Governance and Institutional Design in Chile's Electricity Sector: Addressing Blackout Challenges

System, such as deficiencies in contingency planning, oversight, and enforcement that hindered timely recovery after the blackout.

Our review identifies three main areas of concern: (i) operational risk management and planning for defence schemes to face extreme contingencies, (ii) deficiencies in oversight and enforcement that may have contributed to the blackout spread and hindered timely system recovery, and (iii) conflicts of interest and transparency issues in the investigation and allocation of responsibilities and compensations for non-supplied energy. These weaknesses are particularly relevant in a context of accelerated decarbonization, where the growing penetration of variable renewable generation and the phasing-out of synchronous units increase system complexity and operational risks.

The paper proposes regulatory reforms to strengthen governance and accountability frameworks, aiming to ensure objectivity, improve resilience, and enhance institutional capacity to manage systemic risks in Chile’s evolving electricity market. In particular, the proposed revisions to the regulatory framework include reforming the sanctions scheme and oversight measures applicable to the Independent System Operator, introducing mandatory compliance plans, and amendments to the personal liability regime for its board members — including additional personal sanctions— to remove current disincentives for effective oversight by the regulator and ensure objectivity and full information disclosure in the investigation and allocation of responsibility for blackout events.