Recent changes in legislation concerning energy generation in Chile could give the renewables market a significant boost.
In the past few years the Chilean energy market has experienced great changes and advances that benefit the industry and boost the development of renewable energy projects. These changes have led to a large development of renewable energy initiatives and to the consolidation of new companies and players in the energy sector. In 2015 almost 300 renewable initiatives were presented for environmental evaluation and renewables accounted for 76% of the investment in electricity generation, which demonstrates the importance of the industry.
Chile has plentiful natural resources that are ideal for the development of solar and wind farms. The unique radiation levels present in the north and the favorable winds across the country allow Chile to have large investments in this area and to gain energy independence, which it has not had in the past because of the reliance on gas and other fossil fuels that are not produced internally. Additionally, Chile has a large potential to become an energy exporter for the region.
The Government has recognized the large opportunity for investment in the renewable energy sector as well as the opportunity to clean the energy matrix and to develop projects that have less opposition from communities. Therefore, through the Ministry of Energy, it is pushing a variety of initiatives that increase the competition in the energy sector and support the integration of renewables.
The first law that was pushed by the government and passed in congress to support the renewable energy sector states that by 2025, 20% of the energy matrix in Chile must by composed of renewable energy. This means that all companies that produce energy with fossil fuels need to buy a percentage of energy from renewable sources or are obliged to produce this type of energy themselves. It has also incentivized large industries to develop energy contracts with renewable energy providers.
In addition, through a committee comprising multiple stakeholders, the current government developed the energy roadmap, where the goal is to have 70% of renewable energy in the matrix in Chile by 2050. However, it is important to state that this also includes large hydropower. This aims to guide the future development of the energy sector and the development of laws that are able to support this roadmap.
The third important change was made in the distribution tender process, where the government for the first time in 2014 established time blocks in which energy generators could bid their energy. This greatly favored the solar sector, since generators could now bid during the times of day when they are producing energy and were not obligated to offer energy during 24 hours of the day. This has resulted in a much greater participation in these tenders by the renewables sector, and where Mainstream Renewable Power has been very successful as a company. In the last tender, Aela, Mainstream´s joint venture with Actis, was awarded 65% of the total energy awarded, 299 MW, via two wind projects. These projects will start construction in July 2016.
Additionally there are plans to improve the transmission system, which will also benefit the renewable energy industry. First there is a plan to interconnect the north and central grid system, which will allow the energy generated from the large potential solar radiation in the north to be distributed to the central and southern part of the country. There is also a transmission bill currently in congress, which contemplates a more prominent role for the State in energy planning and whose main objective is to reduce prices by boosting competition, reducing entrance barriers, avoiding the existing congestion, and opening the market to renewable energy. One of the most important changes of this law is the way the transmission tolls are paid, which are changed from the generator paying to the final client paying. This, as well as adding transparency to the process, grants greater competitiveness to renewable energy projects, since there will no longer be benefits for projects that can be located near large demand centers, such as thermal plants.
When Mainstream arrived in Chile in 2008, there were very few renewable energy players, and the energy sector in Chile was led by three conventional energy companies. Through the decrease of costs of renewable energy technology and the government led energy reforms, renewable energy is now considered a secure and competitive option. This is very positive for Mainstream given that through its 8 years of work in Chile, it has a head start on the development of a very broad and geographically diverse pipeline with one wind farm in operation and two others starting construction this year. This also facilitates the continuity of the business in the country, since Mainstream has invested $100 million, and plans to continue with an investment plan of $2.000 million in order to have 1.000 MW in operation by 2020.
Mainstream constructed its first wind farm in Chile in 2013. This is a 33 MW wind farm located in the Biobío Region. This was very innovative because it was the first wind farm to be operational in that area of the south of Chile and in agriculture land near houses. This wind farm helped to demonstrate to the country that it is possible to share the land where the wind farm is placed with different activities such as agriculture and herding. In fact, all land owners and neighbors have continued to use their land for all activities that were underway prior to the wind farm being constructed.
The two projects to start construction this year are Aurora and Sarco. The first one is located in the south, specifically in the region of Los Lagos. This is a 129 MW project, which has very similar characteristics to the Cuel wind farm above, since it is also in agriculture land and close by to households in the area. The second project, Sarco, which will have an installed capacity of 170 MWs is in the northern region of Atacama. Both will inject their energy into the national grid through the Central Interconnected System.
Recently, Mainstream also received a favorable environmental evaluation for the wind project Cerro Tigre, which will be located in the northern region of Antofagasta, and considers an investment of $634 million during construction, the installation of 80 turbines and an estimated capacity of 264 MW.
In addition to this, Mainstream has other solar and wind projects in the pipeline, many of which are in an advanced state and have obtained environmental permits. For this reason, the company is happy with the government’s decision to give the renewable energy industry the opportunity to compete fairly with conventional energy generation. It is probable that, with the changes that have already been made in legislation and other changes yet to come about in support of the energy roadmap of 2050, Chile will be able to consolidate a new industry that was nearly non-existent 8 years ago. This will enable Chile to have greater investment opportunity and facilitate the country’s ability to develop a clean energy matrix, thus ultimately working towards becoming energy-independent from its neighbors and from fossil fuel imports.