removal of barriers the use renewable energy sources rural electrification in chile

Removal of Barriers to the Use of Renewable Energy Sources for Rural Electrification in Chile

by

Ricardo Forcano Ingeniero Superior Industrial (2001)

Universidad de Zaragoza

Submitted to the Engineering Systems Division in Partial Fulfillment of the Requirements for the Degree of

Master of Science in Technology and Policy

at the

Massachusetts Institute of Technology February 2003

© 2003 Massachusetts Institute of Technology All rights reserved

Signature of Author....................................................................................................................... Engineering Systems Division

December 9th, 2002

Certified by................................................................................................................................... Stephen R. Connors

Coordinator, Multidisciplinary Research Director, Analysis Group for Regional Electricity Alternatives

Laboratory for Energy and the Environment

Accepted by................................................................................................................................... Daniel E. Hastings

Professor of Aeronautics and Astronautics and Engineering Systems Director, Technology and Policy Program

Chair, Committee on Graduate Studies

Master Thesis in Technology and Policy Ricardo Forcano

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Removal of Barriers to the Use of Renewable Energy Sources for Rural Electrification in Chile

by

Ricardo Forcano

Submitted to the Engineering Systems Division

on December 9th, 2002 in Partial Fulfillment of the Requirements for the Degree of Master of Science in

Technology and Policy ABSTRACT Rural economic development is a national priority in many developing countries. However, rural areas frequently lack the safe and reliable electricity supply that is needed for the development of numerous economic activities. At the same time, the remoteness, isolation, and low electricity demand of many rural communities make them very unlikely to be reached by the extension of the grid. Therefore, off-grid generation systems are required to provide electricity services to those isolated rural communities. The traditional solution to this problem has been the use of internal combustion engines. However, combustion engines are short-lived and expensive to maintain, require a regular supply of fuel, and have a significant impact on the environment. In recent years, renewable energy systems (RES) have emerged as a clean and easy-to-maintain alternative to the use of diesel engines for rural electrification. The challenge, however, is how to make them affordable to low-income rural households given their high upfront capital cost. This thesis is aimed at identifying the barriers to the use of RES for rural electrification in Chile and making some recommendations for the removal of those barriers. To achieve these goals, three different studies have been carried out: a comparison of the Chilean program for rural electrification with other rural electrification programs in Latin America, a series of interviews with different agents involved in the rural electrification process, and the analysis of several RES projects in different regions of Chile. Some of the barriers identified are the lack of knowledge about RES, the higher investment cost of RES, the general preference for grid extension projects, the lack of arrangements for the long-term operation and maintenance of RES, the absence of a certification system for renewable energy equipment, and the lack of financial instruments for renewable energy microentrepreneurs. Some recommendations to enhance the Chilean program for rural electrification are to focus its efforts on supplying electricity for productive applications, to develop a methodology for the definition of operation and maintenance responsibilities, and to address the problem of matching a growing demand in off-grid projects by defining procedures for project expansion. Thesis Supervisor: Stephen R. Connors Title: Director, Analysis Group for Regional Electricity Alternatives


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I want to acknowledge the valuable help of

Stephen R. Connors (Massachusetts Institute of Technology), David H. Marks (Massachusetts Institute of Technology),

and Hugh Rudnick (Pontificia Universidad Católica de Chile). Without their support and thoughtful advice

this thesis would not have been possible.

I also want to recognize the helpful cooperation of

Francisco Aceituno (Comisión Nacional de Energía de Chile), Rosa María Argomedo (Comisión Nacional de Energía de Chile),

Miguel Aritio (ISOFOTON S.A.), Jorge Avalos (Comisión Nacional de Energía de Chile),

Carlos E. Bonifetti (MTF Ltda.), Javier Castillo (Comisión Nacional de Energía de Chile),

Luis Costa (United Nations Development Program), Aníbal Díaz (Corporación para el Desarrollo de la Ingeniería), Jaime Espinoza (Universidad Técnica Federico Santa María),

Pedro Maldonado (Universidad de Chile), Miguel Mansilla (Universidad de Magallanes),

Rolando Miranda (Grupo SAESA), Norberto Pérez (Compañía General de Electricidad),

Reinhold Schmidt (Corporación para el Desarrollo de la Ingeniería), Gustavo Silva (Compañía General de Electricidad),

Miguel Thauby (Thauby y Cia. Ltda.), and Luis Toledo (Universidad de Magallanes).

This thesis has been carried out with the financial support of

Servicio de Estudios de la Fundación La Caixa and Laboratory for the Energy and the Environment at MIT.


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Table of Contents 1. Introduction……………………………………………………………………………….... 6 1.1. Towards a sustainable development 1.2. Objective and method 2. Literature review………………………………………………………………………….... 9 2.1. Renewable energy and rural development 2.2. Renewable energy technologies for rural electrification 2.3. Design of renewable energy systems for rural electrification

2.4. Institutional and financial approaches 2.5. Examples of rural electrification projects

3. The Chilean context………………………………………………………………………. 27 3.1. Country profile 3.2. The situation of the rural sector 3.3. The situation of the electricity sector 3.4. Use of renewable energy sources 4. Comparative analysis of the Chilean program for rural electrification………………….... 40 4.1. The Chilean program for rural electrification 4.2. Comparison with other rural electrification programs 4.3. Conclusions 5. Survey to different agents involved in the rural electrification program……………….… 61 5.1. Introduction 5.2. Industry 5.3. Government 5.4. Academia 5.5. Results 5.6. Conclusions 6. Case studies of renewable energy projects……………………………………….......…… 73 6.1. Introduction 6.2. Template for project information collection 6.3. Wind-diesel system for a minigrid in Isla Tac 6.4. Wind-diesel system for a rural school in Agua Fresca 6.5. Renewable energy demonstration center in Copaquilla 6.6. Photovoltaic pumping systems for irrigation in Vitor valley 6.7. Conclusions 7. Conclusions and policy recommendations………….....…………………….………...….. 90 7.1. Conclusions on rural electrification and renewable energy systems 7.2. Conclusions on the Chilean program for rural electrification 7.3. Policy recommendations 8. References…………………………………………………………………………...……. 94


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List of Figures Figure 2.1. Hybrid system configuration................................................................................. 11 Figure 2.2. Types of silicon photovoltaic cells........................................................................ 12 Figure 2.3. Typical wind turbine components......................................................................... 14 Figure 2.4. Selected wind turbine power curves...................................................................... 15 Figure 2.5. Estimated hydropower output as a function of head and flow rate....................... 16 Figure 2.6. Institutional approaches to the use of RES for rural electrification....................... 20 Figure 2.7. Affordability of solar systems under different delivery options in Bolivia........... 21 Figure 2.8. Solar home system in a rural village by lake Titicaca........................................... 24 Figure 2.9. Life-cycle cost breakdown of PV vaccine refrigerator.......................................... 26 Figure 3.1. Main cities of Chile............................................................................................... 28 Figure 3.2. Renewable energy production in Chile by region in 2001.................................... 37 Figure 3.3. Biomass gasification installation in the village of Metahue.................................. 39 Figure 4.1. Diagram of the Chilean decentralized management model................................... 41 Figure 4.2. Evolution of the rural electrification coverage level in Chile................................ 44 Figure 4.3. Evolution of public investment in the Chilean program for rural electrification.. 45 Figure 4.4. Evolution of the rural electrification coverage level in Chile by region............... 45 Figure 4.5. Comparison of approaches to rural electrification in selected countries............... 60 Figure 6.1. Participation of the community in the rural electrification project in Isla Tac...... 74 Figure 6.2. Wind-diesel generation system in Isla Tac............................................................ 75 Figure 6.3. Distribution grid in Isla Tac................................................................................... 76 Figure 6.4. View of Agua Fresca’s rural school and its wind energy system.......................... 78 Figure 6.5. View of the diesel generator house and the wind turbines in Agua Fresca........... 79 Figure 6.6. View of the PV panels and the solar cooker in Copaquilla’s boarding house....... 81 Figure 6.7. View of the solar thermal system and the solar cooker in Copaquilla.................. 82 Figure 6.8. View of one of the photovoltaic pumping systems for drip irrigation in Vitor..... 84 Figure 6.9. Scheme of a photovoltaic pumping system for drip irrigation by gravity............. 85 Figure 6.10. View of the drip irrigation system in one of the projects in Vitor....................... 86

List of Tables Table 2.1. Comparison of renewable energy technologies for rural electrification................. 17 Table 2.2. Cost comparison chart for a renewable energy system........................................... 19 Table 3.1. Percentages of urban and rural population in Chile by region................................ 32 Table 3.2. Percentage of population below the poverty line in Chile by sector...................... 33 Table 3.3. Education coverage level (%) in Chile by level of education and region............... 34 Table 3.4. Generation capacity (MW) by company in the SIC and the SING......................... 35 Table 3.5. Renewable energy production by type of technology in Chile in 2001.................. 36 Table 3.6. Solar radiation in Chile by region........................................................................... 38


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1. Introduction

1.1. Towards a Sustainable Development In the eighteenth century, the industrial revolution was the beginning of a new era of

economic growth. A series of inventions transformed the British manufacturing structure and gave birth to a new mode of production: the factory system. These innovations yielded a rapid rise in productivity and income per capita. Moreover, this growth was self-sustaining. In past ages, better living standards had always been followed by a rise in population that eventually consumed the gains. Then, for the first time in history, both the economy and knowledge grew fast enough to generate a continuing flow of improvements (Landes, 1998).

However, this process of industrial development also had some harmful consequences. On one hand, the world was seen as a place with unlimited options for extracting resources and depositing waste. Therefore, the economic development of modern societies steadily increased the human pressure over the ecological system. It was not until the end of the twentieth century when we realized that the economy is a subsystem of the ecological system and totally dependent on it. On the other hand, not all countries took the train of industrial development at the same time. As the western countries of the north hemisphere grew at unprecedented rates, many other countries stagnated in pre-industrial economic models. As a result, a growing gap divided the world into what have come to be called developed and developing countries. This fact has caused an unequal distribution of wealth among the human population with dramatic consequences. According to various estimates, in the developing world there are 850 million illiterate adults (14% of world population), 960 million people without access to improved water sources (16%), and 2 billion people without access to electricity supply (33%) (UNDP, 2002).

Thus, at the beginning of the twenty first century human society faces two great

challenges: the transition towards a sustainable development, and the eradication of poverty. As defined in the influential Brundtland report, the concept of sustainable development is based on the idea of meeting the needs of the present without compromising the ability of future generations to meet their own needs. As stated in that report, “the concept of sustainable development does imply limits; not absolute limits but limitations imposed by the present state of technology and social organizations on environmental resources and by the ability of the biosphere to absorb the effects of human activities. But technology and social organization can be both managed and improved to make way for a new era of economic growth (WCED, 1987).” On the other hand, the eradication of poverty will require the cooperation of industrialized and developing countries, as well as the transformation of some market structures that were developed during the twentieth century and left many developing countries out of the global market.

The energy sector constitutes a key element in both challenges. On one hand, climate

change is considered to be among the most serious threats to the sustainability of the world’s environment. Most scientists agree that the earth’s climate is being affected by the release into the atmosphere of greenhouse gases caused by human activities. As the main economic sector


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contributing to the emission of greenhouse gases is the energy sector, the transition towards a sustainable development model should include a reduction in the use of non-renewable primary sources of energy. This clearly calls for an increased use of renewable sources of energy, which additionally has other positive consequences like decentralization of electricity generation, reduction of the external dependence in the energy market, diversification of energy sources, job creation, etc.

On the other hand, a primary element in the eradication of poverty is the economic

development of rural areas in developing countries. Rural development may in some instances help also alleviate poverty in urban areas by slowing the migration of people from rural to urban areas and changing the growth pattern of megacities in developing countries. Microenterprises have proven to be very successful in unlocking the human capacity in rural villages to provide income that, in turn, can be used for improving the quality of life at home and the community. One of the barriers for the development of microenterprises in rural areas is the lack of a safe and reliable energy supply. In recent years, the development of reliable renewable energy systems (RES) has made it possible to enhance the production and marketing of a variety of these income-generating activities, through the provision of electricity for lighting, telecommunications, computers, motive power, etc.

From the previous ideas, it can be concluded that renewable energy sources have an

important role to play in both the transition towards a sustainable development and the eradication of poverty in developing countries. The use of RES for the electrification of remote or isolated rural areas is a paradigmatic example of this role. The extension of the electricity grid to rural areas –where electricity demand is low– can be very costly. However, the use of off-grid, small-scale RES can make it possible to provide electricity to those rural areas at a reasonable price. New electricity supplies will promote rural development in both the short-term –by facilitating the development of new economic activities or improving the existing ones– and the long term –by improving the community services of health and education.

The development and implementation of RES for rural electrification is a complex

process that involves technological, economical and institutional issues. Because renewable energy is regionally diverse, choosing the appropriate system will depend on the local availability of renewable energy resources and the characteristics of the local electricity demand. Although photovoltaic lighting systems have paved the way and are being deployed in many remote communities around the world, other renewable energy sources –such as wind energy, small hydropower, and biomass gasification and combustion– should also be considered.

1.2. Objective and Method The objective of this thesis is to explore the use of renewable energy sources for rural

electrification in Chile, a country that has led the way in the implementation of national programs for rural electrification in Latin America and counts with a large renewable energy potential. More precisely, this thesis is aimed at:


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Identifying the barriers to the use of renewable energy for rural electrification in Chile. Concluding some recommendations for the removal of those barriers.

The method chosen to pursue this objective comprises three different elements:

1) A comparison of the Chilean rural electrification program with other rural electrification programs in Latin America. The countries selected for the analysis are Argentina, Paraguay and Mexico. These countries have been chosen on the basis of having a sound national program for rural electrification that involves the use of RES for off-grid projects, as well as some interesting peculiarities in their management and financing models. 2) A series of interviews to different agents involved in the rural electrification process in Chile. The objective of this section is to identify key aspects for the integration of renewables in the Chilean rural electrification program by gathering opinions from some of the agents involved in the program, namely, the industry, the government and the academia. 3) The analysis of a set of case studies in different regions of Chile. The objective of this analysis is to study a variety of renewable energy projects for rural electrification in Chile in order to draw some conclusions from the experience obtained implementing them. Since field experience is essential to understand the complexities and challenges of rural electrification projects, the selected projects were visited during a five-week trip to Chile in June 2002.


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2. Literature Review

2.1. Renewable Energy and Rural Development Rural economic development is a national priority in many developing countries.

However, rural areas frequently lack the safe and reliable electricity supply that is needed for the development of numerous economic activities. At the same time, the remoteness and isolation of many rural communities, combined with their usually low demand for electricity, makes them very unlikely to be reached by the extension of the electricity grid. Thus, off-grid generation systems are required to provide electricity services to those rural communities.

The traditional solution to this problem has been the use of internal combustion

engines, most commonly diesel engines and gasoline generators for individual homes or businesses. Due to the worldwide diffusion of automobiles, combustion engines are available almost everywhere in the world and its technology is well known even in the rural areas. Nevertheless, the use of combustion engines for rural electrification presents several inconveniences. First, they require a regular supply of fuel that may not be easy to provide in remote or isolated rural areas. Secondly, they are short-lived and expensive to maintain and operate. Thirdly, generators should usually be run at a high load (>60%) as low-load operation decreases the fuel efficiency and may increase the need for maintenance. Finally, their environmental impact –noise, exhaust gases, oil leakages, etc– is significant.

In recent years, RES have emerged as a clean and easy-to-maintain alternative to the

use of diesel engines for rural electrification. These systems are starting to make an impact in rural areas, as the installation of 150,000 small wind turbines in China, 50,000 solar systems in Mexico, and 700 micro-hydro systems in Nepal clearly shows (Bergey, 2000). The main advantages of using RES for rural electrification are that they require little maintenance, their operation and maintenance costs are low, and their environmental impact is significantly lower than that of diesel engines. However, the challenge is how to make such systems affordable to low-income rural households, especially given their high up-front capital cost.

Microenterprises –very small businesses that produce goods or services for cash

income– have been increasingly identified as a key component in rural job creation and the raising of income in rural communities. “The microenterprise development and rural renewable energy supply sectors seem to be highly complementary. (…) Access to even limited amounts of electricity for microenterprises in areas not connected to the grid can be important for the establishment and growth of those businesses (Allderdice and Rogers, 2000).” The new electricity supply provided by small-scale RES can increase the number of operating hours and thus generate more income, offer cleaner and safer working conditions, facilitate the preservation of products for export or retail, ease the use of new machinery, etc. At the same time, the renewable energy industry has long suspected that small, distributed users are a potentially large market, but a lack of delivery capability, particularly for rural credit, has been a barrier to the development of big-scale commercial efforts. Access to end-user financing can open rural microenterprise and household markets for renewable energy technology (Allderdice and Rogers, 2000).


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RES can also contribute to improve basic community services such as education and health, which are essential for the long-term development of rural areas. There is an increasing need to improve education in rural communities so that rural people may increase their productivity and standard of living. This is crucial for rural communities to become economically sustainable and reverse the trend of migration from rural to urban areas. However, “the overall needs of rural schools differ from the needs of urban schools. In many remote rural schools, the teacher, often accompanied by his/her family, lives either directly in the school building or in an attached building (Jimenez and Lawand, 2000).” Accordingly, the most common energy applications for rural schools include lighting, water pumping and treatment, refrigeration, TV and VCR, communications, computers, etc.

Primary health care programs are essential to the improvement of child survival and

the overall quality of the people living in rural communities. “Distribution of energy by conventional means has failed to be reliable or affordable in meeting the modest needs of rural health clinics in many developing countries. Supplies of gas and kerosene are often costly and unreliable, and these fuels provide poor quality light. Propane fueled refrigerators provide adequate vaccine preservation, but the more widely used kerosene fueled refrigerators do not (Jimenez and Olson, 1998).” In contrast, RES have proven to be able to produce reliable electricity for vaccine refrigeration, lighting, medical appliances, sterilization, water treatment, communications, etc (GEF, 2001).

In conclusion, RES can play a catalytic role in the realization of social and economic

development of rural areas through the provision of the basic electricity services needed for microenterprise development and health and education services improvement.

2.2. Renewable Energy Technologies for Rural Electrification Although different renewable energy technologies can be used for rural electrification

purposes, all RES comprise various components that produce, store, and deliver electricity to the loads. These components can be classified in the following categories (Allderdice and Rogers, 2000): 1) Energy generation: to convert mechanical or light energy into electricity. Turbines and engines use generators to convert mechanical motion into electricity, and solar photovoltaic (PV) panels convert sunlight directly into electricity. 2) Energy storage: to store the generated electricity and release it when it is needed. Energy storage often improves both the performance and economics of the system. The most common energy storage device used in stand-alone energy systems is the battery. 3) Electricity conversion: to convert DC electricity to AC electricity or vice versa. A variety of equipment can be used to do this. Inverters convert DC to AC, and rectifiers convert AC to DC. Bi-directional inverters combine the function of both inverters and rectifiers.


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4) Balance of system: to connect the other components, monitor system performance, and protect the system. It may also include a dump load, a device that sheds excess energy produced by the system. The renewable energy technologies that are most frequently used for rural electrification purposes are solar PV, wind energy, and micro-hydropower. Other options such as biomass gasification and direct combustion are starting to be applied. It is also very common to see hybrid systems combining two or more of these technologies –such as wind-solar systems– or one of the above-mentioned renewable energy technologies with a diesel generator (see Figure 2.1).

Figure 2.1. Hybrid system configuration combining a wind turbine, a PV array and a diesel generator (source: Bergey Windpower Company).

2.2.1. Solar Photovoltaics

Photovoltaic panels convert sunlight directly into DC electricity. A photovoltaic cell consists of two or more thin layers of semi-conducting material, most commonly silicon. When the silicon is exposed to light, electrical charges are generated which can be conducted away by metal contacts as direct current. The electrical output from a single cell is small, so multiple cells are connected together and encapsulated (usually behind a transparent protective material) to form a module. The PV module is the principle building block of a PV system, and any number of modules can be connected together to give the desired electrical output.


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PV panels have no moving parts and, therefore, are highly reliable, long-lived, and require little maintenance. In addition, PV panels are highly modular and easy to assemble into an array that can meet any given load size. The main disadvantage of PV is its high capital cost, although PV is often a cost-effective solution for small systems given its almost negligible O&M costs (Jimenez and Lawand, 2000). PV cells can be classified in five different categories (British Photovoltaic Association, 2000):

1) Monocrystalline silicon cells: Made using cells saw-cut from a single cylindrical crystal of silicon, the principle advantage of monocrystalline cells are their high efficiencies, typicallyaround 15%. However, the manufacturing process required to produce monocrystallinesilicon is complicated, resulting in slightly higher costs than other technologies. 2) Multicrystalline silicon cells: Made from cells cut from an ingot of melted andrecrystallised silicon. In the manufacturing process, molten silicon is cast into ingots ofpolycrystalline silicon. These ingots are then saw-cut into very thin wafers and assembled into complete cells. Multicrystalline cells are cheaper to produce than monocrystalline ones, butthey tend to be slightly less efficient, with average efficiencies of around 12%.

3) Thick-film silicon: Another multicrystalline technology in which the silicon is deposited ina continuous process onto a base material giving a fine grained, sparkling appearance. Like all crystalline PV, this is encapsulated in a transparent insulating polymer with a tempered glasscover and usually bound into a strong aluminium frame. 4) Amorphous silicon: Amorphous silicon cells are composed of silicon atoms in a thinhomogenous layer rather than a crystal structure. Amorphous silicon absorbs light moreeffectively than crystalline silicon, so the cells can be thinner. Moreover, it can be depositedon a wide range of substrates, which makes it ideal for curved surfaces. Amorphous cells are, however, less efficient than crystalline based cells, with typical efficiencies of around 6%. In addition, their efficiency degrades within a few months of exposure to sunlight, losing about10 to 15%. They are easier and therefore cheaper to produce.

5) Other thin films: A number of other promising materials such as cadmium telluride (CdTe)and copper indium diselenide (CIS) are now being used for PV modules. The attraction ofthese technologies is that they can be manufactured by relatively inexpensive industrial processes, yet they typically offer higher module efficiencies than amorphous silicon. Newtechnologies based on the photosynthesis process are not yet on the market.

Figure 2.2. Types of silicon PV cells (from left to right): monocrystalline, multicrystalline, thick-film, and amorphous (source: British Photovoltaic Association)


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PV panels are rated in terms of peak watts (Wp). This rating is function of both panel size and panel efficiency and represents the amount of power that the panel will produce under standard reference conditions (1kW/m2; 20 oC panel temperature). Since power output is roughly proportional to insolation, it is easy to calculate the expected power output of a panel under different solar radiation conditions (Jimenez and Olson, 1998). Most PV panels are designed to charge 12V battery banks. For other applications in which the panel is directly connected to the load, a maximum-point power tracker may be necessary in order to match the electrical characteristics of the load to those of the module. “In order to maximize energy production, PV modules need to be mounted so as to be oriented towards the sun. To do this, the modules are mounted on either fixed or tracking mounts. Because of their low cost and simplicity, fixed mounts are most commonly used. (…) Tracking mounts (either single or dual axis) increase the energy production of the modules, particularly at low latitudes, but at the price of additional cost and complexity. The relative cost effectiveness of fixed mounts versus tracking mounts will vary from project to project (Jimenez and Lawand, 2000).” The major obstacle to the widespread use of PV is currently the high capital and installation costs of the system. Despite declining prices in the last two decades –the average selling price of PV modules fell from around $50 per Wp in 1976 to less than $5.5 in 1996– PV modules remain expensive. However, owing to the absence of moving parts and the simplicity and reliability of PV systems, operating and maintenance costs are very low. This means that, despite of their high capital cost, PV systems may appear as an attractive option under a life-cycle cost analysis. Warrantees for PV modules are typically for 15 to 25 years, and current modules can be expected to last in excess of 20 years. 2.2.2. Wind Energy Wind is a form of solar energy. Winds are caused by the uneven heating of the atmosphere by the sun, the irregularities of the earth's surface, and the rotation of the earth. Wind energy refers to the process by which the wind is used to generate mechanical power or electricity.

Wind turbines convert the kinetic energy in the wind into mechanical power. This mechanical power can then be used for specific tasks (such as grinding grain or pumping water) or converted into electricity by a generator. Modern wind turbines fall into two basic groups: the horizontal-axis variety, like the traditional farm windmills used for pumping water; and the vertical-axis design, like the Darrieus model, named after its French inventor. The horizontal-axis design is the most commonly used for both on-grid and stand-alone applications. For rural electrification projects, small wind turbines with ratings of 10 kW or less are most frequently used.

The main components of a small wind turbine are the blades, the generator, the yaw bearing, the tail, and the tower (see Figure 2.3). “The blades capture the energy from the wind, transferring it via the shaft to the generator. In small wind turbines, the shaft usually drives the generator directly. Most small wind turbines use permanent magnet alternators as


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generators. These produce variable-frequency AC that the power electronics convert into DC electricity. The yaw bearing allows a wind turbine to rotate to accommodate the changes in wind direction. The tower supports the wind turbine and places it above any obstructions (Allderdice and Rogers, 2000).”

Figure 2.3. Typical wind turbine components (source: NREL) The power performance of a wind turbine is characterized by its power curve, which relates wind turbine power output to wind speed (see Figure 2.4). Turbines need a minimum wind speed –the “cut-in” speed– to start producing power, which in the case of small turbines usually varies from 3 to 4 m/s. After cut-in, the power output of the turbine increases as wind speed increases, being the energy production dependent on the cube of the velocity. However, there is also a “cut-out” speed to protect the turbine from over-spinning in high wind situations. Thus, most small wind turbines produce peak power at about 12-15 m/s, and cut-out at speeds of 14-18 m/s (Jimenez and Olson, 1998).

Wind turbine prices significantly vary from one manufacturer to another, as well as tower costs based on design and height. Accordingly, installed costs may vary from $2,000 to $6,000 per kW. According to Allderdice and Rogers, “a wind turbine that will produce about 500 kWh/month of energy at a typical average wind speed of 6 m/s will typically cost $3,000-$5,000.” Maintenance costs also vary, but in general most small wind turbines require some preventive maintenance in the form of periodic inspections, as well as a provision for unscheduled repairs.


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Figure 2.4. Selected wind turbine power curves (source: NREL) Compared to PV panels, wind turbines require more maintenance but typically produce more energy for the same capital cost. Given the variability of wind speed patterns throughout the year, wind turbines are often combined with other generation systems –such as PV panels or diesel generators– to ensure power production during periods of low wind speeds. 2.2.3. Micro-hydropower Micro-hydro installations convert the kinetic energy of a water stream into electricity. There are four basic configurations for small hydropower projects: run-of-river schemes, schemes with the powerhouse located at the base of a dam, schemes integrated in an irrigation system, and schemes integrated in a water supply system (Penche, 1998). In any case, “the components of a micro-hydro installation include the civil works, penstock, turbine, generator, and controls. The civil works, which consists of a water channel, diverts water from the stream or river to the penstock. The penstock conveys the water under pressure to the turbine (Allderdice and Rogers, 2000).”


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The selection of the best turbine for a particular hydro site depends on the site characteristics, the dominant ones being the head and flow rate available. Turbines can be divided by their principle of operation into impulse and reaction machines. In a reaction turbine –such as Francis, Kaplan, and axial models– the runner is fully immersed in water and enclosed in a pressure casing. The runner blades are profiled so that pressure differences across them impose lift forces that cause the runner to rotate. These types of turbines are most often used at medium- and high-head sites. In contrast, an impulse turbine –such as the Pelton or Turgo– operates in air driven by a jet of water. In this case, a nozzle converts the pressurized, low-speed water into a high-speed jet. The runner blades deflect the jet so as to maximize the change of momentum of the water. Impulse turbines are used more often at low head sites (Brekke, 2000). Finally, the turbine is connected to a generator that produces AC or DC electricity, and control equipment is used to control the frequency on AC systems and to dump excess energy. Since streamflow is the “fuel” of any hydropower plant, the study of a potential hydropower station must first of all address the availability of an adequate water supply. In order to estimate the water potential of a river, it is necessary to know the variation of the discharge of the river throughout the year and the available gross head. The power output of a micro-hydro system is then calculated as the product of the head and the flow rate of the water going through the turbine. Figure 2.5 shows estimates of generator power output as a function of head and flow rate. To calculate the energy output, it is necessary to consider that the water resource of a micro-hydro installation may be subject to seasonal variations such as winter freezes or spring runoffs.

Figure 2.5. Estimated hydropower generator output as a function of head and flow rate (source: NREL)


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According to Jimenez and Lawand, “because of varying requirements for water channels and penstock, the cost of micro-hydro systems varies widely from location to location. In general, the cost for most systems is $1,000 to $4,000 per kW. Maintenance costs are about 3% of the capital cost per year. Much of the maintenance consists of regular inspections of the water channel and penstock to keep them free of debris. Micro-hydro installations can last very long, and maintained systems last in excess of 50 years.” Compared to photovoltaic or wind systems, micro-hydro installations require more extensive civil works. However, micro-hydro can be a very low-cost option at appropriate sites. On the other hand, unlike PV and wind systems, micro-hydro installations are not modular because the size of the civil works and penstock limit the power output of the system. Thus, increasing the capacity of a given micro-hydropower plant may result very expensive. 2.2.4. Comparison of Technologies Table 2.1 shows a comparison chart of the renewable energy technologies most frequently used for rural electrification. TECHNOLOGY SOLAR PV WIND MICRO-HYDRO

Investment cost ($/kWinst) 6,000-10,000 2,000-6,000 1,000-4,000

Generation cost ($/kWh) 0.30-1.50 0.07-0.20 0.03-0.10

Resource variability Daily & Seasonal Daily & Seasonal Seasonal

Maintenance Low Low Medium

Life (years) 20-30 10-20 30-50

Civil work Low Low High

Modular Yes Yes No

Table 2.1. Comparison of renewable energy technologies for rural electrification

2.3. Design of Renewable Energy Systems for Rural Electrification The design of any rural electrification project is a complex process that involves technological, economical, social and environmental issues. The remoteness and isolation of rural communities, the lack of an adequate infrastructure, the limited education of rural users, the lack of information about local electricity demand, etc. are just some of the factors to take into account in the design of the project. The design and installation of a rural electrification project can be systematized in six different steps:


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1) Estimation of the local demand for electricity (load size and timing). The first step in the design process is to establish an intensive dialog with the rural users to properly define their electrical needs. Accordingly, a series of factors such as maximum power consumption (W), energy consumption (kWh/year), seasonal and daily energy consumption variations, and quality of service needed, must be taken into account. “The system is designed and components sized so that the system can both deliver the maximum power specification and meet the average energy consumption specification (kWh/month). Maximum power requirements drive the size of wiring and control equipment. Energy consumption and variations over time will drive the type and size of the energy-producing components and will also influence the size of the battery storage (Allderdice and Rogers, 2000).” 2) Assessment of renewable energy resources (wind, solar and hydro). The availability of wind, solar and hydro resources greatly influences both the configuration and the cost of the rural electrification project. Hence, it is essential to collect meteorological data and make on-site measurements of wind speed, solar radiation and water flow. Another factor to take into consideration is the daily and seasonal variability of the resources. In the case of a stand-alone system, monthly average resource data must be collected so that the design of the system is based on the lowest-resource month. For a system with generator backup, annual average resource data may be more appropriate. 3) Evaluation of local infrastructure (transportation, fuel supply, technical service, etc). Given the common remoteness and isolation of rural communities, another element to characterize is the local infrastructure defined by the availability and cost of transportation for equipment, the existence of a regular supply of fuel for diesel engines, the presence of local technicians, etc. 4) Economic analysis, system selection and project design. “RE options tend to have high initial costs and low operating costs. Generators, in contrast, have lower initial costs but high operating costs. Choosing options based solely on initial cost may lead to higher overall costs over the life of the system. Because the actual cost of an energy supply system includes both its initial investment cost (depreciated over its life) plus its future operating costs for fuel and maintenance, a cost analysis must factor in complete costs over the life of the project. Therefore, life-cycle cost analysis should be used to compare energy system options (Allderdice and Rogers, 2000).” Accordingly, and starting from the previous analyses of local demand, energy resources and local infrastructure, a life-cycle cost analysis will help to select the energy system that is more appropriate for a given rural community (see Table 2.2). 5) Purchase and installation of equipment by a qualified installer. Once the rural electrification project has been designed, the equipment has to be bought from competent suppliers with a presence in the country. Trained technicians must take care of the proper installation of the system. 6) Training of local technicians and education of users. Local technicians must be hired and trained to do a regular maintenance of the equipment and repair any piece of the system that may result damaged. Final users must be educated about the performance of the different elements of the system and their adequate operation.


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Table 2.2. This cost comparison chart shows how the initial and operating costs for a renewable energy system will vary depending on the technology, energy demand, and

financing terms. The system with the lowest net present value is highlighted (source: NREL).

2.4. Institutional and Financial Approaches

Figure 2.6 classifies some of the many institutional arrangements that are being used in different parts of the world to implement RES for rural electrification.


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Figure 2.6. Institutional approaches to the use of RES for rural electrification

2.4.1. Renewable Energy Systems for Microenterprises

Despite being small and operating in the informal sector of a nation’s economy, microenterprises have been increasingly identified as a key component in rural job creation and the raising of income in rural economies. In Chile, one fourth’s of the labor force works in microenterprises; in Columbia, nearly one half; and in Bolivia, more than one half of the labor force is estimated to work in microenterprises. From 1992 to 1995, 90% of the new jobs created in Bolivia were in microenterprise and the informal sector (Fraser, 1998).

Two primary frameworks are used to provide renewable energy systems to rural microentrepreneurs: sales models and service models.

A) Sales models

In a sales model, private dealers sell RES to rural households. “The system is owned and maintained by the household, which either pays cash in full or obtains consumer credit and is responsible for servicing the debt. Consumer credit may be provided by the dealer, by a microfinance organization, or by a development finance institution (Martinot et al, 2000).”

Renewable Energy System

For Microenterprise For Community Service

Sales Models Service Models

Cash Sales (A)

Credit Sales

Credit by Supplier (B)

Credit by Microfinance Organization (D)

Credit by Development Finance Institution (C)

Service by Regulated Concession

Service by Unregulated Open Market Provider (G)

Service by Community-Based Provider (H)

Concession to Existing Electric Utility (E)

Concession to Private Firm Competitively Selected (F)

Management and Implementationby the Government (I)

Management by the Government and Implementation by a Private Contractor (II)

Management and Implementationby Non-Governmental Organization (III)

Renewable Energy System

For Microenterprise For Community Service

Sales Models Service Models

Cash Sales (A)

Credit Sales

Credit by Supplier (B)

Credit by Microfinance Organization (D)

Credit by Development Finance Institution (C)

Service by Regulated Concession

Service by Unregulated Open Market Provider (G)

Service by Community-Based Provider (H)

Concession to Existing Electric Utility (E)

Concession to Private Firm Competitively Selected (F)

Management and Implementationby the Government (I)

Management by the Government and Implementation by a Private Contractor (II)

Management and Implementationby Non-Governmental Organization (III)


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Typically, only the wealthiest residents of rural villages can afford to pay the RES with cash (model A). Thus, the demand associated to this delivery model is very limited. Credit and rental options can expand the market significantly. For example, one solar project developer estimated that a fee-for-service option in Indonesia would expand the market from less than 30% for direct-dealer sales to at least 70%. The pyramid shown in Figure 2.7, illustrating estimates by another solar developer for the Bolivian market, suggests a tenfold increase over the cash market (Allderdice and Rogers, 2000).

Figure 2.7. Proportion of end-users that can afford solar systems

under different delivery options in Bolivia (source: NREL)

Credit options can be provided either by the renewable energy supplier (model B) or by a financial institution, including both development finance organizations (model C) and microfinance institutions (model D).

In model B, the renewable energy supplier “expands its capabilities by handling the delivery of both the equipment and the financing internally (…) Having one organization responsible for both the financial and technical aspects of RES deployment helps ensure that after-sales system performance will be a priority. Thus, there is a built-in incentive to maintain high standards of equipment performance and customer service. In addition, the all-in-one approach eliminates problems arising from a discrepancy in priorities or modes or operation between two organizations (Allderdice and Rogers, 2000).” However, renewable energy suppliers may not have personnel trained for the intricacies of rural credit management.

Cash sales 3%–5%

Credit sales 15%–20%

Fee-for-service 18%–25%

50% may not be ableto afford solar systems

Cash sales 3%–5%

Credit sales 15%–20%

Fee-for-service 18%–25%

50% may not be ableto afford solar systems


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In models C and D, a microentrepreneur buys a RES from a supplier using credit provided by a financial institution. An advantage of this approach is that it allows each party to fulfill specialized roles. The financial institution can manage loans and collect payments as part of its normal credit activities, without entering into the technical aspects of RES supply and maintenance. On the other hand, the renewable energy supplier can focus on its normal business activities and do not have to hire new personnel for rural credit administration.

B) Service models

In a service model, an energy-service company provides electricity for a monthly fee to rural households. The system is owned and maintained by the energy-service company. Most commonly, the energy-service company is regulated by the government and awarded monopoly status for specific geographic regions. The main alternative to regulated energy-service concession is an open-market approach.

The fee-for-service arrangement tends to be strongly preferred by end users because it eliminates the need to undertake a large capital investment. In addition, it eliminates the risk to the end user of technical failure of the system, since it is in the best interest of the company to ensure an appropriate maintenance of the equipment. Soluz, a leading solar energy-service company based in Massachusetts, has had a tremendous response to its fee-for-service offering in the Dominican Republic and Honduras (over 3,000 customers by 2001).

Three different service models can be distinguished: regulated concession (models E and F), unregulated, open-market provider (model G), and community-based provider (model H). In the case of a regulated concession to an existing electric utility, the utility must have interest and experience in rural areas for the service to be successful. In the case of a regulated concession to a private firm competitively selected, the concession must be creditworthy and commercially viable. In both cases, the government confronts the challenge of how to regulate the concession, set the tariffs, and ensure quality of service. In the unregulated, open-market provider approach, long-term business finance is required for the initial capital investments, and recurring service costs may threaten continued profitability or limit financial ability to expand. Finally, in the community-based provider approach, the supplier may need to develop some technical and business skills (Martinot et al, 2000).

2.4.2. Renewable Energy Systems for Community Services

Primary health and educational programs are essential to the long-term development of rural areas. Distribution of energy by conventional means has failed to be reliable or affordable in meeting the energy needs of rural health clinics and schools in many developing countries. In contrast, the use of renewable energy systems can provide reliable electricity for different applications in health clinics (vaccine refrigeration, medical appliances, sterilization, water treatment, etc) and rural schools (lighting, communications, teaching aids, etc). A variety of institutional considerations may be considered for integration of RES into rural health care and education: management and implementation by the government (model I), management by the government and implementation by a private contractor (model II), and management and implementation by a non-governmental organization (model III).


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A) Management and implementation by the government

In this institutional configuration, the government carries out all aspects of the planning, design, installation, maintenance, and repair of RES. One of the advantages of this approach is that the government has national health and education programs with an established infrastructure of planning, management, and technical support to rural health centers and schools. This existing infrastructure can be used to implement RES for rural electrification (Jimenez and Olson, 1998).

On the other hand, “bureaucratic processes are usually slow, particularly when involving purchases and travel expenses for installation, maintenance and repair. Technical staffs are often insufficient in number to accommodate the needs of all regions of the country (Jimenez and Olson, 1998).” Furthermore, government technicians, although accustomed to health care and educational systems, will need training in the installation, maintenance, and repair of RES.

B) Management by the government and implementation by a private contractor

In this institutional configuration, the government makes a plan for the use of renewable energy sources for rural electrification and issues requests for bids to provide equipment and services. Hence, private contractors take care of the design and installation of the system. The contractor may also provide maintenance and repair services under a service agreement or, alternatively, the government may accept those responsibilities once the installation is complete.

The main advantage of this configuration is that private contractors in the renewable energy business have the knowledge and tools required to complete the design and installation of the system as needed on a contractual basis. In addition, the government is better prepared to manage the implementation of the projects than to actually carry out the selection and installation of the equipment.

On the other hand, “if no clear specifications exist for procurement of equipment, bidders propose systems with varying specifications. This makes it difficult to evaluate and select from proposals with unequal attributes. Many bureaucratic purchasing processes automatically select the lowest bidder without regard for significant differences in the relative quality of proposals submitted. Moreover, there is often a lack of standards of acceptance for quality of installation in the field (Jimenez and Olson, 1998).”

C) Management and implementation by a non-governmental organization

In this configuration, an NGO takes care of the installation, operation, maintenance and repair of the system. The main advantage of this approach is that NGOs generally have strong relationships with the community and thus are more likely to involve the community in the design, installation and operation of project.


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On the other hand, “NGOs generally operate programs for a limited number of establishments which they operate and maintain themselves. The scale of their programs may not lend itself to significant support of a commercial service infrastructure. Also, NGOs typically do not have the specialized technical knowledge or skills to implement RES without technical assistance (Jimenez and Lawand, 2000).”

2.5. Examples of Rural Electrification Projects This section presents four examples of the use of renewable energy sources for rural electrification in different developing countries around the world. 2.5.1. Solar Home Systems by Lake Titicaca (Peru) The Center for Renewable Energy of the National University of Engineering in Lima (Peru) started in 1996 an experimental study of rural electrification using PV panels. The project was intended to promote the use of solar home systems (SHS) in different villages located at an altitude of 3.800 to 4.000m by lake Titicaca. SHS of 50W were sold to the users at a price of $750 to be paid in five quotas over a three-year period. The project, financed by the Ministry of Energy and Mines, covered the maintenance and repair costs during the first two years. After this period, the user was made responsible for the sustainability of the system. The project has served to electrify 421 households which are mostly dedicated to tourism services, agriculture and fishery (Espinoza, 2002). However, this project also illustrates a limitation found in many rural electrification programs, i.e. that the installed capacity of the system can only provide electricity for a few lights and is not large enough to supply electricity for other productive applications.

Figure 2.8. Solar home system in a rural village by lake Titicaca (source: Espinoza)


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2.5.2. Community-based Wind Energy Systems in Indonesia Through its Wind for Island and Nongovernmental Development initiative, Winrock International has implemented nine community-based wind energy systems for microentrepreneurs in Indonesia. The purpose of the project is to strengthen the local capability to adapt wind energy technologies to numerous applications: irrigation (some entrepreneurs use the water to diversify their agricultural activities or to merely increase their present activities), ice-making (several entrepreneurs use the electricity to make ice for sale to local fisherman), chick incubation, corn grinding, etc. A working group of local technicians –who carry out maintenance and repair tasks– was created for each system. When possible, an NGO was involved in the project to conduct revenue collection and fund the working group. If an NGO could not be identified to assume this responsibility, a community committee was formed to perform this task. The systems use 10 kW and 1.5 kW Bergey Windpower Company energy systems, and include a wind turbine, an inverter, a diesel backup, and a battery bank (Allderdice and Rogers, 2000).

2.5.3. Photovoltaic Systems for Immunization in Africa The Cold Chain is a system of people and equipment that attempts to keep vaccines at proper temperatures as they are distributed from the manufacturer to the people who need them. Absorption refrigeration fueled by propane or kerosene has been the most common method used for vaccine preservation in unelectrified rural areas, but it has also been the weakest link in the Cold Chain (Jimenez and Olson, 1998). PV powered compression refrigerators constitute a reliable alternative to absorption refrigerators that has been implemented in many African countries (WHO, 1996): As of 1993, all 54 health centers in Gambia had replaced gas and kerosene refrigerators

with solar units, and some centers had also been equipped with solar lighting systems and water heaters.

In Zaire, solar refrigerators represented 50% of the vaccine refrigerators used in some provinces, and almost 38% of all vaccine refrigerators countrywide.

In Kenya, only a fraction of the 1,500 rural health clinics were using solar refrigerators until 1991, when a severe gas shortage disrupted the fuel supply for gas-powered units and shut down immunization services in seven districts of the country. Since then, the Kenyan government has been expanding its solar cold chain as well.

According to WHO comparative surveys, the average mean time between failures for

PV vaccine refrigerators was 2.6 years in Uganda and almost 4 years in Gambia. Both ratings were much better than for kerosene refrigerators, and somewhat better than for gas-powered units. However, the economic evaluation showed the long-term cost of the gas units to be less than that of PV units. The higher cost of the PV units was mainly due to the need to bring skilled technicians to remote rural areas for installation, maintenance, and repair tasks. WHO concluded that the operating costs of PV units could be reduced with adequate training and cost sharing with other applications.


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Figure 2.9. Life-cycle cost breakdown of PV vaccine refrigerator (source: NREL)

2.5.4. Village Mini-Grid in the Philippines In October 2000, Synergy Power Corporation installed a wind-solar-diesel hybrid system on the Philippine island of Atulayan. The Philippine government financed the system as a demonstration project for rural electrification using renewable energy sources. The local utility created a village cooperative to perform maintenance and payment collection tasks. Before the renewable components were added, the electricity generation system consisted of a diesel generator that was run for four hours every night. After the addition of PV panels and wind turbines to the system, the diesel generator runs only a fraction of this time and the village has 24-hour high-quality power for economically productive applications such as seaweed drying, woodworking, and sewing. The final goal is to promote the development of new economic activities in the village and the expansion of the existing ones, so the local people can afford to take care of the system in the future (Synergy, 2000).


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3. The Chilean Context

3.1. Country Profile The information contained in this section has been obtained from the Country Profile 2001 of The Economist Intelligent Unit (EIU, 2002) and the CIA World Factbook 2001 (CIA, 2002). 3.1.1. Basic Data GEOGRAPHY Land area: 756,946 km2.

Land boundaries: Argentina 5,150 km; Bolivia 861 km; Peru 160 km.

Climate: desert in the north; Mediterranean in central region; cool and wet in the south.

Terrain: low coastal mountains; fertile central valley; rugged Andes in the east.

Natural resources: copper, timber, iron ore, nitrates, precious metals, hydropower.

PEOPLE Population: 15.3 million (2001).

Population growth rate: 1.3% (2001).

Population below poverty line: 22% (1998).

Ethnic groups: white 20%; white-Amerindian 75%; Amerindian 3%; other 2%.

Literacy: 95.2%.

ECONOMY GDP: purchasing power parity $153.1 billion (2000).

GDP per capita: purchasing power parity $10,100 (2000).

GDP growth rate: 5.5% (2000).

Inflation rate: consumer prices 4.5% (2000).

Unemployment rate: 9% (December 2000).


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Figure 3.1. Main cities of Chile (source: CIA)


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3.1.2. Historical Background When Diego de Almagro began the Spanish conquest of Chile in 1536, the land was inhabited by around 500,000 indigenous people. A group of some 150 Spaniards colonized the area in 1540 founding Santiago, but Chile was an unprofitable venture for Spain until the late 18th century. Growing resentment over Spanish-imposed trade restrictions led Chile to press for self-government, forming its first independent government on September 18th 1810. The Spanish reconquered the country in 1814, but they were finally defeated at the battle of Maipu, on April 5th 1818.

Following a brief period of anarchy, a conservative reaction against this instability was led in 1829 by Diego Portales, who created a strong central government. In 1891, a brief but bloody civil war pitted president against parliament, culminating in a severe reduction of presidential power and the rise of a parliamentary republic. Nevertheless, the framework of the Portales constitution created stability and Chile escaped the political turmoil that most former Spanish colonies suffered in the 19th century.

Conflicts with Peru and Bolivia over Chilean development of nitrate deposits in their territory led to the war of the Pacific in 1879. Chile's victory enlarged the country by one-third and gained it rich mineral deposits. This initiated an era of unprecedented prosperity. The growing mining and manufacturing industries, nitrate exports and foreign loans permitted the state to expand and supported the rise of an urban middle class.

At the end of the First World War, the collapse of the nitrates market exacerbated

social and economic problems. Between 1924 and 1931, the army became directly involved in politics. An election in 1932 returned the previously forced out Arturo Alessandri to the presidency. He brought the country back to institutional normality during 1932-38, and was followed by three presidents who were all members of the Partido Radical. Their economic policy was bolstered by state-led development until 1973, but this resulted in slow growth and high inflation. The Partido Democrata Cristiano won the presidency in 1964, and Eduardo Frei launched a radical agrarian reform and partly nationalized the large copper companies. Real copper prices reached an all-time high, allowing the government to enjoy a strong balance-of-payments position and an increase in tax revenue. The state sector was expanded and industrialization was further subsidized through import substitution protected by massive import tariffs.

In 1970, Unidad Popular, an alliance of socialists, communists and radicals led by Salvador Allende, won the presidency benefiting from a division of the centre-right. Allende's government tried to implement a radical nationalist and socialist program. Many medium-size and large companies were put under direct government control, and the agrarian reform process turned into an agrarian revolution. On September 11th 1973, a military coup was staged with popular support and the blessing of the Chamber of Deputies. Under the leadership of General Augusto Pinochet, the military took full control of public affairs, decreeing a suspension of all political activities and conducting a cruel campaign to eliminate left-wing resistance. More than 2,000 people were killed and many more were arrested and tortured, while others sought asylum abroad.


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Pinochet aimed to set the country on course for long-term political and economic stability. He rationalized taxes to favor investment and savings; brought the fiscal accounts into surplus; carried out a radical economic liberalization program; eliminated price controls and subsidies; and simplified the trade regime by cutting import tariffs to a single 10% rate. However, failure to regulate the banks appropriately and the adoption in 1979 of a fixed exchange rate to reduce inflation had harmful consequences for the Chilean economy at a time of easy access to international bank credit. The strengthened peso made imported goods cheaper than ever before, fuelling a foreign-financed consumer boom that raised Chile's external debt to unprecedented levels. Despite the productivity gains of the previous five years, local producers could not compete with the cheap imports. In 1982, with bankruptcies increasing and unemployment rising sharply, GDP contracted by 10%. Political activity was to remain banned until 1988, when the country would vote in a presidential referendum between granting General Pinochet another eight years in the power and electing a new president and a democratic congress in 1989. At the plebiscite, held on October 5th 1988, 54.7% voted for a new president and 43.4% voted for Pinochet.

This result led to a new political style based on pragmatism and the search for

consensus solutions. In May 1989, all political forces agreed on a set of constitutional reforms that were later endorsed in a referendum. These made it easier to reform the constitution, reduced the first presidential term from eight years to four, and increased the number of elected senators from 24 to 38. They also gave parity to civilian and military representatives on the National Security Council. Moreover, the Central Bank was made autonomous, and a law subordinating the military authorities to the elected government was agreed. 3.1.3. Political Background The current institutional arrangements balance Chile's strong presidential tradition with an independent Central Bank, constitutional regulations that provide strong protection for property rights, and an independent constitutional tribunal. The president is elected for a period of six years, and is ineligible for immediate re-election. Unless a candidate receives more than 50% of the vote in the first ballot, a second round is contested between the two leading candidates from the first round. The president appoints his cabinet and has full control over diplomatic appointments. The executive controls the congressional agenda by determining the urgency of each bill. By the contrary, the congress has few powers to control the executive, which submits only the information it deems fit. In addition, the bicameral legislature is constitutionally disqualified for initiating legislation on items requiring budgetary appropriations. The Senate is intended as a revising chamber, less political than the Chamber of Deputies, although the two operate similarly.

The judiciary is independent. The president nominates the judges from a list of names presented by the Supreme Court, and the appointments must be approved by a two-thirds majority in the Senate. The justice system is in the process of modernization. Concertacion, and the more liberal wing of the centre-right opposition, have been trying since 1995 to end direct political participation by the military.


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Relations with the three countries bordering Chile –Argentina, Bolivia and Peru– have never been easy. In both 1978 and 1982 Chile was close to a war with Argentina, following international arbitration over the Beagle channel islands which were recognized as Chilean. Nevertheless, relations with Argentina have improved dramatically in the past decade.

Growing economic ties are also helping to improve Chile's relations with Peru and

Bolivia. The latter suspended diplomatic relations with Chile in 1978, but the two countries have maintained relations at a consular level and in 1993 signed an economic co-operation agreement. Chile and Peru signed a peace treaty in 1929 settling all territorial disputes. This left a handful of administrative problems unresolved, which were settled by the Lima Convention in May 1993. 3.1.4. Economic Background Chile has a market-oriented economy characterized by a high level of foreign trade. During the early 1990s, Chile's reputation as a model for economic reform was strengthened when the democratic government of Patricio Aylwin deepened the economic reform initiated by the military government. Growth in real GDP averaged 8% from 1991 to 1997, but fell to half that level in 1998 because of tight monetary policies implemented to keep the current account deficit in check and lower export earnings, the latter a product of the global financial crisis. A severe drought exacerbated the recession in 1999, reducing crop yields and causing hydroelectric shortfalls and electricity rationing, and Chile experienced negative economic growth for the first time in more than 15 years. Despite the effects of the recession, Chile maintained its reputation for strong financial institutions and sound policy that have given it the strongest sovereign bond rating in South America. By the end of 1999, exports and economic activity had begun to recover, and growth rebounded to 5.5% in 2000. Unemployment remains persistently high, however, putting pressure on President Lagos to improve living standards. Meanwhile, Chile has launched free trade negotiations with the US. Chile is endowed with rich mineral resources relatively close to the sea, which have turned it into the world's leading copper and iodine producer, and a growing source of gold and non-metallic minerals. The free-market policies of the mid-1970s allowed also the development of new sectors, such as cellulose, fruit, salmon, wines and methanol production, and a variety of services, including tourism. This strong and increasingly diversified export sector has been the main engine of growth over the past two decades.

Economic activity is heavily concentrated in the central region. The Santiago metropolitan region accounted for 37.4% of the population and 47.2% of GDP in 1998. Centralizing trends appear to have stopped as a result of the mining boom in the north and the economic dynamism achieved in the extreme south by salmon breeding, tourism and large-scale methanol production. Tourism and export agriculture are strong engines of growth in the center-north, while forestry, tourism, fruit production and traditional agriculture are important to the center-south regions.


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3.2. The Situation of the Rural Sector The information presented in this section has been obtained from the 2000 National Socioeconomic Characterization Survey of the Chilean Ministry of Planning and Cooperation (MIDEPLAN, 2002). 3.2.1. Demographic Aspects According to the above mentioned survey, 14% of the 15 million population of Chile live in rural areas. Even though this percentage is relatively low compared to that of other South American countries, there are still some regions in the country that present high rural population percentages (regions VI, VII, IX and X have over 30% rural population). Table 3.1 shows that the rural population is predominantly distributed between regions VI and X, as 74.5% of the total rural population of the country is concentrated in those regions.

Table 3.1. Percentages of urban and rural population by region (source: MIDEPLAN)

3.2.2. Poverty and Indigence In year 2000, the percentage of rural population below the poverty line was 23.8%. In the urban areas, this percentage was slightly over 20%. The highest levels of poverty were registered in regions VIII and IX. Regarding indigence, the percentage was 8.3% and 5.2% in the rural and the urban areas respectively.


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Table 3.2 shows that, even though the level of poverty in the rural areas is higher than that of the urban zones, since 1996 the rural areas have seen bigger achievements in poverty reduction than the urban zones.

Table 3.2. Percentage of population below the poverty line by sector (source: MIDEPLAN)

3.2.3. Household Income In year 2000, the average work income in the rural areas was US$398, representing only 48.7% of the average work income in the urban zones. This breach was due to both the lower level of employment in the rural areas and the lower salaries perceived by the rural workers. Important regional differences were also observed in the rural sector (the average work income in region XII was US$806, while it only reached US$291 in region VIII). On the other hand, the average monetary subsidy in the rural sector was US$20 in year 2000, while it only reached US$8 in the urban homes. 3.2.4. Employment In 2000, the level of employment –defined as the proportion of adults engaged in wage labor– in the rural areas was 49%, while it reached 57% in the urban zones. This gap is mainly due to the low level of woman employment observed in the rural sector (22.4%), which is considerably lower than that of the urban sector (41.1%). In the rural areas, 64.6% of the employed people are dedicated to farming, hunting and fishery, 11.7% attends community, social and personal services, and 8% works in commerce. In this sector, the primary occupational groups are non-qualified workers (37.7%) and qualified farmers and fishermen (31.4%). 3.2.5. Education In year 2000, the average education of the Chilean population was 9.8 years. By zone, this variable reached 10.3 and 6.7 years in the urban and rural areas respectively. In the rural areas, the level of education varies regionally between 6.2 (region VIII) and 7.9 years (metropolitan region).


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At the national level, illiteracy reached 4% in year 2000. Analyzing this information by sector reveals that the illiteracy level in the rural sector (12.2%) is noticeably higher than that of the urban sector (2.6%). The illiteracy level is slightly higher in women, both in rural and urban areas. Table 3.3 shows the education coverage level by level of education and region. Basic education, which is compulsory and free, is the indicator that presents the smallest gap between rural and urban sectors. In the rural areas, the basic education coverage level is lower in regions X, IV and IX, reaching 95.2%, 95.3% and 95.7% respectively.

Table 3.3. Education coverage level (%)

by level of education and region (source: MIDEPLAN) 3.2.6. Health and Sanitation In year 2000, 85.9% of the rural population was enrolled in the public health system and 3.8% in the ISAPRE private health system. The remaining 10% was not enrolled in any health plan. Regarding the Complementary Food National Program –a government program that provides food to children who are less than six years old– the coverage level was significantly higher in the rural sector (86.9%) than in the urban sector (64.6%). In relation to water supply, 27.6% of rural households are not connected to the public grid and have to transport water by themselves. Concerning sewage, 68.3% of rural homes are in a deficient situation. Rural electrification projects can contribute to improve both services.


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3.3. The Situation of the Electricity Sector In concordance with Chile’s market-oriented economic policy, the activities of generation, transport and distribution of electricity are in hands of the private sector. Hence, the state only plays a regulatory and fiscal role. This means that electricity companies have an ample freedom to decide about their investments, the commercialization of their services, and the operation of their installations, provided that they comply with the established regulatory framework. A total of 26 generation companies, 5 transmission companies and 36 distribution companies participate in the Chilean electricity market. These companies supplied a national aggregate demand of 39,141 GWh in year 2000. Generation and transmission companies have the obligation to coordinate the operation of their power plants and transmission lines in order to guarantee the reliability of the system, while distribution companies have the obligation to provide their service following the maximum tariffs set by the authority (CNE, 2002a). There are four different interconnected electric systems in Chile: Sistema Interconectado del Norte Grande (SING), which serves the north of the country from Arica to Antofagasta and in year 2000 represented 33% of the total installed capacity in the country (3,317 MW); Sistema Interconectado Central (SIC), which serves the area situated between Taltal and Chiloe and accounts for 66.2% of the total installed capacity (6,646 MW); Sistema de Aysen, which attends the consumption of the XI region with 0.2% of the installed capacity in the country (17 MW); and Sistema de Magallanes, which serves the XII region with 0.6% of the total installed capacity (64 MW) (CNE, 2002a).

Table 3.4. Generation capacity (MW) by company in the SIC and the SING (source: CNE)


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Capacity in the SIC rose strongly in 1998 following the inauguration of three gas-fired combined-cycle plants: Nueva Renca (370 MW), Nehuenco (351 MW) and San Isidro (370 MW). These plants are fed with Argentinean natural gas through the GasAndes pipeline from La Mora, near Mendoza. The 52-MW Mampil hydroelectric plant came on stream in April 2000, at the same time as Taltal's 240-MW gas-fired plant. However, the supply-demand position in the SIC looks dangerously tight, as Endesa's controversial 570-MW Ralco hydroelectric plant has been postponed until July 2003 because of delays caused by resistance from ecological and indigenous pressure groups. Taltal's plant will start operating on a combined cycle in April 2003, adding 120 MW to its capacity. The next group of 373-MW gas-fired combined-cycle plants in the SIC are due to come on stream in April 2004, April 2005 and January 2006, but none of the electricity generation companies have yet announced investment plans. The firms are holding back in an attempt to win additional increases in electricity prices from the authorities (EIU, 2002).

Capacity in the SING was raised in 1998-2000 to more than double the peak electricity demand in the region as a result of the construction of two gas pipelines from Argentina –GasAtacama and NorAndino– with associated combined-cycle plants, as well as Gener's construction of the InterAndes transmission line that made available 227 MW of capacity installed by the company in Salta, Argentina. The large excess capacity in the SING and the potential supply difficulties in the SIC are likely to be solved through a transmission line connecting the two, but regulatory uncertainty on transmission tariffs has been holding up this project (EIU, 2002).

3.4. Use of Renewable Energy Sources In Chile, the regulatory framework for the exploitation of renewable energy sources is the same as the framework applied to conventional energy sources. This means that the use of renewable energy sources depends on their competitiveness –both in price and quality– with traditional energy sources. The contribution of renewable energy to total electricity production in Chile is almost insignificant (around 0.02% in 2001, although this is excluding large hydro which actually represents 46% of total production). Table 3.5 shows that, excluding large hydro, small hydro and solar energy jointly represent more than 93% of total renewable energy production in the country. Geographically, regions VIII and metropolitan are those with the highest renewable energy production (see Figure 3.2).

Energy production Renewable energy MWh/year %

Solar energy 4,770 46.3 Wind energy 45 0.4 Small hydropower 4,998 48.5 Geothermal energy 458 4.4 Biomass 36 0.3 Total 10,307 100

Table 3.5. Renewable energy production by type of technology in 2001 (source: CNE)


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Figure 3.2. Renewable energy production (MWh/year) by region in 2001 (source: CNE) 3.4.1. Wind Energy The National Energy Commission (CNE) has carried out several initiatives intended to promote the use of wind energy systems in the country, mainly for the electrification of rural areas. Some of these activities are (CNE, 2002b): 1) Creation of a wind map of region X –in collaboration with the National Renewable Energy Laboratory of the U.S. Department of Energy– in order to evaluate the availability of wind resources in that region. This map has allowed the creation of a portfolio of wind-diesel hybrid projects designed to cover the electricity needs of more than 3,500 households distributed in 32 islands of the Chiloe archipelago. 2) Execution of three pilot projects for rural villages in region IX (Puaucho, Isla Nahuehuapi and Villa Las Araucarias). Since January 1997, these projects are supplying electricity to 26 rural households, three rural schools, two health clinics, and a church. 3) Implementation of a pilot project on the island of Tac in the Chiloe archipelago (region X). Since October 1999, this project is providing electricity to 79 households.


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4) Completion of engineering and socioeconomic studies for the substitution of the diesel systems used in the island of Robison Crusoe and the archipelago of Juan Fernandez by wind-diesel hybrid systems. These studies started in April 2001. Apart from these initiatives of CNE, the University of Magallanes in Punta Arenas has implemented some wind energy projects for the electrification of rural schools and ranches. 3.4.2. Solar Energy Solar radiation levels in the north of Chile are among the highest in the world. Figure 3.8 shows solar radiation measures from the Technical University Federico Santa Maria.

Region Solar Radiation (Kcal/(m2/day))

I 4.554 II 4.828 III 4.346 IV 4.258 V 3.520 VI 3.676 VII 3.672 VIII 3.475 IX 3.076 X 2.626 XI 2.603 XII 2.107 RM 3.570

Antarctica 1.563

Table 3.6. Solar radiation by region (source: Universidad Técnica Federico Santa Maria) Solar energy is used in Chile for different applications such as telecommunications, transmission of TV signals, rural electrification, etc. According to CNE, almost 2,500 PV systems were installed between 1992 and 1999 to supply electricity to individual households, rural schools and health clinics. Some current initiatives from CNE include (CNE, 2002b): 1) Completion of preliminary studies for the electrification of individual households, rural schools, health clinics and community centers in region IV using around 2,800 PV systems. 2) Development of a project for the installation of solar heating systems in the island of Pascua (region V) in order to reduce the consumption of diesel in the island. 3) Definition of terms of reference and completion of the bidding process for the installation of 500 PV systems in region VII.


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3.4.3. Small Hydropower According to CNE, the mountain regions in the center and south of the country, the continental area of Chiloe, and some isolated areas between regions VIII and XII show a large potential for the installation of small hydropower stations. At present, a total of 110 small hydropower plants are registered by CNE, most of them designed to provide electricity to rural communities or telecommunication systems. Some recent initiatives of CNE in the hydropower sector are (CNE, 2002b): 1) Completion of engineering and socioeconomic studies for the substitution of a number of diesel systems in the Comuna de San Pedro de Atacama by small hydropower stations. These studies were finished in May 2002 and refer to the villages of Rio Grande (33 households), Socaire (80 households), and Talabre (26 households). 2) Inauguration in November 2001 of a small hydropower station in the town of Pallaco (region VIII), which provides electricity to 100 indigenous households in a situation of extreme poverty. This project has been developed with the collaboration of the United Nations Development Program (UNDP) and the Government of Japan. 3) Creation of a portfolio of hydropower projects for regions IX, X and XI. 3.4.4. Biomass In 1999, CNE and UNDP executed a pilot project for the generation of electricity from biomass gasification –using wood and forestry waste– in order to supply electricity to 31 households in the village of Metahue, island of Butachauques (region X). The main objective of this project was to introduce a new technology and validate it as an alternative for the supply of electricity to rural villages. As the project was oversized and has the potential to attend the electricity demand of around 100 rural households, CNE is evaluating the option to create a grid to supply electricity to all the island using this biomass power plant.

Figure 3.3. Biomass gasification installation in the village of Metahue (source: CNE)


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4. Comparative Analysis of the Chilean Program for Rural Electrification

4.1. The Chilean Program for Rural Electrification 4.1.1. Introduction In the 1980s Chile privatized the state-owned electricity companies, liberalized its electricity market, and allowed the private sector to play the key role in investment. Previously to the privatization process, the state split electricity companies into generation, transmission and distribution utilities. Although the division of distribution companies was done geographically in accordance with the areas in which they operated, the concession system was nonexclusive. The National Energy Commission was created as the main policymaking and regulatory body, and a pricing scheme based on marginal costs was established. Rural electrification in Chile had traditionally been carried out by the state-owned power companies following centrally developed plans and relying on subsidies from the central government. However, lack of funding and displacement by other national priorities made the rural electrification process slow. As a result, by the early 1990s more than 1 million people –almost half the rural population– still had no access to any source of electricity. By contrast, 97% of urban households had electricity supply (Jadresic, 2000). Following the initiative of President Eduardo Frei, the National Program for Rural Electrification (PER) was created by the National Energy Commission at the end of 1994. The goals of the program were to solve the lack of electricity supply in the rural sector, reduce the migration of people from rural to urban areas, promote the development of productive processes, and guarantee a stable flow of public investment to achieve those aims. The objective for the first phase (1995-2000) was to reach a rural electrification level of 75% by year 2000 (CNE, 2002b). 4.1.2. Management Model PER follows a decentralized management model in which the central government only performs the tasks of providing funds and technical assistance and coordinating the program. These activities are mainly handled by CNE, which prepared a planning and management model for the technical units of the regional governments that would lead the process. Each region evaluates, selects and funds its projects according to the methodology established by CNE. The process for the definition, evaluation, selection and execution of rural electrification projects is the following (CNE, 2002c): 1) A community that lacks electricity supply presents an electrification project to its municipality with the support of a distribution company interested in providing the service.


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Figure 4.1. Diagram of the decentralized management model (adapted from CNE) 2) The municipality asks the distribution company to prepare a technical and economical proposal –at no cost for the municipality– or contracts for this service with an independent consulting company. Once the proposal is prepared, the municipality lists the project in a publicly accessible register. 3) The Secretariat of Planning of the region reviews the projects following the methodology for project evaluation developed by the Ministry of Planning, in order to analyze their economic and financial costs and benefits and calculate the contribution of the company and the subsidy required. 4) After being analyzed, the projects are submitted to the head of the regional government in a portfolio of all those meeting the minimum requirements. The head of the regional government then presents a proposal to the regional council, which has to prioritize the


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portfolio of projects to be executed, define the investment program, and sign an agreement with the municipalities. The regional government then allocates the funds to the companies that presented the projects selected. 5) The municipality signs the contract for the execution of the project with the company that will provide the electricity service –according to the terms established in the agreement– and assumes the supervision and acceptance of the project. 6) The company receiving the subsidy is responsible for the execution, maintenance, operation and management of the rural electrification project for a specified number of years. The company recovers its costs through the tariffs charged to consumers set by CNE. 4.1.3. Project Selection Method As mentioned before, the Secretariats of Planning of the regions review project proposals following the methodology for project evaluation developed by the Ministry of Planning. The objective of this methodology is to provide the regions with a standardized procedure to analyze the economic and financial costs and benefits of the projects and calculate the contribution of the company and the subsidy required.

In order to apply this method, the following inputs are required: number of users benefited by the project and their socioeconomic level; situation of the users before the execution of the project; situation of the users after the execution of the project; investment costs; tariffs and O&M costs; discount rate (set at 10%); life of the project (set at 30 years for grid extension projects and 20 years for renewable energy projects); and taxes imposed. The outputs of the method are the following: social return of the project; private return of the project; maximum state subsidy; minimum contribution of the company; and contribution of the users. Only those projects with a positive social return but a negative private return are considered for subsidies. Since the subsidy is only for the initial investment and does not cover O&M costs, the subsidy can never be higher than the investment cost. Therefore, tariffs must be high enough to pay at least for O&M costs. Finally, the maximum subsidy is calculated so as the NPV of the project is equal to zero using a 10% discount rate. 4.1.4. Project Financing The state’s contribution to the rural electrification program is delivered through the National Fund for Regional Development (FNDR), which is a source of funding for the regions to materialize diverse social projects. Thus, rural electrification projects have to compete for fund resources with other development projects and, accordingly, the amount assigned to rural electrification depends on the commitment of the regional government to promote this goal. To avoid this problem, a special provision of FNDR exclusively destined to financing rural electrification projects (FNDR-ER) was created in 1995 (CNE, 2000). The central government allocates the subsidy funds to the regions on the basis of two criteria: how much progress a region made in rural electrification in the previous year and how many households still lack electricity. Regional governments also allocate their own resources.


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The responsibility for financing the projects is split up as follows (Jadresic, 2000): Users have to cover the costs of the in-house wiring, the electric meter, and the connecting

to the grid. These expenditures, nearly 10% of the costs of the project, are initially financed by the distribution company and repaid by consumers over time. Once the project is operating the users have to pay the regulated tariffs.

The distribution company is required to invest at least the amount set by the government

according to the methodology established by the Ministry of Planning, which normally represents between 20% and 30% of the investment costs. The company also must take care of the operation and maintenance of the project.

The state has to provide a subsidy for the investment costs that, as previously explained, is

not more than the (negative) net present value of the project using a 10% discount rate. This subsidy normally covers between 60% and 70% of the investment costs of the project.

4.1.5. Promotion of Renewable Energy Sources If technically and economically feasible, the first choice for rural electrification projects is to provide the electricity service at the standards offered by the distribution grid (220 volts AC, 50 hertz frequency, and twenty-four-hour availability). But where the costs of this solution are too high, alternative solutions are considered. There are no incentives for projects based on renewable energy sources; on the contrary, projects are selected according to the lowest investment cost. However, a project for the removal of barriers to the use of renewable energy sources for rural electrification was initiated in October 2001. The project –financed by the Global Environmental Facility and jointly managed by CNE and UNDP– involves the following activities: Creation of a portfolio of renewable energy projects.

Certification and standardization of renewable energy equipment.

Development of educational programs about the use of clean energy sources.

Execution of big-scale renewable energy projects.

Creation of a wind resource map.

Creation of a guarantee fund to mitigate the risks associated to the use of renewable

energy sources.

Another initiative from the government is the substitution of diesel systems by hybrid systems based on renewable energy sources in order to reduce greenhouse gas emissions.


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4.1.6. Cooperation with Other Development Programs In recent years, CNE has made an effort to coordinate the efforts of the rural electrification program with other development programs executed by different public institutions such as the Ministry of Education (electrification of rural schools), the Ministry of Health (electrification of rural health clinics), the Fund for Solidarity and Social Investment (electricity supply for productive activities in the poorest villages of the country), the Ministry of Transportation and Telecommunications (national program for rural telephony), etc. 4.1.7. Results of the Program During its first phase (from 1995 to 1999), the program has increased the level of electricity supply to rural households from 56.8% to 76%, exceeding the 75% target set by President Frei for year 2000. New electricity supply was provided to more than 90,000 households with a public investment of US$ 112 million and a total investment of US$ 190 million (CNE, 2002c). This was achieved mainly through grid extension.

Figure 4.2. Evolution of the rural electrification coverage level in Chile (source: CNE) The contribution of the state’s subsidy to the total investment evolved positively from 70% at the beginning of the program to 61% in 1999, even though the cost per solution augmented as a result of the greater isolation and dispersion of the rural communities electrified (see Figure 4.3). The program has succeeded in promoting the development of efficient private solutions to rural electrification. Despite the risk associated to the rural electrification business, companies have participated in the program as a strategic move to protect their existing distribution area and discourage entry by competitors. The program has also successfully introduced competition at several levels: among communities, for financing their projects; among distribution companies, for implementation of the projects; and among regions, for the funds provided by the central government (Jadresic, 2000).


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Figure 4.3. Evolution of public investment in the rural electrification program (source: CNE) Despite these achievements, some regions did not reach the 75% coverage target set for year 2000 (see Figure 4.4). Moreover, the regions have not always had the capacity to stimulate the entry of domestic and foreign suppliers into the market, identify and remove the existing barriers to the use of renewable energy sources, control the quality of the service provided to the communities, and improve the mechanisms for the transfer of subsidies.

Figure 4.4. Evolution of the rural electrification coverage level by region (source: CNE)


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Most of the projects have involved extension of the grid. Pilot projects based on renewable energy sources have shown a low sustainability, mainly because of the lack of knowledge about the use of renewable energy systems by part of the distribution companies, the lack of educational programs for users, and the inexistence of an efficient operation and maintenance model. Thus, distribution companies have generally privileged the use of diesel systems for off-grid projects. The goal for the second phase of the program (from 2000 to 2005) is to increase the rural electrification coverage to 90% by 2005, both at the national and regional level. This goal implies the electrification of 100,000 households and represents an estimated public investment of US$ 150 million (CNE, 2002c).

4.2. Comparison with Other Rural Electrification Programs The objective of this section is to carry out a comparative analysis of the Chilean rural electrification program with other rural electrification programs in Latin America. Apart from Chile, three other countries have been selected for the analysis: Argentina, Paraguay and Mexico. These countries have been chosen on the basis of having a sound national program for rural electrification involving the use of renewable energy systems for off-grid projects, as well as some interesting peculiarities in their management and financing models. A template has been created for the collection of information from the rural electrification programs in these countries. The template includes the following points: COUNTRY INFORMATION

– Country. – Basic data: land area, population, and GDP per capita (power purchasing parity). – Rural sector: percentage population, poverty, land concentration, etc. – Electricity sector: generation capacity, privatization and liberalization efforts, etc.

RURAL ELECTRIFICATION PROGRAM

– Name. – Managed by. – Origin of the program. – Goals of the program: general aims pursued by the program. – Objectives: specific objectives of the program (quantitative when available). – Management model: implementation, project selection, tariffs, O&M, etc. – Financing model: cost distribution, subsidies, budget, etc. – Use of renewable energy sources: measures to promote renewable energy systems. – Cooperation with other development programs: rural telephony, rural health, etc. – Results of the program: electrification level, renewable energy systems installed, etc.


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4.2.1. Chile: Rural Electrification Program

Country Chile

Basic data * Land area: 756,946 km2.* Population: 15.3 million (2001).* GDP per capita (ppp): $10,100 (2000).

Rural sector According to the latest survey (2000), 14% of the Chilean population live in rural areas. Even though this percentage is relatively low, there are still some regions in the country with high percentages of rural population (over 30% in regions VI, VII, IX and X).

Electricity sector In concordance with the economic policy of Chile, the activities of generation, transport and distribution of electricity are in hands of the private sector. Hence, the state only plays a regulatory and fiscal role. Generation and transmission companies have the obligation to coordinate the operation of their power plants and transmission lines in order to guarantee the reliability of the system, while distribution companies have the obligation to provide their service following the maximum tariffs set by the authority.

Name PER - Programa de Electrificación Rural (Rural Electrification Program).

Managed by CNE - Comision Nacional de Energia (National Energy Commission).

Origin of the program Rural electrification in Chile had traditionally been carried out by the state-owned power companies following centrally developed plans and relying on subsidies from the central government. However, lack of funding and displacement by other national priorities made the rural electrification process slow. As a result, by the early 1990s almost half the rural population still had no access to any source of electricity. Following the initiative of President Eduardo Frei, PER was created at the end of 1994.

Goals of the program * Solve the lack of electricity supply in the rural sector.* Reduce the migration of people from rural to urban areas.* Promote the development of productive processes.

Objectives 1st stage: rural electrification level of 75% by year 2000.2nd stage: rural electrification level of 90% by year 2005.

Country Information

Rural Electrification Program


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Management model * Decentralized management model: the central government only provides funds and technical assistance and coordinates the program.* Methodology for project selection: only those projects with a positive social return but a negative private return are considered for subsidies.* Bottom-up approach: the rural communities present proposals for electrification projects to the municipalities, and the regional government reviews and prioritizes those proposals.* Project execution: the company receiving the subsidy is responsible for the execution, maintenance, operation and management of the project for a specified number of years.

Financing model * The central government allocates the subsidy funds to the regions on the basis of two criteria: how much progress a region made in rural electrification in the previous year, and how many households still lack electricity.* The subsidy is only for the initial investment of the project and does not cover O&M costs; therefore, tariffs must be high enough to pay at least for O&M costs. * The maximum subsidy is calculated so as the NPV of the project is equal to zero using a 10% discount rate.* The responsibility for financing the projects is split up as follows: users have to cover the costs of the internal installation (10% of the costs of the project), the distribution company is required to invest an amount set by the government (between 20% and 30% of the investment costs) and take care of the O&M of the project, and the state provides a subsidy that normally covers between 60% and 70% of the investment costs.

Use of renewable energy sources

* The first choice for rural electrification projects is to provide the electricity service at the standards offered by the distribution grid (220V AC, 50 hertz frequency, and twenty-four-hour availability).* There are no incentives for projects based on renewable energy sources, but projects are selected according to the lowest investment cost.* A project for the removal of barriers to the use of renewable energy sources for rural electrification was initiated in October 2001 by CNE and UNDP.

Cooperation with other development programs

In recent years, CNE has made an effort to coordinate the efforts of the rural electrification program with other development programs executed by different public institutions such as the Ministry of Education, the Ministry of Health, the Fund for Solidarity and Social Investment, the Ministry of Transportation and Telecommunications, etc.



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Results of the program * During its first phase, the program has increased the rural electrification level from 56.8% in 1994 to 76% in 1999, exceeding the 75% target set for year 2000.* New electricity supply was provided to more than 90,000 households with a public investment of $112 million and a total investment of $190 million.* The contribution of the state’s subsidy to the total investment evolved positively from 70% at the beginning of the program to 61% in 1999.* Some regions did not reach the coverage target set for year 2000, and the regions have not always had the capacity to stimulate the entry of suppliers into the market and control the quality of the service provided to the communities.* Most of the projects have involved extension of the grid, distribution companies have generally privileged the use of diesel systems for off-grid projects, and pilot projects based on renewable energy sources have shown a low sustainability.


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4.2.2. Argentina: Renewable Energy Sources for Rural Electricity Markets

Country Argentina

Basic data * Land area: 2,737,000 km2.* Population: 37.8 million (2002).* GDP per capita (ppp): $12,000 (2001).

Rural sector In Argentina, the rural population represents 13% of the total population (1.5 million people), but includes about 28% of the country's poor.

Electricity sector In the early 1990s, the Argentine government unbundled and privatized its electricity generation and transmission sectors. Distribution companies, mostly owned by provincial governments, were privatized shortly afterwards. Privatization was done through concession contracts, so generation is competitive but distribution concessionaires receive exclusive coverage of their designated area. Any policies for rural electrification had to be compatible with this new pattern of ownership and market structure (Covarrubias and Reiche, 2000).

Name * PAEPRA - Programa de Abastecimiento Eléctrico a la Población Rural Argentina (Program for the Supply of Electricity to the Rural Population of Argentina).* PERMER - Proyecto de Energías Renovables en Mercados Eléctricos Rurales (Project of Renewable Energy Sources for Rural Electricity Markets).

Managed by SEM - Secretaría de Energía y Minería (Secretariat of Energy and Mining).

Origin of the program * PAEPRA: In 1995, the government of Argentina established a policy for the provision of off-grid electricity for lighting and communications to the dispersed rural population and to provincial public services such as schools, health centers, and police stations. * PERMER: In August 1999, the World Bank and the Argentine government negotiated a project to provide electric power to rural dwellers using renewable energy sources, especially solar and wind power.

Goals of the program * Increase the living standard of rural villagers.* Avoid migration of rural population to the big metropolis.* Enhance productivity of the rural areas.

Objectives * PAEPRA: For the period 1995-2000, to provide electricity supply to 314,000 rural households and 6,000 public services in sixteen provinces (all distant from power distribution grids).* PERMER: For the period 2000-2005, to provide electricity to about 70,000 rural households and 1,100 public services.

Country Information



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Management model * Concession contracts: the Argentine government decided to use concessions for rural electrification because of the country's successful experience in the 1990s with concessions for a range of infrastructure services (Covarrubias and Reiche, 2000). The concession is awarded to the most qualified bidder -based on technical, financial, and management criteria- offering the largest rebate to the unsubsidized tariff schedule. The concessionaire has the privilege to operate an exclusive regulated monopoly in a given province for a fifteen-year period, and the obligation to provide electricity service to any rural customer who requests it.* Tariffs: under the terms of the concession, the provincial government regulates the tariff. Subsidies for electricity tariffs are based on household spending for lighting and communications in the absence of electricity or on household willingness to pay for electricity.

Financing model * The concessionaire will finance 40 percent of the installation cost of the system, collect 10 percent from subsidized consumers, and collect the balance from the provincial government (at present this seems to be hardly achievable given the buget cuts that the provincial governments have suffered as a consequence of the economic crisis in the country). Thus, the monthly tariff to be paid by subsidized consumers recovers over time 40 percent of the installation cost plus O&M costs. In the case of the very poor, the concessionaire has to make arrangements with consumers for the payment of the 10 percent installation fee.* In addition, the provincial government will subsidize part of the monthly tariff from the Tariff Compensation Fund, a fund that subsidizes electricity tariffs for low-income populations in the provinces.* In PERMER, the subsidy is being financed by the Electricity Development Fund, a World Bank loan, and a Global Environment Facility grant (this grant will be decreasing over time). The project is expected to cost $120 million.


* Wherever practical, PAEPRA was supposed to give preference to renewable energy systems for electricity production. In practice, and largely for political reasons, the provincial governments preferred grid extensions. Off-grid projects were starved of funds (Covarrubias and Reiche, 1999).* To help steer funding to off-grid projects, PERMER was created adopting the policy principles devised for PAEPRA but aiming to promote the use and dissemination of renewable energy systems (mainly solar, wind and mini-hydropower).



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The Secretariat of Energy and Mining is cooperating with the Ministry of Education in the development of a project called "Captamos el sol y lo hacemos luz", which will provide electricity supply to about 1,800 rural schools using photovoltaic systems (400 Wp, 1000 Wh/day).

Results of the program * PAEPRA: The first two provinces where the rural electricity market was concessioned were Jujuy and Salta, both located in the north-western part of Argentina. In 1995, just before its privatizacion, the Jujuy provincial-owned distribution utility was serving rural customers in nearly 1,200 households and 70 public service buildings. In 2000, it reached 3,050 rural customers, 1,333 of whom have individual or collective photovoltaic systems.* PERMER: During the period 2000-2001, implementing agreements between provincial governments and concessionaires have been signed in several provinces. Market studies have been completed in most of the participating provinces. In Jujuy, 1,500 photovoltaic systems were bought and are being installed.



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4.2.3. Paraguay: Renewable Energy for Off-Grid Rural Electrification

Country Paraguay

Basic data * Land area: 406,750 km2.* Population: 5.9 million (2002).* GDP per capita (ppp): $4,600 (2001).

Rural sector In 2000, 42% of rural population was below the poverty line. A factor influencing rural poverty is the degree of concentration of land ownership. Paraguay has one of the worst indexes of land concentration in the world: 60% of the population owns only 6.6% of the land, while the wealthiest 10% owns 66.4% of total land area (Social Watch, 2002).

Electricity sector Paraguay has one of the highest hydroelectric power potentials per head of population in the world, with an estimated reserve of 56,000 MW. Moreover, because it produces far more electricity than it consumes, it has a massive energy surplus. The most important source of power is Itaipu, a joint Paraguayan-Brazilian scheme on the Parana river (14,000 MW). Despite the commitment of successive governments to privatization, political opposition within the Partido Colorado has slowed down progress. However, under strong pressure from the IMF and the World Bank, Paraguay moved again in the direction of privatization in 2000 (EIU, 2002).

Name Energía Renovable para la Electrificación Rural Descentralizada (Decentralized Rural Electrification Based on Renewable Energy).

Managed by Viceministerio de Minas y Energía (Viceministry of Mining and Energy) and UNDP.

Origin of the program Rural electrification in Paraguay was based on the plan "Ningun paraguayo a oscuras en el 2000" (No Paraguayan without light by 2000) developed by the National Electricity Administration. This plan was based on grid-extension projects. The rural communities that remain without electricity are small and dispersed, so grid-extension is not a cost-effective alternative for them. The conventional solution (diesel-engine projects) would generate significant greenhouse gas emissions. In order to avoid these emissions, the use of renewable energy systems will be promoted and supported by this project (UNDP Paraguay, 2002)

Goals of the program Reduce greenhouse gas emissions from use of fossil fuels for electrification and from use of kerosene and LPG for lighting in rural areas.

Country Information



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Objectives * Create an institutional framework favorable for the creation of small companies providing renewable energy products and services.* Strengthen existing rural development schemes by promoting the use of renewable energy for productive applications.* Provide funding for the development of renewable energy microenterprises.

Management model * Activities: regulatory and institutional changes to promote renewable energy technologies for rural electrification; programs for the education and training of renewable energy professionals; information and divulgation campaigns; education of financial sector agents; implementation of pilot projects; creation of standardization and certification procedures for renewable energy equipment; creation of a guarantee fund to minimize the risk of investments in renewable energy; and monitoring and dissemination of experiences.* One of the main factors inhibiting the development of renewable energy projects is their up-front investment cost. This problem is being addressed with the creation of a guarantee fund that will support credit lines from commercial banks to renewable energy suppliers and microentrepreneurs, in order to compensate for the high risk perceived in renewable energy projects by the financial sector (UNDP Paraguay, 2002).* Another factor is the limited capacity of rural households to pay for energy equipment. To overcome this barrier, the project will promote the development of fee-for-service companies.

Financing model * The costs related to the consolidation of the legal, financial and educational framework will be covered by GEF funding.* The costs related to the development of demonstration projects will be covered by the guarantee fund. The main contributor to this fund will be Itaipu, the Paraguayan-Brazilian, electricity generation company.* Local partners such as universities, the Viceministry of Mining and Energy, the Ministry of Civil Works and Communications, professional associations, NGOs, etc. will make in-kind contributions.* GEF will contribute to the project with $2,586,072.


* The project is specifically focused on promoting the use of renewable energy sources for rural electrification to reduce greenhouse gas emissions in the rural sector.* At present, there are only two companies in the country supplying solar energy products/services. Both companies have identified the lack of financial options for buying equipment and the lack of information about renewables as the main barriers to the penetration of their services (UNDP Paraguay, 2002).* The most important renewable energy resource in Paraguay is solar energy. Solar radiation presents high peak and average levels and is geographically uniform (UNDP Paraguay, 2002).



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* Cooperation with a UNDP project in Chile for the development of technical norms for off-grid rural electrification projects (standardization and certification of equipment).* Cooperation with another UNDP project for the integral development of critical rural areas in Paraguay.* Collaboration with CONENER -a consortium of NGOs- for the direct use of renewables in productive applications.

Results of the program The project is still in its preliminary phase. Thus, there are no results to be evaluated yet.



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4.2.4. Mexico: National Solidarity Program

Country Mexico

Basic data * Land area: 1,972,550 km2.* Population: 103.4 million (2002).* GDP per capita (ppp): $9,000 (2001).

Rural sector Officially all private land-owners are called "small land-owners". However, there are many huge privately-owned farms of up to one million hectares. Many of these are found in the north of the country where they are extensively irrigated. In the 1930s and 40s, much of the land was divided up into ejidos. Ejidos are areas of land which are communally owned, but divided up between families for individual cultivation. This pattern of land ownership dominates the central and southern areas.

Electricity sector The Fox administration is keen to open the electricity sector to private investment but this plan has encountered considerable opposition. In April 2002, the Senate rejected a far-reaching liberalisation proposal that had initially been made by the Zedillo administration. The Supreme Court overruled changes that Fox had made by decree to legislation governing the sector on the grounds that he should have consulted Congress. Fox's changes had increased the amount of power that the Comision Federal de Electricidad could buy from private companies that generate excess electricity (EIU, 2002).

Name * PRONASOL - Programa Nacional de Solidaridad (National Solidarity Program).

Managed by Initially managed by a steering committee through a contract to the consulting firm ENTEC, control was passed later on to CFE (Comision Federal de Electricidad).

Origin of the program Carlos Salinas created PRONASOL in 1989 to confront and eradicate Mexican poverty. The program is esentially a social investment fund designed to promote demand-driven public works and rural infrastructure projects in Mexico. A special earmark for renewable energy electrification is included as part of the comprehensive program (Waddle, 1997).

Goals of the program * Improve the living conditions of the rural population, the Indians and the urban poor.* Promote regional development.* Strengthen local institutions in the development process.

Objectives Eradicate poverty in Mexico. To achieve this objective, the program promotes rural electrification projects in general (both on-grid and off-grid), but it was the first program to adopt the use of solar home systems for widespread use in rural electrification applications.

Country Information



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Management model * Implementation of this program includes the following steps: community identification (small and disperse, far from the grid communities); system promotion (because potential users know nothing about renewable systems); users make a formal request through their local government and commit themselves to take care of the operation and maintenance of the system; approved petitions are developed into engineering projects.* The private sector participates in the program but only as a vendor of goods and services and never as the owner-operator of the rural electrification systems installed.* One of the most original features of Pronasol is the creation of more than 80,000 "solidarity committees" which put forward requests for action and follow them up. These committees are supposed to provide a new sphere of collective decision-making, open to those who have previously taken no part in the structures which control the distribution of social benefits.

Financing model * There are two types of financing: productive uses (agro-industrial applications) and basic electricity needs for quality of life improvements. Projects aimed at productive purposes must show economic viability in order to obtain funding which comes in the form of loans under preferential conditions. Projects for basic electricity needs are supported by government grants .* The program is very heavily subsidized. In the case of basic needs projects, federal money amounts to 50% of the total project cost, the state government provides 30%, and the remaining 20% comes from a combined effort of the local community and the individual user. The last share varies according to the economic capability and may be contributed with local construction materials, labor or equipment transportation (Chambouleyron, 1996).* The program had a budget of $547million in 1989, which grew to $2.54 billion in 1993. This amounts to $53 per poor person (40.3 million people) in 1993 (Moguel, 1994).


The program is a complement to the rural electrification programs of the public utility and installs small hydro, wind and PV generators in different settlements not included in the short-term plans of grid extension. The program was very flexible in the initial years, with most of the effort focused on the installation of solar home systems but including the installation of some small hydro and hybrid systems. When program management was shifted to CFE, the focus shifted almost entirely to the installation of solar home systems (Waddle, 1997).


PRONASOL is a poverty eradication program that promotes rural electrification projects as part of a broader portfolio of public works and rural infrastructure projects.



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Results of the program The program installed over 40,000 solar home systems of nominal 50 W capacity, as well as several hybrid projects. Although this effort has increased the rural electrification level, the electricity service provided by the solar home systems installed is very limited (just for lighting). Nonetheless, the program has fueled the PV market, today increasing at a rapid pace. The hardware that is used is almost all of Mexican origin, with the exception of the solar modules. This has proven to be problematic in the case of the charge controllers and the batteries. Other critical implementation factors include the installation of systems which require skillful technicians, and the role of users in the operation and maintenance of the systems (Chambouleyron, 1996). The program has been by no means a failure, but it has failed to demonstrate self-sustainability and provides virtually no leverage on the public funding that has been used to finance it (Waddle, 1997).

4.3. Conclusions

The participation of the local community is essential to guarantee the sustainability of

rural electrification projects. Accordingly, PER’s bottom-up approach by which rural electrification projects have to be requested by the rural communities themselves has been key to the success of the Chilean program. Decentralization of decisions to the regional and community level has also contributed to this achievement. The Mexican program PRONASOL has followed a similar approach and achieved a remarkable involvement of the rural communities by means of the creation of the so-called “solidarity committees”. By the contrary, both the concession system in Argentina and the Paraguayan program have followed a top-down approach.

Chile was one of the earliest and most thorough energy reformers. Hence, the Chilean

program for rural electrification has pursued the participation of the private sector in the rural electrification process, and subsidies have only been granted to those projects with a positive social return but a negative private return. Moreover, competition –among regions for the funds provided by the central government, among distribution companies for the implementation of their projects, and among communities for financing for their projects– has impelled an efficient distribution of government funds. In the same way, the Paraguayan program is specifically intended to promote the creation of energy service companies, and subsidies have been replaced by the creation of a guarantee fund to support credit lines to renewable energy microentrepreneurs. On the other hand, the Argentinean program PERMER and the Mexican program PRONASOL rely more heavily on government subsidies.

A key element for the long-term sustainability of rural electrification projects is the clear

definition of operation and maintenance responsibilities. In PER, the company receiving the subsidy is responsible for the execution, management, operation and maintenance of the project for a specified number of years. Similarly, in the Argentinean model the


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concessionaire is responsible for these tasks for the length of the concession. In the fee-for-service model promoted in Paraguay, it is in the companies’ best interest to take care of the proper operation and maintenance of the systems as the companies retain the ownership of the equipment. In the Mexican program, however, the private sector acts only as a vendor of equipment and users commit themselves to take care of the operation and maintenance of the system. Although this model promotes local participation, users often are not qualified to perform operation and maintenance tasks.

Previously to the design of a tariff system, it is worthy to assess users’ capacity and

willingness to pay for the new electricity supply. Nonetheless, in order to impel the development of an efficient market for rural energy services, subsidies to system operation and maintenance should be avoided. Thus, tariffs must at least cover operation and maintenance costs so the company providing the service can keep the system running and has an incentive to do so. PER has adopted this model and the subsidy provided by the government is only for the up-front investment cost and does not cover O&M costs. On the other hand, the program lacks a serious effort to assess users’ capacity and willingness to pay. Both Argentina and Paraguay have made remarkable efforts to assess rural households’ capacity to pay, but their tariff systems differ noticeably. While the Paraguayan program provides no subsidy to rural electrification projects, in PERMER the provincial governments subsidize part of the monthly tariffs for low-income populations from a Tariff Compensation Fund.

Sharing up-front investment costs among all parties involved in the rural electrification

process –users, private companies and the state– contributes to assure the sustainability of rural electrification projects. For that reason, PER requires that all parties contribute to the financing of electrification projects. Users have to cover the cost of the internal installation, which represents around 10% of the costs of the project. A similar approach is used in the Argentinean program, although in the case of the very poor the concessionaire has to make arrangements with consumers for the payment of the 10% installation fee. In the pro-market Paraguayan model, private companies cover the total cost of the installation. In the Mexican program, projects for basic electricity needs are heavily subsidized and users are allowed to contribute with local materials, labor or equipment transportation. On the other hand, projects for productive uses only receive loans under preferential conditions, and users must cover the total cost of the installation.

One of the main barriers to the expansion of renewable energy systems is the lack of

financial instruments for renewable energy microentrepreneurs. Due to the absence of information about renewable energy systems and their applications, financial sector agents tend to see renewable energy investments as riskier than they actually are. Paraguay is unique among the selected countries in addressing this problem by means of educational programs for commercial banks, credit cooperatives and rural development support entities, as well as the creation of a guarantee fund to support credit lines for renewable energy suppliers and microentrepreneurs.

Regarding the promotion of renewable energy systems, two different approaches are used.

On one hand, programs such as PERMER in Argentina and PRONASOL in Mexico were


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specifically created to promote investment in renewable energy systems for rural electrification. On the other hand, programs in Chile and Paraguay, following a market approach, are aimed at the removal of barriers to the use of renewables for rural electrification. Therefore, these programs do not direct investment towards renewable energy systems but seek to create a market environment favorable to the penetration of renewables. Although the first approach has achieved better results in the short-term, the barriers removal approach is likely to attain better results in the long-term.

Whenever it is possible, the use of domestic equipment in renewable energy installations

helps to develop a national renewable energy industry. Nevertheless, measures to promote the purchase of domestic equipment must be accompanied by the development of standardization and certification procedures to guarantee the quality of the equipment installed. In PRONASOL, for instance, all hardware used was locally manufactured with the exception of the solar modules. This proved to be problematic in the case of charge controllers and batteries because the quality of the equipment purchased was low.

Figure 4.5. Comparison of approaches to rural electrification in the selected countries

SOLAR HOMESYSTEMS

LOCALMINIGRID

GRIDCONNECTION

MARKET APPROACH

GOVERNMENT SUBSIDY

PRONASOL(Mexico)

PERMER(Argentina)

PER(Chile)

Off-Grid RES(Paraguay)

Rural Concessions

Guarantee Fund

Heavily Subsidized

Competition for Funds

SOLAR HOMESYSTEMS

LOCALMINIGRID

GRIDCONNECTION

MARKET APPROACH

GOVERNMENT SUBSIDY

PRONASOL(Mexico)

PERMER(Argentina)

PER(Chile)

Off-Grid RES(Paraguay)

Rural Concessions

Guarantee Fund

Heavily Subsidized

Competition for Funds


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5. Survey to Different Agents Involved in the Rural Electrification Program

5.1. Introduction The objective of this chapter is to identify key aspects for the integration of renewables in the Chilean program for rural electrification by gathering opinions from some of the agents involved in the program, namely, the industry, the government and the academia. To attain this objective, a survey was created and sent to a number of people representing these agents. The survey included the following questions:

1) What are the main barriers to the use of renewable energy sources for rural electrification in Chile?

2) How could those barriers be removed? 3) What renewable energy sources have the higher potential in Chile? 4) What have been the results of PER from its origin in 1994 to nowadays? 5) How PER projects have contributed to boost economic development in the rural

communities? 6) What are the key elements for the sustainability of rural electrification projects?

The survey was sent to a total of sixteen people who are involved in the Chilean

program for rural electrification and participated in the seminar “Renewable Energy for Rural Electrification in Latin America”, held in Valparaiso (Chile) in May 2002 and jointly organized by CNE and Federico Santa Maria Technical University. Nine of them were from industry, four from government, and three from academia. Out of the sixteen people whom the survey was sent to, seven replied answering the questions formulated –three from industry, three from government, and one from academia. The next section presents the answers provided by each of the persons who completed the survey. Since the survey was done in Spanish, the answers have been translated into English, summarized, and reviewed by their authors.


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5.2. Industry

Name Carlos E. Bonifetti Dietert

Position Manager

Company MTF Ltda.

Barriers to the use of renewables

* Lack of knowledge about renewable energy technologies and their applications.* Rural people tend to prefer the standard grid service.* High up-front investment cost of renewable energy systems.

Measures to remove those barriers

* Well-designed government programs, such as GEF program for the removal of barriers to the use of renewables for rural electrification.* Government support to companies providing renewable energy products and services.* Standardization and certification of renewable energy equipment, involvement of local people in the project, and other measures intended to reduce up-front investment costs.

Most promising renewable energy sources

* Small hydropower (5kW-10MW).* Solar thermal energy.* Wind energy in some areas.

Evaluation of PER's results (1995-2002)

Until recently, the program was mainly focused on grid extension even at a high cost. At present, the program is starting to support the use of off-grid renewable energy systems.

Rural economic development promoted by PER's projects

Unknown, but probably low.

Key elements for sustainability of rural electrification projects

* Well-executed engineering projects.* Quality, reliability and warranty of systems and components.* Training of local people for project management and operation.* Tariffs must cover at least management, operation and maintenance costs.

Personal Data

Answers


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Name Miguel Aritio García

Position Engineering Systems Department

Company ISOFOTON S.A.


* Preference for grid-extension projects.* Lack of international aid for rural electrification projects due to Chile’s economic development.* Lack of knowledge about renewable energy technologies.


Information campaigns about the applications and advantages of renewable energy systems.


* Solar thermal and photovoltaics in northern and central regions of the country.* Wind energy all around the country.


The program has succeeded in increasing the rural electrification level in Chile. This goal, however, has been achieved mainly through grid-extension due to the simplicity of this kind of projects.


Rural electrification commonly brings about economic development to the rural communities electrified.


* Reliable local service infrastructure: stock of spare equipment, technicians for repair service, etc.* Training of users for the operation and maintenance of the systems.* Local assessment of renewable energy resources, capacity and willingness to pay, etc, in order to select the appropriate system to install and the right tariff to apply.

Personal Data

Answers


64

Name Miguel Thauby Berttoni

Position General Director

Company Thauby y Cía. Ltda.


* Lack of knowledge about renewable energy technologies.* Corruption and influences that avoid the development of specific rural electrification projects.* Bad monitoring of the management and operation responsibilities of the companies in charge of the projects.


The science, technology and personnel needed to develop renewable energy projects for rural electrification are available.


N/A


* The village concept is essential for the provision of a sustainable service. In the search for votes, however, the program is focused on dispersed households.* Government and university investment programs are bubbles that fail when the resources are not available anymore.* The equipment installed is often inappropriate because users are not asked about their energy needs previously to the design of the project. Also, standardized systems are often installed without considering the special characteristics of the project.


Low.


* Ask users about their electricity needs.* Willingness and competence to carry out the projects.* Participation of local people.

Personal Data

Answers


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5.3. Government

Name Javier Castillo Antezana

Position Consultant Engineer

Organization CNE - National Energy Commission


* Characteristics of the market: size, dispersion, and cash-flow.* Lack of a reliable offer of renewable energy products and services that gives confidence to public and private investors.* Lack of arrangements for the long-term operation of renewable energy systems.


* GEF program for the removal of barriers to the use of renewables for rural electrification.* Assessment of dispersed rural communities that will require off-grid renewable energy systems for their electrification.* Development of a portfolio of solar and small-hydro projects that shows some economies of scale in order to attract private investment.* Development of wind pilot projects in research institutes for the maturation of this technology. Movement towards the implementation of real projects in rural communities.


* Solar systems in the north of the country.* Hybrid wind-diesel systems in the south of the country.* Small-hydro at a lower scale.


* The program has been successful, the goals have been surpassed, and project sustainability has been ensured.* The results of pilot renewable energy projects have been mixed, but important lessons have been learned from the implementation of these projects which will contribute to the successful development of renewable energy projects in the future.


* Despite the lack of a systematic evaluation of local economic growth boosted by the implementation of rural electrification projects, it is evident.* There has been a social benefit in all cases since families have freed economic and time resources.* The new electricity service has promoted some economic activities such as food preserving, water supply, etc.


* A system operator committed to provide the electricity service in the long-term.* Clarity about property of equipment and operation and maintenance responsibilities.* Tariffs must cover at least O&M costs so the system operator can keep the system running and has an incentive to do so.

Personal Data

Answers


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Name Jorge Avalos Santis

Position Engineer of Rural Electrification Area

Organization CNE - National Energy Commission


* Absence of a renewable energy market that allows the development of energy service companies.* Lack of an assessment of the potential demand for renewable energy systems in rural electrification applications.* Lack of knowledge about renewable energy technologies in public, private and financial sectors, as well as final users.


* GEF program for the removal of barriers to the use of renewable energy sources for rural electrification.* Standardization and certification of renewable energy equipment.* Renewable energy training and education programs.* Request credit to Inter-American Development Bank for 80,000 million dollars.


In terms of generation potential, in downward order: small hydropower, geothermal energy, wind energy, and solar photovoltaics.


* PER's results have been successful. The goal for year 2000 was surpassed achieving a 76% rural electrification level.* Given the investment decline observed in recent years as a consequence of the economic crisis in the country, the accomplishment of the goal for year 2006 -to reach a 90% rural electrification level both in the country and the regions- is uncertain.


Development of the communities as a consequence of the new electricity supply is notable. Rural schools acquire computers and workshops, health clinics are equipped with electricity systems that improve patient care, and residential users get access to a better quality of life and a higher economic status.


A sound project management model, with special emphasis on project execution, operation and maintenance.

Personal Data

Answers


67

Name Luis Costa Villegas

Position Environment Area

Organization PNUD Chile - United Nations Development Program


* Due to the small size of the market, the private sector does not see a good business oportunity in the provision of rural electrification services using renewable energy systems.* Renewable energy projects require serious engineering studies which rise the cost of proposals. In consequence, there is a lack of renewable energy project proposals to finance.


* GEF program for the removal of barriers to the use of renewable energy sources for rural electrification.* More participation of the government in the projects (engineering studies, tariff subsidies, etc).


For rural electrification, solar energy, small hydropower, and hybrid wind energy systems.


* The program has been sucessful in many aspects: participation of all sectors involved in the rural electrification process, decentralized management of resources, increase of the rural electrication level, etc.* However, the program has not achieved to incorporate the use of renewable energy sources due to its principle of technological neutrality.


* Rural communities that have benefited from PER projects have notably improved their quality of live thanks to the new electricity supply.* In many cases, these communities have been able to develop new productive applications and thus increase their income.


Clearly define project operation and maintenance responsibilities, including a good management model.

Personal Data

Answers


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5.4. Academia

Name Jaime Espinoza

Position Department of Mechanical Engineering

University Federico Santa Maria Technical University


* Low reliability of installations.* Project management.* Project operation and maintenance.


* Quality of equipment (at least, three-year warranty).* Education about technical and financial aspects of renewable energy projects.


Small hydropower due to its cost, energy density and resource availability.


More than 90% of the projects have been grid extension projects which are costly, do not contribute to reduce our dependence on oil and gas, and do not reduce greenhouse gas emissions.


Access to electricity brings about quality of life improvements and economic development.


* Quality of equipment installed.* Local service infrastructure (maintenance, stock of sparse equipment, etc).* Project management.

Personal Data

Answers


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5.5. Results This section presents a summary of the most significant answers collected from the survey. The answers are presented in charts indicating the number of people who endorsed each of them.

Industry (3)

Government (3)

Academia (1)

Total (7)

3 1 - 4

- 3 1 4

- 1 1 2

Barriers to the use of renewable energy sources for rural electrification

Lack of knowledge about renewable energy technologies and their applications

Absence of a reliable offer of renewable energy products and services

Lack of arrangements for long-term management and operation of projects

Industry (3)

Government (3)

Academia (1)

Total (7)

1 3 - 4

- 1 1 2

1 1 - 2

1 1 - 2

GEF program for the removal of barriers to the use of renewable energy sources

Training of technicians for the design, operation and maintenance of renewable energy systems

Government support to companies providing renewable energy products and services

Measures to remove the barriers to the use of renewable energy sources

Standardization and certification of renewable energy equipment

Industry (3)

Government (3)

Academia (1)

Total (7)

1 2 1 4

2 2 - 4

1 2 - 3

Small hydropower

Solar thermal and photovoltaics in northern and central regions of the country

Wind-diesel hybrid systems in southern regions of the country

Renewable energy sources with a high potential in Chile


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Industry (3)

Government (3)

Academia (1)

Total (7)

2 1 1 4

1 3 - 4

Until recently, the program was mainly focused on grid extension even at high cost

The program has succeeded in increasing the rural electrification level in Chile

Evaluation of PER's results from 1994 to nowadays

Industry (3)

Government (3)

Academia (1)

Total (7)

- 3 1 4

1 2 1 4

2 - - 2

Rural electrification has brought about important quality of life improvements

Rural electrification projects have promoted the development of different economic activities

Unknown, but probably low

Contribution of PER projects to enhance rural economic development

Industry (3)

Government (3)

Academia (1)

Total (7)

- 2 1 3

1 1 1 3

1 - 1 2

2 - - 2

- 2 - 2

1 1 - 2

2 - - 2

2 - - 2

Analysis of local conditions: energy demand, energy resources, willingness to pay, etc.

A sound management model, with special emphasis on operation and maintenance tasks

Reliable local service infrastructure: stock of sparse equipment, repair service, etc.

Quality, reliability and warranty of systems and components

Key elements for the sustainability of rural electrification projects

Well-executed engineering projects

Training of local people for operation and maintenance tasks

Clarity about property of equipment and operation and maintenance responsibilities

Tariffs must at least cover O&M costs so the system operator can keep the system running


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5.6. Conclusions The lack of knowledge about renewable energy technologies and their applications –such

as the use of PV panels for water pumping– has been identified as the most important barrier to the use of renewables for rural electrification in Chile. This lack of knowledge affects the financial sector (financial entities overvalue the risks associated to renewable energy projects, thus limiting the availability of credit for this type of projects), the electricity distribution industry (distribution companies often have neither experience with renewable energy projects nor technicians trained in this field), and final users (rural people are often unaware of the advantages and applications of renewable energy technologies and tend to prefer the standard grid service).

The absence of a reliable offer of renewable energy equipment and the frequent lack of

arrangements for the long-term management and operation of renewable energy projects are also important barriers to the penetration of renewables in rural markets. Both barriers limit the long-term sustainability of renewable energy projects.

The program “Remoción de Barreras para la Electrificación Rural con Energías

Renovables” –financed by GEF with US$6 million and implemented by UNDP– has been identified as a key element for the removal of the above mentioned barriers. Some of the activities to be developed by this program are the creation of a portfolio of renewable energy projects, the certification and standardization of renewable energy equipment, the development of educational programs, the creation of a wind resource map, etc.

Two basic measures have been proposed to guarantee the long-term sustainability of

renewable energy projects: the training of technicians for operation and maintenance tasks, and the standardization and certification of renewable energy equipment to warrant its quality. As indicated above, both measures are included in the GEF program. Another interesting measure is the support of the government to the development of renewable energy companies in order to promote the creation of a renewable energy market.

According to the results of the survey, Chile shows a high potential for the use of both

small hydropower and solar photovoltaics for rural electrification purposes. While the use of PV systems is especially interesting in northern and central regions of the country, small hydropower could provide electricity to many isolated rural communities in the south of Chile. Hybrid systems combining wind turbines and diesel generators constitute also an interesting option for communities that lack electricity supply in southern regions of the country.

It is generally accepted that PER has succeeded in increasing the rural electrification level

in Chile. In fact, the goal for year 2000 was surpassed. Nevertheless, it is also commonly recognized that the program has been too focused on grid extension projects even when some of these projects were very costly. Only recently renewable energy projects have started to receive some support from the government.


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The contribution of PER projects to enhance economic development in rural communities has not been properly assessed. Government officials consider that PER projects have not only brought about social improvements but also promoted the development of new economic activities. Some industry players believe, however, that the contribution of PER to boost rural economic development has probably been low.

A solid management model is key for the long-term sustainability of rural electrification

projects. The management model must clearly define operation and maintenance tasks and responsibilities. The participation of local people in O&M tasks, as well as the design of a tariff system that at least covers the costs associated to those tasks, are basic pillars of any sound management model.

Other elements that are also crucial for the sustainability of rural electrification projects

are the quality, reliability, and warranty of the equipment installed, and the service provided by the equipment supplier (stock of spare components, repair service, etc). An assessment of the local characteristics of the project –including local energy needs, available energy resources, and capacity and willingness to pay– is also critical to the success of any rural electrification project.


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6. Case Studies of Renewable Energy Projects

6.1. Introduction The objective of this chapter is to study a variety of renewable energy projects for rural electrification in Chile in order to draw some conclusions from the experience obtained implementing them. The following projects have been selected:

1) Wind-diesel system for a minigrid in Isla Tac (region X). 2) Wind-diesel system for a rural school in Agua Fresca (region XII). 3) Renewable energy demonstration center in Copaquilla (region I). 4) Photovoltaic pumping systems for irrigation in Chaca valley (region I).

Since field experience is essential to understand the complexities and challenges of rural electrification projects, the selected projects were visited during a five-week trip to Chile in June 2002. Visits to the projects were especially interesting as they allowed me to establish a dialog with final users and to understand the social and economic impact of the projects in the rural communities that benefited from them. 6.2. Template for Project Information Collection The following template was created to collect information about the selected projects: INTRODUCTION

Short description of the project, including: location; starting date; type of technology; installed capacity; economic sector; application; beneficiaries; organization responsible for the project; and current state.

ORIGIN AND OBJECTIVES

Description of project antecedents: origin of the project; sponsoring organizations; situation before project implementation; and goals and objectives.

PROJECT DESCRIPTION

Detailed description of the project, including: energy resources; electricity demand; project design; characteristics of main components; suppliers and installers; etc.

MANAGEMENT MODEL

Description of the management scheme: project ownership; entity responsible for project operation; entity responsible for project maintenance and repair; tariff system; payment collection method; etc.

FINANCING

Financial information, including: investment cost; project financing structure; government subsidies; users’ contribution; and operation and maintenance costs.


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EVALUATION Analysis of the evolution of the project since its inauguration until nowadays, including: project operation and maintenance; technical problems; financial problems; institutional problems; users’ involvement; and lessons learned.

CONTACTS

Contact information for the entity responsible for the project. 6.3. Wind-Diesel System for a Minigrid in Isla Tac 6.3.1. Introduction Isla Tac is a small island located in the Chiloe archipelago (region X). In 1999, a wind-diesel system was installed in the island to supply electricity to 79 low-income households who are mainly dedicated to fishery and agriculture. The installation of the electricity generation equipment was carried out by Wireless Energy Chile Ltda, a company specialized in the installation of RES. The installed capacity of the wind turbines is 15 kW and the system includes also a bank of batteries and a diesel backup. The electricity is distributed via a minigrid of 18 Km installed by SAESA Group, a big electricity distribution company. The electricity service delivered to the customers through the minigrid is similar to that provided by the standard grid in Chile: 220V, 50Hz, 24 hours a day. In year 2001, total electricity consumption was 16 MWh (Miranda and Stevens, 2002).

Figure 6.1. Participation of the community in the installation of wind turbines for the rural electrification project in Isla Tac (source: Wireless Energy Ltda)


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6.3.2. Origin and Objectives The objective of this project is twofold: satisfy the energy needs of rural households in Isla Tac, and serve as a pilot experience for the development of wind energy projects for rural electrification in Chile. Thus, the project is included in the Chilean program for rural electrification managed by the National Energy Commission. Previously to the implementation of the project, rural households in Isla Tac used candles, batteries, benzene generators, paraffin, etc. to satisfy their energy needs. Although the project was originally conceived as a pre-electrification solution that would only satisfy minor residential needs, it has in fact satisfied a higher demand due to the effective organization of the community. 6.3.3. Project Description The main components of the generation system are the following: Wind turbines: 2 x 7.5 kWp Towers: 24 m Bank of batteries: 100 kWh Diesel generator: 12.5 kVa Inverter: 13.5 kVA

Figure 6.2. Wind-diesel generation system in Isla Tac (source: Miranda and Stevens)


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The distribution grid has the following characteristics: Medium voltage (7,620 V): 7 Km Low voltage (220 V): 10.8 Km Number of substations: 11

Figure 6.3. Distribution grid in Isla Tac (source: Miranda and Stevens) 6.3.4. Management Model The regional government owns the generation and distribution systems installed in Isla Tac. The project has been transferred to SAESA Group under a concession contract for a ten year period. Thus, SAESA, apart from having provided the installation of the distribution system, will take care of the operation and maintenance of the system for ten years. SAESA has signed an outsourcing contract with Wireless Energy Ltda for the execution of these tasks. Because this is a pilot project aimed at getting experience for the implementation of renewable energy projects for rural electrification, the tariff scheme does not include the recovery of the upfront investment cost. Thus, the tariff system consists of a fixed monthly fee of US$ 5.7 and variable fee of 0.243 US$/kWh that merely recover operation and maintenance costs. Users’ consumption is measured using standard equipment for residential applications, and measurements are taken every two months by local personnel. 6.3.5. Financing The investment costs of the project are the following: Generation system (wind turbines, batteries, diesel generator, inverter, etc): US$ 123,600 Distribution system (medium voltage lines, low voltage lines, substations): US$ 69,000 Residential electric installations (wiring, plugs, lights): US$ 11,900 Total investment cost: US$ 204,500


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The financing structure of the project is the following: National Fund for Regional Development: US$ 98,600 SAESA Group: US$ 69,000 United States Department of Energy: US$ 25,000 Rural community: US$ 11,900 Total financing: US$ 204,500

6.3.6. Evaluation The first technical problem that arose after the inauguration of the project was related to the power factor of the system. When the lamps were installed at the rural homes, no specification for the use of efficient ballasts was included. This had a negative effect on the power factor (real versus reactive power), which reached a 50% level. To solve this problem, SAESA added a set of condensers controlled by charge –since charge and power factor curves are almost coincident– to the grid. This solution has not really solved the problem as the inverter’s sensibility does not allow for sharp fluctuations of the power factor. Thus, the generation system is currently running at a low efficiency, and the solution to this problem is still under study (Miranda and Stevens, 2002). The lesson learned from this experience is that the design of rural electrification projects must include standards for the use of efficient equipment by final consumers. Another technical problem observed during the operation of the system is that losses in the distribution grid are significant. To avoid this problem, the distribution grid could have incorporated more efficient solutions such as the use of transformers with an amorphous metal nucleus. Despite the high cost of the tariff –350pesos/kWh in Isla Tac versus 60pesos/kWh in the continental territory– and the low income of rural households in Isla Tac, the demand has grown extraordinarily after the installation of the project. It is interesting to see how the community has efficiently organized and cooperated to control the charge of the system and thus allow for the coverage of a higher demand than initially expected. Nevertheless, as users started to buy high-consumption electrical appliances such as TVs, refrigerators, etc, the demand grew until reaching the maximum capacity of the system. The lesson here is that modularity and sizeability should be important factors to consider when designing any off-grid rural electrification system. 6.3.7. Contacts

Rolando Miranda Grupo SAESA Address: Bulnes 441 Osorno, Chile Phone: +56 64-206-306 Fax: +56 64-206-339 E-mail: [email protected]

Nelson Stevens Wireless Energy Ltda Address: Casilla 287, Ruta 5, Km 6.5 Puerto Montt, Chile Phone: +56 65-292-100 Fax: +56 65-292-102 E-mail: [email protected]


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6.4. Wind-Diesel System for a Rural School in Agua Fresca 6.4.1. Introduction Agua Fresca is a rural community located 24 Km to the south of the city of Punta Arenas (region XII). In 1999, the School of Engineering at the University of Magallanes installed a wind energy system in Agua Fresca’s rural school to complement the existing electricity supply provided by an 18 kW diesel generator. The system consists of two 1.5 kW wind turbines and has improved significantly the living conditions of students and professors at the school (Gallardo et al, 2002).

Figure 6.4. View of Agua Fresca’s rural school and its wind energy system 6.4.2. Origin and Objectives Before the installation of the wind system, a diesel generator provided electricity to the school from 6pm to 12am. No electricity supply was available during the rest of the day. Therefore, there was no electric lighting during the day –although in the winter there is no natural light until around 8:30am– and after midnight, and the use of electrical appliances was limited to a few hours in the evening. The main objective of the project was to improve the quality of life of students living at the school –since it was originally a boarding school– by providing a 24h electricity supply. The project was also intended to be a pilot experience for the implementation of wind energy projects in the austral region, which has vast wind energy resources.


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6.4.3. Project Description Agua Fresca’s rural school was originally conceived as a boarding school for children with social problems. Due to budget problems, however, most of the students were moved to Punta Arenas, and currently only eight children from the community of Agua Fresca attend the school. This means that no child lives at the school anymore, although the director still lives at the director’s house next to the school. The wind system consists of the following components (Gallardo et al, 2002): Wind turbines: 2 x 1.5 kWp (Bergey, three blades) Bank of batteries: 8 x 200 Ah (12V, total storage capacity of 19.2 kWh) Inverter: 1.5 kW (24V-220V, 50 Hz)

The wind system supplies electricity to a special circuit which is independent from the system fed by the diesel generator. This circuit provides lighting to the classrooms, offices, bathrooms, and bedrooms –though the bedrooms are not used anymore– by means of 50 high-efficiency lamps of 18 W. The circuit feeds also a radio, a TV and a computer, but it is not connected to the director’s house.

Figure 6.5. View of the diesel generator house and the wind turbines in Agua Fresca


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6.4.4. Management Model The system was installed by both the Department of Electrical Engineering and the Department of Mechanical Engineering at the University of Magallanes, and it is currently maintained by the Center for Energy Resource Studies at the same university. The system is owned by the municipality and operated by the professors working at the school. 6.4.5. Financing The total cost of the system was US$25,000. The share of the cost was as follows: United Kingdom Embassy: US$ 16,250 University of Magallanes: US$ 6,000 Municipality of Punta Arenas: US$ 2,750

6.4.6. Evaluation The wind energy project installed in Agua Fresca constitutes a valuable experience for the use of wind energy systems for the electrification of remote areas in the southern region. Given the vast wind resource available in the region and the dispersion of the population, this type of systems could be broadly used in the region either independently or combined with diesel generators. This solution is especially interesting for the electrification of more than 1,000 cattle farms which do not have access to the electricity grid. When the project was visited in June 2002, the system was down because of the failure of the battery. As told by the professor who operates the system, the wind system had been down for three months because of this problem, and they had been making extra use of the diesel generator during all this time. The problem had been that, due to the lack of funding, a truck battery was installed. This battery failed after three years of operation because of recurring deep discharges. To solve this problem, technicians from the University of Magallanes replaced the battery for a bank of deep cycle batteries at the time of the visit. A further problem mentioned by the professor was that, due to the strong winds in the area, the noise coming from the wind turbines was occasionally very high and disturbed the educational activities at the school. 6.4.7. Contacts

Arturo Kunstmann Centro de Estudio de Recursos Energéticos Universidad de Magallanes Address: Avda. Bulnes 01855 Punta Arenas, Chile Phone: +56 61-207-182 Fax: +56 61-207-184 E-mail: [email protected]

Luis Toledo Centro de Estudio de Recursos Energéticos Universidad de Magallanes Address: Avda. Bulnes 01855 Punta Arenas, Chile Phone: +56 61-207-183 Fax: +56 61-207-184 E-mail: [email protected]


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6.5. Renewable Energy Demonstration Center in Copaquilla 6.5.1. Introduction Located at an altitude of 3,100m in the province of Parinacota (region I), the boarding house of Copaquilla makes use of the following renewable energy systems: a wind-photovoltaic system (620 W) that supplies electricity for lighting, radio, TV, and other electrical appliances; a solar thermal system for water heating; and a solar cooker. The project has been jointly developed by the owners of the boarding house and CODING (Corporation for Engineering Development), a small Chilean NGO that promotes rural development projects (e.g. rural electrification and productive applications). Thus, the systems are operated by the owners of the boarding house and CODING takes care of the installation and maintenance of the equipment.

Figure 6.6. View of the PV panels and the solar cooker in Copaquilla’s boarding house 6.5.2. Origin and Objectives The boarding house was built in 1990 with the aim to show the people in the area that it is possible to live in a different way respecting the natural environment. The boarding house has evolved with time and can be currently seen as a renewable energy demonstration center that shows the use of renewable energy technologies for different applications.


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6.5.3. Project Description The wind-photovoltaic system for electricity generation consists of the following components (Schmidt and Díaz, 2002): Wind turbine: 400 Wp (AIR 413) PV panels: 4 x 55 Wp (SM55) Controllers: Atonic 12V and Control C40 Bank of batteries: 400 Ah (Sonnenschein dry fit) Inverter: 1 kW (ASP)

The electricity generation system incorporates also a monitoring system that automatically registers meteorological data and some electric parameters. Additionally, a consumption measurement system was installed after the inverter. Total electricity production is 2.23 kWh/day, 63% of it coming from the PV panels and 37% from the wind turbine. Since the efficiencies of the bank of batteries and the inverter are 85% and 90% respectively, the average available electricity is 1.7 kWh/day (Schmidt and Díaz, 2002). Apart from the electricity generation system, the center exhibits also a solar thermal system for water heating and a solar cooker.

Figure 6.7. View of the solar thermal system (left) and the solar cooker (right) in Copaquilla


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6.5.4. Management Model As mentioned before, the owners of the boarding house –who are also the owners of the project– take care of the operation and basic maintenance of the equipment, while CODING takes care of the installation of the systems and the execution of more complex maintenance and repair tasks. 6.5.5. Financing The project has been financed by the German embassy in Chile. 6.5.6. Evaluation The project has contributed to show different applications of renewable energy technologies to the rural people living in the area. Moreover, as the project is located in a very transited road, it has reached a great influence area. According to the owners of the boarding house, the electricity supply provided by the wind-photovoltaic system has changed their lives and allowed them to provide a better service to their guests. After several years of operation, the project has not experienced any major technical problem. The battery –which used to be a major source of problems in this type of projects because of either a wrong model selection or a bad maintenance– has been running for four years without any failure. 6.5.7. Contacts

Reinhold Schmidt Corporación para el Desarrollo de la Ingeniería (CODING) Address: Casilla 1813 Arica, Chile Phone: +56 58-241-230 E-mail: [email protected]

Andrea Chellew Posada “Pueblo de Mailku” Address: Copaquilla, Ruta A-II, Km 88 Correo de Putre, Chile E-mail: [email protected]

6.6. Photovoltaic Pumping Systems for Irrigation in Vitor valley 6.6.1. Introduction Vitor valley is located in the coastal zone close to Arica (region I). In this region, CODING has installed several photovoltaic pumping systems for drip irrigation for small and medium scale agriculture. These systems are generating direct income for local farmers and promoting the development of a sustainable agriculture.


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6.6.2. Origin and Objectives Northern Chile is one of the most arid regions worldwide. The availability of both drinking and irrigation water is one of the main problems in the region. Although groundwater coming from the rainfalls in the Chilean and Bolivian highlands is available, it has to be pumped to be of any use. As the agricultural areas are usually located far from the electric grid, conventional diesel or gasoline pumps are normally used for irrigation. These pumps, however, show a low reliability which leads to high maintenance and repair costs. Moreover, their use causes serious ecological problems such as well and soil contamination (Hahn and Schmidt, 2001). Given that northern Chile shows one of the highest solar radiation potentials in the world (the mean global radiation in the desert area is 7.2 kWh/m2day), the objective of this project is to develop and demonstrate a new irrigation technology that uses PV panels to pump underground water combined with drip irrigation systems. This project is part of an international project developed by the German Agency for Technical Cooperation (GTZ) in three countries: Ethiopia, Jordan and Chile. The first pilot systems in Chile were installed by CODING in 1998 combined with an extensive monitoring program.

Figure 6.8. View of the PV panels and the water tanks in one of the photovoltaic pumping systems for drip irrigation in Vitor valley


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6.6.3. Project Description Here we will describe just one of the several photovoltaic pumping systems for drip irrigation that have been installed by CODING in the area. In this system, PV panels supply electricity to a submersible water pump that pumps water from a 12m well to a storage tank, so no battery is needed. The photovoltaic system consists of 21 panels of 55W and pumps about 35m3 of water a day. From the water tank, drip irrigation is done by gravity. The PV pumping system works automatically and irrigation is done by opening and closing hand valves for the different crop arrays. Due to the rather low height of the storage tank, the operating pressure of the drip irrigation system is about 0.3 bar, i.e. much lower than that of conventional irrigation systems. The system irrigates a two hectare crop of green beans, peppers, melons and garlic.

Figure 6.9. Scheme of a PV pumping system for drip irrigation (source: CODING) 6.6.4. Management Model The photovoltaic pumping systems are owned and operated by the farmers themselves. The installation, maintenance and repair of the equipment are done by CODING. 6.6.5. Financing The initial investment cost of PV irrigation systems is two or three times higher than that of conventional irrigation systems using diesel pumps. In the case of the previously described project, the upfront investment cost was US$13,000, including both the PV


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pumping system and the drip irrigation system. A comparable diesel pumping and irrigation system could cost around US$5,500. In contrast, operation and maintenance costs for the solar system are considerably lower than those for the conventional diesel system. Taking into account these costs and the different lifetimes of solar and conventional systems, the specific costs of the water are US$0.16/m3 and US$0.19/m3 for the solar system and the conventional system respectively (Hahn and Schmidt, 2001). As mentioned before, the project has been financed by the German Agency for Technical Cooperation (GTZ).

Figure 6.10. View of the drip irrigation system 6.6.6. Evaluation After three years of operation, the project has demonstrated the reliability of solar irrigation systems. Both the photovoltaic pumping system and the drip irrigation system have worked without any technical problem in all four pilot projects implemented in the area. This is a completely new experience for the farmers, who were used to have severe problems with the conventional diesel and gasoline pumping systems. The farmers showed a rather skeptical attitude at the beginning of the project, mainly because of the low pressure of the drip irrigation system. As a result, the utilization factor was quite low during the first year of operation of the system. However, as farmers started to obtain remarkable harvest results and extend their irrigation areas, their confidence on the solar irrigation system increased notably.


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6.6.7. Contacts

Reinhold Schmidt Corporación para el Desarrollo de la Ingeniería (CODING) Address: Casilla 1813 Arica, Chile Phone: +56 58-241-230 E-mail: [email protected]

Anibal Díaz Corporación para el Desarrollo de la Ingeniería (CODING) Address: Casilla 1813 Arica, Chile Phone: +56 58-265-112

6.7. Conclusions The conclusions presented here have been drawn from visits to different renewable energy projects for rural electrification in Chile, including the four projects described in this chapter. There is no standard solution for rural electrification projects. By the contrary, each

solution should be specifically designed according to the local characteristics of the rural community in which the project will be implemented. Some important factors to consider in the design of any rural electrification project are the local demand for electricity, the availability of renewable energy resources, the economic activities of the population, the income level of the community, the availability of financial services, etc.

Final users should take part in the process of design and installation of the project.

Previously to the design of the project, it is important to evaluate the local demand for electricity in terms of public service needs, household needs, and users’ capacity and willingness to pay. This has been done especially well in the renewable energy center in Copaquilla and the solar projects for irrigation in Vitor valley.

If rural electrification brings rural economic development as intended, the electricity

demand of the rural community may increase significantly after the installation of the project. This is what happened in Isla Tac, where the demand has grown extraordinarily after the installation of the project and reached the maximum capacity of the system. Consequently, the initial design of the project should include some degree of flexibility and modularity that allows the expansion of the system along with the growth of the demand at a minimum cost.

Off-grid renewable energy technologies require innovative service delivery mechanisms

that allow for sustainable operation over time. Different service delivery models may be suited best for different regions or projects in the country. They always have to be adapted to the local conditions, on the way to the concrete business plans of each provider. Which model is best suited for a concrete project depends on a variety of parameters, such as market size, transaction costs, funds available for subsidies, existing suppliers, potential economies of scale and scope, etc.


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To assure an efficient use of electricity and the involvement of the users in the project, final users should always pay some tariff for the electricity service they receive. As demonstrated by the Isla Tac project, in some cases rural customers may be willing to pay a higher tariff than expected due to the valuable benefits obtained from the new electricity service. This is especially true when the electricity supply facilitates the development of new economic activities, thus generating a new source of income for the community. For renewable energy businesses to be sustainable, it is essential that rural tariffs be high enough to cover at least the operation and maintenance costs of the service.

In some isolated areas, people still use a barter economy and lack a monetary system. In

other cases, the community has a seasonal income linked to economic activities such as fishery or tourism. In both cases, the payment of monthly tariffs may result very difficult.

According to CODING’s experience implementing solar photovoltaic systems for rural

electrification, 12V DC systems consume low amounts of electrical energy whereas 220V AC systems show a high consumption of energy that causes deep discharges of the batteries. The absence of a control system to protect the batteries from deep discharge reduces the life and reliability of 220V AC systems. To avoid this problem, AC systems should incorporate deep cycle batteries and deep discharge protection systems.

The reason why 12V DC systems show a low level of electricity consumption is the lack

of a local market for electrical equipment powered by such current. Thus, the creation of a market for this kind of equipment should be promoted to expand the potential applications of DC systems.

The design of rural electrification projects should include standards for the use of efficient

equipment by final consumers. The power factor problem observed in Isla Tac is a clear example of the problems that may emerge when no specifications are made for the loads to be connected to the system.

The austral region shows a large potential for the use of wind energy. Accordingly, some

wind energy projects have been developed for the electrification of rural schools in remote communities. Given the strong winds existing in the region, however, the noise produced by the operation of some wind turbines is sometimes very high and disturbs the educational activities in the schools. Wind energy systems could also be broadly used in the austral region –either independently or combined with diesel generators– for the electrification of more than 1,000 cattle farms which do not have access to the power grid.

The use of photovoltaic pumping systems is a very interesting option for irrigation in the

deserted regions of the north of Chile. These systems are more reliable and cheaper to operate than conventional gasoline or diesel pumps. Despite the initially rather skeptical attitude of the farmers towards the use of these systems, their confidence on these systems increased notably after they started to obtain significant harvest results and extend their irrigation areas. Nonetheless, the upfront investment cost of these systems is higher than that of conventional systems. Thus, the development of this kind of projects at a big scale will require the provision of microcredits to the farmers.


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Apart from the use of photovoltaic systems for rural electrification, the use of solar thermal systems for water heating constitutes also an interesting solution in the north of Chile. Although some solar thermal projects have been implemented to provide hot water to rural schools, most of them have failed due to either the lack of user education about operation and maintenance tasks or the lack of interest for the sustainability of the projects by part of the municipalities.


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7. Conclusions and Policy Recommendations 7.1. Conclusions on Rural Electrification and Renewable Energy Systems At the beginning of the twenty first century, human society faces two great challenges: the

transition towards a sustainable development, and the eradication of poverty. Renewable energy sources can play an important role in overcoming both challenges. The use of renewable energy sources for rural electrification in developing countries is a paradigmatic example of this role. While the extension of the electricity grid to those areas can be very costly, the use of off-grid, small-scale renewable energy systems can provide electricity to remote rural areas at a reasonable price. New electricity supplies will promote rural development in both the short-term –by facilitating the development of new economic activities– and the long term –by improving health and education services.

Government programs for rural electrification should coordinate their efforts with other

rural development initiatives so the new electricity supply creates opportunities for the development of new economic activities. In addition, the goals of these programs should be based not only on the number of rural households with access to electricity but also on the quality of the electricity service provided to them.

There is no standard solution for rural electrification projects. Each project needs to be

tailored to the local characteristics of the rural community in which the project will be implemented. The assessment of available renewable energy resources (solar radiation, wind speed, water flow rate, etc) will be key in the selection of the technology to be used. Apart from the availability of renewable resources, other important factors to consider in the design of any rural electrification project are the high-priority end-uses for the electricity, the income level of the community, the availability of financial services, etc.

Electricity distribution companies tend to prefer the use of diesel engines for off-grid

generation projects rather than the use of renewable energy systems, since they have technicians trained in the operation and maintenance of diesel engines and the investment cost of combustion engines is usually lower than that of RES.

If rural electrification brings rural economic development as intended, the electricity

demand of the rural community may increase significantly after the execution of the project. Consequently, the design of any rural electrification project should include some degree of flexibility and modularity that allows the expansion of the system along with the growth of the demand at a minimum cost. The project design should also include standards for the use of efficient equipment by final consumers.

A solid management model is key for the long-term viability of rural electrification

projects. The management model must clearly define operation and maintenance tasks and responsibilities. The participation of the local community in these tasks, as well as the design of a tariff system that at least covers the costs associated to them, are basic pillars of any sound management model.


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To assure an efficient use of electricity and the involvement of the users in the project, final users should always pay some tariff for the electricity service they receive. In some cases, rural customers may be willing to pay a higher tariff than expected due to the valuable benefits obtained from the new electricity service. This is especially true when the electricity supply facilitates the development of new economic activities, thus generating a new source of income for the community.

A major obstacle to the widespread use of RES for rural electrification is their

comparatively high capital and installation costs. Nonetheless, owing to the simplicity and reliability of these systems, operating and maintenance costs are relatively low. This means that RES may appear as an attractive option under a life-cycle cost analysis.

Typically, only the wealthiest residents of rural villages can afford to pay for the RES

with cash. The demand associated to this delivery model is therefore very limited, but credit and rental options can expand the market significantly. The fee-for-service arrangement tends to be strongly preferred by end users because it eliminates the need to undertake a large capital investment. In addition, it eliminates the risk to the end user of technical failure of the system, since it is in the best interest of the company to ensure an appropriate maintenance of the equipment.

7.2. Conclusions on the Chilean Program for Rural Electrification In Chile, the activities of generation, transport and distribution of electricity are in hands

of the private sector. Hence, the state only plays a regulatory and fiscal role. The regulatory framework for the exploitation of renewable energy sources is the same as the framework applied to conventional energy sources. This means that the use of renewable energy sources depends on its competitiveness –both in price and quality– with traditional energy sources.

Chile shows a high potential for the use of small hydropower and solar photovoltaics for

rural electrification projects. While the use of PV systems is especially interesting in northern and central regions of the country, small hydropower could provide electricity to many isolated rural communities in southern Chile. Wind-diesel hybrid systems are also an interesting option for rural communities in the austral region.

The Chilean Program for Rural Electrification was created by the National Energy

Commission at the end of 1994. The goals of the program are to solve the lack of electricity supply in the rural sector, reduce the migration of people from rural to urban areas, and promote the development of productive processes. The program follows a decentralized management model in which the central government only provides funds and technical assistance and coordinates the program. Each region evaluates, selects and funds its projects according to a methodology established by the CNE in which only those projects with a positive social return but a negative private return are considered for subsidies. The subsidy is only for the initial investment, so tariffs must be high enough to pay at least for O&M costs. There are no specific incentives for projects based on renewable energy sources. Projects are currently selected according to the lowest


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investment cost. However, a project for the removal of barriers to the use of RES for rural electrification was initiated in October 2001 by the CNE and the UNDP.

During its first phase (1995-1999), the program has increased the level of electricity

supply to rural households from 56.8% to 76%, exceeding the 75% target for year 2000. The program has successfully introduced competition at several levels: among communities, for financing their projects; among distribution companies, for implementation of the projects; and among regions, for the funds provided by the central government. However, most of the projects have involved the extension of the grid. Even though Chile shows a high potential for the use of RES for rural electrification, only recently these systems started to receive support from the government. Moreover, renewable energy pilot projects have shown a low sustainability, mainly because of the lack of knowledge about RES and the absence of an efficient management model.

According to the opinion of a number of different stakeholders, the main barriers to the

use of RES for rural electrification in Chile are the lack of knowledge about renewable energy technologies and their applications, the absence of a reliable offer of renewable energy equipment, and the frequent lack of arrangements for the long-term management and operation of renewable energy projects. Two basic measures to overcome those barriers are the training of technicians for operation and maintenance tasks and the standardization and certification of renewable energy equipment. The GEF project for the removal of barriers to the use of renewables is expected to address these issues.

The participation of the local community is essential to guarantee the sustainability of

rural electrification projects. Accordingly, PER’s bottom-up approach by which rural electrification projects have to be requested by the rural communities themselves has been key to the success of the program. Decentralization of decisions to the regional and community level has also contributed to this achievement.

One of the main barriers to the expansion of RES is the lack of financial instruments for

renewable energy microentrepreneurs. Due to the absence of information about RES and their applications, financial sector agents tend to see renewable energy investments as riskier than they actually are. To address this problem, PER could apply some of the strategies that are being applied in the Paraguayan program for rural electrification such as the implementation of educational programs for commercial banks, credit cooperatives and rural development support entities, and the creation of a guarantee fund to support credit lines for renewable energy suppliers and microentrepreneurs.

The contribution of PER projects to enhance economic development in rural communities

has not been properly assessed. Government officials consider that PER projects have not only brought about social improvements but also promoted the development of new economic activities. In contrast, some industry players believe that the contribution of PER to boost rural economic development has been low because PER has been too focused on providing electricity to residential users and lacked attention to the provision of electricity for productive applications.


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7.3. Policy Recommendations PER’s goals should be based not only on the percentage of rural households with access to

electricity but also on the quality of the service provided to them. This would avoid the proliferation of low-grade electrification solutions (e.g. low-capacity solar home systems).

PER should strengthen its cooperation with other rural development programs so the new

electricity supply creates opportunities for the development of new economic activities in the rural communities.

PER should focus its efforts on supplying electricity for rural productive applications

which will enhance rural development more than residential applications.

The National Energy Commission and the Ministry of Planning should jointly carry out a national survey to evaluate rural households’ capacity and willingness to pay for electricity. This could be done as part of the National Socioeconomic Characterization Survey (CASEN).

The National Energy Commission should carry out a national project for the assessment of

renewable energy resources in Chile (solar energy, wind energy, and small hydropower). This could be part of the GEF project for the removal of barriers to renewables and could count with the technical assistance of the U.S. National Renewable Energy Laboratory.

Together with the GEF project plan to create a guarantee fund to support credit lines for

renewable energy projects, educational programs about RES should be implemented in commercial banks, credit cooperatives and rural development support entities.

PER should incorporate the provision of fiscal incentives –such as tax exemptions for the

import of RES equipment– for rural electrification projects using renewable energy sources, since this would promote the exploitation of clean and domestic energy sources.

PER should develop a methodology for the definition of operation and maintenance

responsibilities in those rural electrification projects receiving government subsidies. PER should address the problem of matching a growing demand in off-grid projects by

defining procedures for the expansion of existing projects and promoting the use of flexibility and modularity principles in the design of new projects. Funds should be created to cover the costs for the expansion of existing projects in the future.


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