With abundant sunshine, coastline, and other natural resources, Chile has emerged as a renewable energy leader. In just a decade, it went from importing fossil fuels to generate 63 percent of its energy in 2013 to producing 68 percent from renewables in 2024.
This transformation has been driven by strong regulatory frameworks that encourage private sector investment, falling technology costs, and ambitious national targets. Chile set a 70 percent target for renewable energy generation by 2050, accelerating reforms to support the transition.
The IDB Group has played a pivotal role throughout this ongoing energy sector revolution through supporting policy reforms and increasing private sector investment.
Policy Reforms Driving Change
In 2021 and 2022, the IDB provided $350 million in a series of programmatic policy-based loans (CH-L1159, CH-L1165) to modernize regulations, accelerate the integration of renewables, and promote innovation. These measures reduced investment costs, enhanced service reliability, stabilized energy prices, and improved regulatory standards for evaluating distribution companies.
In addition, the program has supported the gradual retirement of coal-fired power plants, reducing coal’s share in installed capacity from 18 percent in 2018 to 12 percent in 2023. To accelerate this phaseout, IDB Invest is piloting an innovative financing instrument with Engie Energía Chile, incentivizing the early decommissioning of two coal-fired power plants and the addition of new clean energy sources (see this case study).
Building the Renewable Energy Market
In 2013, only one percent of Chile’s energy was generated by non-conventional renewable energy sources such as solar and wind, and there was limited commercial capital available to finance long-term renewable energy projects.
To make projects feasible for developers, IDB Invest combined its own capital with concessional blended finance resources from the Clean Technology Fund and the Canadian Climate Fund for the Private Sector in the Americas, allowing it to absorb more of the initial risk. This is how IDB Invest financed Pozo Almonte and Calama Solar in 2013, the first large-scale photovoltaic solar power plants in Latin America and the Caribbean (LAC). This was followed by the financing of two additional solar plants in 2015, helping accelerate the commercial viability of this market.
Similarly, in 2017, IDB Invest leveraged Clean Technology Fund resources to offset the high cost and risk associated with exploratory geothermal drilling. Drilling was a success and Cerro Pabellón became the first privately-operated, large-scale geothermal power plant in South America, contributing 81MW to Chile’s national electricity system.
IDB Invest was also a first mover in stimulating the nascent wind market. In 2017, it provided long-term financing for the 332MW Aela wind farm, attracting co-lenders to the transaction. Once fully operational, the project generated an average of 763 MWh of electricity per year from 2020-2022.
By 2024, installed capacity from non-conventional renewable energy sources made up 35 percent of Chile’s energy matrix, already surpassing its target of reaching 20 percent by 2025 (Ministerio de Energía 2025).
Transmission and Storage Challenges
This progress has come with challenges for the national network’s ability to accommodate the increasing contributions from clean energy sources. The transmission lines that carry solar and wind power to the economic center of the country can get congested, leaving private providers unable to sell their energy to the network (Blackman et al. 2025). The government is working to reduce congestion by expediting the tendering processes for transmission lines and promoting energy storage projects.
The Next Frontier
Chile is one of the countries with the greatest potential to unlock the power of green hydrogen, which is produced through electrolysis powered by renewable energy sources. Developing this market involves similar challenges as with solar and wind before it. Through policy support for a national green hydrogen strategy, technical cooperation projects, a $400 million loan to boost this nascent industry (CH-L1168), and other efforts, the IDB Group will continue working with the government of Chile and the private sector to turn the enormous potential of green hydrogen into real growth, further advancing the country’s renewable energy transformation.
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