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MPhil in Engineering for Sustainable Development

global challenges, engineering solutions

Studying at Cambridge

 

Jordi Dagá Kunze

The Voluntary Renewable Energy Market System as a complementary tool to stimulate renewable energies in Chile

Jordi Dagá Kunze

The Voluntary Renewable Energy Market System as a complementary tool to stimulate renewable energies in Chile

From 2004 Chile has seen an important growth in non-conventional renewable energy (NCRE) projects for electricity generation. The country‘s goal is for 10% of the electricity generation to come from NCRE sources by the year 2024. For achieving this goal the government has implemented a quota market system. Despite the growth of NCRE, there has been an increase in carbonization of the grid and the electricity sector has been facing opposition from Chilean society in the past decade. Chile pioneered the introduction of a free market system in the electricity market, but this system is for the supply side only, excluding the demand side.  In such a system the consumers cannot decide what kind of energy they want to consume.
The aim of this dissertation is to find out whether a Voluntary Renewable Energy Market (VREM) system for Chile is an appropriate mechanism for incentivising NCRE in a frame of sustainability. The VREM system enables customers to decide the type of energy source from which they want to purchase their electricity, based on how much they value the positive externalities of renewable energies and in how much they are willing to pay for that. This system democratises the grid, empowering society to decide what kind of grid composition they want for their country. A further benefit of the system is that it gives companies the chance to achieve their green targets in terms of carbon footprint and in terms of corporate responsibility without compromising competitiveness of the companies that need inexpensive energy to survive. 
The study focuses on the analysis of international experiences and makes comparison with the Chilean reality. In the United States of America’s case the VREM system is combined with the quota system with very positive results. In this case, the VREM since 2005 has created a larger demand for renewable energies than the compliance market and demand has been growing constantly since then. The VREM system has created awareness among consumers and authorities, stimulating a sustained growth of demand by customers for NCRE and driving authorities to increase year by year the compliance target for them. This case has shown that implementing a VREM system as a complementary tool to the quota market system is an excellent way to incentivize NCRE while democratising the electricity grid composition.