Chile’s renewables sector marches on as spotlight tightens on congress

Chile continues to decarbonize its power generation park amid market headwinds and expectations for legislative progress in 2024.

Last year saw installed capacity climb 2GW to 35.4GW, with non-conventional renewable energy (NCRE) plants and storage systems accounting for almost all the uptick.

The system – where roughly 6.81GW of additional NCRE and storage projects for a combined US$6.73bn are under construction – also advanced in terms of the participation of NCRE output in the generation mix, local renewables and energy storage association Acera said in a presentation.

Chile’s NCRE fleet, chiefly comprising solar PV and wind farms, accounted for 36.7% of electricity generated last year, nipping at the heels of the country’s thermoelectric park, which had a share of 37.3%.

Acera executive director Ana Lía Rojas told BNamericas during a review of 2023 that “for the first time ever, [NCRE output] almost equals the participation of thermoelectric.”

She added: “We’re therefore at a key point, in terms of the contribution trends of each technology, and we hope that in 2024 NCRE definitively surpasses thermoelectric.”

Amid a national net-zero push, combined with the fact that Chile needs to import the bulk of its hydrocarbons and is hence exposed to external inflation pressures, the outlook is muted for major new greenfield thermoelectric plants fired by fossil fuels. Reconversion of diesel or coal-fired units to natural gas is an area where thermoelectric investment may nevertheless flow. Generator Engie Chile has a reconversion project planned, while energy solutions firm Wärtsilä has underscored the role gas can play in terms of provision of grid flexibility and the potential to eventually transition to green ammonia. 

In terms of Chile’s installed capacity, NCRE accounts for 43.6%, thermoelectric 36.0%, conventional hydropower 19.3%, standalone storage 0.7% and NCRE-storage 0.4%.

CURTAILMENT

While celebrating the NCRE milestone, Acera nevertheless underscored the importance of reducing curtailment, which climbed 62% last year to 2,376GWh, the equivalent of 9% of all solar and wind generation in 2023 or the annual consumption of almost 1mn homes. The increase is “motive for concern for our association,” said Rojas during a presentation. 

The association says system operation and other tweaks could help in the short term, with energy storage deployment and a potential market redesign, where work is underway, seen as longer-term fixes. Transmission expansion, a slower process, is another ingredient in the remedy. The government’s energy transition bill contains an associated mitigation measure which involves reallocating rate income.

Curtailment, linked to transmission congestion, solar oversupply and flexibility factors, has dented the finances of many pureplay renewables generators and created debt repayment fallout. 

Like other countries cleaning up their grids, Chile has seen power plant expansion outpace transmission growth, a typically slower and more complex process. 

LEGISLATION

The energy transition bill in congress also encompasses storage promotion and transmission planning, and is seen by Acera as constituting a tool to improve the electricity market. Debate of the bill should continue this year and other pieces of draft legislation should begin their journeys, chief among them a power rate normalization bill and project permitting reforms. 

The generation sector wants the rate issue resolved promptly and sustainably, given that, under existing price stabilization mechanisms, they are owed some US$6bn.

“It is important to advance with the issue of power rate sincerity,” Rojas said. 

Local generation association Generadoras de Chile recently urged the government to present the rate stabilization bill.

“Chile urgently needs to avoid an abrupt increase in electricity rates for regulated customers, along with the necessary incorporation – for the first time in our history – of a subsidy in favor of the most vulnerable customers,” Generadoras de Chile CEO Camilo Charme said in a statement.

Acera, meanwhile, welcomed the government’s plans to reform the permitting system, underscoring the need to improve it without compromising standards. Draft legislation to overhaul the environmental review system and sectoral permitting – deemed vital to debottleneck project development and spur investment – is pending. Draft legislation could be submitted to congress within days and President Gabriel Boric has said the debate should be as short as possible.

“In our association there is much experience of obtaining permits and many proposals for improvement,” Acera chairman Sergio Del Campo said in a statement. “We propose working together with the government to promote ideas that increase permitting agility, while always safeguarding the environment.” 

ENERGY STORAGE: WHAT’S BUILT, WHAT’S COMING

Against a backdrop of a coal-fired power plant retirement plan that is being carried out, investment in energy storage is poised to climb, given its role in helping provide grid stability and allowing solar power to enter the network after the sun sets.

Last month, 10 standalone battery storage systems and NCRE-battery storage hybrid plants, for a total of 390MW, were operational or in the testing phase, with average injection duration of four hours.

Thirty projects for 2.5GW had the environmental green light and 104 projects for 8.6GW were in the review phase.

Investment in energy storage systems is expected to climb through 2026, a year when 45% of projects under development are forecast to be standalone battery and NCRE-battery storage, and the balance pure NCRE projects.

The government, via its energy transition bill, is planning to auction energy storage systems but the final design is pending, with one concern voiced that it doesn't clash with private investment underway. 

Post-2026, interest in other technologies better suited to injecting power for longer, such as concentrated solar, pumped storage and compressed carbon dioxide, could grow. 

Associated regulations, chief among them capacity rules, to close some gaps in the framework may start emerging this year and, in turn, boost access to finance for projects.