Chile passes ambitious Energy Efficiency Law

The new law addresses the enormous challenges faced by Chile in the area of energy efficiency: energy-intensive companies in particular must implement energy management systems (so-called “SGEs” [Sistemas de Gestión de Energía]), which require a great deal of equipment, technology and know-how. German and international suppliers and service providers can play a relevant role in providing this. Furthermore, the law anchors Chile's strategy and large scale plans in the field of the e-fuel green hydrogen.

After a relatively quickly concluded parliamentary discussion, a new law on energy efficiency (Law No. 21.305 - Ley 21.305 sobre Eficiencia Energética) came into force in Chile in February 2021. The law is part of the South American country's ambitious plans to convert a substantial part of Chile's energy consumption to renewable energies by 2050. As early as in 2015, the Chilean National Energy Plan 2050 already set the course for this. Since then, the country has recorded one of the world's largest percentage increases in the expansion of renewable energies, especially in the electricity sector. Together with that, Chile presented, at the end of 2020, it’s green hydrogen strategy which has since then became the next major step taken by the country to become a pioneer in the field of renewable energies and e-fuels. With the adoption of the law, the first regulatory steps have now been taken with regard to Chile’s green hydrogen strategy. However, this is just one aspect of the new law; below, we introduce other important changes, of which foreign companies, in particular, should be aware.

The Energy Efficiency Law essentially contains five regulatory areas: 1. Chile’s National Energy Efficiency Plan, 2. the obligation of companies to report their energy consumption and the follow-up obligations resulting from this, 3. energy efficiency aspects of buildings and 4. motor vehicles as well as 5. the already mentioned regulatory framework for the e-fuel green hydrogen. Over the course of the next few months, the law must be further specified through regulations and guidelines.

The Energy Efficiency Law sets forth firstly that a so-called National Energy Efficiency Plan is to be drawn up every five years by the Chilean Ministry of Energy in cooperation with the relevant competent specialist Ministries. This plan is to cover the following areas: energy efficiency in residential buildings, minimum standards and the labelling of electrical equipment, energy efficiency in buildings and transport, energy efficiency and smart cities, energy efficiency in the productive sectors, and education and training in the field of energy efficiency. A participation procedure is going to be available to citizens and businesses, enabling them to participate in drawing up the relevant energy efficiency plan. The first plan should be adopted within 18 months.

In the second step, the law will oblige certain companies to report to the Ministry of Energy their annual energy consumption according to energy use and intensity. For these purposes, criteria will be defined every four years to determine which companies fall under the reporting obligation. Irrespective of this, all companies with an energy consumption of more than 50 teracalories in the previous calendar year must comply with this reporting obligation. In connection with the reporting requirements, a list of companies categorised as energy consumers with "energy management capabilities" will also be published annually by the Ministry of Energy: these companies are obliged to install so-called energy management systems that cover at least 80% of their energy consumption. These energy management systems shall include at least the following points: definition of an internal energy policy, drafting of action plans and energy performance indicators to implement self-defined targets, appointment of an energy manager and implementation of operational controls, measurements and audits. The energy management system will be reviewed every three years by means of an external audit, the result of which will be submitted to the competent energy authority.

In a third aspect, the law concerns the energy efficiency of buildings. To this end, there will be energy efficiency labels and reporting. This will apply to (newly planned) residential buildings, public buildings and commercially used buildings. These energy labels will become a part of the building permit process. Furthermore, sellers of real estate will be obliged to present the corresponding energy efficiency label. To enable these energy assessments to be carried out, a national register of energy advisors will be set up. They will have extensive obligations, which will be enforced by penalties, in the context of energy audits.

The fourth pillar of the law concerns electric vehicles. Here, the interoperability of charging systems for electric vehicles in particular is to be improved. In addition, energy efficiency standards for motor vehicles are going be adopted. These are still being defined and differentiated by the Ministry of Energy. The resulting obligations, which will be enforced by fines, apply to importers or representatives of vehicle manufacturers marketed in Chile. In terms of tax law, incentives will be created for the use of electric or hybrid vehicles, pursuant to which they can be depreciated over three years.

In order to implement the Chilean green hydrogen strategy, on the fifth pillar of the law hydrogen is classified as an energy carrier and fuel. The statutory provision now includes hydrogen in the regulation for fuels with respect to its various aspects: production, processing, storage, transport, distribution and consumption. These are aspects in which hydrogen was previously unregulated. However, further adjustments to the peculiarities of this fuel still need to be made at the regulatory level.

What does the new law mean for German and other international companies?

The new Chilean Energy Efficiency law shows that the Chilean government is serious about implementing its climate protection goals. Companies should therefore address the obligations resulting from this, as violations of the Chilean requirements can lead to severe penalties. However, there will primarily be numerous opportunities for German and international companies in Chile to participate in the country's plans to switch to renewable energies, with cooperation with foreign investors being a declared goal of the Chilean government.

The implementation of Chile's green hydrogen strategy in particular offers good opportunities for foreign companies. Here, German and international companies can be innovators and cooperation partners for Chilean public authorities and private companies at the same time.

We would be pleased to keep you informed of further developments via our Latin America Desk and our Energy Sector Group.

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