THE REGULATORY TASK AHEAD FOR THE CUSTOMER IS SUBSTANTIAL, CHALLENGING, AND URGENT.
In recent years, the energy debate has focused predominantly on supply, namely, energy production capacity, the sources used, and the infrastructure required to transport energy, all with a view to achieving the long-awaited energy transition. However, perhaps as a consequence of this focus, recent years have seen an underestimation of a factor that plays a structural role both in the physical design of the system and in the evolution of its regulatory framework: electricity demand, or the end customer.
Within the electricity system, three clearly defined markets can be identified: distribution, transmission, and generation. Given their characteristics, the first two are considered natural monopolies and are therefore highly regulated markets. Although electricity generation is not inherently monopolistic, it is nevertheless subject to partial regulation, particularly with regard to pricing.
Thus, across all three segments, regulation shapes their development and operation to varying degrees, with the primary objectives of promoting free competition where permitted, preventing abusive practices, protecting consumers’ economic freedom, and fostering social efficiency. Although, as previously mentioned, investments in generation, transmission, and distribution, as well as their operation, should theoretically be planned according to projected demand and its needs, this is not happening in practice. In recent years, in particular, the trend has been the opposite.
Chile’s current tariff structure, based on time-of-use blocks and flat rates, does not adequately reflect hourly marginal costs or provide efficiency signals to either generators or consumers. Likewise, the location of generation facilities is determined not by customer needs, but rather by the requirements of individual projects, which are generally at odds with those needs. This clearly results in higher system costs, a greater need for transmission infrastructure, and increased energy curtailment, all of which are ultimately borne by the customer. Regulatory shortcomings in addressing customer needs are particularly evident in the distribution sector, where a reform that has been indefinitely delayed has had tangible consequences over recent winters.
Furthermore, the regulatory framework still presents barriers to the adoption of demand response schemes, aggregators, and flexibility markets. Enabling industrial, commercial, and even residential consumers to participate in system operations requires more flexible and technologically advanced regulatory frameworks that facilitate their safe and efficient integration. It is imperative to review and modernize tariff structures across generation, transmission, and distribution, ensuring that they incentivize service providers to operate efficiently and innovate, while fostering competition in the market. All of this would directly benefit the end customer. Likewise, restructuring the electricity sector’s institutional framework is both necessary and urgent to ensure it can address system challenges and customer needs in a timely manner.
In conclusion, the regulatory task ahead for the customer is substantial, challenging, and urgent. In an electricity system such as Chile’s, which is undergoing rapid technological and climate-driven transformation, regulation can no longer be treated merely as an instrument for control or for correcting market failures. Instead, it must serve as a strategic tool to anticipate behavior, foster innovation, and, above all, place demand at the center of regulatory and institutional design.
HIGHLIGHTED QUOTES
“In theory, investments in generation, transmission, and distribution, as well as their operation, should be planned according to projected demand and its needs. In practice, this is not happening.”
“The regulatory framework still presents barriers to the adoption of demand response schemes, aggregators, and flexibility markets.”
“Restructuring the electricity sector’s institutional framework is both necessary and urgent to ensure it can address system challenges and customer needs in a timely manner.”
By Teresita Vial, Director of the Energy Practice at Lembeye
Revista Electricidad