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Aiming low and achieving it: A long-term analysis of a renewable policy in Chile

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  • Munoz, Francisco D.
  • Pumarino, Bruno J.
  • Salas, Ignacio A.

Abstract

We use an Integrated Resource Planning model to assess the costs of meeting a 70% renewables target by 2050 in Chile. This model is equivalent to a long-term equilibrium in electricity and renewable energy certificate (REC) markets under perfect competition. We consider different scenarios of demand growth, resource eligibility (e.g., large hydropower), and transmission system configuration. Our numerical results indicate that the sole characteristics of the available renewable resources in the country and reductions in technology costs will provide sufficient economic incentives for private investors to supply a fraction of renewables larger than 70% for a broad range of scenarios, meaning that the proposed target will likely remain a symbolic government effort. Increasing transmission capacity between the northern and central interconnected systems could reduce total system cost by $400 million per year and increase the equilibrium share of nonconventional renewable energy (NCRE) in the system from 45% to 52%, without the need for any additional policy incentive. Surprisingly, imposing a 70% of NCRE by 2050 results in a REC price lower than the noncompliance fine used for the current target of 20% of NCRE by 2025, the latter of which represents the country's maximum willingness to pay for the attributes of electricity supplied from NCRE resources.

Suggested Citation

  • Munoz, Francisco D. & Pumarino, Bruno J. & Salas, Ignacio A., 2017. "Aiming low and achieving it: A long-term analysis of a renewable policy in Chile," Energy Economics, Elsevier, vol. 65(C), pages 304-314.
  • Handle: RePEc:eee:eneeco:v:65:y:2017:i:c:p:304-314
    DOI: 10.1016/j.eneco.2017.05.013
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    1. repec:eee:enepol:v:114:y:2018:i:c:p:566-577 is not listed on IDEAS
    2. repec:eee:rensus:v:82:y:2018:i:p3:p:3288-3305 is not listed on IDEAS

    More about this item

    Keywords

    Planning model; Renewable portfolio standard; Renewable energy certificates;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • N76 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Latin America; Caribbean
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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