Energy transition slowdown in Chile

The IKI is investigating and promoting options for converting coal power plants into climate-neutral power stations capable of ‘stabilising the system’.

Over the last few years, the Chilean energy transition has experienced dynamic development together with some initial successes.

The following overview gives an impression of this:

•  the country offers huge potential for renewable energy generation as well as a market that is favourable to foreign investment; 
• renewables have been expanding fast, with green power plants cutting the cost of electricity; 
• Chile has also announced a coal phase-out by 2030 – with no compensation for sector companies and existing public-private partnerships (PPAs) with major consumers have been cancelled; 
• with leading mining corporations also switching to renewables;
• Chile is also positioning itself as a potential global player for green hydrogen. 

Drought causes higher CO₂ emissions – and pushes up the cost of electricity 

In August 2021, however, events seemed to conspire to shift the gears of progress into reverse, as a ‘mega-drought’ triggered by climate change caused reservoir dams and water levels to drop to record lows. As a result, the generation of electricity from hydropower – one of Chile’s most important energy sources – virtually flatlined.

August in the southern hemisphere is equivalent to February in countries north of the equator, and conditions for renewables are therefore not ideal during this time: there’s no snowmelt to feed the rivers, and daylight hours are still few and far between. 

To avoid potential blackouts, Chile therefore resorted to using diesel generators and also restarted the coal-fired boilers in the decommissioned ‘Ventanas’ coal power plant. Since Chile’s power grid is an ‘island network’ without connections to other countries, the country is also unable to compensate for bottlenecks with power from its neighbours.

Alongside high electricity fees in excess of USD 300/MWh for consumers, CO₂ emissions also increased. 

Challenges for the energy transition

The drought and its consequences have highlighted the challenges in years to come faced not only by the Chilean energy transition but also by other nations reliant on hydropower for much of their electricity generation. Due to the continued advance of climate change, dry conditions are likely to only increase and therefore threaten the relatively reliable use of hydropower for baseload power generation. 

While Chile aims to exit from the use of coal, this polluting form of power generation is nonetheless a very reliable (24 hours a day, 7 days a week) technology for baseload power. Chilean coal power plants are also located at critical locations within the Chilean national grid and the inertia from their mechanical, rotating generators is important in ensuring the stability of the national grid. 

These are key advantages of coal power that renewables such as wind and solar cannot match so easily: wind is dependent on weather conditions on the one hand, while solar is available only during the hours of daylight. Wind energy is also the primary source of daytime power generation, at least in the northern part of Chile. 

Nor is wind or solar truly capable of stabilising the Chilean national grid to the extent that it is achievable with coal-fired and hydropower plants. 

Exploiting existing infrastructure while retaining jobs

The IKI project ‘Decarbonising the Chilean energy sector’ is investigating and promoting options for converting coal power plants into climate-neutral power stations capable of ‘stabilising the system’. 

One possible solution is being developed by the project together with the German Aerospace Center (DLR): the ‘Carnot battery’. In this approach, the existing steam cycle – with turbines and generators – is kept in place from the old coal power plant. At the same time, coal firing is replaced by energy storage consisting of molten salt, which is heated by electricity from renewable sources. This transforms the coal power plant into a thermal energy reservoir operated with green power, allowing existing infrastructure to continue to be used while also ensuring local jobs are retained in the community. 

Thanks to its rotational inertia, the molten salt storage plant can help ensure the operational reliability of the national power grid while supporting the large-scale expansion of intermittent renewable energy sources (wind and PV).

Converting coal- to gas-fired power stations

Other options include converting existing coal power plants into gas-fired power stations, to be run initially on a mix of natural gas and green hydrogen – or entirely on green hydrogen.

The advantages of a green hydrogen power plant or a conventional gas-fired power station include a high degree of flexibility (short ramp-up time), which can easily cope with demand peaks or shortages in wind and solar. As an environmental bonus, a dedicated green hydrogen power plant also produces no CO2 emissions. 

The excellent potential for solar and wind power in the Atacama Desert in northern Chile, where most of the country’s coal power plants are also located, offers perfect conditions for the production of green hydrogen near to these existing plants, which could be consumed locally without the need for complex logistics. 

Basic research in these areas has already been completed by GIZ with local partners and the Chilean Energy Ministry: these studies have now been published and their findings presented to relevant players in the energy sector. 

The general consensus is that these technologies not only offer Chile an important foundation for its energy transition over the next few years but should also be considered by other countries looking to complete their own coal exit.