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LIBERALIZATION OF THE CHILEAN ELECTRICITY SYSTEM AND ITS EFFECTS ON ENVIRONMENTAL PERFORMANCE

GRENELEM PROJECT. LIBERALIZATION OF THE CHILEAN ELECTRICITY SYSTEM AND ITS EFFECTS ON ENVIRONMENTAL PERFORMANCE. Hugh Rudnick, P . Universidad Católica de Chile , Departamento de Ingeniería Eléctrica . Raúl O’Ryan, Universidad de Chile, Departamento de Ingeniería Industrial.

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LIBERALIZATION OF THE CHILEAN ELECTRICITY SYSTEM AND ITS EFFECTS ON ENVIRONMENTAL PERFORMANCE

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  1. GRENELEM PROJECT LIBERALIZATION OF THE CHILEAN ELECTRICITY SYSTEM AND ITS EFFECTS ON ENVIRONMENTAL PERFORMANCE Hugh Rudnick, P.Universidad Católica de Chile, Departamento de Ingeniería Eléctrica. Raúl O’Ryan, Universidad de Chile, Departamento de Ingeniería Industrial. Rodrigo Bravo, Universidad de Chile, Departamento de Ingeniería Industrial. Santiago, Chile, September 2001 Universidad de Chile Pontificia Universidad Católica de Chile

  2. SING (800 km) SIC (2200 km) AISEN MAGALLANES CHILE’S ELECTRICAL MARKET • Main Characteristics (2000): • Continental surface : 756626 km² • Population : 15 millions • National Consumption : 39142 GWh • Peak Demand : 5800 MW • Installed Capacity : 10080 MW • Frequency : 50 Hz • Transmission Systems : 66 kV, 110 kV, 154 kV, 220 kV y 500 kV • Interconnected Systems: • (SING, SIC, AISEN, MAGALLANES) Universidad de Chile Pontificia Universidad Católica de Chile

  3. CHILE’S ELECTRICAL SYSTEMS • SIC (Sistema Interconectado Central) • Maximum demand 2000: 4.576 MW • Installed generation capacity: 6.646 MW • Percentage of thermal generation: 36% • 93% population, industrial and domestic consumption • SING (Sistema Interconectado Norte Grande) • Maximum demand 2000: 1.211 MW • Installed generation capacity : 3.352 MW • Percentage of thermal generation : 99,6% • Large consumers (10 correspond to 75% of demand, largest client 25% total demand) Universidad de Chile Pontificia Universidad Católica de Chile

  4. 1994 COLOMBIA 1993 PERU 1998 1994 BRAZIL BOLIVIA 1982 CHILE 1997-9 CENTRAL AMERICA & PANAMA 1992 Pioneering regulatory changes in the electrical sector ARGENTINA Universidad de Chile Pontificia Universidad Católica de Chile

  5. Fuente: R. Palma, U.Ch. Sistemas competitivos Procesos de reestructuración avanzados Primeras etapas de procesos de reestructuración Universidad de Chile Pontificia Universidad Católica de Chile

  6. SEGMENTATION OF THE INDUSTRY competitive and regulated (William Hogan, Harvard) Fuelco Gasco Waterco Fuelco GENERATION Genco Genco Genco Genco Sellco Sellco Sellco Sellco Gridco Gridco Poolco/Marketco TRANSMISSION Brokeco Brokeco Brokeco Brokeco Buyco Buyco Buyco Buyco Lineco Lineco Lineco Lineco DISTRIBUTION Disco Disco Disco Disco Cons Cons Cons Cons Cons Cons Universidad de Chile Pontificia Universidad Católica de Chile

  7. ELECTRICITY MARKET REFORMS *wholesale market deregulation (unregulated prices for large consumers) *competition at generation level with centralized generation dispatch (Poolco model) -Chile, Bolivia, Peru, Brazil, Central America - audited costs -Argentina- bids with caps -Colombia- unrestricted bids *short term marginal cost based schemes Universidad de Chile Pontificia Universidad Católica de Chile

  8. ELECTRICITY MARKET REFORMS *two part price scheme -short term energy marginal cost -capacity pricing (adequacy signal) *nodal pricing (generation-transmission interaction) *financial bilateral contracts (non physical) Universidad de Chile Pontificia Universidad Católica de Chile

  9. ELECTRICITY MARKET REFORMS *regulation in transmission and distribution *transmission open access regulation, global allocation of network costs, use of system approach, concession required *incentive based regulation in distribution (yard stick competition, price cap), concession required, obligation to serve, quality of service regulated Universidad de Chile Pontificia Universidad Católica de Chile

  10. Governance Transmiters Generators Distribuitors SEC CNE Ministry Economy CDEC Largeusers Environmentalbody Antitrust body Smallusers Local governments Universidad de Chile Pontificia Universidad Católica de Chile

  11. High load growth Chile- yearly growth of energy demand Universidad de Chile Pontificia Universidad Católica de Chile

  12. 9.000 8.000 7.000 6.000 5.000 DEMAND (MW) THERM. 2 X THERM. 332,4 4.000 332,4 THERM. RALCO 332,4 3.000 CORTADERAL SAN ISIDRO 2.000 LOMA ALTA RUCUE SES PEUCHEN 1.000 PANGUE MAMPIL PETROPOWER NEHUENCO 0 1.997 1.998 1.999 2.000 2.001 2.002 2.003 2.004 2.005 2.006 YEAR DEMAND SUPPLY Source: CNE Chile Investment in the SIC Universidad de Chile Pontificia Universidad Católica de Chile

  13. Chilectra (Santiago) Edesur (Buenos Aires) Edelnor (Lima) 30 26,0 25 21,9 19,8 19,0 18,8 20 17,4 16,1 16,2 % 13,6 13,3 15 12,5 12,0 10,6 9,3 9,3 10 5 0 1987 1987 1988 1988 1989 1989 1990 1990 1991 1991 1992 1992 1993 1993 1994 1994 1995 Losses (technical and non technical) Universidad de Chile Pontificia Universidad Católica de Chile

  14. Energy prices Chile SIC - SING (Oct.1999 values) 90.00 80.00 70.00 60.00 $/kWh 50.00 40.00 30.00 20.00 10.00 0.00 ABRIL 1984 ABRIL 1985 ABRIL 1988 ABRIL 1991 ABRIL 1992 ABRIL 1994 ABRIL 1995 ABRIL 1996 ABRIL 1997 ABRIL 1998 ABRIL 1999 ABRIL 1983 ABRIL 1986 ABRIL 1987 ABRIL 1989 ABRIL 1990 ABRIL 1993 SIC (Alto Jahuel) SING(Antofagasta) Prices decreasing Universidad de Chile Pontificia Universidad Católica de Chile

  15. WEAKNESSES -High horizontal integration (generation) -Vertical integration (generation-transmission-distribution) -Efficiency increases not transfered to consumers -Governance problems in pool -Transmission regulation faces difficulties Universidad de Chile Pontificia Universidad Católica de Chile

  16. Evolution of Installed Capacity and Energy Production Universidad de Chile Pontificia Universidad Católica de Chile

  17. Evolution of Installed Capacity and Energy Production (cont.) Universidad de Chile Pontificia Universidad Católica de Chile

  18. Evolution of Energy Use and Emissions Universidad de Chile Pontificia Universidad Católica de Chile

  19. Percentage of gross hydroelectric and thermoelectric generation Evolution of Energy Use and Emissions Universidad de Chile Pontificia Universidad Católica de Chile

  20. Evolution of Energy Use and Emissions Universidad de Chile Pontificia Universidad Católica de Chile

  21. REGULATORY FRAMEWORKS THAT AFFECT THE ENVIRONMENTAL IMPACT OF THE ELECTRICAL SECTOR • Electrical Law • Indicative planning: not a guide • Power plant dispatch: favors polluting sources • Environmental Legislation and the EIA • Law 19300: Environmental Framework Law • Law 3.133 • EIA Universidad de Chile Pontificia Universidad Católica de Chile

  22. EIA Projects Universidad de Chile Pontificia Universidad Católica de Chile

  23. ESSENTIAL ISSUES THAT LINK THE ENVIRONMENT AND THE DEREGULATED ELECTRICAL SECTOR • Development of the generation infrastructure • Plant technology • Thermal plant location • Hydro plant development • Thermal plant fuels • System operation Universidad de Chile Pontificia Universidad Católica de Chile

  24. PLANT LOCATION: THE BIO BIO BASIN Universidad de Chile Pontificia Universidad Católica de Chile

  25. ESSENTIAL ISSUES THAT LINK THE ENVIRONMENT AND THE DEREGULATED ELECTRICAL SECTOR • Efficient Energy Use and the Electric Sector • New Trends in Generation • Nuclear Energy • Clean Energy • Embedded Generation or Distributed Generation Universidad de Chile Pontificia Universidad Católica de Chile

  26. IN CONCLUSION • CHILE’S ELECTRICAL SYSTEM HAS EXPANDED VERY STRONGLY IN RESPONSE TO THE HIGH ECONOMIC GROWTH RATES OF THE DECADE • EMISSIONS OF ALL GASES IS INCREASING SIGNIFICANTLY, DESPITE SWITCH TO NATURAL GAS. • TREND IN GROWTH AND EMISSIONS IS EXPECTED TO CONTINUE. • TO REDUCE EMISSIONS THERMAL PLANTS MUST BE REPLACED BY LESS POLLUTING SOURCES SUCH AS HYDROELECTRIC POWER PLANTS, OR MORE RADICAL NUCLEAR SOURCES. Universidad de Chile Pontificia Universidad Católica de Chile

  27. IN CONCLUSION • A STRONG PUSH IN ENERGY EFFICIENCY MAY HELP, HOWEVER THE POLICIES APPLIED IN THIS LINE OF ACTION HAVE BEEN WEAK. • CLEAN ENERGIES AND DISTRIBUTED SOURCES CAN HELP TO REDUCE EMISSIONS BUT WILLNOT BE SIGNIFICANT. • MOREOVER, THE TREND IN THIS DEREGULATED SECTOR SEEMS TO BE GOING IN A DIFFERENT DIRECTION: NATURAL GAS COMBINED CYCLE PLANTS HAVE ACTUALLY DISPLACED SOME HYDROELECTRIC PLANTS. • DECISIONS ARE BEING TAKEN ON GENERATING TECHNOLOGY, WITHOUT DUE CONSIDERATION OF SOCIAL COSTS. Universidad de Chile Pontificia Universidad Católica de Chile

  28. IN CONCLUSION • THE ENVIRONMENTAL STAKES ARE STILL OUT: • NEW GAS PIPELINES ALSO FEED THE INDUSTRIAL AND DOMESTIC SECTORS. • NATURAL GAS PLANTS HAVE REPLACED COAL PLANTS. • DISPATCH BY MARGINAL COSTING DOES NOT HELP MUCH, IT IS DIFFICULT TO INCORPORATE ALL SOCIAL COSTS • COMPANIES SEEKING COMPETITIVE ADVANTAGES ARE EXPLORING THE USE OF CHEAPER MORE POLLUTING FUELS SUCH AS PET-COKE. • THE AUTHORITY MUST BALANCE EXTRA ENVIRONMENTAL REQUIREMENTS WITH THE ENSUING INCREASE IN ENERGY PRICES. THIS IS NOT AN EASY EQUATION. Universidad de Chile Pontificia Universidad Católica de Chile

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