Chile: Overview of Renewable Market and Opportunities
Not long ago, Chile revised the Energy Act, the largest such change to the Chilean energy sector in 35 years. The primary goal is that 70% of national electricity generation is to come from renewable sources by 2050. In addition, it is intended that there will be a 25% reduction in consumer power prices by 2021, with all households having continuous access to quality energy services.
A few weeks ago, Chile´s latest renewable energy auction was awarded and the country has moved closer to its goals.
Under the supply tender, around one third of the current consumption of the country’s regulated grid-supplied consumers was up for grabs starting in 2021. Well over-subscribed – by a factor of about seven – 84 companies submitted 85,000 GWh of bids for the just over 12 TWh of available contracts. Contracts were awarded at an average price of US$47.6/ MWH.
Among the winning bidders were developers such as Mainstream Renewable Power, which won seven of the government contracts on offer to the collective tune of 1 GW of new wind power projects. With an overall investment worth US$1.65 billion, Mainstream plans to build and operate seven utility-scale projects located throughout Chile.
However, the lowest offer was revealed as coming from Solarpack, which won a 280 GWh/year slice of the pie with a record-breaking bid of $29.1/ MWh from a 120 MWp photovoltaic (PV) solar installation, the lowest price reported from a solar project world-wide to date. Solarpack, through its subsidiary Maria Elena Solar S.A, will construct the Granja Solar project, which will be located in the region of Tarapaca. It is expected to enter commercial operation in 2019.
Although quite exciting, success does not come easy or without risks for those entering or operating in the Chilean energy market.
Transmission capacity restrictions exist in the northern part of the SIC, which prevents the transmission of energy from both wind and solar for several hours a day and has seen spot market power prices fall to zero for prolonged periods in the region.
This has prompted further development of the transmission grid, including a US$1 billion, 753 km line to address congestion on the northern parts of the central grid that is due for commissioning next year.
In addition, the attractiveness of Chile as an investment destination of renewables will largely depend if projects are being built that are commercially viable. Low prices are great for the country but companies need to make a return on their investments in order to keep the momentum moving forward.
Where are the opportunities?
Later this year, the National Energy Commission is to call for another tender for 3,800 GWh for delivery beginning in 2023. In 2017, a further call for 7,200 GWh to supply from 2024. In 2018 , auctions for 8.900 GWh, to start supplying in 2025, are already planned.
In addition to this, we believe that the government will continue to fund research of renewable technologies. Chile has potential in other areas such as geothermal and wave technology.
Companies that can support the storage of energy will also thrive due to the intermittently of renewable energy.
Lastly, companies that provide services and products to the renewable market will thrive as more projects are approved and built. This will include engineering companies, technology companies that can increase efficiencies, and manufacturing companies that provide physical infrastructure.
Our team of bilingual lawyers work with foreign companies who have various interest in the Latin American power generation market. We focus on providing straight forward advice for our clients in order to bridge the gaps that tend to arise when doing business in the Region. Please feel free to contact Cody McFarlane – email@example.com.