Chile energy storage rules expected to help unlock project financing

Energy storage is blinking brightly on Chile’s investment opportunity radar.

The technology is widely viewed as a solution that can be deployed to help tackle curtailment and support continued renewables growth faster than construction of new transmission lines.

Systems are already operational, more are in the planning and construction phase, and the government is preparing a US$2bn energy storage auction.  

An energy storage law entered the statute books in 2022 and sector stakeholders are now awaiting the secondary legislation, due by year-end, that will help guide its implementation. Remuneration mechanisms are highly anticipated.   

Energy storage, along with hydrogen, is the focus of conference RENMAD Chile 2023, being held August 2-3 in capital Santiago. 

To explore the topic ahead of the conference, BNamericas, in collaboration with organizers ATA Insights, conducted an email interview with one of the event's speakers, Teresita Vial, energy and project lawyer at Chilean legal firm ACU Abogados.

BNamericas: It seems that regulation is the key for energy storage to achieve the profitability it needs to grow. What regulation is lacking in Chile in terms of storage? 

Vial: The regulations currently in force applicable to plants with storage capacity and to storage systems (standalone) are spread across the general law of electric services, coordination and operation regulations, capacity regulations, transmission regulations and their respective technical rules. 

Considering what these regulatory bodies establish, and those that are already in a draft state soon to be published, the regulation is quite complete, and it is possible to determine how these projects will operate and be remunerated at the level of capacity and power transfer, notwithstanding that perhaps certain adjustments are required to make arbitrage more flexible. 

However, at the level, for example, of complementary services, which is necessary income for these systems to achieve a revenue flow that permits their financing, there is still no clarity on what specific services they will be able to provide on a continuous and stable basis, and how they can be provided and how they will be remunerated.

BNamericas: The transmission network in Chile seems quite congested. Could storage help to solve this problem? 

Vial: Storage will undoubtedly be of great help, whether it operates in the arbitrage sphere, to avoid curtailment in the event of line congestion, or if it operates as a transmission asset, to increase safe transmission capacity or supply end-user demand where it is verified that a solution through conventional transmission facilities is not adequate, either for economic efficiency or opportunity. 

However, one must also pay attention to the localization signals of the location of the projects, since no matter how much storage we install, if we continue to focus a large percentage of the generation only in one geographical area, which is also far from the main centers of consumption, the current problems will continue to occur, even if you reinforce the transmission system and build storage.

BNamericas: What financing options does a storage project have in Chile? Are banks willing to finance storage projects?

Vial: Local banks are still in the exploratory stage, with international banks, and mainly investment funds, being the most open to financing storage. 

However, there is still a lack of confidence regarding the revenue that both hybrid and standalone projects will be able to obtain. 

I think that this is mainly because the existing regulation is not concentrated in a single instrument that allows it to be quickly identified, and that another important part of the regulation that establishes, for example, payments for capacity, complementary services, calculation of marginal cost and programming of their operation, has not yet entered into force, and is currently at the public consultation stage. 

Once all of the latter comes into force, I think there will be a clearer and more accurate picture, and the financing will begin to emerge.

RENMAD Chile 2023 is being held August 2-3 in capital Santiago. Click here for more details.