The main legal framework for the electricity sector in Chile is the "General Law of Electric Services (DFL-4)", a rather liberal framework which enables private investment in generation, transmission and distribution. Generation has been structured as a competitive market, whilst transmission and distribution are regulated.
The electricity sector in Chile is divided into three main segments: generation; transmission; and distribution. Regulation regarding energy storage systems was recently added into the General Electric Services Act, which is the main body of law regulating the Chilean electric industry.
Its main functions are: to prepare and coordinate plans, policies and standards for the proper functioning and develo-pment of the energy sector, to ensure its compliance and give advise to the Government on all matters related to the energy sector, considering all types of primary and secondary energy source.
renewable electricity generation. Chile provides technology-specific support and regulations, notably for geothermal and solar. The Law 19657 on Geothermal Energy Concessions provides a clear regulatory framework for geothermal exploration and development, with specific provisions addressing potential overlaps with mineral
In general terms, to construct and operate a power project in Chile no general electricity or specific governmental authorisations are required (ie, concessions to operate, except for the concession system for public distribution services). Nevertheless, other sector-specific regulations may oblige the developer to
Energy sectorial regulations in Chile vary significantly depending on whether they are referred to oil, gas or electricity markets. In that sense, a brief overview of the regulation for each of such markets is given, providing context for the developments experienced by the energy industry as a whole in the country, where the most relevant developments have been in the electricity market.
In Chile, hydrocarbons found in liquid or gas state can only be domestically exploited either directly by the Chilean State or its companies, or by third parties who have been awarded administrative concessions or entered into contracts of special operations with the State (also known as contratos especiales de operación – "CEOPs"), subject to terms and conditions approved by the President of Chile by means of a supreme decree.
As of this date, Empresa Nacional del Petróleo ("ENAP"), a State-owned company, and GeoPark, a private company, are the main domestic producers of crude oil in Chile, and virtually all their oil extraction operations are conducted in the Magellan Basin (both onshore and offshore). Domestic oil production, however, represents a very small fraction of the total amount of oil consumed in Chile; most of it is imported (97%).
In this sense, while ENAP is virtually the sole refiner of crude oil in Chile, there are private companies that play significant roles for the storage, transport, supply, and distribution of oil-related products, such as Copec, Shell and Petrobras.
A transport concessionaire must operate under an open access policy, which is understood as the obligation of each transport company to offer its available capacity under the same economic, commercial, technical, and informational conditions to any individual demanding transport services.
Most of Chile''s gas distribution infrastructure was constructed during the 1990s, when Chile and Argentina executed bilateral agreements to regulate and promote the export of natural gas from Argentina to Chile, which includes: six natural gas pipelines that connect the local market with Argentina, with two located in the extreme south of Chile (Gasoducto Posesión and Gasoducto Bandurria); two located in central Chile (GasAndes and Gas Pacifico); and two located in northern Chile (GasAtacama and NorAndino).
In Chile, the main electricity system is the National Electric System (the "SEN"), which supplies electricity to over 97% of the national population, covering more than 3,100 kilometres of the country. Additionally, there are a number of medium and small electricity systems in the regions of Los Lagos, Aysen and Magallanes and one small system on Easter Island, none of which have an aggregate capacity higher than 110 MW.
In general terms, generation is subject to market competition, while transmission and distribution, given their natural monopoly character, are subject to price regulation. Final customers may be regulated or unregulated depending on their demand. Only unregulated customers may freely choose a provider and freely agree the energy price. Regulated customers are forced to contract with distribution companies and pay them a tariff defined by the Ministry of Energy.
The goal of the Chilean electricity legal and regulatory framework is to provide incentives to maximise efficiency and to provide a simplified regulatory scheme and tariff-setting process that limits the discretionary role of the government by establishing objective criteria for setting prices. The expected result is an economically efficient allocation of resources. The regulatory system is designed to provide a competitive rate of return on investment to stimulate private investment, while ensuring the availability of an electricity service to all who request it.
The generation segment consists of companies that produce electricity and sell their production to distribution companies, unregulated customers, and other generation companies. The transmission segment consists of companies that transmit the electricity produced by generation companies at high voltage. The distribution segment includes electricity supply to final customers at a voltage no greater than 23 kV. In Chile, only generation and distribution companies may commercialise electricity.
The Chilean electricity legal and regulatory framework does not require an electricity concession to build and operate transmission facilities. However, in case it is difficult to process and obtain rights to use or occupy third-party land affected by the transmission facility''s layout, transmission companies may request and obtain an electric concession that grants the possibility of enforcing those easements in exchange for proper compensation to the owners of the affected land.
Concessions are required to engage in electricity distribution. Concessions granted to distribution companies give them a monopoly in their respective concession area, according to which regulated customers are forced to contract with the respective concessionary company, paying a prefixed tariff. The distribution segment is also considered a public service.
Final customers may be regulated if their connected power is equal or less than 5,000 kW, and unregulated if their connected power is higher than 5,000 kW. Regulated customers with a connected power higher than 500 kV, but less than 5,000 kW, have the option to move to the unregulated customers'' price regime for a period of four years at least.
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