministry of the Economy); the Regulations for the Transfer of Power between Generating Companies (Decree No 62/2006 of the Ministry of the Economy); the Regulations for Supplementary Services (Decree No 130/2011 of the Ministry of Energy); NCRE Law No 20,257/2008 of the Ministry of the Economy and its Regulations (Resolution No 1,278/2009 of the CNE); the Regulations for Non-Conventional Generation Sources and Small Generation Sources (Decree No 244/2005 of the Ministry of Economy); and the Technical Standards of Service Security and Quality of the CNE, which are applicable to the generation segment.
There are also standards that apply to certain specific industries, such as the Emissions Standard for Thermoelectric Plants (Decree No 13/2011 of the Ministry of the Environment), the Security Regulations for LNG Plants (Decree No 67/2011 of the Ministry of Energy) and the Regulations for Pumping Plants without Hydrological Variability (Decree No 128/2016 of the Ministry of Energy), among others.
In relation to the structure of the regulating entities, their functions and authority are addressed in 1.5 Central Planning Authority, above.
The principal laws are listed below:
In general terms, no general or specific authorisation is necessary to build and operate generation facilities in Chile, except for the distribution segment, where an electricity concession is required.
Notwithstanding the above, there are specific regulations that require the developer to apply for and obtain certain authorisations, such as a favourable report for construction from the Agriculture and Livestock Service (SAG) and the building permit that must be granted by the Municipal Works Authority (DOM). It must be noted that in those cases where the power generating plant is greater than 3 MW in capacity, the project must be assessed through the Environmental Impact Assessment System (SEIA) by means of at least an Environmental Impact Statement (EIS) in order to obtain an Environmental Permit (RCA). In addition, if the project is one of those that could cause environmental impacts indicated in Article 11 of the Environmental Law (LBGMA) the developer must go into the system filing an Environmental Impact Assessment (EIA), which includes a citizen participation stage, where the interested community can participate in the assessment process.
Furthermore, Exempt Resolution No 659/2016 of the CNE, which establishes deadlines, requirements and conditions that owners or operators of new generation or operation projects or facilities must comply with. In this regard, it must be noted that this resolution requires developers to have the following permits and documents in addition to those indicated in the previous paragraph: purchase orders for electrical or electromagnetic equipment, information regarding investment costs, title to occupy the land, additional technical information requested by the CNE and a sworn statement attesting to the truth and authenticity of the information provided.
The terms and conditions that can be imposed in the approvals will depend on the technologies of the generation facilities, which will determine the scopes of the obligations and commitments of the RCAs and their mitigation measures, as well as the obligations and commitments contained in the specific sectorial permits.
In short, it must be noted that the Environmental Assessment Service (SEA), which is the entity responsible for granting environmental approvals, has prepared practical environmental guides for the generation industry, especially for NCRE, which are useful to developers, regarding the terms and conditions that could normally be imposed to them.
In Chile, developers of generation facilities do not, per se, have expropriation rights over surface land. The developer may obtain access to properties in different ways, which depend on whether the developer has a voluntary agreement with its owner.
When dealing with State-owned land, Decree Law No 1,939/1977 of the Ministry of National Assets allows individuals to occupy or acquire this type of real estate in different ways, whether through leases, easements, onerous use concessions or purchase agreements. Each title has a specific procedure and the price will depend on which title the developer chooses.
When dealing with private land, the general rule is also to access it through a voluntary agreement with the owner (whether through lease, easement or purchase).
If there is no agreement with the property owner and only when dealing with hydroelectric energy plants, the Electricity Law authorises developers to request the SEC for an electricity concession, which, once obtained through a Supreme Decree, gives the developer the right, after payment of indemnity stipulated by an Appraisal Commission established by the same law, to occupy the property indefinitely. A 20% surcharge or increase must be added to the price established as indemnity by the Appraisal Commission in accordance with the Electricity Law.
There are no general regulations that govern the decommissioning of generation facilities.
However, and at the environmental level, the requirements and obligations for dismantling a specific energy plant will be regulated in its RCA, which will certify that it meets all applicable environmental requirements, as established in the Environmental Law.
For this purpose, and when dealing with power generation plants with capacity greater than 3 MW, the project must be submitted to the SEIA, whether through an Environmental Impact Assessment (EIA) or an Environmental Impact Statement (EIS), as applicable, and in both cases a description of the decommissioning of the plant is required, indicating the parts, works and actions associated with this phase.
If applicable, in accordance with the Regulations for the Environmental Impact Assessment System (Supreme Decree No 40/2013), the following activities, works and actions must be described for:
The environmental assessment of the project only requests for the total amount of the investment to be declared, without detailing the financing schedule for each phase, in particular the decommissioning stage.
At the sectorial level, the developer must comply with the specific obligations and commitments imposed by the sectorial permits (for example, occupation titles granted by the Ministry of National Assets, maritime concessions granted by the Ministry of National Defence, disconnection and de-energisation of the plant regarding the electricity system, etc).
The main laws that regulate the construction and operation of transmission facilities are Law No 20,936 of the Ministry of Energy, which regulates the national and zonal transmission system, poles of development, interconnection, international interconnection systems, open access, expansion and construction of new works and expansion works, determination of the steps, remuneration, among other items, the Electricity Law and its Regulations, Law No 19,940 of the Ministry of the Economy that Establishes the New Rate Regimen for Medium Size Systems, Decree No 139/2017 of the Ministry of Energy that Approves the Regulation for the Determination of Preliminary Strips for New Works of the Transmission Systems, and the Regulations for the Independent Co-ordinator of the National Electric System (Regulations for the Co-ordinator) and the CNE’s Technical Standards on Security and Service Quality, which are applicable to the transmission segment.
The technical aspects and specifications for construction are regulated in more detail in Technical Standard NSEG 5 E.n. 71 (Regulations for Strong Current Electricity Facilities) and in Standard NSEG 6 E.n. 71 (Electricity Crossings and Parallelisms), which establish safe distances between lines carrying different voltages.
Regarding the structure of the regulators, their function and purview are addressed in 1.5 Central Planning Authority, above.
The principal laws are listed below:
In general terms, no specific authorisation is needed to build and operate a transmission line project in Chile, except for the distribution segment, which requires an electricity concession.
However, there are specific regulations that can require the developer to apply for and obtain certain authorisations, such as an RCA. In those cases where the transmission line carries electricity with a voltage over 23 kV, the project must be assessed through the Environmental Impact Assessment System (SEIA) by means of at least an Environmental Impact Statement (EIS) in order to obtain an Environmental Permit (RCA). In addition, if the project is one of those that could cause environmental impacts indicated in Article 11 of the Environmental Law, the developer must file an Environmental Impact Assessment (EIA), which includes a citizen participation stage, where the interested community can participate in the assessment process.
Some transmission systems new works must go through a 'preliminary strip study' process in accordance with Article 92 of the Electricity Law – the Ministry of Energy through a decree may determine which new works will be subject to this procedure based on the criteria of voltage levels of the facilities, the intended use, the difficulties of access to or from generation poles, the complexity of implementation and the magnitude – the preliminary strip study will be submitted to a 'strategic environmental assessment' in accordance with the Environmental Law. In these cases, the preliminary strip may be subject to one or more electricity easements for public utility reasons.
Additionally, the transmission segment is also subject to Exempt Resolution No 659/2016 of the CNE.
The terms and conditions that may be applied to the approvals will depend on the size and voltage of the electricity lines, which will determine the scope of the obligations and commitments of the RCAs and their mitigation measures, as well as the obligations and commitments contained in the specific sectorial permits.
The SEA, which is the entity responsible for granting environmental approvals, has prepared practical environmental guides for the transmission industry, which are useful to developers, indicating the terms and conditions that could normally by applied to them.
In Chile, developers of transmission facilities do not, per se, have expropriation rights over surface land. The developer may obtain access to properties in different ways, which depend on whether there is a voluntary agreement with its owner.
When dealing with State-owned land, Decree Law No 1,939/1977 of the Ministry of National Assets allows individuals to voluntarily constitute easements and obtain leases, onerous use concessions or purchase agreements. Each title has a specific procedure and the price will depend on which title the developer chooses.
When dealing with private land, the general rule is also to access it through a voluntary agreement with the owner through the constitution of easements, leases or purchase agreements.
If there is no agreement with the property owner, and when dealing with electrical substations and electricity transmission lines, the Electricity Law authorises developers to request the SEC for an electricity concession, which once obtained through a Supreme Decree, gives the developer the right, after payment of indemnity stipulated by an Appraisal Commission established by the same law, to occupy the property indefinitely. A 20% surcharge or increase must be added to the price established as indemnity by the Appraisal Commission in accordance with the Electricity Law.
Law 20,936 introduced the procedure for 'transmission planning', in order to bid out the construction and operation of transmission facilities. It is based on the annual transmission planning process performed by the CNE that considers the long-term energy planning process produced by the Ministry of Energy. The Co-ordinator, within the first 15 days of January of each year, must send to the CNE a proposal for expansion of the various transmission segments, as applicable (national transmission system, development poles system, zonal transmission system and dedicated transmission system). The market agents along with the CNE in a public and transparent process – which must comply with Article 91 of the Electricity Law – will then issue a final technical report containing the annual transmission expansion plan, which will be reflected in a Ministry of Energy decree, indicating the expansion works and new works (Expansion Decree), published in February of the following year. The Expansion Decree will determine the works to be built, operated and included in the Co-ordinator’s Bidding Process Guidelines to be offered to the market. The works will be awarded by the Co-ordinator within 60 days of receipt of the bids. The results of the bidding process will be included in a report prepared by the CNE and to be reflected in a Supreme Decree of the Ministry (Decree for Execution and Exploitation). The Decree for Execution and Exploitation will be the legal title under which the works will be executed and under which the awardee will be paid once it begins operating.
The transmission segment in Chile is considered to be a public service. The principal laws that regulate the supply of the transmission services are the Electricity Law and its Regulation, Law No 20,936 of the Ministry of Energy (Transmission Law), and Law No 19,940 of the Ministry of Economy that Establishes the New Rates Regimen for Medium-Sized Systems, which regulates the remuneration of the transmission and its rates.
Regarding the structure of the regulators, their function and purview are addressed in 1.5 Central Planning Authority, above.
The principal laws are listed below:
The owners of the transmission facilities in the national, zonal, development poles and international segments receive the following revenue for each section:
The payment of rates is done by charging demand (stamping); users pay a flat rate per kW, based on average costs and independently of distance. In dedicated systems remuneration it is established by joint agreement between the parties.
In the case of expansions, since there is a bidding process, the AVI + COMA are awarded by the Co-ordinator to the lowest bidder.
The transmission system rates can be challenged through the panel of experts, in relation to the valuations of the transmission facilities (Electricity Law, Article 112), discount rate (Electricity Law, Article 119) and useful life (Electricity Law, Article 104).
Pursuant to Law No 20,936 the national and zonal transmission systems are subject to an open access regimen, such that the facilities of these transmission systems can be used by third parties under non-discriminatory technical and economic conditions, through the payment of the transmission system remuneration established in the same law. The owners or operators of the national or zonal transmission lines cannot deny access to the transport or transmission service for reasons of technical capacity, unless the Co-ordinator acting under the authority established in the Electricity Law or its Regulations for the co-ordinated operation of the electric system, limits the injections or withdrawals without discriminating among users (Electricity Law, Article 79).
When dealing with dedicated transmission systems, owners or operators cannot deny service to any interested party when there is available technical transmission capacity. In order to use the available technical capacity, the interested parties must guarantee or remunerate the connection request, without prejudice to the remuneration that must be paid for the use of the facilities. The Co-ordinator will determine the available technical capacity of the dedicated systems without considering transmission congestion due to limitations on capacity of other sections, after hearing the parties.
As a consequence, the legal effect of being subject to an open system implies in Chile that if there is available technical capacity for transmission as determined by the Co-ordinator, the owner of the transmission facilities cannot deny connection to the transmission facilities or to services resulting from a third party and can only do so on the basis of non-discriminatory technical criteria and economic rules. The third party can file legal actions with the relevant authority (the panel of experts or the SEC) if open access is not provided.
The general framework for construction and operation is provided by the Electricity Law, its Regulations and the Regulations for the Co-ordinator, from which the applicable regulations of the lower levels are derived.
The technical aspects and specifications for construction are regulated in the Technical Standard, NSEG 5 E.n. 71 (Regulations for Strong-Current Electricity Facilities) and in Standard NSEG 6 E.n. 71 (Electricity Crossings and Parallelisms), which establishes the safe distances between lines carrying different voltages.
The technical aspects in the operation of the distribution companies must comply with the Technical Standard for Distribution Systems Service Quality (NT), which regulates the technical, security, co-ordination, quality, information and financial aspects of the operation of the electricity distribution sector.
Regarding the structure of the regulators, their function and purview is addressed in 1.5 Central Planning Authority, above.
The principal laws are listed below:
The establishment, operation and exploitation of electricity distribution facilities in Chile, within a specific area, can only be done through a public service concession (pursuant to the Electricity Law, Article 2 and Article 7 of its Regulations), which can be temporary, in which case it is requested directly to the SEC (Article 18 of the Regulations), or final, in which case it must be requested to the President of the Republic through the Ministry of Energy (Article 30 of the Regulations). The objective of the final concession is the establishment, operation and exploitation of public service distribution facilities, with an indefinite duration (Article 16 of the Regulations).
The concession decree will authorise the occupation of roads, streets and other public use national assets and the crossing of other electricity lines that the facilities cross in their layout (Electricity Law, Article 16). This concession is not granted for those sections of networks that cross privately-owned land, which must be processed separately (Electricity Law, Article 17).
Unless the project is one of those that could cause environmental impacts indicated in Article 11 of the Environmental Law (LBGMA) no environmental approval is required in the area of distribution to establish distribution lines, because their voltage is below 23 kV (Environmental Law, Article 10 and Article 3 of its Regulations impose environmental assessment only for lines carrying voltage over 23 kV). Regarding the electrical substations, environmental assessment is required to establish step-down substations whose voltage is over 23 kV and/or if the project is one of those that could cause environmental impacts indicated in Article 11 of the Environmental Law (LBGMA).
The construction of the distribution networks must comply with that established in Technical Standard, NSEG 5 E.n. 71 (Regulations for Strong-Current Electricity Facilities) and Technical Standard NSEG 6 E.n. 71 (Electricity crossings and parallelisms), mentioned in 6.1.1 Principal Laws Governing the Construction and Operation of Electricity Transmission Facilities.
There are also specific sectorial permits associated with the crossings, such as approval from the Roads Authority if the line crosses public use national assets (roads, avenues, among others), approval by the General Civil Aeronautics Authority if the line is located near an airport or aerodrome; if the line crosses rivers or streams it must have the respective authorisation from the General Waters Authority.
Regarding operations, the standards contained in the Technical Standard on Service Quality for Distribution Systems mentioned must be complied with.
The Electricity Law allows distribution companies, through easements contained in the public service distribution concessions, to occupy roads, streets and other public use national assets, and authorises these facilities to cross other power lines along their layout (Electricity Law, Article 16). In order to access the surface land of a private party, the routes for accessing the land will vary depending on whether there is a voluntary agreement with the land’s owner.
If there is an agreement with the owner through the voluntary constitution of easements, lease or purchase of the land, the price will depend on what the parties negotiate.
If there is no agreement with the owner of the property, the Electricity Law authorises distribution companies to request the SEC for an electricity concession, which, once obtained through a supreme decree, gives the company the right, after payment of indemnity stipulated by an Appraisal Commission established by the same law, to occupy the property indefinitely. A 20% surcharge or increase must be added to the price established as indemnity by the Appraisal Commission in accordance with the Electricity Law.
In Chile, distribution is a public service, with natural monopoly characteristics, where services are provided by private companies in a geographical area established in a concession and the State retains the role of regulator, inspector and subsidiary. The concession is obtained through an administrative process with the SEC that is regulated in the Electricity Law. The process may take at least 12 to 14 months. The principal obligation contained in the concession is that distribution companies are required to supply energy to whomever requests it within their concession area, or those who reach it through own or third-party lines, complying with the technical standards.
There is no prohibition on two companies operating distribution facilities within the same geographical area; however, since the economies of scale of the relevant geographical market are sufficient for one single operator, it is uncommon for there to be more than one distribution company in any geographical area.
The principal laws that govern the provision of distribution services are the Electricity Law and its Regulations.
Regarding the structure of the regulators, their function and purview are addressed in 1.5Central Planning Authority, above.
The principal laws are listed below:
In the distribution segment, the distribution rate for regulated clients within a specific concession area considers:
Transformation of the Energy Matrix in Chile
Chile has experienced enormous growth in its renewable energy installed capacity in the past five years. Its varied and substantial natural resources allow for power generation from numerous renewable energy sources, including solar, geothermal, wind, hydro run-of-river, biomass and biofuels. The growth in its renewable energy installed capacity has been achieved and driven through a combination of necessity and opportunity.
Historically, Chile was heavily reliant on gas supply from Argentina to feed its gas-fired power generation and on large-scale hydropower generation. However, for over a decade until 2017, Argentina had ceased its gas supply to Chile and during much of that same period Chile had also experienced serious and long-lasting periods of drought that impacted significant hydropower generation in the country. In turn, both these factors contributed to a spiking electricity price in the country. The result of this energy crisis was that Chile was forced to take measures to transform and modernise its energy matrix. Primarily as a means to be able to meet the increasing industrial needs of the major mining companies operating in the country (one of the major drivers of economic growth), Chile looked specifically to renewable power generation to fill the gap.
The opportunity for the development of renewable energy projects in Chile was, and is, immense. The Atacama desert boasts the title of being the driest and having the highest levels of solar radiation on earth. In addition, the desert has other characteristics that are extremely favourable to solar power generation; it is high and flat. As well as these advantageous conditions, the price of utility-scale solar PV projects also fell significantly over the course of the last few years, making these projects extremely competitive. In addition to such favourable characteristics for solar power generation, Chile also has enormous geothermal power generation potential given its extensive number of volcanoes. Chile's vast coastline also presents a huge potential for wave energy, although this resource has been explored less than the aforementioned.
Chile also has plentiful and substantial hydropower potential that has not yet been developed, despite having significant installed hydropower capacity. However, unlike the solar potential of Chile, which is concentrated in uninhabited and generally less ecologically sensitive areas, a substantial proportion of the hydropower potential in Chile is located in regions where potential environmental harm is more likely. This has acted as a limit on the continued development of mega hydro projects, as was the case with the HidroAysén and Energía Austral projects that had both been planned in Patagonia.
The Chilean government has also been very supportive of renewable energy projects. For example, the DisCo power purchase agreement (PPA) auctions were separated into two blocks defined by time: hourly and quarterly. While the auction is technology neutral, it is structured so as to favour certain technologies, in particular solar (in the hourly segmented 24-hour block) as well as hydro and wind (in the seasonally adjusted quarterly blocks). The structure permits renewable energy technologies to maximise their potential while simultaneously minimising their intermittency.
Renewable Energy Trends in Chile
Given the inherent intermittent nature of power generation by any individual project, there has recently been a trend whereby some renewable projects have sought power storage capability, thus enabling base load power generation. There is the well-known story of the Cerro Dominador project, the first concentrated solar plant in Latin America, with 110 MW of capacity and 17.5 hours of thermal storage. The plant has a circular solar field spread around a central tower that has thousands of mirrors. These mirrors follow the sun, concentrating solar power at the receiver. The concentrated heat is transferred to molten salts placed in a system of tanks. The heated salts are then used to heat water to generate steam, which in turn is used to drive a turbine for generating electricity. The molten salt technology used in the plant has the capacity of storing electricity for up to 18 hours, allowing continuous storage and transmission, which can generate electricity 24 hours a day. There are numerous other mixed technology solutions being considered, including solar with pump storage, etc.
Another trend emerging over the last few years has been the aggregation of numerous smaller renewable energy projects that qualify as Non-Conventional Renewable Energy (NCRE) projects for the purposes of a government feed-in tariff into a portfolio of projects for the purposes of creating a portfolio to be sold and financed as a whole. However, there have been some significant changes to the regulation of NCRE projects that could well disrupt the market. These potential disruptions are explored further below.
Modernisation of Power Grids
Power generation in Chile has historically been organised around a four-grid system: (i) the Sistema Interconectado del Norte Grande (SING) in the Northern region, (ii) the Central Interconnected System (SIC) in the Central region, (iii) the Aysén Grid in the Southern region and (iv) the Magallanes Grid, also in the Southern region. In November 2017, Chile completed the interconnection of its Northern electrical grid – SING – with its Central electrical grid – SIC. The result of this integration formed the National Electric System, or Sistema Eléctrico Nacional (SEN), which has an installed capacity of 24,000 MW and supplies more than 97% of Chileans with electric power.
The Chilean government is expanding transmission, with an aim to fully connect Chile’s Northern and Southern grids. This is of major importance to the solar producers in the Atacama desert as the majority of electricity demand comes from the South, so the new transmission link will allow generation in other regions of the country to efficiently access this large Southern concentration of customers. Further, this continued modernisation of the transmission system into a truly interconnected national grid will greatly enhance the ability of renewable energy power producers to reach customers throughout Chile.
Incentives Granted to NCRE Projects
With a significantly subdued price for electricity, there has been some change in strategy from developers and investors in the renewable energy market, with a surge in interest and investment in NCRE projects. There has been a framework that supports the development of NCRE projects in Chile since 2008, which covers the following forms of power generation:
NCRE power generation facilities are those that generate less than 20 MW. Such projects may sell their output capacity to the spot market without having to pay any, or all, of the tolls to transmission companies. They may 'self-dispatch', have access to a stabilised price regime (being the short-term node price) and do not need to have a Declaration of Environmental Impact, or Declaración de Impacto Ambiental (DIA), for projects under 3 MW (there being a different regime for installations up to 9 MW and those between 9 MW and 20 MW). Those with installations up to 9 MW are classified as either (i) Small Generation Means, or Pequeños Medios de Generación (PMG), projects with installed capacity up to 9 MW, connected to the main transmission, sub-transmission or additional transmission grid; or (ii) Small Distributed Generation Means, or Pequeños Medios de Generación Distribuida (PMGD), projects with installed capacity up to 9 MW, but connected to the distribution grid or to installations of a company that owns electric power distribution lines that make use, at least partially, of State property.
The general guidelines to determine the short-term node price are contained in the Chilean Electricity Law, which establishes that the short-term node price is established by the CNE every six months using a formula to be determined by regulations that have not yet been enacted and that are intended to amend those currently in force.
From 1 January 2010 until 1 January 2035, the NCRE Law (Law No 20,257/2008, amended by Law No 20,698/2013) requires generation companies that operate in electric systems of more than 200 MW (the Relevant Systems) and that withdraw energy from any Relevant System for sale to distributors or end-users to guarantee that NCRE (that either they have produced or that they have purchased from third parties) generated from sources interconnected to any Relevant System after 1 January 2007 is injected into the system at an agreed percentage of their annual energy withdrawal.
The applicable percentage was 5% from January 2010 to December 2014 and this percentage must be increased by 0.5% per annum from 2015 up to a ceiling of 10% in 2024. There is, however, an exemption for energy withdrawals made to satisfy supply obligations under power purchase agreements entered into prior to 31 August 2007 for their original full supply period. Penalties apply for a breach of these obligations, with penalties increasing for repeated breaches of the NCRE Law.
Of real importance to developers considering investing in developing NCRE projects is that there is no public record of how many of these contracts there are, nor of the amounts to be supplied under them, creating the risk of NCRE oversupply. This in turn is likely to impact the financial viability of some NCRE projects.
Uncertainty Surrounding the PMGD Regime
There is currently significant concern about the viability of PMGD projects and the right they have to opt for a stabilised price. There are a number of different ways in which there has been concern that their right might be impacted:
The Future of Renewable Energy Projects in Chile
The Chilean renewable energy market has already proven that it is extremely resilient and adaptable. There is no doubt that the market faces numerous challenges – whether financial, environmental, social or structural – to the grid system, but this firm expects that these challenges will bring with them an equal number of solutions to develop and finance renewable energy projects in Chile.