Market Distortions in the Chilean Electric Generation Sector

Abstract

Chile, one of the pioneers in electricity sector deregulation, has been experiencing its worst recorded drought, severely straining the country's hydro-based generating capacity. The result has been dramatic spot market price spikes and electricity rationing. The government reacted by introducing new legislation intended to encourage investment in additional generating capacity. The author examined the country's electric generation sector and recent electricity crisis and raises questions about the long-term impact of the government's regulatory initiatives.