Spotlight: Distributed generation's rapid growth in Chile

Small and medium-scale distributed generation in Chile is advancing at a rapid pace as developers have submitted a string of new projects for environmental approval.

The country has two mechanisms for the building of these projects – small projects built by households that use the residential distributed generation framework, whereas generators below 9MW capacity can enter the system as small and medium distributed generation assets, or PMGDs.

In the PMGD space, the growth rate of new projects has picked up strongly over the past year and these projects are by far the most numerous that have been filed for environmental assessment by Chile’s environmental evaluation agency SEA.

As of March 22, 98 PMGD projects had been filed for environmental approval this year, with the combined investment amount totaling US$1bn, according to data from SEA.

The vast majority of projects are solar units, with only two using wind technology and a single project being a small run-of-the-river hydroelectric generator. Most are located in Chile’s northern regions where there are a lot of desert.

Creation of PMGD projects has grown despite the fact that the sector faced changes to the stabilized price regime – a special incentive that shields PMGDs from sudden changes in spot market pricing.

The stabilized price is equal to the average market value of PPAs and adjusted for projections of spot market prices for the next four years. It allows project developers greater certainty about their expected returns, which in turn helps them access financing for PMGDs.

The energy ministry updated the stabilized price regime last year to introduce time blocks, meaning it would adjust according to four different times of the day, making it less predictable. While at the time of its publication the change was criticized by some developers for jeopardizing future projects, it has not yet had any major impact on the sector. 

At the end of February, installed PMGD capacity was 1,349MW, with the vast majority being solar, followed by diesel and small hydroelectric projects, according to Chilean renewables association Acera, which groups the sector’s biggest private players. 

An additional 167MW are comprised by generators up to 9MW that are not considered distributed generation projects as they do not inject energy into the distribution network.

Installed capacity of small-scale projects for residential consumption grew to 76.3MW, comprised of 7,291 installations, with 1,988 of them located in northern Atacama region, followed by central Metropolitan (1,949) and Valparaíso (711) regions, and the center-south region of Maule (629).

According to the latest data from Chile’s electricity and fuels watchdog SEC, 326 residential users made installations in January-February under the rules for such generation, adding 4.7MW of new capacity. During the whole of 2020, 31.4MW of capacity was added through this mechanism.

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In related news, SEA said it had accepted two major renewables projects for environmental review.

The largest is the Lomas del Taltal wind farm, a US$424mn project submitted by Engie Energía Chile, one of the country’s four biggest generators.

The other is Pacific Hydro’s project to expand the Desierto de Atacama solar park. It involves investing US$300mn into the 120MW park to bring capacity up to 293MW.