Trends and Developments in Chile: Embracing the Energy Transition through Expanded Electrical Transmission: Clyde & Co

Chile has embarked on an ambitious energy transition journey, framed by its commitment to combat climate change and promote sustainable growth. Chile recognizes the crucial role of the electricity industry in environmental sustainability and is committed to a greener energy matrix, through robust regulatory reforms and significant infrastructure improvements. Central to these infrastructure improvements is the expansion of Chile’s electrical transmission system.

Electric transmission as a sustainability pillar

Institutional framework and objectives

Chile’s approach integrates a comprehensive institutional framework aimed at the complete elimination of emissions from electrical energy sources by 2050. This target requires important adjustments in several sectors, with a special focus on improving electrical transmission systems in support of a renewable energy energy-based infrastructure. Key areas for improvement include:

  • Renewable and clean electricity generation
  • Improvements in the field of electromobility
  • Energy efficiency initiatives
  • Development of green hydrogen technologies

These sectors are critical as they directly contribute to increasing the country’s electrification levels, which is essential for reducing carbon emissions.

Evolution of regulations

Significant regulatory changes have been made over the past decade, with the most crucial updates coming through the Transmission Act of 2016 (Act No. 20,936). This law revised the General Electrical Services Act to promote greater competition and support the growth of renewable energy, marking a critical shift in the way electric transmission is managed and expanded.

Key challenges and reforms

Current challenges

Despite this progress, the implementation of the Transmission Act has revealed several challenges, especially regarding the expansion work on the transmission system:

  • High costs associated with expansion bids, which are often significantly higher than reference prices.
  • It is common for no tenders to take place, indicating potential inefficiency or a lack of attractiveness of the projects.
  • Delays and conflicts in the implementation of awarded expansion projects.

These issues highlight the complexities involved in upgrading Chile’s transmission infrastructure – a crucial element in the country’s decarbonization strategy.

Legislative responses

As Chile continues to navigate the complexities of its energy transition, legislative progress will play a crucial role. In this context, the Chilean Congress is currently debating the Energetic Transition Law, aimed at further refining the regulatory landscape to enable smoother and more effective infrastructure developments. The bill proposes:

  • More accurate accountability mechanisms for project bidding and implementation.
  • Revised investment valuation processes to adapt to real-time financial dynamics during project implementation.
  • Enhanced roles and responsibilities for private owners and operators in managing procurement processes and project executions.

The legislative process of the Energy Transition Act starts with the first constitutional procedure in the Senate, where debate and voting take place. If the bill is passed, it will go to the Chamber of Deputies for further consideration. This procedural path ensures that the bill is scrutinized at every stage, allowing for changes that reflect the changing needs of the energy sector and the interests of different constituencies. Although the bill may vary during the legislative process, some of the relevant changes it proposes are as follows:

The bill places the responsibility for developing tender processes and supervising the implementation of expansion works on the private owner, including drawing up the terms and conditions of the tender. Currently, under the Transmission Act, this responsibility is placed with a coordinating body, whose role would now be limited to reviewing the terms of the tender, requesting changes if necessary, and monitoring free competition during the tender process.

The bill also introduces a mechanism to review the investment value for which the expansion works have been awarded if they have undergone substantial changes that cannot be attributed to the private owner and the contract has been terminated prematurely. When submitting his application, the owner will have to propose an updated investment value, indicating the calculation method.

With regard to extension works that have already been tendered and whose contracts have been terminated prematurely, the bill also contains a transitional rule that allows their owners to request a review of the investment value.
The inclusion of transitional rules for projects with prematurely terminated contracts further underlines the bill’s comprehensive approach to addressing ongoing challenges within the sector. By facilitating the revaluation of investment values ​​under these circumstances, the bill ensures that financial adjustments reflect current realities, safeguarding the interests of both investors and the public.

Implications for the future

Through these legal reforms, Chile is creating a robust foundation for a competitive and transparent bidding environment. These efforts are critical not only to achieving national emissions elimination targets by 2050, but also to increasing investor confidence, thereby promoting the economic and environmental sustainability of Chile’s energy infrastructure.

Continued legislative efforts are expected to streamline project implementations and promote a competitive, yet fair, bidding environment. By addressing the technical and financial asymmetries in the current system, these reforms are poised to accelerate the pace of Chile’s energy transition and ensure the country meets its ambitious 2050 targets.

Furthermore, these developments are likely to strengthen investor confidence by increasing the transparency and efficiency of the regulatory processes related to Chile’s electricity transmission sector. As these reforms take shape, they promise to have a significant impact on the overall sustainability and economic viability of the country’s energy infrastructure.

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