New renewables law falls short -- Disappointment in Chile

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Chile's new energy law requires utilities to source 5% of their new generation requirements from renewables between 2010 and 2014 and raise the share to 10% by 2024. It is widely seen as a step in the right direction, but one that will do little to help wind power. "The law isn't enough and will lead to very few renewable energy projects," says Rodrigo Herrera from Greenpeace Chile. The government is mainly interested in building a handful of dams for large hydroelectric projects or establishing nuclear power plants, he says.

Today about 2.4% of Chile's electricity comes from roughly 295 MW of renewables, mainly consisting of large scale hydropower. Just over 20 MW comes from wind energy out of a generating base of 12,300 MW.

With the country needing around 500 MW of new capacity a year, the 5% target will lead to a mere 25 MW of new renewables annually from 2010, says Francisco Moreno from Handels und Finanz, a wind power prospector in Chile. Another weak point of the law, says Moreno, is that the penalty for non compliance by utilities is set at just $30/MWh for shortfalls on the target, which could make it cheaper to just pay the fine than buy or own renewables. Furthermore, wind has little chance to compete on cost with small hydro, adds Rolf Fiebig from the Asociación Chilena de Energías Renovables (ACER).

Greenpeace says the targets of 5% and 10% are arbitrary and the government was "irresponsible" in its failure to undertake an in-depth study of renewable energy potential in Chile. Herrera hoped for 50% by 2050. ACER is less critical, though Fiebig had hoped for targets closer to 20%. Now hoping for a future increase, he notes the government prefers an incremental approach.

Demand soaring

Energy market analysts see the law as an attempt to avoid a future energy crisis. The economy is booming, particularly Chile's mining and copper industries. Demand for energy is soaring. The situation is exacerbated by Argentina cutting its natural gas exports to Chile in 2004 and low water levels in hydro reservoirs. So serious is the energy crunch, that earlier this year President Michelle Bachelet warned that rationing might occur in 2008.

Despite criticisms and reservations about the new law, Esteban Illanes of Norway's SN Power Chile is optimistic. Even when the new law was only in its conceptual phase, it was already encouraging new projects such as the company's planned 46 MW wind plant. SN Power expects to get board approval this summer to build the more than $100 million project in the Canela region. It will go ahead irrespective of the law, says Illanes, but the law will help. "It's at least a framework and a move in the right direction."

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