Abstract
Political-economic approaches are increasingly used in the study of low-carbon energy transitions. This article brings attention to two dimensions that have been less explored by this scholarship. First, research on the political economy of energy transitions, which has centered on the fossil fuel industry and to a lesser degree on the residential sector, has not sufficiently considered the role that industrial energy users play in resisting and in shaping energy transitions. Second, empirical analyses have focused on the limitations to a transition toward low-carbon energy systems that neoliberal forms of energy governance generate, thereby leaving unexplored cases in which neoliberal restructurings enacted by the state accelerate energy transitions. By analyzing the relationship between the recent boom in renewables energy investments in Chile and the energy consumption practices of the copper mining industry, I show the importance that changes in energy systems can have in the reproduction of specific regimes of accumulation. Drawing on insights from the political economy of energy and the scholarship on the role of socio-natural reconfigurations in addressing capitalist crisis tendencies, I argue that the recent changes in the energy sector in Chile can be understood as a “socioecological fix” to alleviate the threatened accumulation process of its mining economy. I describe the new energy policy implemented in Chile to show how the neoliberal model for promoting renewable energies and the increased financialization of the renewable energy sector, while successful in quickly stimulating a utility-scale renewable energy sector, has also created socioecological impacts and uncertainties in energy forecasts.
Introduction
In 2015, renewable energy (RE) investments in Chile reached a historic high. The Ernst & Young’s RE Attractiveness Index ranked Chile as the fourth most attractive country to invest in clean energy in 2015 (Ernst & Young, 2016). According to a report published by the Frankfurt School-UNEP Center in 2016, Chile became one of the top 10 RE markets in the world. Most of the new investments were devoted to photovoltaic (PV) and wind projects, given Chile’s geographical potential and technology costs reduction. One of the catalysts of this boom in RE investments was the implementation in 2014 of a new energy policy that opened the electricity market and allowed the entrance of REs. This policy was designed to address the threats of a new energy crisis. Chile has been affected by several energy crises over the past decades because of its growing energy demand and minimal domestic capacity for fossil fuel production. During the global financial crisis, electricity prices in Chile increased drastically, reaching US$300 MW/h in 2008. Due to the stagnation of energy investments and the long periods of drought, electricity prices have remained high, reaching an average of around US$110 MW/h in 2014. Intensified social opposition against investments in large hydropower and thermal power plants further aggravated the energy situation.
The elevated electricity prices elicited special concern in 2014 because of Chile’s declining economic growth. Chile’s GDP rate of growth fell from 6.1% in 2011 to 1.7% in 2014, largely from the end of the commodity price super-cycle and a decrease in mining investments. When mineral prices rose during the 1990s, mining investments increased and Chile became the main copper producer in the world. Recently, large mining investments have been suspended, not only because of lower mineral prices but also because of high electricity prices. In this context, the new energy policy held strategic importance. However, the role of the mining industry—the main energy user in Chile—tends to disappear in analyses that highlight lower prices of REs, geographical potential, and the new energy policy as the main drivers to understand the RE boom (CNE, 2017; IEA, 2018; Maillet and Rozas, 2017; Pacheco, 2018).
This article provides an empirical case of the role of large energy users in enabling and shaping energy transitions. By connecting the literature on the political economy of energy transitions to the scholarship about the role of socio-natural transformations in addressing capitalist crisis tendencies, I argue that the recent boom in REs in Chile can be understood as a “socioecological fix” (Ekers and Prudham, 2015; McCarthy, 2015) through which new appropriations of nature are used to alleviate the threatened accumulation process of its energy-intensive mining economy. This neither implies that the changes in the energy sector were directly driven by the mining industry nor does it imply that mining was the only or most relevant explanatory factor behind these changes. It will be argued that different economic and political factors at various scales were key drivers of the RE boom in Chile. Here, the state was a pivotal actor. Due to the international dependence and the domestic control of Chile’s energy sector, the state’s role was central to opening the market and to creating the conditions for cheap energy.
Chile offers a good case for furthering debates about energy governance neoliberalization and its relationship with low-carbon energy transitions. I refer to the neoliberalization of energy governance as a process of expanding the role of the market and the private sector in the organization of energy systems (cf. Newell and Phillips, 2016). In recent decades, national states have increasingly adopted market-led agendas in the energy sector (Scoones et al., 2015). Critical studies in energy transition have claimed that given the importance of the state in driving fast changes in energy systems, more interventionist states are needed to contribute to a low-carbon energy transition (McCarthy, 2015; Malm, 2018). However, as scholars of neoliberalism have largely demonstrated, national states usually take active roles in processes of neoliberalization (Peck and Tickell, 2002; Perreault and Martin, 2005). In Chile, for example, the centrality of the state in promoting a fast expansion of renewable energies represented a process of reregulation, in which the neoliberalization of energy governance was expanded by the strengthening of the regulatory state (Castree, 2008, Maillet and Rozas, 2017). However, this article will show how the technologically neutral and market-based policy implemented has also created uncertainties in energy forecasts and limitations to a real transition beyond the RE boom.
The case of Chile also shows how the neoliberalization of energy governance can interact with large energy users in promoting REs. Even though the energy policy in Chile was framed as a neutral tool to promote market competition, it was shaped by power relations between the mining and generation sectors. Given the privileged position of the mining industry as the main catalyst of economic growth in Chile, the energy needs of the mining sector were crucial to define when the new energy policy was implemented as well as the tendency toward large-scale RE projects. In this context, the incumbent generation sector has expanded its business to green energy, motivated by advantageous financial conditions and the specific energy needs of the mining industry.
This article is organized as follows: The following section presents a conceptualization of the social construction of energy crises and of changes in energy systems as socioecological fixes to capitalist crisis tendencies. Drawing on the scholarship on energy futures, “Neoliberal energy transitions?” section examines the role of national states in promoting neoliberal energy transitions. The penultimate section introduces the case of Chile, describing the recent transformations in the electric market and analyzes the relationship between the mining sector, the new energy policy, and the RE boom. Some limitations and incipient socioenvironmental impacts of the boom in REs in Chile are described in the final section.
Energy crises and socioecological fixes
Energy crises
As Bridge (2011: 312) asserts, the notion of energy crisis, “in the sense of an impending failure to provision industrial societies with the abundance of energy to which its machines and infrastructures have become accustomed – is the mother of all scarcities.” Energy scarcity, moreover, is related to distributional rather than only “natural” conditions (Bridge and LeBillon, 2013; Huber, 2011). Examining the origin of these conditions is necessary to avoid what Huber (2013) describes as fetishistic interpretations, which understand energy resources or technologies as the inherent causes (and thus the solutions) of energy crises (see also Malm, 2016: 220). The social factors that explain why certain countries face energy scarcity are manifold and include the geopolitical monopoly of oil, social opposition against the global impacts of fossil fuels, or against more local socioenvironmental impacts created by energy projects. Energy scarcity is also associated with threats of brownouts and blackouts from market failures in power and utility sectors (Bridge, 2015).
The scholarship on the political economy of energy transitions has focused on the role of the fossil fuel industry in the construction of energy crises and in challenging a low-carbon energy transition, i.e. a global-scale switch from a fossil fuel based energy system to one based on only the most “sustainable” renewables energies (which excludes nuclear energy or industrial biofuels) (cf. Meadowcroft, 2009). However, less attention has been paid to the role of industrial energy users. Lock-in barriers from large energy consumers unwilling to pay the costs of devaluation can be critical for resisting energy transitions (Geels, 2014; Turnheim and Geels, 2013). As Huber (2015: 7) argues, although research on the relationship between fossil fuel lock-in and cultural practices of energy consumption has increased, the focus has been placed on the residential sector instead of larger industrial users or economic sectors. Therefore, “Studies of energy consumption must ‘scale up’ to examine such large organizational consumers. Ignoring them gives us an unrealistic view into the kinds of transformation of energy consumption patterns that are needed (focused on individual residential choices will not change wider institutional patterns)” (Huber, 2015: 7).
The mining industry, for example, consumes between 4% and 11% of the world’s total primary energy and it is expected that its demand will increase in next decades in a higher degree than total energy demand (IEA, 2017; RM, 2016).
The focus on large energy users is helpful to understand energy crises and changes in energy systems as not solely driven by supply-side conditions but also by the role of energy in reproducing specific regimes of accumulation. For example, in their study of the energy crisis in South Africa, Baker et al. (2014) employ the concept of the “Mineral-Energy-Complex” (MEC) developed by Fine and Rustomjee in the 1990s, which “provides both a description of the relationship between South Africa’s minerals and energy sectors, as well a framework of analysis for the country’s political economy” (797). The MEC reproduces an export-oriented coal and gold mining industry, based on cheap electricity, cheap labor, and racial divisions. The energy crisis in South Africa was manifested by tariff increases, supply-side shortages, and generation investment stagnation. This situation was exacerbated by international environmental pressures. However, rather than assuming this energy crisis as solely a supply-side problem, the energy situation in South Africa constituted a specific crisis for the MEC. Considering the role of energy for the MEC, Baker (2014: 250), using the language of the multi-level perspective, argues that “a window of opportunity” for REs was created.
Socioecological fixes
The literature on the role of socio-natural reconfigurations in addressing capitalist crises offers an important avenue for the study of the political economy of energy crises and energy transitions. This literature employs the notion of “socioecological fixes” to understand how transformations in nature–society relations are embedded in economic, political, and ideological conditions (Ekers and Prudham, 2018). Drawing on this body of work, transformations in energy regimes can provide temporal mitigation to some of the contradictions of capitalist economies, therefore operating as “fixes” to capitalist crisis tendencies, which includes energy crises. 1 Indeed, major changes in energy systems and in their social regulation tend to be crisis-driven. For example, real and perceived energy security concerns (Heiman and Solomon, 2004; Schmitz, 2017; Schmitz and Scoones, 2015: 29) are the most common cause motivating policies promoted by oil importer countries to rapidly incorporate REs (Markard et al., 2016).
REs investments can help address other crises besides those related to energy scarcity. McCarthy (2015), for example, argues that a low-carbon energy transition is a technically and economically possible “socioecological fix” to the current climate crisis. His work builds on previous discussions about spatial and ecological fixes (Bakker, 2009; Castree, 2008; Harvey, 2006) to argue that a low-carbon energy transition would constitute a “socioecological fix” because it would involve not only the incorporation of new elements of nature into the circuits of capital but also of socio-natures which include the metabolic co-production between nature and capital (see also Ekers and Prudham, 2017, 2018). This transition would not necessarily transform the capitalist logic of accumulation. Rather, it would expand capitalism, creating further processes of commodification and dispossession powered by a very different energy mix. Despite McCarthy’s focus on the role of REs for the future of capitalism on a global scale, the study of socioecological fixes can be applied to explore current and local contexts (e.g. Ekers, 2015; Nugent, 2015; Swyngedouw, 2013) as well as specific interests and industries (e.g. Johnson, 2015; Zalik, 2015).
Moreover, beyond energy and related crises, other political-economic crises can also be addressed by the expansion of REs. For example, discussions on the “Green New Deal” argue that publically supported REs have played an important role in mobilizing stagnant economies by replacing private sector demand and creating jobs (Scoones et al., 2015: 14). Similarly, McDonald (2012: 6) maintains, “electricity may not loom large in every accumulation crisis, but it often plays a critical role in the rebuilding of the productive assets required for reconfigured accumulation regimes.” REs are also increasingly used as a new “spatial fix” (Harvey, 2006) to absorb overaccumulated capital through the expansion of the built environment (Castree and Christophers, 2015). A clear example of this is occurring in Latin America, the region that has attracted the largest flow of international investments in clean energy since 2010 and where most of the capital has been committed in the form of equity rather than debt. As the 2017 Climatescope report indicates, this lower level of debt is not due to the incapacity of REs to access credit. Rather, it is indicative of the fact that “the market conditions in the region encouraged international players to commit more capital than in any other” (Climastecope, 2017: 56).
The notion of socioecological fixes suggests multiple ways in which REs can expand because of its potential role in addressing or mitigating capitalist crisis tendencies. However, the possibility of different capitalist interests becoming aligned to support a rapid and global scale transition is hardly a foregone conclusion. For example, Malm (2018) suggests that several limitations of REs technologies complicate the possibility of a low-carbon energy transition capable of resolving the climatic crisis while at the same time expanding growth. These limitations are reflected in current trends which indicate that REs add more to the energy pie than promoting a rapid process of fossil fuel disinvestment and replacement (Malm, 2016: 349). Moreover, as Ekers and Prudham (2018) suggest: “socioecological fixes might not and sometimes do not succeed on their own terms” (26). Thus, using the notion of “socioecological fixes” in the study of energy transitions does not suggest the advent of low-carbon energy transitions. Rather, this framework offers a language to examine the barriers, possibilities, and socioecological implications for fostering low-carbon energy transitions at various scales.
The literature on the socioecological fix is also useful for the study of energy transitions because of its emphasis on the socioenvironmental contradictions involved in such fixes, which as Huber and McCarthy (2017) suggest is important in order to avoid assuming RE investments as “inherently progressive and environmentally benign” (666). Socioecological fixes “plant the seeds of larger subsequent crises as they fix the present one” (McCarthy, 2015: 2488). For example, in contrast to the fossil fuel regime, which is based on “‘vertical’ reliance upon subterranean stocks of energy” (Bridge et al., 2013; Huber and McCarthy, 2017: 656), REs are spatially extensive (Smil, 2006). As McCarthy (2015) argues, the land extensive character of a low-carbon energy transition would probably disproportionately affect rural areas, given that land prices tend to be lower, and that rural communities tend to have less power and fewer formal land rights. The expansion of REs as a new spatial fix creates new processes of enclosure and dispossession, especially in the developing world. This is evident in the bio-fuel industry, which has generated massive land grabs (Borras and Franco, 2012). However, such “green grabbing” (Fairhead et al., 2012) and “energy dispossession” (Baka, 2017) has also been associated to less controversial REs like wind (Avila-Calero, 2017; Dunlap, 2018; Phadke, 2013) and solar projects (Mulvaney, 2013; Yenneti et al., 2016).
Neoliberal energy transitions?
Neoliberal agendas to promote REs have risen in prominence over the past two decades. These agendas support market incentives to generate competitive prices for REs and discourage the use of excessive subsidies and regulations, such as RE targets and carbon taxes (Schmitz and Scoones, 2015). However, in contexts where the use of REs has successfully expanded, direct subsidies have been commonly employed, and national states have remained central actors in planning projects, absorbing financial risks, and providing public land and infrastructure (Johnstone and Newell, 2018; Scoones, 2016). As Mazzucato (2015) has demonstrated, even in some contexts that appear as free-market models, the involvement of the state has been crucial to explain the successful development of REs. In the United States, for example, an often hidden “entrepreneurial state” played a central role in the initial development of the RE industry (Mazzucato, 2015). However, the lack of long-term support in funding has been an important factor behind the failure to promote an effective energy transition in this country. In contrast, Schmitz and Scoones (2015: 22) show that the substantial governmental support can explain the success in expanding REs through a centralized model in China and a decentralized one in Germany.
This centrality of national states has raised questions about the need to restrict the neoliberalization of energy governance to accelerate low-carbon energy transitions. McCarthy (2015), for instance, argues that “a transition would seem likely to require highly active, interventionist, developmentalist states guided by a clear industrial policy—a substantial change from the prevailing norms in most advanced capitalist countries at the moment” (2498). In recent years, however, REs have expanded without government subsidies in several countries that have traditionally employed these forms of support (such as Norway, Spain, and the UK) as well as in countries that constitute new markets for large-scale RE investments (such as Chile, Mexico, and Kenya). In these cases, competitive prices of REs and their capacity to generate corporate power purchase agreements (PPAs) have been central drivers for their growth (Ernst & Young, 2019).
However, the implementation of market-based policies does not necessarily explain the success in promoting large-scale growth of REs in these cases. For example, Newell and Phillips (2016) argue that “while the Kenyan government has not provided consumer subsidies for solar PV technologies, neither has the growth of solar PV technologies in Kenya been the free market success story that it is often claimed to be” (44). According to the authors, the support of international donors and the coordination of the state, rather than the liberalization of the market, were the decisive factors in the expansion of REs. Therefore, the neoliberalization of Kenyan energy governance was more a consequence of the development of REs than it was a cause.
Little academic attention has been paid to the possibility of more interventionist neoliberal states accelerating energy transitions (cf. Toke and Lauber, 2007). For example, the role that processes of reregulation can have in promoting REs, in which the neoliberalization of energy governance is expanded by the strengthening of the regulatory state (Bakker, 2015; Castree, 2008), has not been sufficiently explored. The environmental governance literature has employed the notion of reregulation to describe processes of regulatory restructuring, avoiding the assumption of the rollback of the state as a necessary element of market-oriented policies (Bakker and Bridge, 2008). Moreover, the work on neoliberalism and nature has paid special attention to reregulation as part of the phase of neoliberalism that Peck and Tickell (2002) describe as “roll-out neoliberalization.” This is characterized by “the purposeful construction and consolidation of neoliberal state forms, modes of governance and regulatory relations” (Peck and Tickell, 2002: 384, emphasis in the original).
As in the case of water governance, national states have been key actors in promoting the liberalization of the electricity sector by market logics that prioritize efficiency and allocation techniques based on market-led calculus (cf. Bakker, 2002: 769). Processes of reregulation are especially important due to the decrease in REs prices, which has removed some of the risks associated to the initial development of these technologies that were commonly absorbed by the state. In this context, the reactivation of the state’s role to address market failures and create market competition through more competitive bidding systems are some of the reregulation strategies that governments are employing to promote REs (cf. Baker, 2015).
There is a consensus in the literature on energy futures that under present conditions, the private sector must also play a central role in a low-carbon energy transition through massive flows of finance capital (Schmitz and Scoones, 2015). The financialization of REs, i.e. the increasing role of financial markets and institutions in the operation of RE investments (cf. Foster, 2007), may seem to be an obstacle to a low-carbon energy transition, given the recent reluctance of financial institutions to make long-term investments—however, several factors indicate that financial capital would allocate investments in more climate-friendly infrastructure if it could be helpful in increasing profits (Castree and Christophers, 2015; McCarthy, 2015; Newell, 2015). Less clear is the capacity of the financial system to support a green transformation that is less compatible with growth and with increases in debt (Spratt, 2015). In this context, national states are playing a crucial role, creating regulatory conditions and attractive contexts for investments, as well as coordinating private REs projects. In addition, the role of the state in mapping its lands and its potential for RE has been crucial in providing information to investors (McCarthy, 2015; Hesse et al., 2016).
While neoliberal agendas are framed by governments as neutral mechanisms to promote market competition, the scholarship on neoliberal natures has widely demonstrated that the role of powerful economic sectors is central to understanding the design and outputs of neoliberal policies (Bakker, 2005; Budds, 2013; McCarthy and Prudham, 2004). The following sections present the case of Chile, where a recent boom in REs was promoted by a neoliberal institutional arrangement coordinated by the state. The technologically neutral and market-led energy policy implemented in Chile has been celebrated by the private sector for reducing prices and quickly stimulating a utility-scale RE sector without incurring subsidies or high levels of public debt. However, Chile’s new energy policy and its socioenvironmental outcomes cannot be understood independently of the interests of and resistance from international capital, the country’s incumbent energy sector, its main client (the mining industry), and social opposition from below.
Chile: The renewable energy boom
Methodology
This article is based on fieldwork conducted during June and July 2017 in Santiago, Chile. This fieldwork included 26 interviews with: four representatives of the Ministry of Energy, four government officials from other institutions related to energy governance, five scholars expert in the energy market, five representatives from the mining sector, five representatives from the RE sector, two consultants that participated in the design of the energy policy, and one member from an environmental NGO. The interviews were focused on the formulation of the new energy policy, the boom in RE investments, and the changes in the energy market for the mining sector. All the interviews were conducted in Spanish, recorded, and transcribed. Fieldwork also included participation in three public meetings with authorities and policy makers in the energy sector. This article also draws on primarily document analysis, including government documents, corporate annual reports, newspapers articles, industry journals, and other relevant academic literature.
Changing the energy market
Chile was the first country to deregulate its electricity market in the beginning of the 1980s (Raineri and Rudnick, 1998). The generation, transmission, and distribution segments of the energy system were unbundled and then privatized. The role of the state in planning new energy investments was reduced. This deregulation was aligned with a series of neoliberalization policies implemented during Pinochet’s military dictatorship (1973–1989) (Watts and Ariztia, 2002). Water resources were privatized, which allowed the accumulation of water rights by energy companies (Bauer, 2009). The transformation in the electricity sector was justified as a means to promote market competition. However, as Prieto and Bauer (2012) argue, investments in hydropower increased during the 1980s, not from greater competition, but from the accumulation of water rights by the main power generation companies.
Until the 1980s, Chile’s grid depended primarily on hydroelectric resources. In the mid-1990s, this situation changed because of the rising demand for energy during a period of sustained economic growth. Given Chile’s low reserves of fossil fuels, the government invested in infrastructure to facilitate the selling of gas from Argentina. In 2004, “natural gas accounted for 26% of Chile’s total energy consumption of which 80–90% came from Argentinean gas suppliers” (Nasirov and Silva, 2014: 27). That year, the Argentine government started restricting gas exports because of internal cuts in its gas supply, causing one of the largest energy crises in Chile. The number of power shortages and the prices of electricity increased. This situation was further aggravated by the rise in oil prices and extreme droughts. After the crisis, imports of petroleum fuels from other countries increased. In addition, new investments were made in re-gasification plants for imported liquefied natural gas. However, these transformations were insufficient to resolve the constant threat of power shortages, and the prices of electricity increased (IEA, 2018).
Total gross power generation (GWh).
Source: Reproduced with permission from Generadoras de Chile, Annual Reports: www.generadoras.cl
At the beginning of the 2000s, the first initiatives to promote REs were developed. In 2004, Law 19.940 allowed projects smaller than 9 MW to connect into the grid. In 2008, Law 20.257 established a mandatory target of 5% of RE for generators with a capacity greater than 200 MW. In 2013, Law 20.698 established that the target must increase to 20% by 2025. In 2014, a low-carbon tax (US$5 per ton of CO2) to thermal power generation was implemented. In 2018, initial conversations between the incumbents and the government to develop a plan of a gradual closure of coal power plants that did not have capture and storage systems were made public. However, strong initiatives to decrease the use of fossil fuels by the transport sector, which represented 29% of Chile’s emissions in 2013 (electricity represented 35% the same year), have not been developed. Energy efficiency has not been a priority for the Chilean government (Nasirov et al., 2017). In this context, greenhouse gas emissions have continued to increase correlatively with economic growth (OECD, 2016: 17). Furthermore, even though Chile is the second per-capita higher emitter in Latin America, the country’s environmental commitments have been characterized as timid and insufficient (Climate Action Tracker, 2017).
Like other countries that have successfully promoted REs (Schmitz, 2017), non-environmental reasons—such as the high prices of electricity and the stagnation of energy investments—were at the center of the Chilean government interest in stimulating the RE sector. Since the end of the 2000s, the state slowly began financing studies about RE investment opportunities, organizing official trips abroad to promote the Chilean market, assisting the legal incorporation of foreign companies, and providing financial support and public lands to small pilot projects. A project portfolio was also developed, notably by Spanish investors who migrated at the end of the 2000s due to constraints in their internal market (Cruzate, 2017). All these preconditions were invigorated through the implementation of the new energy policy in 2014. One of the key elements of this policy was the Tenders Law 20.805 enacted in 2015, which created a new auction system for the supply of electricity to distribution companies. The management of the auction was transferred from the CDEC to an independent public institution (the National Energy Commission). Some auctions conducted under this new law were designed to require a smaller amount of power per different hourly blocks. This allowed smaller and intermittent producers to participate in these auctions. The first auction, which took place in October 2015, was a success. It reached an average price of US$79.3 MW/h, 40% lower than the previous auction conducted in 2013 (IEA, 2018).
Chile: Annual investments in energy (thousand million dollars).
Source: Reproduced with permission from Ministry of Energy, 2017.
Total domestic installed power generation capacity per technology in MW.
Total combustible fuels is not equal to the sum of the electricity capacity by combustible fuels because of limited data availability.
Source: Reproduced with permission from Eia.org.
Similar competitive auction systems have been implemented in other countries (Avila-Calero, 2017; Baker, 2014). However, Chile’s auction system favors the investments with lowest prices, regardless of the technology used or other social benefits involved. As one of the directors of the Ministry of Energy interviewed observed, “the objective was never to force the incorporation of REs but rather to break the inertia so that the market would develop the more efficient projects.”
Between 2010 and 2015, several hydro and coal power projects were suspended, abandoned, or delayed because of social mobilizations, difficulties in securing permits, and legal claims (Astorga et al., 2017). One remarkable case was the hydropower project HidroAysén, which was created as a joint venture between Endesa and Colbun to build a series of dams in Chilean Patagonia to generate 2750 MW (Bauer, 2009). This project involved investments of US$3200 million and the construction of 2000 km in transmission lines. Massive country-wide protests, characterized as one of the biggest environmental movements in Chile’s history, defeated the project, despite its approbation by environmental institutions (Borgias and Braun, 2017; Schaeffer and Smits, 2015). During the electoral campaign in 2013, the former president Michelle Bachelet promised to not proceed with the project in her next term, despite the fact that HidroAysén was originally approved during her first mandate. Another paradigmatic case was the approval of the coal-based power plant Barrancones (US$5000 millions) owned by the company GDF Suez. Local communities and environmental groups mobilized over environmental impact concerns. After a personal call from President Sebastián Piñera in 2012, the company abandoned the project. Social pressure, therefore, has been successful in making these technologies less viable in Chile, although in absolute terms investments have not significantly decreased (see Table 2). In this context, the promotion of REs by the new energy policy has been celebrated by different actors, supporting the Chilean state in both, addressing its legitimation crisis in the environmental arena but also its compromise with the business sector to stimulate the economy.
The incorporation of new participants into the electricity market was crucial for decreasing market concentration. A reform implemented in 2015 (Act 20,897) expanded the business scope of ENAP, the national oil company, to allow its participation in the power generation market and to promote market competition. ENAP is the sole oil producer in Chile, due to the lack of reserves. Such an extension was a rare move in a country that has experienced a constant process of privatization of public companies since the 1980s. However, this reform was justified because of the need to stimulate energy investments. The plan was to ensure more competitive bidding by including the direct participation of a state company in the auctions (Maillet and Rozas, 2017). However, ENAP, which presented a bid with the Japanese company Mitsui, did not win any auctions because of the very low prices offered by private RE projects. Currently, ENAP is developing other energy projects in partnership with private companies. The objective of this business model is to promote investments that are not sufficiently developed by market incentives, assuming the risks that the private sector by itself is unwilling to take (cf. Newell and Phillips, 2016: 45). For example, one of the projects in progress is the first geothermal power plant in South America.
None of the incumbent companies that controlled the power generation sector were successful in the first auction. However, these companies did not lose control of the market after this process (Maillet and Rozas, 2017). This is especially clear in the case of Enel (ex Endesa), which won 48% and 54% of the energy of the second and third auctions, respectively. The other three companies did not win any auctions. However, today we can see a restructuring of their businesses, through acquisition and development of RE projects. Therefore, the entrance of new actors was key to generate the signals needed to break with the market inertia, but it was not excessive to challenge the power position of the incumbents, which are currently enjoying the benefits of the greater social acceptance of RE technologies.
Of the 15 new RE companies that won some of the three auctions developed between 2015 and 2017, only four companies were funded with Chilean capital (which will produce 6% of the electricity auctioned). Moreover, of the total investments in clean energy between 2010 and 2016, 75% ($6.92bn) corresponded to foreign investments, especially in the form of equity rather than debt (62–38); 46% came from major international utility companies, 18% from development banks, 6% from private equity, and 6% from the projects’ developers (Climastecope, 2017). Indeed, large international utility companies control three of the incumbent generation companies: Italy’s Enel controls Enel (ex-Endesa), the American AES Corp controls Gener, and France’s GDF Suez controls Engie.
As Maillet and Rozas (2017: 36) argue, “the state participates in the sector not in order to change its ruling principles but to deal with its existing problems in terms of market concentration, high prices, and social unrest.” Thus, the recent transformations of Chile’s energy governance represented a process of reregulation rather than a move away from its neoliberal focus, in which the state expanded its role while reinforcing the neoliberalization of energy governance. The next three sections describe why the energy needs of the mining sector were central in the development of the energy crisis that justified the government’s intervention and shaped the boom in RE investments.
What crisis? What fix?
In 2014, several government representatives declared that Chile was in danger of a new energy crisis because of rising prices and stagnating investments. Data from the OECD show that prices of electricity in Chile went from US$55.1 MW/h in 1998 to US$256.4 MW/h in 2015, increasing 365%. Even though 99% of the population has access to electricity, the poorest groups of Chileans have been especially affected by the high prices (CNE, 2017). However, complaints over the high residential energy prices, especially in remote areas in the country, were not something new. Moreover, unlike previous energy crises based on intense drought, increases in international prices of fossil fuels, or supply shortage, there were no significant blackouts or rationing policies around 2014. There was, however, a new economic situation for the mining industry, the main energy user in Chile.
Mining investments slowed down in recent years because of declining copper prices. This situation was aggravated by the increase in electricity prices. The electricity prices paid by the mining industry nearly doubled in eight years, and electricity costs represented around 16% of the production costs between 2007 and 2013 (Cochilco, 2014). The mining sector in Chile expressed concern because electricity expenditure far exceeded that of other mining countries (for example, twice more expensive than in Peru) (MCH, 2015). In 2013, the expansion of the Los Pelambres mine, owned by Antofagasta Minerals (AMSA), was suspended. This project involved investments of around US$10,000 million, an amount equivalent to 3.8% of Chile’s GDP in 2013. The high price of electricity was one of the main reasons cited by the company for this suspension (MCH, 2013). In this context, the public concern around the urgent need of reactivated energy investments increased. At the end of 2013, President Michelle Bachelet expressed: “If we do not act with urgent measures and for the long term, our economy could be very affected.” Accordingly, first priority was given by the government to the rapid implementation of the new energy policy (ME, 2014).
As Figure 1 shows, the mining sector consumed 34% of the electricity and 13% of the resting energy resources in Chile in 2015. A recent report indicates that the demand for electricity by the mining sector will increase by 28% from 2017 to 2028 (Cochilco, 2017a). This increase stems from the lower grade ore of the minerals, the aging of the mines, and the greater depth of excavation. The tendency to increase mining energy intensity ratio is a structural characteristic faced by the industry elsewhere (Exner et al., 2015; RM, 2016). A focus on the production of copper concentrates is also increasing the electricity demand of the mining sector in Chile. The power used in this process is expected to increase from 53% of the total electricity consumed by the industry in 2017 to 66% in 2028. The growth in electricity demand is also due to the rising use of desalination plants, especially in the arid north of Chile, where most of the mining projects are located. Large amounts of power are used in the desalination process and in pumping desalinized water from the sea to mining operations. It is expected that desalinization will be the second major user of electricity in the mining sector—increasing from 5% of the electricity demanded by the industry in 2017 to 12% in 2028 (Cochilco, 2017a).
Chile primary energy consumption by source and sector, 2015 (in Tcal).
Until the 1970s, mining companies in Chile typically owned and developed their own power stations. Meanwhile, the state developed mostly hydropower projects in the southern part of the country. This changed with the liberalization of the sector during the 1980s. Public companies were privatized and the power stations controlled by mining companies were sold to the main energy companies and their subsidiaries (Moguillansky, 1998). Given the increase in electricity prices, since the 1990s, some mining companies have acquired or participated in the ownership of power stations. However, the main way for mining companies to access electricity is through PPAs. A consultant interviewed that participated in the design of the energy policy, summarized these changes noting that “in the past, mining companies had their own generators. Later, they were privatized and the mining companies were scammed by the generators. They were charging US$120 or US$140 MW/h, in circumstances in which it would have cost them much less to generate power.”
The new energy policy was not designed to directly favor the mining sector. The new auction system operates in the market for “regulated consumers,” which include small companies and residential users (55% of the electricity purchased in 2016). Therefore, the policy does not directly affect the market for “free consumers,” which includes industrial users, such as mining companies. While the latter buys electricity through PPAs with generation companies, regulated consumers are supplied by local distribution companies (Bauer, 2009). However, as one of the officials from the Ministry of Energy interviewed argued, “the results of the public bidding made known the lower prices offered. The bidding showed that it is possible to have low prices,” which served as a precedent for the negotiation of future PPAs with mining companies. The negotiation between AMSA and Gener offers a good example of this process. Gener owns the controversial hydropower project Alto Maipo, located in the mountains surrounding Santiago. In 2013, when investments in power generation stagnated and the prices of electricity were high, AMSA signed on as one of the main investors for Alto Maipo. However, after the results of the first auctions were known, AMSA decided to remove its capital from the project and renegotiated a PPA with Gener for lower prices. This contract will allow that the mining company utilizes 780 GWH of the electricity produced each year, corresponding to 40% of Alto Maipo’s capacity (AEI, 2017).
In summary, prior to the RE boom, overpriced electricity in Chile constituted a market failure, which affected not only the residential sector but also the mining industry. Because of the mining sector’s reduced capacity to continue generating the levels of profit obtained between 1990 and 2010 (Sturla et al., 2016), a market restructuring to decrease electricity prices was necessary. The next section shows that despite its strategical importance, the expansion of REs was not directly promoted by the mining sector. Interested in lowering prices and receiving a continuous energy supply, the mining sector (especially the private one) was initially unwilling to directly incorporate cheaper but still risky RE investments. In this context, the state’s intervention was critical to changing this situation, creating the conditions to facilitate the mining industry’s access to cheaper and more secure electricity provision.
Renewable energy in the mining industry
The direct incorporation of REs into the extractive mining process is limited in Chile. As a report of Cochilco (2017b) indicates, only 0.5% of the total energy consumed by the mining sector is self-generated (most of which is based on fossil fuels). The first experiment with REs occurred in 2012 when the state-owned Codelco financed the PV power station Calama Solar 3 to provide electricity to the Chuquicamata division. This was the first industrial PV power station developed in Chile. Even though this project attracted great public attention, its potential was small (1 MW) and did not boost similar initiatives by other companies. However, several PPAs with REs, especially PV projects, have been signed in recent years. Thus, most of the RE used in the mining sector corresponds to a “utility business model” (Van der Hurk, 2016). This tendency is shared in Latin America, where 79.2% of the RE provided to the mining sector use this model, which includes on-grid facilities that also provide energy to other clients. The resting 20.8% corresponds to a “self-consumption model,” which include on-grid and off-grid facilities that exclusively or almost exclusively provide energy for mining industries (RM, 2016).
Largest RE projects in Chile and the relationship with the mining industry.
Source: Reproduced with permission from Energy and Mines (2015).
Several productive processes in the mining industry demand continuous energy use. This makes RE’s intermittency one of the main barriers to the incorporation of RE technologies in this industry (Nasirov and Agostini, 2018). To overcome this limitation, PPAs with solar and wind projects tend to incorporate a backup of fossil fuels or large hydropower to ensure continuous power provision. Therefore, the mining sector prefers to target the most established power generation companies, which have more diverse power portfolios, as more “reliable” supply solution (cf. Bridge et al., 2013: 339). For example, AMSA recently announced its plan to provide 100% of the electricity of the Zaldivar mine by REs. To accomplish this, Colbun and AMSA signed a PPA of 550 GWh/year, which will begin operation in 2020, based on a mix of solar, wind, and hydropower (including large dams). As Table 4 shows, these types of PPAs include not only the incumbent companies in Chile but also larger international RE companies such as SunEdison and First Solar.
The financialization of RE investments has reinforced the mining sector’s reluctance to sign PPAs with new RE companies. For example, one of the energy expert from a mining company interviewed stated: “If a company sells us solar energy we will make a contract for a long period. However, after four years the company will be sold to an investment bank which does not operate the plant. That is not convenient for us, because we have to negotiate with the bank even though we made the contract with another actor.” Moreover, the financialization of the mining sector itself is associated with frequent changes in ownership structures. This has promoted short-term profit maximization that neglects long-term investments, especially in areas outside mining specialization. As the person in charge of the PPAs in a mining company noted, “in innovation in general mining companies are very similar. The only one that does something interesting is Codelco. The remaining mining companies are funded by international capital. The ownership tends to change. Therefore, the companies are not interested in investing in research and development in Chile.” This exemplifies the argument of the important role that public initiatives play in stimulating green technologies (Mazzucato, 2015). Moreover, this shows that the financialization of not only the RE sector (Baker, 2015) but also large energy users are important considerations when analyzing barriers to the advancement towards a transition to low-carbon energy.
Before 2014, the reluctance to sign PPAs with REs companies was common and recognized by several interviewees as part of the “conservative culture” of the mining industry, in which changes that may be risky for the core business are avoided (see also Nasirov and Agostini, 2018). As the directive of Chile’s energy efficiency commission argued, this “conservative culture” in addition to the lack of experts in REs within the industry, and a general disinterest in energy efficiency, constitute important barriers to achieve more sustainable practices of energy consumption in the mining sector (personal communication, 12 July 2017). For example, as Figure 1 shows, the mining industry consumes 26% of the total used petroleum in Chile. Initiatives to replace the use of petroleum, mainly employed in trucks, have been limited. The main experiment in this regard also came from Codelco. In 2013, the public company opened an auction to sign a PPA created to provide thermal power and to replace the use of fossil fuels in the processes of electro-refining and electro-winning. The Pampa Elvira Solar project (54,000 MWh/year), which supplies solar thermal power for industrial heating in the Gabriela Mistral division of Codelco, won the auction. Similar initiatives are rare in Chile. Limitations to electrify the transport system are especially important because of the growing demand for petroleum as mines age and trucks need to travel longer distances (Cochilco, 2017a).
Given the requirement of continuous energy by the mining industry, the relative proximity between new REs and mining operations, both concentrated in northern Chile (see Figure 2), is a secondary factor to explain the location of these new investments in comparison to the cost-competitive character of PV technologies and the geographic potential of this part of the country. However, a key strategic element of the new policy was the linking of the two main power systems in Chile, the Large North Interconnected System (SING) in the extreme north, and The Central Interconnected System (SIC) in the rest of the country (19.8% and 79.4% of the national installed power generation capacity, respectively) (Mediavilla and Figueroa, 2017). While the SIC was mainly based on hydro and coal power plans, the SING was mainly based on coal power plants. Their interconnection, which began operating at the end of 2017, will enable greater stabilization in the system because of the possibility to combine different energy sources throughout the country. The interconnection is important for the traditional generation companies, which will be able to offer more energy stability to mining companies. As an electric engineer interviewed argued, “the interconnection will allow a movement of renewable resources to the north, to the mining companies. The companies will have suppliers for when they want to sign contracts.”
Map by Matt Zebrowski, UCLA.
Uncertainties and socioenvironmental impacts
Despite the enthusiasm that the boom in RE investments has generated since 2015, a new concern has emerged from the delay, postponement, or cancellation of projects. Several RE projects are not profitable because of suboptimal prices from an increase in supply and decrease in demand (Cruzate, 2017; IEA, 2016; Pulso, 2017). As one of the scholars interviewed explained, “in the hour of the solar peak the marginal costs are zero. Many projects are bidding at a loss or are trying to compete in the bid with regulated prices, where they are simply paying their costs in order to rescue the investment. The market is saturated.” Problems from congestions in the transmission lines and difficulties in the optimal price modeling in the power generation system are also hindering the connection of several projects into the grid (Climastecope, 2017: 75). The state is trying to address some of these challenges by coordinating new investments in transmission infrastructure and storage and by improving regulatory frameworks (IEA, 2016).
The initial enthusiasm from companies to develop REs and to offer RE services, and the increase in access to loans by national banks, has turned in several cases into disappointment and bankruptcy (Cruzate, 2017). These problems have disproportionately affected new and smaller companies, which are more exposed to low prices in the market. Only a select number of smaller companies won auctions or ensured PPAs with better prices during the period of market opening. Larger and international companies, which accounted for most of the new RE investments, more successfully bid lower prices in the auctions and more easily acceded to PPAs. A similar process of displacement of smaller RE developers is occurring in other countries of Latin America (Avila-Calero, 2017; Bloomberg, 2018). However, the international wave of insolvency in the RE sector (Malm, 2016: 336) is also affecting large projects developed by international companies in Chile, some of which have been suspended or acquired by the traditional generation companies (Futuro Renovable, 2016; Revista Ei, 2016). These examples show the instability of the expansion of REs as a spatial fix for renewed production in a highly financialized RE sector (cf. McDonald, 2012).
The expansion of REs is also generating conflicts associated with new processes of land dispossession. For example, in the north of Chile, the Chañaral region possesses one of the highest levels of solar radiation in the world and has rapidly increased its installed capacity in solar energy production. Although this arid region is mostly uninhabited, the rush to install solar panels has created conflicts because of the use of indigenous lands (Ulloa, 2016). Similarly, in other parts of the country, new conflicts associated with land use and the socioenvironmental impacts of wind farms and transmission lines have emerged (INDH, 2015). With the boom in RE projects, at least 3000 km of new transmission lines will be required. To prevent the threats of social opposition against these new projects, the Ministry of Energy developed a new mechanism for public participation as part of the new energy policy (Schaeffer and Smits, 2015). However, environmental groups have criticized these initiatives because the decision-making remains centralized and consideration of local impacts and opinions are still vague and insufficient (personal communication with environmental NGO representative, 12 July 2017).
In Diego de Almagro, a small village located in Chañaral, one of the many Spanish solar energy companies that arrived at this region in recent years went bankrupt, and local inhabitants were left with debts associated with the construction of services for the accommodation of the workers that would participate in the project. As a government official interviewed explained: “the big company contracted an intermediate company to develop the project, which in turn subcontracted many small companies mostly from Spain. Those companies typically contract local small services in the community and never pay. In Diego de Almagro, the local outstanding debts were approximately one million dollars.” This example shows the possible local impacts of the vertical disintegration and financialization of the RE sector, which has been based on flexible legal frameworks for projects to easily close and to declare bankruptcy. Similarly, Baker (2015), in relation to the financialization of REs in South Africa, suggests: “with the on-selling of debt and equity, capital becomes disconnected from the original physical asset to which it was initially tied and therefore removed from allegiances and obligations in the locality” (156).
The number of workers in the energy sector has increased 8.5% annually since 2013 in Chile. Projections indicated that 10,500 new jobs would be created in 2018 to the development of RE projects, comprising mostly of specialized workers (La Tercera, 2017). However, until recently, the expansion of solar and wind projects has not demanded substantial amounts of local labor. Given the high number of foreign companies and the lack of local technical skills for the installation of REs, a significant proportion of the workers employed in such projects are international technicians. Therefore, the installation of solar and wind projects is having a minimal impact on local employment, which can increase social opposition (Gomez and Moris, 2017).
Finally, the RE boom has contributed to justifying the expansion of a highly deregulated mining lithium industry in Chile. Lithium and copper extraction have increasingly adopted a sustainable development discourse based on their role in the expansion of green energies (lithium for batteries and copper for electrification) (see Mulvaney, 2013). The development of the lithium industry has been justified through the promise of economic growth from the formation of new clusters of RE production, storage, and innovation in northern Chile. However, this industry is causing considerable impacts in indigenous communities (Gundermann and Göbel, 2018). This example illustrates how the path toward a low-carbon energy transition can deepen the impacts of unsustainable extractive industries by fueling their expansion and raising the demand for minerals needed to the development of RE technologies (Exner et al., 2015).
Conclusions
Despite the growing academic interests in the political economy of low-carbon energy transitions, more detailed analyses of the relationship between specific energy regimes and industrial energy users need to be incorporated into this scholarship (Huber, 2015). I illustrated this argument by showing the role that the recent boom in REs in Chile had in the reproduction of the threatened accumulation processes of its mining economy. Analyzing the role of energy in reproducing specific regimes of accumulation is important to identify the specific ways in which energy crises are socially produced. In Chile, the energy needs of the mining industry were keys to create the sense of urgency given to the new energy policy. However, factors external to the industry were critical to understand the RE boom, and especially when it came to selecting specific RE technologies. As discussed in this article, these external factors included the key role of the state in opening the market, of the geographical potential of Chile’s desert, and of the social opposition to large hydropower and thermal power plants.
Analyzing the role of energy in the reproduction of specific regimes of accumulation is also useful to understand how certain energy regimes stabilize over the time, despite being inefficient, non-competitive, socially unequal, and environmentally unsustainable. Unpacking the energy consumption practices of industrial energy users is key for understanding the barriers to transitioning to a low-carbon energy system. In Chile’s mining industry, these limitations are observed in its increasing use of fossil fuels, its needed back-up of fossil fuels, and its resistance to electrify production processes and to create energy efficiency practices (something especially overlooked in contexts where the cost of electricity diminishes) (Heiman and Solomon, 2004). Moreover, as earlier studies have suggested (Baker, 2014; Phadke, 2011), dominant energy sectors can resist market decentralization commonly associated with REs. This can be aided by the better financial position of large national and international energy firms (Baker et al., 2014: 801) but also by the role of large energy users.
The literature on the socioecological fix offers a useful framework to explain how political, economic, and environmental conditions shape energy transitions and its socioecological outcomes. RE investments provide avenue for various interrelated socioecological fixes to alleviate real or perceived threats to accumulation processes (Ekers and Prudham, 2015; McCarthy, 2015). In the case of Chile, the boom of REs constituted a spatial fix for the circulation of overaccumulated national and international capital, particularly capital from Spain. Moreover, the new energy policy emerged as an institutional fix to reduce electricity market concentration, to mobilize investments and capital flows in Chile’s stagnated economy, and to address the state’s legitimation crisis in the environmental arena.
Using the case of Chile, this article also showed the importance of increasing academic attention to the role of neoliberal energy policies in accelerating energy transitions (Toke and Lauber, 2007). While most of the RE investments were funded by private, and mostly international capital, the role of the state was pivotal in addressing initial risks, coordinating investments, and providing public lands for initial projects. Rather than advancing a developmental energy agenda, these changes reinforced the neoliberalization of energy governance, in which new elements of nature were appropriated, technologically neutral market mechanisms were adopted, and regulatory frameworks for the attraction of foreign capital were relaxed.
However, a small country like Chile would be capable of leapfrogging the risks associated with achieving technological maturity for REs, particularly due to the financial and institutional support for research and development committed in recent decades by countries such as Germany (Johnstone and Newell, 2018; Mazzucato, 2015). In this context, a market-led solution has indirectly contributed to the transition toward a low-carbon energy system by directly addressing a failure in Chile’s domestic energy market. Moreover, the current boom in REs should not hide the fact that fossil fuels still play a sizable role in energy production, and large hydropower has remained, in absolute terms, a relatively stable source of energy in Chile. Despite the favorable expectations that Chile’s energy future will include a cleaner matrix of power sources, we must keep in mind the uncertainties created by the speculative and volatile character of an increasingly financialized and technologically neutral paradigm to promote REs. This case exemplifies some possible limitations of market-led policies in a context in which lowering prices and new technological developments in the fossil fuel sector make forecasts inaccurate (Heiman and Solomon, 2004; Sovacool, 2016; Toke and Lauber, 2007).
Finally, this case shows the importance of studying the specific character of low-carbon energy transitions in extractive economies of developing countries, which tend to be focused on the delivery of centralized electricity to large users rather than the residential sector. More empirical analysis is needed to understand the impacts of international dependence on knowledge, technology, and finance capital in low-carbon energy transitions in the global South. This includes the expatriation of domestic capital by international REs firms and the justification of unsustainable extractive activities in the name of green energy.
Footnotes
Acknowledgments
I would like to thank Matt Huber, Tom Perreault, Antoine Maillet, Kelly Kay, Helga Leitner, and three anonymous reviewers for their valuable comments and suggestions. I also want to thank Jennifer Chu and Jesse Sokolow for their proofreading help.
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.