Why non-conventional renewable energy will continue to grow in Chile

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Friday, January 8, 2016

(This story was originally published on December 24)

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Chile makes up for its lack of fossil fuel reserves with world-class wind, solar, hydro, geothermal, wave and tidal resources. The Atacama desert in the north boasts some of the world's strongest solar radiation, which has helped make photovoltaic solar the country's fastest growing renewable technology. 

Central-northern Coquimbo region has emerged as the country's wind capital, although developers say that Chiloé island in the south has even more attractive wind resources.

An energy ministry study found that central-southern Chile boasts 11GW of untapped hydropower potential, while back in the north, construction began this year on South America's first geothermal power plant.

Chile's extensive coastline makes wind and tidal energy intriguing possibilities for the future as well.

TRANSMISSION

After years of discussion, the interconnection of Chile's northern SING and central SIC power grids is finally underway. France's Engie and Spain's Red Eléctrica will jointly own a 600km, 2x500kV transmission line connecting the two systems, with the project slated for completion by end-2017.

Additionally, environmental authorities approved the US$1bn Cardones-Polpaico SIC trunk line expansion. The 753km, 2x500kV project will ease congestion on the northern section of the SIC, facilitating the SING-SIC interconnection and allowing new actors – namely wind and solar farms – to enter the local generation market. 

Also this year, the energy ministry sent legislators a transmission bill designed to facilitate the completion of high-tension lines in a more efficient and sustainable manner.

LEVEL PLAYING FIELD

Legislators approved a set of reforms in early 2015 to the regulated market power supply auction process, making tenders more accessible to renewable developers.

Key changes included the creation of time-of-day specific supply blocks to account for the intermittent nature of wind and solar output, and longer lead times between the awarding of PPAs and the start date of supply commitments.

The first tender conducted under the new format was an overwhelming success, with 38 firms presenting offers and NCRE generators outbidding conventional giants Endesa and AES Gener. The next tender is scheduled for April, and will be much bigger.

LONG-TERM VISION

The government this year unveiled its Energía 2050 energy plan, which mandates a minimum 70% contribution from renewable sources to the national power mix by 2050. Chile will also implement a US$5/t tax on CO2 emissions from power plants starting in 2017, a levy that will increase incrementally over time.

The 2050 plan also calls for an eventual greenhouse gas emissions trading scheme, which would further incentivize development of renewables. 

STABLE INVESTMENT CLIMATE

Chile ranked ninth globally in Ernst & Young's most recent renewable energy investment attractiveness index. Power demand is expected to grow 60% by 2035, according to a study commissioned by central grid operator CDEC-SIC.

Regional interconnection with neighboring countries such as Argentina presents further opportunities for renewable growth, particularly in the north.

Power prices also are among the highest in the region, making it easier for renewable projects to secure financing.