Obama to Piñera: Make Renewable Energy and Energy Efficiency the Base Case Scenario for Building Chile's Energy Future

Before the emerging energy crisis was exacerbated by events in Libya and Japan, President Obama’s trip to Chile already had energy as a major agenda item.  The visit seemed destined to be a genial affair in which Obama and President Piñera could celebrate energy cooperation and entrepreneurship, enter into a nuclear cooperation agreement and discuss the benefits of the clean and green economy.  With the global energy calculus again once again shaken by dramatic events, that simple narrative is no longer plausible. 

This is not necessarily a bad thing.  Obama can seize the opportunity to talk seriously to Piñera about turning the local conventional thinking about energy on its head by prioritizing increasing energy efficiency and the exploitation of renewable resources over seeking to deploy large amounts of new coal, large hydro and nuclear generation.

The conventional thinking about energy in Chile is that new coal, gigantic dams and nuclear are the only possible base case scenario given expected increasing demand requirements over the next 20 years.  This way of thinking pushes renewables, or “non-conventional renewable energy” (defined under Chilean law to include wind, solar, geothermal and other renewables but to exclude large dams over 20MW) to the margins – right now the goal for renewables is a pretty anemic 10% of annual generation by 2024.

But this is exactly the wrong way to think about Chile’s energy future given its world class renewable resources, its potential to reduce energy demand and intensity through efficiency measures and the declining cost curves and improving performance of renewable technologies, solar in particular.  In addition to a solar resource that exceeds that of the American Southwest, Chile is particularly fortunate to have excellent geothermal and sustainable biomass resources.  These non-conventional renewable energy technologies are mature and can provide cost effective power at reliability levels (known as “capacity factors”) comparable to coal, gas, hydro and nuclear. 

Combine these renewable resources with Chile’s existing installed generation capacity that consists of large hydro, gas and coal which could be operated to balance the variability of wind and solar, and it becomes clear that Chile’s approach should be to first seek to meet expected incremental demand with efficiency and renewables (supported by maintaining and upgrading the existing conventional fleet as well as strategic grid and transmission investments).  Only after full economic exploitation of these resources should Chileans consider other options.    

Most renewable energy technologies deploy quickly relative to conventional projects (nuclear and large hydro sometimes taking decades) and so can be scaled up and down to meet actual demand.  They can also be located close to at load.  Solar makes eminent sense for Chile’s large mining sector as does biomass for its forestry businesses.  Although some non-conventional renewable energy technologies currently have high capital costs, they are declining and offer savings over time in avoided fuel and environmental costs (such as mining impacts, waste disposal, carbon and other emissions, water usage and human and wildlife health impacts). 

This turning of the tables on old energy thinking is long overdue. The effects of the Libyan crisis and the unfolding nuclear disaster in Japan have once again brought to the surface all of the flaws of conventional thinking about energy, which depends in large measure on centrally located power plants fed by uranium or fossil fuels. 

Nuclear is an energy choice made by many countries. However, the magnitude of the consequences when natural disasters or accidents strike, the risk of proliferation of weapons material, the inability of the radioactive waste to be released back into the ecosystem and the ecologically devastating uranium mining process all make reliance on expanding nuclear a very risky proposition. Due the seismic characteristics of Chile (think of the massive earthquake just under a year ago), the risks are heightened. From a taxpayer’s perspective, these costs and costs of public insurance are added to the high upfront capital costs of nuclear development that make the 50 year-old industry perennially dependent on massive subsidies that take resources away from other areas.  

As for fossil fuels, importing countries like Chile effectively cede control of a portion of their economies to the exporting countries, energy companies and traders that allocate these resources, creating instability when prices are volatile (which happens anytime anything out of ordinary happens in the Middle East).  The climate impacts of carbon are clear to most outside of the US Congress and, even without such impacts, the other life cycle environmental impacts of fossil fuels and their declining resource base make them a very bad medium to long term energy plan. 

And energy  markets are connected.  Since consumers “fuel switch” when the real or perceived scarcity of a fuel source causes its price to rise, there tends to be a cycle of volatility, with rising oil prices leading to rising gas prices leading to the perception of economic “viability” of expensive nuclear build outs, often followed by a reduction in prices and so on until the vicious cycle starts again, often leading to instability in the larger economy.

By contrast, we all know that the energy produced by sunlight, geothermal steam, wind, sustainable biomass and other renewable energy sources is an insurance policy against fuel price volatility and that generation from these resources does not place our health or ecosystems at risk. 

I urge President Obama to use his trip to Latin America to articulate these and similar truths and to initiate a frank but exciting discussion about a hemispheric collaboration in support of a sustainable energy future.

About the Authors

Douglass Sims

Director of Strategy and Finance, Center for Market Innovation

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