Chile: Where it all started

Abstract

This paper describes the pioneering deregulation and privatization process of the Chilean electric industry, which began in 1980s. Over the years, Chile has had its share of success and failures and offers an early example of the difficulties in dealing with three distinct segments of the value chain, namely, generation, transmission and distribution, along with a system operator. In the Chilean context, power generation was left to competitive investors, transmission was turned into an open access regime, and distribution was left as a regulated natural monopoly. The system was put to a test during a severe drought in the late 1990s and subsequent crises, including chronic shortages of natural gas from neighboring Argentina. After 25 years of fine-tuning, the sector still goes under continuous adjustments which respond to a learning process based on what have worked in the past and what have not, and thus it offers useful insights for policy makers and regulators around the world.