Transmission expansion under market conditions: The Chilean experience

Abstract

This paper describes the Chilean experience in the planning and expansion of the grid transmission capacity under deregulated electricity market conditions, since 1982. Over all these years, the evolving conditions in the energy market driven by the different private agents joined to the permanent demand growth, meant the need to introduce changes in 2004 to the original regulatory framework, being on of the main issues transmission pricing and investment. The main problems associated to transmission investments were located on the development or expansion of the trunk system due to the transmission costs allocation mechanism and the sharing nature of the assets, that provoked a free rider actuation of most of the agents. For that reason the transmission expansion had to be modified from a business based on free market bilateral negotiations among the transmission owner and the interested parties to a co-operative regulated scheme with participation of all agents involved. The first results of the modifications have been positive in order to reactivate investments in the trunk system.