Removing barriers

Chile is not ready to lose its solar leadership in Latin America. With more than 1 GW of photovoltaic power feeding into the grid, measures have now been taken to eliminate the bottleneck that is preventing the full penetration of photovoltaics.
Some of the 12 GW with environmental authorization could find their way to the grid in the short to medium term. Last July, the Chilean government passed the Electricity Transmission Law – “the main policy change that has been made to electricity legislation since the 1980s,” according to Minister of Energy Máximo Pacheco. The new regulations will result in a “paradigm shift, because transmission will stop following generation; instead, transmission will start driving generation,” the minister explains.
It has taken a year to get the green light that will enable the interconnection between the country’s two main systems. “The promulgation of the Transmission Law is a key step to enabling the expansion of the development of non-conventional renewable energy projects,” says the Asociación Chilena de Energías Renovables (Acera).
It will be used to try to establish a robust national electricity transmission system instead of the current trunked Central Interconnected System (SIC) grid and Northern Interconnected System (SING) grid systems. The national interconnection should be operational by the end of 2017 and the works should already be 51% complete, according to the Ministry of Energy.
To warm up, the new national grid operator will already be in operation next January. An independent state entity, the national grid operator will ensure that “solar energy generated in Arica reaches the island of Chiloé,” explains Daniel Salazar, current Executive Director of SING’s dispatch center. In his opinion, the penetration values of solar plants that are, or are intended to be, established in the sunny areas of northern Chile will rise exponentially when resources are set up to transmit energy.
End consumers in Chile pay one of the highest prices in Latin America for their electricity and the reduction of this price is one of the main objectives of the Chilean Energy Agenda. This will be achieved to a greater extent with increasing volumes of cheap solar energy from the north that can be fed into the urban centers, which are grouped within the area managed by SIC.

Giving energy away

Marginal energy prices – the value determined by the last plant to enter the system and cover the electricity demand at that time – have certainly already reached historical lows, although this reduction has yet to be passed on to the consumer. This is due not only to the lack of connection between SIC and SING, but also to the congestion of the current systems.
The Energy Ministry admits that there are at least seven or eight points of connection in Chile where energy is blocked due to it being impossible to transfer the energy to points of consumption. At some connection points, power plants without private contracts for the sale of electricity, or power purchase agreements (PPAs), are endangering not only their profitability, but also the possibilities of financing future projects. According to the operators of the two systems, up to the month of April, 113 days were recorded where spot prices reached zero. This was mainly during hours when photovoltaic panels were working at their most efficient. In 2015, there were 192 days with free electricity.
In the northern SIC area, the lack of infrastructure for connection points as busy as those in the city of Diego de Almagro, located in the Atacama region, has caused a situation where, when energy is not given away, it is sold on the spot market very cheaply. The SIC operator reported the marginal price of $32.20 per megawatt hour during the month of February, which isn’t exactly a great incentive for the 255.5 MW of monthly solar energy currently feeding into this connection point in the sunny region of Atacama.
And that is when they manage to gain access to the grid in order to sell it. Headed by Enel Green Power (EGP), renewable companies with interests in the area have filed a complaint against the SIC operator with the Panel of Experts (the state mediation body). They claim that the person in charge of system management is programming over-generation by AES Gener’s Guacolda thermoelectric power plant. This would impede its solar plants feeding energy into the grid, affecting the profitability of investments. As well as EGP, among those affected are SunEdison, Acciona and First Solar.

Scenarios and bankruptcies in the industry

The solar industry is confident that strengthening transmission networks will improve their trading conditions. The planned electricity highway should be sufficient to accommodate the large volume of desired solar electricity. But maybe not. In the more renewable scenario of SIC and SING’s expansion research of June 2016, a total of 1,119 MW will be provided by solar projects to be incorporated into the matrix in 2020. This includes only plants that are currently under construction and those that have supply contracts resulting from tenders. Grid operators estimate that in 2035, there will be 8 GW of solar power in the future national system.
There is a significant discrepancy between the operators’ figures and those presented by the Centro Nacional para la Innovación y Fomento de las Energías Sustentables (Cifes). In July’s report, they calculated that there were 1,676 MW of photovoltaic capacity under construction, 12 GW which already have environmental approval for construction, and another 5 GW that are still being assessed.
“Installation and construction costs, along with high local labor costs and high competition between companies, mean that in a few years Chile has become one of the most aggressive photovoltaics markets,” says Alejandro Diego Rosell, Managing Partner of Energoya SL, a Spanish company that also has interests in Chile. “Chile hasxAdvertisementbecome a mature market in a very short time, where only the strongest will survive,” Rosell predicts.
But even the strongest falter. The 110 MW SunEdison Quilipún project is one example from among the projects still to be implemented in 2016 and which has a commitment to energy purchase. The U.S. multinational, which has connected more than 290 MW of solar energy to the Chilean electricity grid and has a wide portfolio of projects, is undergoing bankruptcy, which could force it to sell some of its Chilean assets. As if this were not enough, the CAP mining company, for whom they built the 100 MW solar plant Amanecer Solar, has announced that they are suing SunEdison due to the poor quality of installed modules.
The Spanish company Abengoa is also experiencing difficulties. Last December, the Atacama I Complex, a PV-solar thermal hybrid project comprising 100 MW of PV and a 110 MW CSP plant with tower thermal solar technology, won the tender for a contract to supply 950 gigawatt hours annually from 2019 at a price of $114.82 per megawatt hour. The company is currently in bankruptcy, however, and acknowledges that work on Atacama I “has been reduced to a minimum operation,” although they assure the promised energy will be delivered.
The Abengoa situation is complex. While there is certainly a chance of a $20 million subsidy from the Chilean government, it would be conditional on the long-term financing of Atacama I being completed. There are rumors in financial circles that the company might sell its assets in Chile to Red Eléctrica de España, the Spanish grid operator. But Abengoa is not throwing in the towel yet. The company has also submitted a new supply tender, but this time only for photovoltaic capacity.

Historical tender

Atacama I is one of the bids for the daytime block (2B) of the first tender of 2016. It is competing with 17 other bids to win contracts for a total volume of 1,000 gigawatt hours per year, which will have to be provided between 2021 and 2040.
The government expects to obtain a price significantly below $70 per megawatt hour for the 12,750 gigawatt hours in total to be auctioned. The National Energy Commision (Comisión Nacional de Energía, or CNE) will for the first time be the convening authority for the supply tenders and a record participation is expected: 84 tenders, which promise a lot of competition.
Or not. Although 50 of the tenders received relate to new projects (30% solar) and the new Transmission Law decreases the risks for investors, the presence and circumstances of Endesa, Colbún and AES Gener do not seem to be a good omen. “This tender isn’t taking place because demand is rising, Rodrigo Jiménez, CEO of Chilean energy consultancy Systep, told the El Mercurio newspaper, adding that it was mainly due to contracts expiring. The three heavyweights of the conventional energy sector currently hold contracts for more than 31,000 gigawatt hours per year. The need to renew contracts may result in their tenders being very competitive. The results will be announced on August 17 (after the September issue of pv magazine has gone to press).
But if the outcome of the tenders is not conducive to new investments and spot market prices hold back new solar projects, the newly adopted Transmission Law could open new doors.
The new legislation also establishes the creation of a new electricity transmission sector for renewable energy “Development Hubs.” The idea is to facilitate access to small-scale generation projects that can’t currently feed power into the grid and which are located in areas with a high potential for clean energy generation.
And while the strengthening of energy sales to neighboring countries becomes a reality, mining companies could also take a more favorable view of incorporating solar plants into their energy plans. So far, the lack of a robust transmission system that would compensate for the intermittent nature of solar generation has been the biggest barrier to this happening.
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