Chile: Solar cheaper than fossil fuels

Representing an important achievement in the renewable energy industry, solar energy is now said to be the cheapest form of electricity generation in Chile, while solar and wind are both more inexpensive than fossil fuels.

In an industry note, Deutsche Bank writes that in the country’s last tender round, held on October 23, renewables were awarded 100% of the contracts to supply 1,200 GWh of energy to Chile’s unregulated customers (i.e. those with a demand for capacity of more than 2 MW). Compared to coal power, which offered up rates of US$85/MWh for electricity generation, three solar PV farms offered between $65 and $68/MWh, while a CSP plus storage project offered rates of $97/MWh.

In line with other industry analysts, Deutsche Bank predicts Chile will see roughly a GW of solar installed this year. Currently, it reports that PV module prices are around $0.52/W and, for bigger projects, under $0.50. Meanwhile, it says project costs are below $1/W. Both First Solar and SunEdison are expected to profit from the neat term market growth.

Hurdles

While the market is progressing positively – over 2 GW of solar PV and CSP are currently under construction; and 19% of the electric demand needs to be met with solar energy by 2050 – Deutsche bank warns installation rates could drop to just 500 MW and 400 MW in 2016 and 2017, respectively, if such challenges as transmission, interconnection and low spot market prices are not addressed.

"All the big solar projects are in Northern Chile/Atacama desert region where interconnection is the main issue. All the best spaces for solar projects have generally been already taken away. New contracts in this region are difficult to come through because of interconnection challenges," writes Deutsche Bank.

It adds that many of the 2.1 GW of approved projects are unlikely to be completed until transmission lines are sorted out. The signing of PPAs is also a challenge, and spot market prices are said to have dropped from an average of $180/MWh to just $60/MWh in the last year. Prices are better in Santiago, at between $120 and $150/MWh, but land availability is an issue here and, as such, projects are not large-scale.