Cristián M. Muñoz
The 2018 energy agenda will be driven by new procedures, interconnection, new transmission lines, changes in distribution, carbon prices, international fossil fuel prices and renewable power plants.
The new year could bring some regulatory and operational developments in the local generation and transmission sectors. Much needed modernization of distribution sector regulation could continue to move forward this year. Likewise, a carbon price that is compatible with commitments made by Chile in the Paris Agreement will remain an important topic.
In international matters, oil prices will be determined by the United States and the Organization of the Petroleum Exporting Countries (OPEC). In addition, China will continue to play a key role in supplying new renewable energy power plants.
1. New Procedures
In 2017, the National Energy Commission (CNE in Spanish) conducted a citizen consultation process to help define regulations for ancillary services (AASS) and operational coordination.
The ancillary services procedures are scheduled to take force in 2020. The main developments here are elements that regulate reserve energy auctions and tenders for other transmission grid services. The final version of this regulation is awaiting final approval. However, some conceptual problems may lead to modifications from the new administration.
The procedure for operational coordination will replace the current procedures used by operators in the North and Central Systems once both grids operate interconnectedly as the National Electrical Grid (SEN in Spanish). This new procedure includes specific requirements that must be followed by thermoelectric power plants to report their variable costs. However, recognition of flexibility costs for these plants will remain pending.1
This year we may see corrections of some obsolescent components of Supreme Decree No. 62 of 2006 related to the allocation of firm capacity for some technologies.2,3
2. SIC-SING Interconnection
The first part of the 500 kV interconnection between the North and Central Interconnected Systems (SING and SIC, respectively) became operational in late 2017, connecting the Los Changos (SING) and Nueva Pan de Azúcar (SIC) substations.
The second phase, scheduled to be completed over the next few months, consists of a 500 kV interconnection between the Nueva Pan de Azúcar and Polpaico substations. The interconnection has a final capacity of 1,500 MW, based on N-1 criterion.
During the first phase, the maximum transmission capacity has been limited to only 200 MW (i.e. 13% of total capacity); in the second phase, as demonstrated by studies commissioned by the Coordinator, the maximum transmission capacity will be limited by dynamic system conditions. In any case, it will apparently take a while to reap the benefits promised by interconnection.
3. Annual Transmission Expansion Plan
In late December, the National Energy Commission published a preliminary report detailing the Annual Transmission Expansion Plan (Exempt Resolution No. 770).
For the National Transmission System, the National Energy Commission proposes total investments in new lines of USD 3.0 billion. Sixty-one percent (61%) of the plan’s cost comes from the direct current (HVDC) interconnection at 500 kV of around 1,500 kms between the Kimal (Antofagasta Region) and Huelquén (Metropolitan Region) substations. The idea of this HVDC interconnection is to bring PV solar and wind energy that is expected to be installed eventually in northern Chile.
With no precedent, the expansion study proposes installing 300 MW in energy storage systems with a capacity of 13 hours and an estimated cost of USD 500 million. While a storage system competes with transmission expansion, it is interesting that it is considered an element that must adhere to the same type of regulations as a transmission line.
The Transmission Law (No. 20,936) from July 2016 established that all transmission expansion costs identified in the study must be absorbed directly by end users, which created no incentive for generators to reduce transmission costs.
The proposal has recently begun the consultation process and the final works should be approved some time this year.
4. Modernizing Distribution
In 2016, the National Energy Commission asked Pontificia Universidad Católica de Chile to review electricity distribution regulations in order to identify obsolescent components and recommend ways to modernize them.
The main topics identified in the study include: definition of a discount rate; tariffs that are more representative of the end customer’s preferences; competitive electricity retail and promotion of distributed generation. These topics are not new; They were previously identified by Galetovic, Inostroza and Muñoz in a 2004 study entitled: Gas y Electricidad: Qué hacer ahora.
The P. Universidad Católica study is expected to continue this year.
5. Carbon Prices
The path of carbon prices in line with the country’s climate commitments will continue to be a concern this year. Likewise, authorities should define the regulations that will be applied, whether through a larger carbon tax, tradable emission permits or subsidies for power sources that do not emit CO2.
6. International Factors: Fossil Fuels and Renewable Energy
Oil prices will be impacted by competition between independent producers in the United States and the force with which the OPEC-Russia alliance upholds its commitment to reduce collective production by 1.8 million b/d.
Prices for liquefied natural gas and coal will be determined to a large degree by growing demand from China. Without a doubt, China will continue to set prices for new renewable technologies to the extent that it continues to inundate international markets with its solar (PV) and wind generators.
Lastly, the interplay of these local and international factors will definitely impact how the Chilean energy industry evolves.
Cristián M. Muñoz
Founder of Breves de Energía.
Contact e-mail: cmmunozm@brevesdeenergia.com
