Chile is phasing out coal faster than any other developing nation thanks in part to regulations that bolstered environmental standards and gave investors the right signals, says former environment minister Marcelo Mena-Carrasco.
In the first half of 2024, coal accounted for just 17.5% of Chile’s electricity output, data collated by research group Ember shows. That’s down from 43.6% in 2016.
The dirtiest fossil fuel is being rapidly replaced by wind and solar, which are the cheapest sources of generating capacity. Renewables, in aggregate, comprised 63.1% of Chile’s power mix in the first half of the year.
“It’s a story that can be replicated in other parts of the world,” says Mena-Carrasco, who’s now CEO of The Global Methane Hub. The country’s brisk transition, he explained at The Progress Playbook’s recent policy conference, was initially sparked by community opposition to traditional power projects a decade ago.
In the early 2010s, Chile was considering adding new coal plants, in addition to large-scale hydroelectric facilities in the environmentally sensitive Patagonia region. But staunch push-back by civil society groups prompted policymakers to change course.
As a first step, regulators placed a price on pollution. “We were the first country in South America to have a carbon tax, which is an important market signal,” Mena-Carrasco says.
The government also introduced emissions standards for coal-fired power plants. This effectively pushed up construction costs for new coal plants by 30%, as compliance required carbon-abatement technologies. And once operational, the plant would have to pay carbon taxes as well.
With externalities now priced in and the playing field levelled, it soon became cheaper to build and operate a wind or solar farm than it was to simply run an existing fossil fuel plant.
“Our energy transition is based on market principles,” Mena-Carrasco says, adding that renewable energy auctions helped stimulate competition and speed things up.
Chile now leads the world in solar energy integration, with the technology comprising 21.1% of its power output in the first half of 2024.
Solar will play a key role in Chile’s efforts to get to 80-90% renewable electricity by 2030. By the end of the decade, the coal phase-out will be complete, with some of the country’s newest plants shutting down just six years after being commissioned, Mena-Carrasco says.
The economic benefits will be substantial, he adds.
Chile spent around 1% of its GDP on fossil fuel subsidies in 2022 to stabilise energy costs for consumers. An electricity system free of fossil fuels will reduce the need for subsidies while also tempering pricing volatility, improving air quality, and helping to mitigate the impacts of climate change.
Batteries, concentrated solar power, and pumped hydro facilities will all help to balance the grid amid the shift to variable renewables, Mena-Carrasco says.
A battery boom is already underway. According to energy association Generadoras Chile, 424MW of grid-scale battery storage capacity is already operational, and another 1.5GW is currently under construction.
That pipeline is set to grow significantly. In mid-August, Chile’s and the world’s biggest battery storage project, which will have a capacity of 4.1GWh once complete, secured funding for its first two phases. The site, in the country’s north, will also include 1GW of solar.
Meanwhile, Generadoras Chile says 4GW of new large-scale solar projects are under construction, along with 1.9GW of wind, 383MW of hydro, and 464MW of hybrid projects that combine solar and storage.
