Power investment outlook for Chile to 2040

Abstract: This study aims to build a medium-term (2019-2040) model for the Chilean electricity generation system in the OSeMOSYS software, a linear cost optimisation model, in light of the most recent developments in government policy and targets. In 2019, the Chilean government committed to decommissioning all coal plants by 2040 at the latest, and set out a non-binding target to be carbon neutral by 2050. The carbon neutrality target could be enshrined in the climate change law, which has yet to be ratified. In this thesis, a focus was put on the upfront capital cost of the system, and the emissions attributable to Chile’s GHG Inventory (called the SNI GHG in Chile) from operating the system. Three scenarios are developed within the thesis, in line with three paths the power system may follow: a BAU scenario including current power purchase agreements, a scenario in which power purchase agreements for fossil fuels are bought out and the free market then takes over, and a non-conventional renewable energy (NCRE) scenario in which certain renewable technologies account for 68% of production in 2040. The model is validated against the results from 2019 and a broadly similar model developed in the private sector. Sensitivity analysis scenarios were conducted for the input parameters: price of natural gas, price of coal, capital cost of solar PV, capital cost of wind, capital cost of wind & solar, and the capacity factor of hydropower. The sensitivity analyses show the most sensitive input parameters are the price of natural gas and capital cost of wind with respect to the outputs of capital cost, NCRE production ratio such as the share of all solar, wind, and certain hydro technologies as a percentage of total electricity production and GHG emissions.