Energy and Energy Policy

Energy and Energy Policy

University of Chicago

PPHA 39201

Jacob Kuss and Neil Karandikar

Solar Energy in Chile: Is it a sustainable solution for energy demands in the Atacama region?

Part One

1. Introduction

As energy concerns and climate change continue to headline the plans of all global politicians, especially those of the developed nations of the West, the need for a viable future solution that can both provide the energy necessary and refrain from harming the environment is all the more pertinent. Alongside the political issues, popular culture has become engrained with environmental issues as more and more individual groups and Non-Governmental Organizations (NGOs) have taken it upon themselves to protect the environment from the harms of fossil fuels and the antiquated means of harvesting them. Only pushed along by such recent events such as the BP oil spill in the Gulf of Mexico, the ordinary global citizen has also gained a heightened awareness of the problems surrounding the use and harvesting of fossil fuels.

More specifically, in the South American nation of Chile, fossil fuels have played an enormous role in the nations development and, perhaps more importantly, in the continued success of the Chilean mining industry[1]. Since the beginning, Chile’s mines have provided a solid foundation for the nation, which has long been touted as the most politically and economically stable nation of all of Latin America[2]. Some have even voiced the opinion that Chile will be the first Latin American nation to solidify a position in the “First World[3]. ” Although this is an out-of-date distinction, the message is understood; Chile can become part of the developed ‘Western’ world as long the current political and economic situation continue to prosper.

Now, one looming questions remains. As Chilean President Piñera has stated, “Within three years, Piñera warned energy industry leaders, the country's burgeoning economic growth and urbanization would generate "serious problems" as a 6-7 percent annual surge in demand outstrips supply. ”[4]With the certainty that fossil fuels will run out and only become more expensive in the mean time, in order to ensure continued prosperity, how will Chile provide the adequate energy necessary for the immense mining industry of the Atacama region?

2. History and Overview of Atacama

The Atacama Desert is located in western South America, along the Pacific Ocean, from the southern reaches of Peru delving into the northern regions of Chile. [5]As can be seen in Figure 1, the Atacama Desert stretches from the thin coastal shelf along the ocean all the way to the Andean foothills, all the while stretching more than six hundred miles down the continent, spanning over a total area of over four thousand square miles.[6]The yellow portions of the graphic show the boundaries of the Atacama Desert while the orange portions show the surrounding deserts in the region.

As various surveys and studies have found, areas of the Atacama region have not seen a significant amount of rain since records have been kept on levels of precipitation and some studies found that the area has not seen rain in over three hundred years.[7] Following the logic of studies such as these, the Atacama region has been deemed the driest place on earth.[8] Being one of the main hindrances to solar energy, cloud cover and precipitation will prove to be of no concern for solar installations in the area, as can be seen below on Figure 2.

Another overwhelmingly obvious sign that points to the potential of solar energy in this region of Chile is the simple fact that the Atacama region has the highest levels of solar radiation on the planet.[9] As the Universidad de Chile found, areas of the Atacama reached solar radiation levels up to 7 to 7.5-kilowatt hour per square meter. [10] These numbers are mind-blowing when compared to the relatively low levels of solar radiation seen in countries where solar energy is most utilized, such as Germany. In Germany, the country with the largest solar usage to date, the highest solar radiation levels attained are merely fractional to Chile’s potential. ‘The maximum radiation obtainable in the whole of Germany is equal to that available in the southern Chilean cities of Coyhaique or Punta Arenas. The farther north in Chile, the higher the radiation. ”[11] As the article details, the German solar radiation potential is relatively low, it does not compare to lesser regions of Chile when compared to the Atacama. Figure 2, shows the levels of solar radiation seen throughout the world. Of note, Germany’s highest solar radiation levels could reach 5.5-kilowatt hour per square meter. As an additional point of reference, that state of Illinois receives about 4. 46-kilowatt hour per square meter, as another group shared.

Figure 2. Courtesy of NASA 2008.

One of the remaining drawbacks for solar energy is the cost that surrounds each kilowatt-hour. However, in an area like Atacama, which such high solar radiation and such little hindrance from precipitation and overall cloud cover, the solar output of a large scale solar installation could rival that of a conventional power plant utilizing diesel, coal, natural gas, or even hydroelectric dams. [12] As will be seen later in the paper, these other forms of electrical production may not provide the same advantageous results that solar can provide.

3. Demands for Energy and the Chilean Mining Industry

While quoting Chilean President Piñera earlier, the bleak outlook of the energy situation seemed to detail economic hardship in the years to come. However, with a wider scope, the bleakness dissipates to reassured faith in the government’s management of the energy sector. The President went on to say that, “Over the next two decades, however, this imbalance in energy demand and supply is projected to even out as new planned capacity goes into full swing. ”[13]Chile’s economy has shown a promising trend in growth over the past couple of years, as copper prices have soared. [14] In 2011, the Chilean economy saw a 6.0% growth in their economy, while this year has seen a steady rise once again, reaching 4. 7%. [15] Despite the positive statistics backing Chile’s recent economic surge, the country’s all-important mining industry is struggling with energy demands.

The facts and figures surrounding Chile’s mining industry are astounding when one realizes the true importance and breadth of resources put towards the economic sector. First, the Chilean mining industry utilizes up to 80% of all the energy within the entire nation. [16]Aside from the amazingly one-sided demand for energy that the northern part of Chile demands, the vast majority of Chilean produced energy comes from the southern provinces by way of hydroelectric dams, which account for roughly 30-40% of the country’s total energy. [17] Unfortunately, the geography of Chile’s resources creates an interesting issue. The energy produced in the southern portions of the country cannot reach the northern reaches, including the Atacama, which obviously demand the most energy, due to an incompetent grid system, heavily damaged by previous earthquakes, and immense distances along the 2,600 mile long country.

Due to this unfortunate distancing of resources and the demand, Chile’s mining sector largely relies on foreign fossil fuels to produce energy in the Atacama. Due to varying percentages, the exact percent of Chilean energy produced from fossil fuels is not certain, but the percentage lies somewhere between 60-75%, with essentially all of the energy being utilized by the mining industry coming from these fossil fuels. [18]

Aside from the immense percentage of energy used by the mining industry in Chile, the sheer importance of the industry, more specifically the copper industry, to the nation’s overall economic health is remarkable. As the world’s leading producer of copper, Chile has enjoyed great economic gain in the past few years as copper prices have continued to rise. From 2000 to 2009, copper prices were averaging about $1.79 per pound. [19] However, this year, copper prices have risen to $3.60 per pound. [20] This has come as great news for the Chilean economy; over 60% of their exports are from copper alone, which in turn accounts for over 15% of their gross domestic product (GDP). [21]

4. The Role of the Chilean Government

With the undoubted knowledge that Chile must boost its current energy production, by any means necessary, thusenabling the continued growth of the mining industry and the overall economy, the government’s role will play a large part in the future. Under the current administration with President Piñera, a Harvard trained economist, the Chilean 2020 plan aims to firmly place the nation among those in the first world. [22] Packed with initiatives to encourage business in Chile from international entities, the 2020 plan also has wider reaching goals, more specifically, in the energy sector.

Nowadays, renewable energy only accounts for 3-6%, depending on the figure chosen. [23] Under the 2020 plan, Chile aims to raise this number up to 20%, therein leaving a large gap that must be filled in a meager eight years.[24] The government has made minor steps towards making the goal a reality by way of putting $85 million towards renewable energy subsidies, although these will not be used for solar energy.[25] This money will largely go towards other modes of production aside from solar, most likely wind energy because international investment may provide all the push solar energy needs in the region.

The Piñeragovernment has expressed great interest in bulking up the hydroelectric energy production systems within the country. However, as discussed earlier, these hydroelectric dams are located in the southern provinces of the country and offer little to no support, due to the Chilean grid system, to the northern provinces, including the Atacama and the invaluable mining industry that consumes up to 80% of the nation’s energy.Despite these truths, the government continues backing large-scale hydroelectric projects by way of multi-billion dollar investment.[26]

This fact seems to go against the Chilean 2020 plan that aims to boost renewable energy from 3-6% all the way to 20%.While hydroelectric already accounts for 34-40% of Chile’s energy production, the sheer difference in a multi-billion dollar project as compared to a measly 85 million dollars towards renewable energy throughout the country puts little weight behind the words of Chile’s 2020 plan. Aside from the political rhetoric, the Chilean government has seen large-scale opposition to the immense hydroelectric projects they have planned.

5. Energy Difficulties for the Chilean Government

In recent memory, the Chilean government has faced enormous difficulty in stabilizing a somewhat suspect energy grid throughout the country. In late September 2011, after a large earthquake, the entire country was paralyzed by a massive blackout that affected over 10 million people in the country of only 16 million.[27]Along with blacking out well over half of the Chilean population, this episode in energy blunders led to a crippling halt in the all-too-important copper mines of the northern provinces and many critics called to President Piñera for his lack of funding to Chilean infrastructure.[28]On top of the immense numbers of Chilean citizens without power, along with the copper mines, all of the capital city of Santiago, the economic, political, and cultural center of Chile, was without power. Look to the chaos that ensued after super storm Sandy hit New York City and add the uncertainty that would stem with the halting of the government in Washington. Needless to say, a massive blackout of this stature in a country trying to solidify itself among the developed elite of the West cannot happen. More recently, President Piñera has detailed the huge difficulties the country will face with heightened stress on the already struggling energy supply with the blooming economy in the near future.

Perhaps the largest obstacle facing the government at this moment is the HidroAysen project. Obviously, the government needs to come up with viable solutions for the current energy demand issues. However, the government’s mammoth monetary backing of multiple billions of dollars of this immense hydroelectric project in the Aysen region of the south, has received huge push back from the environmentalist community. Speaking from a logical standpoint, the plain fact that the majority of energy is used in the far northern regions of Chile for mining purposes lends little credence to a massive hydroelectric project in the far south that cannot supply the energy needs of the north. Not to mention, this project is taking place in the picturesque Patagonia region, that straddles both Argentina and Chile in the far southern cone of the South American continent.

Figure 3. Courtesy of BBC. Detailed map and plan of the HidroAysen Project.

Aside from the huge environmental implications including: over fifteen thousand acres flooded, damming two beautiful rivers, harming a unique environment home to endangered animals, and a 2,000 mile cable stretching through the country to reach Santiago[29], the project is ignoring 80% of the energy consumption in Chile. If Chile hopes to continue its promising track of GDP growth and economic stability, it must solve the energy problem, but mainly the energy problem in the mining regions of the north.

6. Part One Conclusion

With such large push back for the HidroAysen project, one poll put 74% of the public against it[30]; the Chilean government is fighting an uphill battle to solve the energy needs for one fifth of the nation. Although subsidies may not be necessary for solar installations in the Atacama region, as international investment has already been greatly shown from Chinese companies, among other international solar leaders, the multi-billion dollar deal penned for the HidroAysen could be put to better use in facilitating a solar boom in Chile. With the most solar radiation of any spot on the planet and the capability to compete with typical energy sources, Chile must put more effort forward to sustain the economy and provide the much-needed energy for the Atacama as the mining industry continues to exploit the mineral treasure trove.

Part Two

The Atacama Desert is likely the most suitable place on the planet to make use of solar energy. This region receives the highest levels of solar radiation on the Earth’s surface with an average of 4,800 Kcal/m2 per day.[31] The Atacama is also one of the driest regions on the Earth. It receives a miniscule average rainfall of just 1 millimeter per year.[32] It is so dry that, in fact, there is evidence that the desert may not have received any significant rainfall from 1570 to 1971.[33] In addition, the mountains are entirely free of glaciers something that is very unusual for mountains of such elevations. These are ideal climatic conditions for solar energy to be very efficient and productive. What is then the problem in this scenario? Some of the main drawbacks that have kept solar energy in this region from taking off are the high associated costs and the economic feasibility in general.

Renewable energy has traditionally been much more costly to incorporate than more traditional energy sources. Solar energy in particular has a very high upfront cost, a feature that is not present in most other energy forms. Until recently, it was widely believed that although solar energy has its advantages in terms of being a clean energy source, it simply could not compete in terms of price or efficiency. Estimates are that solar power costs nearly twice as much as coal or natural gas. The Wall Street Journal cites that “it can cost 20 cents or more to produce a kilowatt-hour of electricity from a solar-power system, depending on where the system is located and the level of incentives offered. By contrast, generating electricity from coal or natural gas costs between 2 and 10 cents a kilowatt-hour, depending on the fuel and age of the power plant…”[34] This is the primary reason why there are few instances where solar power has been incorporated on a large scale.

The good news is that although this trend has not been reversed, the gap has been closing between the costs of solar power versus traditional forms of energy. There are a couple of reasons for this emerging phenomenon. One of the reasons that the cost of the solar cells have gone down in the past few years is an increasing manufacturing industry in China. Also, solar cells have been becoming more efficient so that fewer of the cells are required to produce a given amount of energy. These two effects have resulted in the consequence that solar energy costs only a third to a quarter of what it did only a few years ago. This is allowing solar energy a great chance to compete with coal and natural gas in a variety of environments and especially in the arid Atacama Desert.