Domingo 20 de Agosto de 2017

The surprising success of solar energy in Chile

Por: Gabriel Henríquez - 04-07-2017

Technology for renewable energy has progressed swiftly in cost reduction, making it easy to imagine a future, not so far away, where electric grids are mostly fed by clean energy. According to the International Energy Agency (IEA), costs of producing energy from renewable sources, such as solar or wind, have fallen in two thirds between 2010 and 2015, approaching to efficiency levels of fossil fuels and nuclear reactors (The Conversation, 2015).

Countries in development have a peculiar advantage when moving towards clean energy. In developed countries, energy supply is already checked by industrial and household demand, so it is relatively plain. New energy has to compete with multi-billion carbon and gas plants, increasing costs remarkably. In contrast, in countries that are adding energy generation capacity, such as those in development, renewable sources can compete with any available type of energy practically without subsidies (Bloomberg, 2016)

Latin America, according to Bloomberg’s Climatescope is in the frontier of developing countries, through various pro-renewable policies and aggressive price tenders. At the beginning of 2016, of the 366GW installed in the region, nearly 12% was produced by biomass, wind, small hydroelectric, solar or geothermal projects. Investments are reaching new records as service providers and equipment manufacturers are gaining more specialization in renewables.

The outlook in the region, however, has varied in relation to domestic developments. In Brazil, the political and economic crisis has impacted negatively in renewables’ investments. In contrast, in Chile, investments have surged from US$1.3bn in 2014 to US$3.2bn in 2015, amid diminishing prices, though congestion in the electric grid remain an obstacle – as investments in transmission lines are being rolled out. Uruguay, the third most relevant country in renewables, has also seen significant investments, however experts point that the market is somewhat saturated.

While the withdrawal of Donald Trump of the Paris Accord was a blow to expectations from governments and enterprises compromised with climate objectives, it should not limit the global efforts to the reduction of emissions and the rollout of clean energies. In the United States, businessmen and local authorities have supported the Accord and committed to achieving its goals despite the decision of the federal government.

China, the second largest CO2 emitter, is firmly committed to the Accord, as it leads investments in green technologies. Beijing expects to invest US$261 billion in renewables towards 2020, while adding 13 million jobs to the industry. Solar generation is expected to increase five-fold in five years, reaching the construction of 1,000 large solar plants. (The Guardian, 2017).

Technology and geography

As it happens with all innovations, the first barrier is cost and the degree of technological development. More advances in technology allows faster integration of solar sources to electric grids. Such has been the case in the last few years. For instance, in 2010, the cost of producing a base level of solar energy was US$500 MWH, while in 2015 the cost reduced to US$200 MWH, opening the way to compete with conventional sources whose median cost reached US$100 MWH that same year.

Another relevant issue is the geographical conditions where private and public cooperation takes place. Along with differences in cost of investments, fuels, maintenance and unloading of equipment; geography affects production dramatically. For example, in Europe in 2016, the cost of photovoltaic installations on rooftops oscillated between US$311,77 MWH in cloudy Belgium to US$166,7 in the sunny Mediterranean coast.

A mix of high subsidies and adverse geographical conditions make the adoption of green technologies in several developed countries a real crusade against anti-global warming.

The Chilean desert and the solar future

The development of solar energy in Chile has been fast and surpassed investments in other Latin American countries. In 2014, Chile had an installed capacity of 500MW, followed by far by Peru with 100MW and Mexico with 50WM. By the end of 2015, Chile had already 750MW installed.

The Andean country is certainly blessed with the Atacama Desert, giving it strong advantages over other countries. Of course, government promotion and certain incentives, such as tax exemptions for use of solar panels in water heating, have also helped along the way.

Early in 2008, when no one wagered on the development the industry, a quota for renewable energy was established by law, introducing a minimum of renewables that would incorporate into the generation system, with a mandate towards 2025 for clean energy to feed the national grid by 20%. In 2015, with 18% achieved, it is easy to think that by 2025 the goal will be widely surpassed.

In September 2014, Chile implemented a system of auctions specific for renewable energies (Climate Scope, 2016). In the system, the generators agree to supply electricity for a certain period of time. Towards the end of 2015, two tenders had already taken place with outstanding results. In August 2016, success reached its peak with the largest tender of electricity contracts in the country, where prices fell in average 40% in comparison to 2015. The producers of renewables took the lead, leaving behind well-known enterprises of conventional energy such as Colbún and AES Gener.

That same year, investment in renewables helped the industry cope a second quarter economic contraction that reached 0.4%. Despite the anemic state of the Chilean economy, investment in machinery and equipment increased 9.7% in the second quarter of 2016, in comparison to 2015, because of the boom in energy investments in the north of the country, according to analysts. Taken together, investments in production of solar energy and lower prices for consumers may add as much as 2.5% to the potential GDP growth, according to the Minister of Finance (Bloomberg, 2016). Projects that already won contracts amount to investments of over US$5,000 millions.

Record prices

According to the former Energy Minister, Máximo Pacheco, the price of electricity paid by consumers should decrease between 20% to 25% to 2021  (T13, 2016). A medium-term bet that virtuously combines energy low in carbon emissions and better prices for consumers.

In 2016, the record price established in Dubai, of US$29.9 MWH was beaten in Chile, as the Spanish enterprise Solarpac Corp. won a contract to sell energy from a solar plant of 120 MW at just US$29.1 MWH.

The result was not so unexpected, as in October 2015, in the second contract auction, three solar plants had offered prices to distributors of US$65 to US$68 MWH while coal energy offered US$85 MWH. Two wind farms offered US$79 MWH. Conventional energy sources swiftly lose competitivity to renewables’ decreasing costs. In such context, naturally the contracts were awarded to clean energy producers.

The situation, however, was drastically different seven years ago. In 2008, there were no offers from renewable sources and distributors had to pay one of the highest prices in the Americas, at US$104.3 MWH. In a highly concentrated market, dominated by a few companies by decades, it is a huge development that 31 companies participated in 2015 auctions. (Bloomberg, 2016)

Fuente:Bloomberg New Energy Finance, 2016

The increase in energy capacity from renewables has even created the opportunity to expand the electric grid, making it possible to export electricity to neighboring countries, such as Argentina.

Mixed financing

Support for renewables has come also from multilateral sources, along with government policy and private agency. The Inter-American Development Bank, through the Inter-American Investment Corporation (IIC), funded a loan of US$19,7 millions for the construction of Los Loros plant, property of the French company Solairedirect. The IIC has also arranged additional capital from the Canada Climate Fund for the Private Sector in the Americas and the China Co-Financing Fund, both managed by the ICC, for a value of US$18 millions and US$7 millions, respectively. Proparco, the French Development Agency, has further contributed a loan of US$19,7 milllions (IDB, 2016).

Los Loros, located in Tierra Amarilla, has a capacity of 54 MW to be sold in the spot market of the Central Interconected System (SIC, in Spanish). The project contributes to diversify the energy matrix while avoiding emissions of up to 74,800 tons of greenhouse gases.

A bright future

In the next tender, which will take place in October of 2017, the Spanish Company Solarpack Corp expects prices to continue their downward trajectory, given high competition between companies and unchanged economic fundamentals. Since the company won supply contracts at US$29.1 MWH, in last August, prices of solar panels have persisted their decline as technology has also become more efficient. As case and point, the latest price record was reached in Abu Dabi at US$24,2 MWH (Bloomberg, 2017).

Low cost electricity supply in Chile relies on the declining cost of components and the government effectively building two planned transmission lines from the north to the center of the country, thereby decongesting the current network. (Bloomberg, 2017).

One of those projects, the line Cardones-Polpaico (reaching 753 kilometers) is currently delayed by three months. The Chilean Association of Renewable Energy estimates that the delay could reach up to a year, while the current Energy Minister has pointed out that finishing the construction on time will be a “challenge”. A relevant aspect considering that generators have put their trust on a robust transmission system that supports their investments and expectations. Meanwhile, the connection between the Central Interconnected System (SIC, in Spanish) and the Greater North Interconnected System (SING, in Spanish) is practically finished, a key contribution to increasing the supply and energy safety of the country.

The success of solar energy in Chile portrays a risky government bet in the context of increasing pressure by large hydroelectrics and non-renewable companies to have their projects accepted. It suffices to remember the controversy surrounding the approval of Hydroaysén, a megaproject to build five hydroelectric plants in the Aysén Region, and the fear campaign about the country running out of energy and the imperative need to build the giant project. Today, nearly 58% of the generation that would have provided Hydroaysén is replaced by solar and wind farms (El Mercurio, 2017). Looking back, the decision of the new government of Michelle Bachelet to cancel the mega-plant, in June 2014, seems quite daring and appropriate.

The solar industry in Chile has expanded as the economy has slowed down and a pessimist business environment has taken over. The industry is expected to further contribute to the economic recovery in the next years, given technological breakthroughs, the consolidation of massive investments and lower prices for consumers.

To conclude with a staggering projection.

According to the Bloomberg New Energy Finance, towards 2025, solar energy will be worldwide, in average, cheaper in than coal.

See article in Spanish - Ver artículo en español 


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