Photovoltaics

Chile is witnessing many developers and independent power producers looking to expand their operations there. PV Insider’s Ritesh Gupta talks to First Solar and Etrion, two entities that have signed deals in Chile.

The last 18 months have proven to be favourable for solar PV in Chile.

The government instituted a “clean energy” mandate requiring 10% of its electricity to be generated from renewable sources by 2024, demonstrating strong support for the development and use of renewable energy sources. The National Energy Strategy 2012-2030, presented last year, defines the guidelines that the country will follow regarding energy during the coming years. It outlines administrative and legal measures to adopt a clear position regarding the future development of the energy matrix, as well as the main guidelines and measures for its realisation.

This strategy has certainly meant progress for the sector, which has been evident, for example, with the processing of bills like the one that promotes non-conventional renewable energies and another regarding electric concessions. 

“All this progress needs to move forward at a rhythm that allows the country to have sufficient and competitive energy resources to reach development, so we hope that the processing of the bills in Congress will move forward as quickly as possible,” says Alex Hay, director of business development for Latin America at First Solar.

Comparing Regulatory Environment for solar PV

Hay points out that the market has special conditions because Chile imports energy resources, and their high prices have increased the marginal costs of energy generation and the price of electricity. Furthermore, the country has one of the highest costs of electricity in Latin America, higher than the average of the rest of OECD (Organisation for Economic Co-operation and Development) countries.

“The U. S. and Europe exceed our experience both in the market and in the regulatory arena, so the considerations are different. In the U. S., for example, the price of energy is more competitive due to market tenders and incentives that the government has developed for investors in renewable sources,” says Hay.

Entities are signing deals in Chile and ready to capitalise on the high solar irradiation here. The market has witnessed strategic alliances. Earlier this year, First Solar acquired Solar Chile, a Santiago-based solar development company in which Fundación Chile was an early investor.

Entities from Europe, too, are foraying into this market.

For instance, independent solar power producer Etrion in late July entered into a PPA with Atacama Minerals Chile to provide electricity to its Aguas Blancas iodine mine. The company intends to build, own and operate its solar park with a total capacity of up to 8.8 MW  to meet approximately 35% of the Aguas Blancas Mine’s total projected power requirements. The total project cost is estimated to be US$25m.

As for the differences between Italy (which is similar to other European markets), where Etrion currently operates 60 MW comprised of 17 ground-based solar photovoltaic power plants, and Chile, Cheryl Eversden, chief financial officer, Etrion, says unlike Chile, Italy has a Feed-in-Tariff (FiT) system, whereby renewable companies such as Etrion, receive the FiT, a 20-year commitment from the Italian government to purchase 100% of the solar electricity production at a premium constant rate based on the connection date, as well as the spot market price for each kilowatt hour of electricity produced.

“In Chile, our revenues will be based on market driven contracts, known as power purchase agreements and, when applicable, projects operating on merchant prices, under scenarios where the market provides reasonable assurance of stable long- term prices,” says Eversden.

She says the major difference between Chile and other jurisdictions, is that it is a non-subsidy environment, where solar can compete with traditional sources of electricity without government incentives due to the high strong solar irradiation, high wholesale electricity prices, large energy demand and the decreasing cost of solar generation.

Why is Chile attractive?

Hay says the market in Chile has several attractive elements:

It is an economically stable country with clear regulatory policies and access to capital for financing at reasonable rates.

Also, Chile’s energy demand is growing and is expected to continue to grow during the next 10 years, which represents a challenge both for the country and for investors.

Regarding geographic issues, clearly Chile’s major competitive advantage is the unbeatable solar radiation in the country’s Norte Grande, which together with the reduced clouds in the area, turn the Norte Grande into one of the most prosperous areas for solar energy generation. “For example, in Chile we can obtain twice the energy produced in Germany (a country with the highest installed solar capacity in the world) and 45% more than in southern Spain,” says Hay.

Another advantage is that the demand from the mining industry, a major player that requires energy, is located in the same area as the solar resource, which reduces the investment in transmission.

Hay points out that the cost of solar energy has been falling dramatically as a result of the economies of scale and technological advancements, and will continue to fall.

“In 2011, the average cost of solar panels fell 40%. So we can imagine that solar energy will become one of the most competitive sources of energy in Chile. In the north we have enough space to provide energy for the whole country, and possibly even to export to our neighbours,” he says.

Taking all this into account, as Hay says hecan state, Chile has all the necessary conditions to become one of the first countries in the world in which solar energy is competitive without subsidies.

Complementing Expansion Plans

Over the last few years, renewable companies have been penalised for their reliance on government subsidies. This was not helped by subsequent changes that were made to the regulatory frameworks in certain countries across the world (say retroactive reductions to the FiT system in Spain).

“Luckily for us, Italy has not made any retroactive changes to the FiT system (and we do not expect them to do so), however, the FiT was reduced for newly installed projects, which meant that we saw little opportunity for growth. As a result, we decided to diversify in terms of both geography and contract regime (i.e., moving away from government subsidies), choosing Chile as our first target market to execute on this strategy,” says Eversden.

Some of the reasons (other than highest solar irradiations and its “clean energy” mandate) Etrionchose Chile for the following:

1) It has one of the highest solar irradiations in the world;

2) The energy sector is largely privatised which enables energy producers like Etrion, to enter into bilateral agreements directly with industrial clients in US dollars (PPAs) or to operate at spot due to high electricity rates and increasing demand;

3) Chile’s energy demand has been growing, primarily the result of increased power consumption by the mining sector creating a large opportunity for investment;

4) It is the ideal country to develop the vertical market focused on the mining sector;

5) Chile has an A+ investment rating, which makes it a safe country to do business; and

6) There is a strong appetite from leading financial institutions to deploy capital in Chile to help its growing energy demand and bring renewable energy into the electricity mix. 

“So Chile is a very exciting market for Etrion and we are now developing a pipeline of solar assets that we expect to develop, build and operate over the next few years,” says Eversden.

So it is also not surprising that Chile is attracting investments from all over the world largely for its multiple market drivers and sustainable solar growth.