In September 2023, this forum was informed of the introduction of a bill to the Chilean Congress that modifies the General Law on Electricity Services (LGSE) to position the transmission segment as an enabling sector for the energy transition. A little over a year later, it can be reported that this bill was approved by Congress and will become law in the coming days.
In a letter dated 27 November addressed to the President of the Republic, the Chilean Senate announced the approval of the so-called 'Bill that amends the General Electricity Services Law, in the area of energy transition that positions electricity transmission as an enabling sector for carbon neutrality' (the Bill). The Bill addresses a series of pivotal issues pertaining to the commitments made by the Chilean state in the context of energy transition and carbon neutrality. Additionally, it incorporates significant structural modifications to the regulation of the Chilean electricity system, with the objective of facilitating the development of transmission infrastructure. This is particularly relevant given the systemic deficiencies of the transmission network in a scenario of exponential growth of renewable generation in the north of the country, the impact of thermal plant retirements, network saturation and energy dumping, that have led from bankruptcy of generating companies to the average increase of between 18% and 40% in electricity tariffs for end consumers, among other consequences.
We will focus on briefly explaining the 4 most relevant changes of the Bill:
(1) Urgent Works. A new article has been added to regulate necessary and urgent works, which, once approved by the authority as such, are excluded from the regulated transmission planning process, so that they can be tendered in a simplified procedure and in the shortest possible time, as provided for in the Regulation. The National Electricity Coordinator (grid operator) or the company that owns the work to be extended will decide and award the tender.
Likewise, the new article establishes maximum investment thresholds for the works, with an additional amount for works in the Ñuble region, a region in the south of the country with serious difficulties in the electricity system due to the lack of transmission works.
(2) Owners of Transmission Facilities will assume a new role. Unfortunately, the expansion works for the transmission system have not met expectations, resulting in delays to the entry into operation of key infrastructure and, in some cases, the abandonment of works. The Bill amends article 91 of the LGSE, giving the owners of transmission facilities the responsibility for calling for tenders and awarding the expansion works, as well as for the supervision and proper execution of the works until they come into operation.
In the event of early termination of contracts, the owner of the works shall be responsible for their timely and proper execution in accordance with the provisions of the respective tender conditions and award decrees. Furthermore, in such a case, the owner shall be entitled to revise the investment value awarded for the respective works. This is another innovative aspect of the Bill, which will be explained in more detail below.
While this figure imposes a significant obligation on the infrastructure owner, it seeks to ensure the completion of the works and their timely entry into operation. The Grid Operator will assume a supervisory role to ensure the integrity of the bidding process and maintain a fair and competitive environment.
(3) Right to review and adjust investment values in expansion works. In line with the preceding item, as analyzed during the processing of the Bill, a significant number of works have been abandoned and many have been declared deserted in the bidding phase, due to price regulation which, on the one hand, does not generate incentives to participate in some expansion works and, in other cases, because the investment values set by the authority do not reflect the real conditions of the costs of construction and entry into operation of a transmission facility.
In this regard, the Bill incorporates a regulation for the revision of investment values based on a well-founded request in response to serious and qualified causes not attributable to the owner or the successful bidder of the work. These causes may include: modification of conditions or technical characteristics; cost increases due to unforeseen situations; and/or cost increases as a consequence of delays in other system expansion works or due to instructions from the authority. Furthermore, the Bill establishes the percentage limits applicable to the revision of investment values.
(4) Right to propose new transmission system expansion works. Generating companies may propose and finance, at their own risk and expense, work to extend transmission facilities to enable the energy generated by their respective generating assets to be fed into the electricity system.
The next steps are for the bill to be passed to the executive for enactment and publication. However, the bill will require various regulatory and technical definitions to be finalized before it can be fully implemented.
Although the Bill does not provide a comprehensive solution to the challenges of the transmission system, let alone the energy transition, it offers tools that can help address some of the current issues.