According to the Ministry of Energy analyses cited in the document, Chile's Carbon Neutrality Plan implies bringing into operation close to 40 GW of renewable capacity: by 2050, some 24 GW of solar PV and close to 20 GW of wind, four and six times the levels at the time. The renewable share of the mix had spent two decades oscillating between 30% and 55%, depending on hydrology.
The question the document settles is whether the market design in force is enough to sustain that build-out. The authors' answer is that it is not. The system also needs a portfolio of enabling technologies —storage, demand response, virtual power plants, synchronous condensers, green hydrogen electrolyzers, flexible transmission— whose adoption will not be spontaneous: it will depend on changes to the market and its regulation.
Order matters: short term first
A common mistake, the text warns, is to start with long-term markets without first clearing up the short-term ones: the redesign must begin with the spot market, not the other way around. There it proposes correcting the marginal cost calculation —the merit order captures opportunity costs and non-linearities only incompletely—, increasing temporal granularity below the hourly level, introducing a binding day-ahead market, and correcting the administrative restrictions on the carbon tax created by the 2014 tax reform.
Long term, transmission and operation
- Capacity. Move from administrative capacity payments to an auction scheme with bid-based prices, with elasticity in capacity requirements and a better locational signal.
- Ancillary services. Uniform-price auctions, ancillary service contracts, demand participation, and an end to the full pass-through of their costs to free clients.
- Transmission and operation. Optimize investment decisions instead of relying on heuristic trial-and-error tools, plan under uncertainty and internalize territorial externalities; and modernize reserve definition and the value of water.
Strategic, not marginal, change
The conclusion is institutional: a marginally modified version of the regulatory status quo will not suffice. Policy incentives today favor changes that fit within a single government's term, while the required transformation spans several.