The energy problem in Chile

Here is a short side-bar article I did for a book that Doug Tompkins is publishing soon. It will be a photo collection of Patagonia, with images of dams and electricity transmission lines superimposed on the landscape, with side-bars on environmental and energy issues:

“The Aysén projects will be the most costly projects undertaken in Chile, and will pose significant economic risks that will result in higher electricity prices and lower economic growth. The need for the dams is driven by a forecast of future demand for electricity that is extraordinarily high—6.5% per year for the next 10 to 20 years. Growth rates this high are questionable because high growth rates inevitably lead to higher electricity rates, which then reduces demand.

This is what happened in California in the 1970s and 80s. Electricity use in California was growing at about 7% per year in the early 1970s. To meet this demand, and to reduce the use of oil for generating electricity, utilities were planning on building 10 to 20 nuclear plants. Instead, California instituted aggressive efficiency standards and programs, which combined with higher electricity prices reduced demand growth to 2% year. By 1990, 75% of California’s electricity needs had been met with energy efficiency, and the remaining 25% had been met with efficient natural gas-fired cogeneration and renewables. To accomplish this, California used an “integrated resource planning” process to evaluate all the options, and chose those that were cleanest and cheapest.

Chile needs to create a similar planning process, or face a future that includes both higher electricity prices and serious environmental degradation in the Aysen. Based on my review of what little data is publicly available I found:

• The commonly quoted demand forecasts of 6.5% per year growth (or 5.5% “with efficiency”) is highly questionable. The only basis for the forecast seems to be that “the future will be like the past,” but this is not likely as electricity prices increase and efficiency options are exploited.
• The $1,000/kW capital cost estimate for the dams is certainly far below what actual costs will be. The San Roque Dam in the Philippines, comparable in size to the proposed Aysén dams and completed in 2004, cost US$1.2 billion and produced 345 MW, or US$3,500/kW. The Itaipu Dam in Brazil, completed in 1991, had a cost of US$20 billion for 12,600 MW, or US$1,600/kW. Based on the experiences of similar dams, and the review by the World Commission on Dams, it is easy to conclude that the Aysén hydro projects will cost 2 to 3 times what is currently forecast, or 12-18 cents/kWh.

An integrated resource plan for Chile would certainly reveal that there are cheaper and cleaner options to meet Chile’s need for energy.”

Here’s a graphic view of the problem. The graph of U.S. and California per capita electricity use has been seen in many talks, and in the New York Times and the Economist. I’ve added the historical and projected data for Chile–showing that while Chile is currently about one-third of California per capita electricity use, their forecast is that they will pass California in about 12 years! This fortunately is very unlikely, but if it were to occur the consequences would be very negative for the Chilean economy and environment.

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4 responses to “The energy problem in Chile

  1. very interesting, but I don’t agree with you
    Idetrorce

  2. California’s tapering growth after the 70s including people going from inefficient appliances and HVAC systems etc to very efficient ones.

    Chile is going from have not to have. No matter how efficient an appliance, it is not as low consumption as not having it.

    I think the comparison breaks down there.

    What happens if you project growth from Chile’s current Annual KWH per capita consumption today and plot a point in the future equal to California’s annual KWH per capita consumption (I would guess 25- 50 years from now).

    Even better would be if the same projection but to the USA level (being higher than California)

    If both of those showed the 6.5% used to justify the dam was overkill, your argument would be stronger.

    Any thoughts on those comparisons or others as a way to improve on or add to your own?

  3. You are right that the California and US comparison to Chile is very crude because there are many differences between the two, not the least of which is that Chile is modernizing. One of the frustrations is the lack of data on how energy is used in Chile so these comparison’s could be evaluated more deeply. Chile is making multi-billion dollar decisions based on huge guesses about future energy demand, and I’m just trying to suggest what additional analysis would be valuable.

    To your point about air-conditioning electricity use–homes in California used about 2,500 kWh/year/home for AC in 1970, and that has dropped to less than 1,000 kWh/year/home today. That is the combined effect of more efficient air-conditioners in ,pre efficient homes (more insulation and better windows). So when you talk about Chileans getting AC, there is also a choice in how much electricity the AC has to use. It has been easy to reduce the electricity use for AC in new homes, it’s much harder to retrofit homes once they are built.

    If there was better data on how electricity is used in Chile, it would be very interesting to do a forecast of demand and efficiency potential, such as in air-conditioining. I think we would find that there are many efficiency opportunities that are cheaper than some of the power plant proposals.

    But I also don’t think the 6.5% forecast makes sense from a macroeconomic perspective. Looking at the US over the last 50-80 years when its electricity growth rate was high, population growth was also high (~3-4%year), and electricity prices were coming down as economies of scale in electricity generation were exploited in the very large interconnected grid.

    But Chile’s population growth is less than 1%, and the electrical system is very small (~15,000 MW in three isolated grids). For many reasons, Chile is not going to be able to use economies of scale to lower electricity prices as the system grows (i.e., it would be very risky to add a 1,000 MW nuclear plant to the ~6,000 central grid). So as the new power plants are added prices are going to rise, and as kWh per home and business rise electric bills are also going to rise. When that happens, people will be motivated to buy more efficient AC, refrigerators, lighting, etc., and the growth rate will drop dramatically, probably to something like 2% year–just like California.

    This seems so obvious to me I’m surprised this isn’t discussed more prominently in Chile. I’m also surprised the generating companies are willing to make billion dollar bets of their shareholder money are ventures that are much more risky than they think. When I discuss the risks of higher prices and lower demand with government staff in Santiago, they say it’s up to the companies to decide. But higher electricity costs will have economic and political consequences, and the power plants will damage the environment, which are both things the Chilean society and government should care about.

    And also to your question about when Chilean kWh per capita would pass California–the graph is small and hard to read, but Chile will pass California in about 2018, so not so far away…

  4. I just returned from Chile, part of a group of 5 ex-pats who work in renewables and/or energy efficiency.
    Chile has 2 key paradigms that will need to be modernized to break old patterns and open up opportunities for a sustainable energy sector development: 1. A view that the free market is best for national development. Government is only there to facilitate enterpreneurial activity, not to regulate it. 2. Chile will continue to experience fast growth and needs more energy to become a developed country.
    What Chile needs is a government that provides leadership via regulations and incentives so that the free market internalizes externalities and considers new energy options. Energy efficiency and conservation were barely tapped until this year where due to the supply crisis, calls for conservation and a national program to distribute 2 CFLs/home to low income households (about 1/4 of the population) have resulted in about 10% savings within 2 months of the campaign start. What still remains to be done is to incent the production and installation of renewable technologies. This would move Chile away from a mostly natural-resources extractive economy to one that would build the renewable energy technologies in Chile and export some to the rest of Latin America. Chile due to its geography has a wide variety of renewable resources (wave/tide power along the 2400 miles of coastline, Hydel as water drops from the Andes mountains to the ocean, wind along the coast, probably the best insolation in the world at the Atacama desert and quite good even in the middle 1/3 of the country where most of the population lives, and geothermal along the entire country. Chile’s highly educated population and enterpreneurial spirit could be tapped via appropriate government policies to turn Chile into a powerhouse of energy efficiency and renewables in Latin America

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