Market Assessment of Chile


4. Electricity End-Use and Efficiency Potential

Overview

Chile consumed 22,362 gigawatt-hours (GWh) of electricity in 1992 (see Figure 1). Fifty-nine percent of this is consumed by the industrial sector. The commercial, public and residential sectors together consume 30 percent of the country's electricity. Residential consumption is estimated to be twice that of commercial. Transmission and distribution losses are also significant at 14 percent.

Electric Consumption 1992FIGURE 1: ELECTRICITY CONSUMPTION BY SECTOR, 1993

Motors and lighting are the two largest end-uses in Chile.25 Motors consume an estimated 61 percent of Chile's electricity while lighting takes up 18 percent.

Chile has not yet had a systematic, end-use study to determine its energy efficiency potential. Individual studies have researched segments of the economy and one study extrapolated efficiency potential from studies performed in other countries.26

The Industrial Sector

Chile's industrial sector is the country's economic foundation and copper mining is its most important segment. The country is the world's largest producer of copper. Forty percent of its export earnings are linked to the mining industry. Chile's publicly-owned copper company, Codelco, produces 13 percent of the world's copper, accounts for one quarter of Chile's exports, and generates one-fifth to one-tenth of national revenue. Higher copper prices in recent years have propelled the industry to significant growth and new investment -- estimated at nearly US$5 billion over the next decade.27 Chile is one of the few countries in the world that is increasing copper production through investment in new infrastructure projects.

The industrial sector has the greatest potential for improving electrical end-use efficiency. Between 1994 and 2000, this sector plans to invest US$8 billion in new infrastructure. This investment will include motive power and industrial controls to operate large pumps and fans, move materials and perform work and provides an excellent opportunity to market energy-efficient equipment.

Potential for Energy Efficiency in Chilean Industry

Electrical Consumption in Industry 1989FIGURE 2: ELECTRICITY END USES IN THE INDUSTRIAL SECTOR

Over the last decade, electricity use by the Chilean industrial sector increased by more than 30 percent.28 Overall industrial energy intensity has increased by 5 percent during the same time period. The National Energy Commission (CNE) attributes higher energy intensity to increased mechanization, fuel switching and changes in the productivity of industry. The CNE considers this increase in energy intensity to be an indication that there is an urgent need for significant improvement in the industrial sector's energy efficiency. The CNE concludes that a targeted industrial efficiency policy would reduce the alarming increase in energy intensity in industry.29

Despite a lack of end-use data for Chile, universities, international aid agencies, and industries have conducted numerous audits of energy saving potential in industry. These have concluded that industry could significantly reduce energy costs through increased energy efficiency.

Table 5 shows the potential electricity savings in Chile's six largest industries.30 These industries consume 80 percent of the industrial sector's electricity and almost half of the country's total. The study estimates that with an investment of between US$220 and $450 million, the six industries could save 28 percent of their electricity through increased energy efficiency. Twenty percent of these savings would have a pay back time of less than one year while the other 80 percent would pay back over a 3 to 7 year period.

TABLE 5: POTENTIAL ENERGY EFFICIENCY IN CHILEAN INDUSTRY

Industry Consumption
(GWh)
Potential
Savings
(GWh)
Potential
Savings
( percent)
Copper mining 5,065 1,524 30%
Pulp and Paper 1,621 410 25%
Iron and steel mining 642 163 25%
Cement 346 155 45%
Food processing 583 102 18%
Others 1,150 260 23%
Total 9,407 2,614 28%

SOURCE: "POTENCIAL DE AHORRO DE ENERGÍA ELECTRICA:
GRAN INDUSTRIA Y MINERIA" COMISIÓN NACIONAL DE ENERGÍA, 1993.

Industrial Sector Efficiency Potential: Two Case Studies

The following are two case studies of energy efficiency potential in Chile's copper and textile industries.

Corporación del Cobre (Codelco)

The Corporación del Cobre (Codelco) is Chile's publicly-owned copper company and the country's industrial giant. In 1990 it had sales of US$3.2 billion, investment projects of US$330 million and 37,000 employees. Just one Codelco mine spends US$50 million on energy each year. Over the next 4 years, Codelco plans five new infrastructure projects worth nearly US$2 billion.

Codelco faces a number of challenges that are relevant to energy efficiency:

Divisions within Codelco have begun to respond to these pressures by improving the energy efficiency of the mining and production processes. As a first step, Codelco evaluated the energy efficiency potential in motors and transformers in its Chuquicamata mine, the world's largest open pit copper mine. The study found that motors consume 95 percent of the mine's electricity. One phase of the copper mining process, the concentrator, consumes almost half of the mine's electricity. Installation of energy-efficient motors would reduce the mine's annual electricity consumption by 55 GWh, saving US$3 million per year in electricity costs.32

Large industries in Chile, including Codelco, are becoming interested in the concept of energy services companies. IIEC and the University of Chile have a contract with Codelco to introduce energy efficiency criteria to the company's management. The project will also investigate the feasibility of a division-wide policy of life-cycle costing for all energy-using equipment.

The Textile Industry

There are approximately 4,500 companies in Chile's textile industry, representing 18 percent of Chile's 25,000 companies. Like most Chilean industries, textile manufacturers use out-dated and inefficient technology. The fabrication of fiber, thread and material is the most energy-intensive process in the textile industry, accounting for an average 15 percent of total production costs. A study of the potential for energy savings in the textile industry suggests that minimal energy efficiency investments could realize significant energy savings and a return on investment within one year.33 Principal opportunities for energy savings exist in the generation of steam vapor. Insulation of valves and tubes, reduction of the evaporation from cleaning machines and the introduction of controls would greatly enhance the efficiency of the manufacturing process.

The Commercial and Residential Sectors

Chile's construction industry experienced a boom in the early 1990s driven by residential high-rise and commercial buildings. The boom slowed in 1994 as construction of residential buildings declined, although new commercial buildings continue to spring up around Santiago.34 The industry expects the building sector to continue to enjoy strong growth.

Construction activity varies from region to region. Small- and medium-sized cities outside the Santiago area are growing rapidly. The city of Temuco, for example, is one of the fastest growing cities in all of Latin America.

Together, the commercial, residential and public sectors account for 30 percent of electricity consumption in Chile.

Residential & Commercial Electricity

FIGURE 3: ESTIMATED END USE ELECTRICITY CONSUMPTION
IN THE RESIDENTIAL AND COMMERCIAL SECTORS
SOURCE: VALDES-ARRIETA, 1993.35

Lighting is an important end-use in both residential and commercial buildings, representing 30 percent and 50 percent of total consumption respectively. Refrigeration is also a significant residential end-use.36

Potential for Energy Efficiency in the Commercial and Residential Sectors

Residential and commercial customers pay as much as US$0.11 per kWh for electricity. In a country with a climate like that of northern California, these rates make investments in energy efficiency very compelling. Chile's climate varies widely from the north to the south. However, Santiago's climate is similar to that of San Francisco. The south is generally 5 to 10 degrees colder than Santiago and the north is 5 to 10 degrees warmer. Studies suggest that two-thirds of energy losses in the building sector are through poor building design and inefficient appliances. Investment in insulation in Santiago's buildings would pay for itself after one winter season. In the colder climate of Punta Arenas in the far south, such an investment would take only two weeks to pay back.37

The barriers to energy efficiency in Chile are similar to those in other developing countries, namely:

Energy-efficient technologies are not yet integrated into building design. However, the construction industry has begun to include heating, ventilating and air conditioning (HVAC) systems in urban residential and commercial buildings. This building innovation has created significant opportunities for building energy management systems. Until only a few years ago, new thermostat systems in Chile were quite primitive. The growing sophistication of the architecture and construction industries and the presence of large multinational companies like Honeywell and Johnson Controls have expanded the market for energy management systems and the variety of products available.

Significant advertising and marketing efforts by companies like Philips have also increased the installation of some energy-efficient technologies, such as compact fluorescent lamps, in apartment and office buildings.

The widespread use of energy-efficient products would significantly reduce the life-cycle cost of operating buildings in Chile and increase the comfort of building occupants.

Status of Building Codes and Ordinances

Building codes that govern energy performance do not exist in Chile. However, the success of Chile's municipal housing design project may compel the Ministry of Housing to develop an energy performance code. In the meantime, a team of Chilean building design experts and policy makers is convening a panel with counterparts from Brazil, Argentina, Peru and Uruguay to form a regional building code.

Current building ordinances categorize buildings based on their purpose (single family, high-rise apartments, row houses, etc.) and on the "quality" of materials used in construction. It is not clear how the Housing Ministry arrived at these categorizations but it is certain that energy efficiency was not a factor. For example, houses designed with aluminum windows are considered higher quality than a house with wood windows, even though wood windows are usually more energy-efficient than aluminum. Chile's municipal energy efficiency programs and current efforts to develop regional building codes may force a reevaluation of these ordinances.

There have so far been very few energy efficiency projects in the commercial and residential sectors. The most successful project to date improved the level of insulation in new houses and buildings. The following is a description of that project.

Home and Building Insulation in La Florida

Most houses and buildings in Chile are not insulated. To help change this situation, the University of Chile joined with insulation manufacturers and an architect to encourage the installation of insulation in new homes and buildings. The project was situated in La Florida, a municipality near Santiago.

As part of the project, the municipality of La Florida reduced building permit fees for architects and builders who specified thermal insulation for new buildings. The municipality prorated the reduction in fees based on the thermal efficiency factor of the design (G Factor). Between 1991 and 1993, the project resulted in the insulation of 1,491 buildings, mostly private homes, with a total area of 100,000 square meters (1,000,000 square feet).38 The project's success has motivated at least three other regions in Chile to adapt the model for implementation in their own municipalities.

The Public and Municipal Sector

Public Sector ElectricityFIGURE 4: END USE ELECTRICITY CONSUMPTION IN THE PUBLIC/MUNICIPAL SECTOR
SOURCE: VALDES-ARRIETA

Chile's municipalities have led the country in implementation of several energy efficiency projects, including the above-mentioned insulation project and the following highly successful streetlighting retrofit project.

Energy-Efficient Streetlighting

Chile's municipal streetlighting project was developed by the National Energy Commission (CNE) to raise awareness of energy and electricity costs among municipalities.

The pilot project took place in the northern city of Antofagasta. The municipality replaced over 7,000 streetlights in the city with energy efficient streetlights at a cost of US$675,000. The CNE forecast monthly savings of US$25,000 from reduced electricity consumption but this forecast did not consider reduced maintenance costs. The new lights required no maintenance for two years. Instead of taking 27 months to pay back the initial investment, the Antofagasta project took only 17 months.

In addition, the project had the following economic and environmental benefits:

Energy Efficient Public LightingFIGURE 5: STREETLIGHTING PROJECT SUMMARY

As of January 1994, 150 municipalities around the country were implementing similar streetlighting projects. At the national level, these projects could yield several additional benefits:

Country-wide replication of this project could save US$11 million in annual electricity costs (amortized over 6 years), equal to the cost of a 33.5 MW central generating facility.

Non-Power Sectors

Although it is not the focus of this study, market opportunities for energy efficiency exist beyond electricity. Chile is highly dependent on non-renewable resources and imports 90 percent of its petroleum, mostly for transportation.

Transportation in Santiago

Santiago's automobile fleet is growing rapidly, exacerbating the city's air pollution and congestion problems, despite the fact that public transportation provides 50 percent of daily trips in the city. Transportation and its related problems are a policy priority in the capital region and among other growing cities. Policy makers have already required all new vehicles to be equipped with catalytic converters. Non-catalytic automobiles are restricted from circulation in the Santiago metropolitan area on certain days of the week during winter and spring. Policy makers are also beginning to restrict the number of buses that can operate in Santiago's downtown. Private bus owners must now bid on downtown bus routes in order to operate along them.

Policy makers, transportation professionals and citizens of the city agree that more political and technical measures must be implemented in order to avert further deterioration of Santiago's transport system. There are several factors that contribute to a potential market for economically-viable alternative transportation technologies:

In the long term, possible opportunities for investment in alternative transport technologies are:

US firms with proven transport innovations that combat congestion and air contamination face an open market and welcome political support in Santiago and other large Chilean cities. IIEC's Latin American office in Santiago is the best initial contact for transport firms interested in the Chilean market over the medium- to long-term.

Other opportunities

Solar cookers and hot water heaters

The northern region of Chile offers favorable conditions for the use of solar energy, including solar hot water heating for homes and hospitals and generation of electricity for industry. Chilean consumers use several times more fuelwood than other developing countries, primarily for water heating and cooking. Installation of solar cookers and hot water heaters could significantly reduce the environmental and economic costs of fuelwood consumption. According to the National Energy Commission, the cost of installed hot water heaters is roughly US$500 per square meter and that of solar cookers is US$100 per square meter.

Wood Stoves

Santiago requires new wood stoves to comply with Oregon State and US Environmental Protection Agency regulations. As a result, all wood stoves sold in Santiago are high-efficiency models. There is currently only one manufacturer of high-efficiency wood stoves supplying this market. The stoves are expensive and sold in a niche market catering to higher income residents of the city. There is room for foreign suppliers in this market.

Notes:

25. Felipe Valdes Arrieta, "Saving Energy in Chile: An Assessment of Electricity Use and Potential Efficiency Improvements", IIEC and NRDC, May 1993.
26. Ibid.
27. "Proyecciones Empresariales, Económicas e Internacionales 1995", Estratégia Diario, Santiago, December 1994.
28. "Potencial de Ahorro de Energía Electrica: Gran Industria y Mineria, Comisión Nacional de Energía, 1993, p.16.
29. Comisión Nacional de Energía, 1993, pp. 14-17.
30. "Potencial de Ahorro de Energía Electrica: Gran Industria y Mineria", Comisión Nacional de Energía, Santiago, Chile, 1993.
31. Final Report, "Workshop on Trade, Environment and Sustainable Development in the Americas", Ottawa, Canada, October 1994.
32. "Energy Efficiency Applied to a Copper Mining Company", Leibbrandt and Lowick-Russell, Codelco, 1994.
33. "Programa de Uso Eficiente de la Energía en La Industria Textil", Comisión Nacional de Energía, GTZ, Santiago, Chile, Septiembre 1992.
34. Indicadores Mensuales: Edificación, Instituto Nacional de Estadisticas, Julio 1994, pp.21-23.
35. These are very rough estimates and are not based on utility sales data.
36. Valdes Arrieta, May 1993.
37. Personal communication, Gabriel Rodriguez, Universidad de Chile, IDIEM, Sept. 1994.
38. "Tecnología y Gestión para Mejorar Las Condiciones de Habitabilidad Térmica en Las Edificaciones", José Pedro Campos Rivas, MINVU, November 1994, p.1.


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