SANTIAGO (Dow Jones) -- Despite the Chilean government's plans to boost renewable energy sources, high capital costs remain a significant entry barrier for renewables, the International Energy Agency's Deputy Executive Director Richard Jones said on the sidelines of an energy conference.

Chile, with a population of 17 million, needs to nearly double its installed energy capacity over the next decade to keep up with projected demand.

While renewables became an important energy source in some developed countries, in Chile they only represented 3% of the Andean country's 2011 installed capacity of 16,857 megawatts, according to the Energy Ministry.

In a new energy bill being discussed in Congress, the government aims to increase renewable energy sources to 20% of the country's matrix by 2020.

Chile's largest energy consumers are mining companies, as the production of the country's main export, copper, is electricity intensive. Copper represents 60% of Chile's exports and 15% of the country's gross domestic product.

If the country doesn't provide energy solutions quickly, companies could delay mining investments, which are expected to total $100 billion in the 2012-2020 period.

Chile refocused its energy policy after neighboring Argentina cut gas exports to Chile in 2007. In this context, renewables surfaced as an option to meet energy demand, but are still far from being an important energy source to rely on.

One of the problems renewable energy projects face is the need for a significant capital injection.

"The capital cost is higher, but then the operational part is almost free," said Jones.

Costs to build these type of projects, along with investors' unfamiliarity, are a big entry barrier for renewables in Chile, he said.

To reduce high start-up costs, companies can build renewable energy projects in different steps. "These projects are scalable," said Jones.

Chile has sun, wind, kilometers of coastline, biomass and volcanoes that investors and companies could use to develop a large-scale penetration of renewables all along the country.

"The potential for renewable energy in Chile is diverse and substantial, thanks to the country's unique geographical and natural conditions," an IEA report said.

Hydrogeneration is a main source of power in Chile, accounting for 35% of the country's energy matrix. The country has many rivers that begin high in the Andes mountains and have the potential to move power-generating turbines.

Imported thermal sources such as natural gas, coal and diesel, represent a combined 62% of the country's installed capacity.

In recent years, long legal battles from environmental groups have delayed the country's biggest power projects such as the $3 billion HidroAysen project in Patagonia and the $5 billion coal-fired Hacienda Castilla project in northern Chile.

Ecological groups would like to see the country's energy needs met through smaller projects with less environmental damage.

HidroAysen is a joint venture between Empresa Nacional de Electricidad SA (ENDESA.SN, EOC) and Colbun SA (COLBUN.SN) and Hacienda Castilla is being developed by Brazilian billionaire Eike Batista's MPX Energia SA (MPXE3.BR, MPXEY) and German utility E.ON AG (EONGY, EOAN.XE).

While legal problems are an obstacle to developing hydroelectric projects and coal-fired plants, renewable energy projects are also facing opposition in Chile.

In the southern Chiloe archipelago, local communities recently stopped Chilean-Swedish company Ecopower's proposed wind farm, which had already received environmental approval.

-By Graciela Ibanez, Dow Jones Newswires; 56-2-715-8929; graciela.ibanez@dowjones.com