At grid parity09 / 2012, Markets & Trends | By: Charles W. Thurston
Chile: The Chilean Congress is poised to double the current national renewable portfolio requirement to 20% by 2025. Solar development in Chile is mainly driven by mining companies and other industrial investors seeking to mitigate rising power costs.
Chile is being racked by electricity shortages and rising kWh rates at a time when global mining giants are pressing for massive project expansions, a dilemma encouraging solar power and other renewables now.
With Comisión Nacional de Energía (CNE) plans to increase the national generation capacity by nearly 50% by 2020 – adding 7,000 MW of power – Chile is wide open to renewable project proposals. Indeed, the Chilean Congress is poised to double the current national renewable portfolio requirement to 20% by 2025, if not sooner.
While free market-oriented Chile is not likely to institute a feed-in-tariff to support solar development in the country, independent power producers stand to profit from power purchase agreements with mining companies and other industrial investors seeking to mitigate rising power costs. Electricity rates jumped an estimated 50% on the open market in Chile in 2011, and have since settled to an average of about US$120/MWh now, according to one source.
Part of the pressure on the nation’s electric grid is coming from the fast-growing economy, which is expanding at a rate of close to 5% per year, ahead of the regional average of less than 4%. As such, Chile’s electrical generation capacity must expand even more rapidly to catch up with underserved areas of the country.
Stepping up to the energy crisis, China’s Sky Solar recently proposed to invest US$900 million, along with the sovereign China Development Bank and Construcción Sigdo Koppers – the mining services conglomerate – to develop up to 300 MW of PV in stages over the next three years. The first project will be an 18 MW development in the Arica mining zone, for which Sky Solar is expected to take private bids for the US$60 million demonstration plant. Total Chinese foreign investment in Chile stands at less than US$100 million now, according to one estimate, so this project would mark a shift in Chinese-Chilean relations. The two countries have already forged a Free Trade Agreement.
The Chilean government itself is said to be preparing a US$20 million September licitation for a concentrating solar power plant, with the financial backing of the Inter-American Development Bank, which is already involved in smaller solar projects in the country. Chile has established a US$15 billion sovereign wealth fund, which it may utilize to help build out the nation’s electricity system to help keep the economy rolling.
Meanwhile, scores of other private sector companies have applied to build PV plants in the Atacama desert region in the north, many of which will be built for mining companies through PPA agreements. “We are very focused on Chile,” said Kim Oster, Director of Business Development in Latin America for Tempe, Arizona-based First Solar. The company was reported in March to be developing a US$90 billion, 1,000 MW PV program in northern Chile over the next eight years.
Among recent Chilean market entrants is Geneva-based Etrion’s Canadian unit, which is proposing a 5 MW PV plant. At the June announcement of the project, Etrion CEO Marco A. Northland commented: “I am very pleased with the progress we are making in Chile. Projects we are discussing with potential clients are at grid parity, which is very exciting news for our industry [...] There is still a lot of work to do, however Chile is a sustainable market which we can develop without being at the mercy of subsidy changes.”
Mining, the top power consumer
Chile is the world’s largest copper miner, supplying about a third of global demand, which generated nearly US$43 billion in export sales in 2011, nearly half of the country’s total exports.
The mining industry also consumes 38% of all electricity in the country, according to a recent comment by Chile’s energy minister Jorge Bunster. In the Sistema Interconectado del Norte Grande (SING) region, one of a baker’s dozen in the country, clustered mining operations consume an estimated 90% of all electricity.
After the most recent wave of electricity price increases, the cost of power now represents about 20% of the total cost of mining, according to Joaquín Villarino, the president of Consejo Minero (Mining Council), the country’s national mining association. In April, Villarino said that “If we don’t do something [about energy shortages] resources will go to countries with less expensive energy,” Minera Chile relates.
Since major mining companies in Chile – including BHP Billiton and Anglo America – plan to invest tens of billions of dollars per year in expansion, they are increasingly aware of the need to develop electricity supplies at the same time. Thus, a host of private sector mining companies in the Atacama Desert region are leading the country’s nascent solar market evolution toward larger-scale PV installations.
According to Renato Valdivia, the director of Santiago-based consultancy Central Energía, the Chilean government has given at least partial approval for 693 MW of solar power projects this year out of a total proposal pool of some 3 GW of projects.
The construction pace has been slow to date, however. Calama Solar 3 was the first 1 MW PV plant in Chile, inaugurated in June by Solarpack, of Gexto, Spain, and Corporacion Nacional de Cobre de Chile (Codelco) a state-owned copper company, with an estimated US$4 million investment by Solarpack. The developers are now considering a 10 MW plant, and eventual expansion to 60 MW, according to comments attributed to Solarpack.
What may be Chile’s first CSP project, worth an estimated US$14 million, is being built by Spain’s Abengoa at a copper mine operated by Minera el Tesoro, a subsidiary of Antofagasta Minerals, to supply process heat. The solar field will be comprised of 1,280 parabolic trough collector modules and yield 7 MW thermal, according to Abengoa, which will help reduce diesel consumption at the mine by 50%.
Spain’s Acciona unit Acciona Energía Chile, in July, filed with the Chilean government to build US$82 million worth of PV plants and a transmission line. The company indicated it expected analysis of the plant to be completed by early October.
An even more expensive 30 MW, US$110 million project, the San Pedro de Atacama IV PV plant – neighboring the I, II, and III units – has been proposed by Element Power, a unit of Hudson Clean Energy Partners, based in Teaneck, New Jersey. Units II and III, proposed by Chile’s Atacama Solar, have secured environmental approval, and unit I is still under review, a Chilean report indicated. The Chilean government is backing at least one of the San Pedro de Atacama units as a 10 MW CSP demonstration plant, with partial funding to come from Corporación de Fomento de la Producción (Corfo), a national development fund. Element indicates it has plans for as much as 300 MW in Chile.
A much larger PV project proposed by AES Gener for the Antofagasta region, in the north, is the 220 MW Los Andes project. It won environmental approval from the government in July. AES Gener, which is the second-largest power generator in Chile, also has built a 20 MW battery-based energy storage project alongside a diesel power plant in the same area, in association with AES Energy Storage, of Arlington, Virginia.
And Seville’s Ingenostrum filed with the Chilean government in April to build 706 MW of PV plants worth an estimated US$1.9 billion in the Antofagasta region, including plans for a transmission line section.
The list of proposed plants for Chile is long and growing longer every week. However, since more solar plants are being proposed in Chile than are likely to be built, local partners may prove to have a competitive advantage.
Development Bank support for PV
As more international developers and more foreign banks are involved in Chile’s solar market, experienced players are working not only with private sector partners, but also with the Chilean government and trade associations to help foster world-class construction, operation and maintenance programs.
One early international development bank supporter of solar in Chile has been the Inter-American Development Bank (IDB). The bank is working with the Chilean government to finance solar PV projects and streamline the expansion of the country’s nascent solar market, with special focus on broadening the public dissemination of information about the solar program, according to Wesly Ureña Vargas, a bank senior climate change expert supporting low-emissions technologies, based in Washington. Speaking at the Intersolar North America trade show in San Francisco in July, Ureña Vargas said, “The biggest problem in the Chilean solar market now is the asymmetry of information relative to it.” “To develop a solar project in Chile you need to pursue land rights, a power purchase agreement and an environmental impact statement, but right now, only information about the environmental statement is readily available from the government,” said Ureña Vargas. “As a result, we see challenges with the assessment of risk,” he said. Solar project environmental reviews are processed by the Chilean government’s Servicio de Evaluación Ambiental (SEA).
Even the status of proposed solar projects as listed by the SEA are not clear to private sector players in the market, Ureña Vargas opined. “The SEA lists seven solar projects under construction, but only one is really being built now,” he said in early July. “We’ll get the ghosts out of the pipeline,” he added.
One way the IDB is seeking to help standardize project development and perform due diligence is through cooperation with the non-profit economic development agency Fundación Chile, which it has made responsible for supervising job training for the construction, commissioning and perhaps the operation of IDB-financed solar projects in the country. The bank and Fundación Chile have also formed a joint program to help develop clean energy projects for small and medium-sized companies in Chile.
Fundación Chile, the Asociación Chilena De Energía Solar (Acesol), and the Chilean Ministry of Energy have cooperatively developed a course for solar installers, along with support from other Chilean companies and institutions. At the award ceremony for the first class of installers in December, Deputy Energy Minister Sergio del Campo said according to Fundación Chile, “We have many challenges and things to improve (in clean energy development), such as the transmission system, the bidding mechanism and the incorporation of new players.” In another recent commercial agreement, Fundación Chile in December forged a partnership with First Solar’s Solar Chile unit for the execution of industrial-scale PV projects in the country. “Chile has a renewable portfolio standard requirement of 10% now, and a goal of 20% has been proposed, but we are starting near zero, so there is a long way to go,” says Kim Oster.
While demand for PV projects is strong among isolated mining companies, geographically broader industrial solar expansion will be limited by the country’s underdeveloped electrical energy transmission line system. “There is a north-south transmission line that has been proposed, which will help the grid,” notes Oster.
The IDB is currently financing a US$32 million, 2 MW solar PV project to power irrigation pumps for the Subsole agricultural group in the Copiapó Valley within the Atacama Desert area, in Chile’s Region III. The first 300 kW of test modules was installed in May, and concluding expansion will take place in December, according to Ureña Vargas. “Now we are receiving calls twice a week from people around the world interested in duplicating the project,” he said. “We see great potential for solar in Chilean agriculture.” IDB is also preparing a study of the potential for other solar development projects in the Atacama Desert with the assistance of Spain’s Solar Technology Advisors. The consultants are expected to deliver a list – and perhaps a very long list – of potential PV projects for the region by the close of this year.