Coal Phase-out in Chile

Since the 1990’s, Chilean economic growth has led to a steady increase in the country's energy requirements. To guarantee sufficient energy supply and following the Argentinian natural gas shortage crisis in 2005, new coal-powered thermal plants were constructed. However, the effects on the climate can be seen today: the entire Chilean energy sector is responsible for 78 percent of the country's emissions, 32 percent of which is accounted for by electricity generation. In the past,40 percent of Chile's electricity generation was based on coal. By 2024, this figure has dropped to less than 20%. There are 20 (before 28) coal-fired power plant units with a total installed capacity of 3,8 GW (5,5 GW, 2019), operated by two multinational and one national company. Moreover, practically all coal is imported.

As future prospect, however, Chile has the potential to offer more than 1,800 GW in renewable energy. The ambitions to decarbonize are underlined by an intended complete coal-exit. A coal commission to develop recommended actions for the government and evaluate various exit strategies was founded in 2018. On June 11th, 2018 the first meeting of the Chilean Coal Commission took place with 25 representatives from companies and institutions. Until January 2019, a total of nine meetings of the Coal Commission were held. On June 4th, 2019,  then Chilean President Sebastian Piñera announced the start of the phase-out with the decommissioning of eight coal-fired power plants by 2024. Official protocols have been signed with each of the four coal-fired power plant operators, in which the companies agree to decarbonize and declare their willingness to invest in renewable energies at the same time.

These concrete commitments have been further extended. At the COP25, two additional coal power plants were added to the first phase out period. Since then, there have been further announcements to accelerate the process by the government and the operators. From May 2020 to July 2021, another eight coal-fired power plants were included in the shutdown phase until 2025. With these efforts, Chile is well on the way to phase out coal from its energy mix, expecting to have decommissioned 18 out of 28 power plants, equivalent to 65% of the coal capacity, by 2025. The subsequent shutdowns after 2025 are to be defined depending on the development of Chile's electricity demand and the speed at which renewable energies are added and integrated into the Chilean power grid. By 2040 at the latest, all Chilean coal-fired power plants are to be shut down.

Topics covered by the Round Table on Coal Phase-out and/or Reconversion of Coal Units

The necessary restructuring of power generation has wide-ranging implications in several areas. On the one hand, the integration of more variable renewable energies like wind and solar into the power grid must be ensured. The stability of the Chilean electricity system (linear grid with island character) and the low age of some existing coal-fired power plants (64% of the power plants are less than 10 years old) were identified as particularly sensitive issues. On the other hand, the economic dependence of communities where coal-fired power plants operate and people work in coal mines are a decisive issue when economic alternatives are lacking. A conversation with the civic society is also required in order to gain and maintain social acceptance for wind parks and photovoltaic plants. Hence, support of the communities for a "Just Transition" is of particular importance, as well as the finding of technical-economic alternatives for the use of the infrastructure of decommissioned coal-fired power plants. One example is the possible conversion of a coal plant into an energy storage system for renewable energies (so-called "Carnot-Battery"), a project which is currently being discussed by GIZ (together with the German Aerospace Centre DLR) and the operators.

To facilitate the political steps taken in Chile, the GIZ was represented in the coal commission and has created a recognised factual basis for the coal phase-out through basic studies within the framework of the BMU-funded programme 4e (Project “Decarbonization of the Chilean energy sector”).

“Coal exit” is a buzzword in the international energy transition. Since the world’s first coal power station went into operation in 1882, coal has been the world’s primary source of energy for generating electricity. Accordingly, coal demand for electricity production has grown enormously in recent decades and is currently responsible for some 20 per cent of global anthropogenic GHG emissions.

With such an immense GHG footprint, the continued use of coal is not compatible with the need for rapid decarbonization. More importantly, given progress in the development of renewable technologies, including associated cost reductions, continued reliance on coal generation is economically irrational.

While the rate of coal power capacity expansion is still exceeding that of plant closure, the actual utilization of the ever-growing coal fleet has been shrinking. Since 2018, this has led to a reduction in global coal generation of 7 per cent. Against the backdrop of the pandemic induced economic crisis, the increasing competitiveness of renewable generation, and policy action to spur green economic recovery, the demise of coal seems unavoidable.

This is good news for the climate and the overall efficiency of our economies. But the structural changes associated with exiting coal can be profound. For this reason, policymakers must work to reconcile the conflicting interests of investors, workers, and communities.

In this study, developed between Agora Energiewende, GIZ, Berlin’s Ecologic Institute, and Chile-Germany’s Energy Partnership, we analyse the experiences that Chile and Germany have gathered in this area to distil lessons for policymakers needing to navigate the challenges of exiting coal in their own countries.

Key findings at a glance:

1. Phasing-out coal is an inevitable and profound structural change that must be managed carefully, involving stakeholders from affected regions. An early and comprehensive engagement of interested parties allows the reconciliation of diverging interests – defining adequate measures for a just transition and lasting stakeholder support.
2. Substituting coal with renewable electricity is key for direct and indirect electrification strategies to transform national and international energy markets. Sound energy planning and an effective and adaptive policy framework with a focus on supply- and demand-side flexibility will ensure the suc-cess and efficiency of the process
3. A consensual vision and strategy for exiting coal is a political and economic signal that provides attractive investment opportunities. Agreements must be solid as well as flexible to adapt to rapid changes in technology, investment behaviours, and climate policies.
4. Investors are ready to embrace the opportunities and business models offered by the decarbonization of energy systems. As costs of renewable energy technologies continue to fall, the roll-out of a smart, digitized, decentralized, flexible, and renewable energy system represents an attractive economic growth opportunity for investors and nations.