Chile has abundant solar and wind resources and renewable generation is becoming competitive with fossil fuel generation. However, due to renewable resource variability their large-scale integration into the electricity grid is not trivial. This study evaluates the long-term impact of grid level energy storage, specifically Pumped Thermal Energy Storage (PTES), on the penetration of solar and wind energies and on CO2 emissions reduction in Chile. A cost based linear optimization model of the Chilean electricity system is developed and used to analyse and optimize different renewable generation, transmission and energy storage scenarios until 2050. For the base scenario of decommissioning ageing coal plants and no new coal and large hydro generation, the generation gap is filled by solar photovoltaic (PV), concentrated solar power (CSP) and flexible gas generation with the associated drop of 78% in the CO2 emission factor. The integration of on-grid 8h capacity storage increases the solar PV fraction which leads to a 6% reduction in operation and investment costs by 2050. However, this does not necessarily lead to further reductions in the long term emissions. Thus, it is crucial to consider all aspects of the energy system when planning the transition to a low carbon electricity system.