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    Chile's release of coal phase-out plan tops energy agenda for 2024 [Gas in Transition]


The roadmap is expected to recognise the continued value of natural gas throughout the transition.

by: Joseph Murphy

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Chile's release of coal phase-out plan tops energy agenda for 2024 [Gas in Transition]

One of the top events on this year’s agenda for Chile’s natural gas industry is the launch of an updated roadmap for phasing out coal-fired generation. Carlos Cortes Simon, Executive Chairman of the Chilean Natural Gas Associaion (AGN), expects the roadmap to recognise “the fundamental role that natural gas plays, and will continue to play in Chile’s energy matrix, throughout the transition.”


Recognising the value of gas

Coal is one of main sources of power in Chile, accounting for 22.4% of generation in 2022, according to the International Energy Agency (IEA), while hydroelectricity contributed 23.2% and natural gas 19.6%. Solar, wind and biofuels accounted for 16.1%, 10.1% and 4.9% respectively that year.

The country set a goal in 2021 of expanding renewable power generation to 80% of the total by 2023, while also eliminating coal completely by 2040. The current government led by President Gabriel Boric, who took office in March 2022, has yet to finalise a detailed plan for achieving the end to coal, though.

“The roadmap is expected to include an explicit position regarding the role of natural gas during the phasing out of coal-fired generation, in terms of cost-effectiveness, emissions reductions, security – sufficiency and resilience – and its complementary role in supporting variable renewable energy,” Simon tells NGW.

In August 2022, Chile’s energy ministry launched its 2022-2026 energy agenda, which highlighted the need for gas as a transitional energy source that could help achieve coal’s phase-out, though the gas industry has argued in the past that there should be greater support for gas, given its value as a low-emissions fuel. In part there is an unrealistic expectation about how quickly renewables and green hydrogen can be scaled up.

Chile only produces around 15% of its gas needs itself, with the rest either imported in LNG form via two regasification terminals in the country’s north and centre, or delivered via pipeline from Argentina. The latter has increased flow recently by easing internal bottlenecks and increasing takeaway capacity from the Vaca Muerta formation. This increased Argentine flow has improved Chile’s supply security, putting it in a better position to meet seasonal demand, and has been good news in terms of prices, flexibility and diversification, Simon says.

“The firm, short term gas contracts with Argentina of recent years have presented good levels of compliance, which is encouraging as it helps build confidence, and the markets seek to achieve longer-term contracts,” Simon says.

Gas consumption declined last year in Chile, however, as a result of exceptionally high rainfall that increased the availability of hydropower. But during periods of drought, the opposite can happen.

Pipeline supplies from Argentina and LNG serve as Chile’s main source of backup energy and security of supply, replacing coal and diesel with a clean, available, competitive fuel, supported by a robust infrastructure that works well with the variability of renewable resources,” Simon says.

In addition, the trucks loaded with LNG at Chile’s regasification terminals provide natural gas to remote areas that cannot be reached by pipeline.


Unfreezing power prices

Meanwhile, the broader energy sector is awaiting the passage of a new bill that would seek to gradually raise electricity tariffs that have been frozen for four years, while providing subsidies for the most vulnerable users.

Power tariffs have been frozen in Chile since 2019, when there was mass social unrest over inequality. The bill currently being discussed in Congress would slowly raise the tariffs, and will also aim to address the more than $6bn owed to power generators, which has accumulated from two previous stabilisation mechanisms.

Even though there is an inherent political risk from price escalations, the bill should be approved this year, according to Simon.