Chile: A ‘showcase’ for storage and the energy transition

• ‍Chile could overtake the US as the largest energy storage market in the Americas
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• ‍World Energy Council regional vice-chair Claudio Seebach says Chile is storage and energy transition ‘showcase’
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• ‍World Energy Congress in Rotterdam opportunity to advance energy transition, says Seebach

According to some forecasts, Chile is set to become the largest energy storage market in the Americas as it looks set to muscle out the US and claim the number one spot. The Latin American nation has, up to now, switched on 12 storage projects, with a total capacity of 1.3 GW, and currently has 85 energy storage projects, totalling 6.4 GW, in various stages of development.

In October last year, Chile's parliament passed legislation aimed at incentivising energy storage and electric mobility development. Meanwhile, the government has also set an ambitious target of achieving 70 per cent of total energy consumption from renewable sources by 2030. As a result, there has been a dramatic rise in renewable energy generation installations in Chile, and consequently demand for storage is soaring. In an effort to meet this demand, the Chilean government confirmed earlier this year that it would allocate $2 billion for large-scale storage auctions. Chile’s highly ambitious energy storage strategy, coupled with its significant supplies of lithium – an important component of batteries used in energy storage systems – means that the amount of energy storage deployed in the Latin American country could soon exceed that installed in the US. Chile’s lithium reserves total 9.3 million metric tonnes, the biggest of any country in the world (see graph).

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‍Ahead of the World Energy Congress, which takes place in Rotterdam on 22-24 April next year, Tamarindo’s Energy Storage Report spoke to Claudio Seebach (pictured), regional vice-chair, Latin America & Caribbean at the World Energy Council, as well as executive chairman of Generadoras de Chile, the business association of Chilean electricity generators, to gain further insight into why Chile has been so successful in deploying energy storage. Seebach explained that the country’s topographical features, climate, and attitude to foreign investment have all been significant factors in the development of Chile’s storage sector. In addition, Seebach outlined what he hoped could be achieved at next year’s World Energy Congress and highlighted how Chile acts as a ‘showcase’ for what can be done to accelerate the global energy transition.

‍Chile has deployed a large amount of energy storage, why has it been so successful in installing so much capacity?

Claudio Seebach: Chile is an attractive place for investment and, for many years, has been among the most attractive markets for investing in renewable power. It’s a country that has been very open and highly competitive, attracting lots of companies – anyone can come to Chile and compete in bidding processes for energy. A total of 97 per cent of the global economy has free trade agreements with Chile, so new innovations are very quickly adopted in the country at a very low cost. You don't have import tariffs or barriers or protectionism. The other factor is long-term auctions, if you have a long-term auction and you get a contract to supply energy to a mining company for 20 years, for example, you can take that contract to the bank and you can tell them ‘I can fund my power plant’.

The breakthrough of solar and wind has been a turning point in terms of technology. They're cheaper today than any other way of producing. Chile has no significant source of fossil fuels – we used to have some coal, very little oil, some natural gas. So everything is imported. But we have the Atacama Desert, which is the desert with the highest level of solar irradiance on Earth and, in the far south, particularly where you’re closer to Antarctica, you have some of the strongest winds on Earth. On average, wind plants around the world probably have a plant factor of around 30 per cent or so, but in Southern Chile, you can have plant factors of 70 per cent. Also, Chile runs from north to south, and we are not connected to the rest of Latin America in terms of electricity – in Chile, the sun comes up in the morning everywhere at the same time and sets at night at the same time, so we need to move energy from the day to the night, so there is an immediate need for storage. We’re also phasing out coal very quickly. Yet, despite uncertainties about the regulation of storage, we have been very successful because there is a large demand.

You say there are uncertainties about the regulation of storage, what clarifications are needed?

CS: What has been missing in our regulation is very technical. The dispatch done by the independent system operator is still not well-defined, that is how the batteries will be operated and dispatched by the operator. The other aspect, which is not really clear yet, is the capacity payment. Batteries can give you power when it's most needed, and that's the capacity payment – the development of the regulation on capacity payment is underway, but it's not yet out there.

What lessons can other countries learn from Chile’s approach to storage?

CS:  Be open to investment because it's very capital intensive. Attract global investment, attract global innovation, be open to trade, attract talent. Have a competitive market. We need very different types of storage, long-term storage, short-term storage, so have approaches that are flexible to innovation. Don’t have a bidding process for best batteries for 20 years, for example, don’t have a process for a specific technology for a specific period of time – auctions in Chile are technology neutral. The government, or the body doing the procuring is procuring a service, a supply of energy – don’t run a bid saying ‘I want a hydro power pumped storage plant here’, that’s the wrong approach, you need the market to innovate and bring you the best solution, which will end up being cheaper. Also, consider the long-term, if you have a long-term contract, you can go to the bank and fund the huge amount of investment you need. In addition, have a regulatory process that is predictable, transparent, and open to stakeholders.

What do you hope can be achieved at the upcoming World Energy Congress next year?

CS:  Convening people from so many different sectors is powerful. Electricity represents around only 20 per cent of global energy consumption, the rest is other energy sources, mostly oil, natural gas, even firewood, traditional biomass. The power sector is one voice out there, but there are others. If we're going to go for a deep energy transition at the speed and scale we need, we have to bring in all these technologies and make them make sense to people. How do we help people make sense of each of the pieces that need to be moved to achieve the energy transition successfully and on time? We don’t have much time, some NGOs say Chile is one of only eight countries on track in the context of the Paris Agreement. It’s not easy to get everyone to move faster and we have the terrible distractions of the wars we are facing. Look at the invasion of Ukraine by Russia, first of all this is, of course, a huge power play on the fossil fuel side – I think it's a big advantage for the energy transition as this will bring a leap forward for new emerging technologies that reduce dependence on Russian oil and gas.

One of the biggest factors in Latin America is inequality, that means inequality in terms of access to the energy transition, or just energy in general reinforcing inequalities. When you have people in Latin America that still have firewood as the main source of heat or energy for cooking, that's a big source of local emissions, and premature death, but it's also a source of methane gas and impacts climate change, it’s a source of black carbon. And that has nothing to do with storage, that relates to the Latin American region and the challenges of energy poverty and energy inequality.

What more would you say should be done to accelerate the global energy transition?

CS: You can bounce back from climate change anxiety to climate change enthusiasm when you speak about storage and renewable power and public transport powered by electric buses. Of course, you get excited about this creating changes at the speed and scale Chile has shown to be feasible. But then comes the depressing side when you think that there's so much yet to be transformed. And sometimes it takes so long for those decisions to be made. So we need to evangelize about the solutions that are available at no extra cost to citizens, and Chile is a showcase. The energy transition should not be a burden on society, it should be an opportunity for society. We need to do it, there is no doubt about it. Of course, there will be winners and losers, but we need to make sure that those winners and losers in some way can mutually interact and that this is balanced out. We need to think of policies that prevent losers from being powerful enough to block the necessary transitions by capturing those that are benefiting from the transition. That's the only way to accelerate the energy transition, or at least not delay it.

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