(Bloomberg) — Chile’s effort to loosen rules governing its
power industry is delivering a record boost to renewable energy
promoters who already were pouring cash into Latin America’s
hottest market for the technology.
Developers led by SunEdison Inc. and Enel Green Power SpA
invested $2 billion in Chile’s clean-energy industry in the
first half of the year, more than double the pace of the same
period a year ago, according to data compiled by Bloomberg.
The shift is the result of a tweak to regulations that
required those who obtain contracts in government auctions to
supply power continuously, a barrier that effectively prevented
intermittent wind and solar farms from winning. The result is
that demand for renewables in Chile is rising even as mining
companies that previously sustained the industry are suffering.
“Until 2014, Chile’s boom was based on the spot market and
on contracts with mining companies,” said Lilian Alves, an
analyst at Bloomberg New Energy Finance in Sao Paulo. “The new
driver now is auctions.”
Ten companies including SunEdison, Acciona SA and Abengoa
SA have already won contracts in the auctions since the rule was
changed in December. The power plants they’re working on would
supply at least 1 gigawatt of solar and wind power, about the
same as a nuclear reactor.
Power Auctions
Under the auctions, generators compete for contracts to
deliver electricity under long-term agreements. Steady suppliers
that use fossil fuels and hydro-electric plants previously
dominated the auctions. The next tender due in the first half of
2016 is designed to allocate 29 percent of Chile’s regulated
energy supply for the next decade.
The auction model is common in Latin America. Brazil
included wind in similar sales since 2009, making it the
region’s top market for turbines. It added solar in October.
Brazil drew $1 billion for clean energy in the second quarter,
down 50 percent from a year ago, New Energy Finance estimates.
Chile’s government acted because renewables growth is
expected to slow with falling demand from the mining industry,
which had been buying electricity from solar and wind farms to
power mines.
A plunge in copper prices has held back interest in
expanding mines, said Hernan Farace, senior vice president of
project finance for Greenwood Energy, a New York-based solar
developer that’s planning an 80-megawatt project in Chile’s
Antofagasta region.
Demand Outlook
“Demand for energy may fall in the future, as there will
be less new mines,” Farace said.
Solar installations will slow 40 percent by 2017 from 2014
and wind projects will slow by 30 percent, according to New
Energy Finance
In Chile’s power auctions, developers offer to provide a
certain amount of capacity at a specific price. They don’t say
what types of power plant they’re planning. Bids are listed from
cheapest to most expensive, and distribution companies select
the lowest-cost proposal available until reaching their target
capacity level. The winners get 15-year contracts.
SunEdison acquired Santiago-based Latin America Power in
May along with its project pipeline of more than 200-megawatts
of wind and hydropower plants in Chile and 119 megawatts of
operating wind and hydro there and in Peru.
SunEdison’s Work
The company won contracts for 350 megawatts of solar plants
in the December auction. The Maryland Heights, Missouri-based
company has built four solar farms in Chile with 300 megawatts
of capacity, and plans have installed 1 gigawatt in the next few
years, according to said Alfredo Solar, the company’s general
manager in Chile.
Clean energy has been soaring in Chile, which is a net
importer of oil. There are almost 546 megawatts of solar farms
working and another 1,700 megawatts under construction. That’s
up from almost nothing in 2013. Wind capacity has swelled 50
percent to 892 megawatts.
Expensive power prices has helped drive investment
in¼alternatives to fossil fuels. Chile’s power averages $151 a
megawatt-hour compared with $125 in Brazil and $142 in Mexico,
the region’s top two markets. Renewable contracts at the
December auction averaged $103 a megawatt-hour.
Power in Chile is expensive in part because the nation has
four major, unconnected grids. That means a dry spell that
reduces hydropower in one region require utilities to use more-expensive alternatives. The government is working to link the
two main systems by 2021, Marcos Severine, an analyst at
JPMorgan Chase & Co. in Sao Paulo, said in an April report.
“The sector cannot grow only based on the merchant
market,” SunEdison’s Solar said in a telephone interview from
Santiago. “It must have long-term contracts, and the auctions
will be the element to push renewable energy in Chile.”
To contact the reporter on this story:
Vanessa Dezem in Sao Paulo at
vdezem@bloomberg.net
To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Will Wade, Philip Revzin