Lower prices the only goal for Chile power auction

The sole objective of Chile's latest electric power supply auction is to obtain the lowest prices possible, regardless of technology, according to energy minister Máximo Pacheco.

But in the future, Chile could see tenders that prioritize certain energy sources, such as hydropower, over others, Pacheco said Thursday in a speech at the BNamericas 6th LatAm Power Generation Summit in capital Santiago.

The first assertion was in response to concerns that developers of natural gas-fired projects might be unable to obtain power purchase agreements when contracts are awarded next week, due to more competitive bids for other technologies.

Pacheco said the ministry expects prices for the tender to be at least 50% lower than in 2013, when bids averaged approximately US$130/MWh.

This goal must take precedence over any specific technology, conventional or renewable, Pacheco said.

Chile's last tender, at the end of 2015, fetched average PPA prices of US$79.3/MWh.

Contrary to popular opinion, Pacheco said, the drop in prices over the last three years has less to do with the global commodities crash and more to do with reforms to Chile's power auction system.

By creating more flexible terms for generators, authorities have allowed for greater competition, particularly from renewable projects, he told the event.

Due to the competitive bids expected in the latest tender, Pacheco said the ministry foresees power bills for Chilean homes dropping by around 20%, starting from 2021, when PPAs take effect.

A total of 84 firms submitted bids in the latest auction, which will award 20-year PPAs for the supply of 12,430GWh/y.

ENERGY LEADING INVESTMENT

Between generation and transmission, projects requiring US$13bn of total capital expenditure were under construction in the country as of June, the minister said.

These include over 4GW of generation capacity, up from 2GW when President Michelle Bachelet took office in 2014, and 33 transmission projects spanning more than 1,400km.

Referencing a goal to add 100 new mini-hydropower plants during her 2014-18 term, Pacheco said that 30 plants totaling 130MW have entered operation, with another 26 totaling 97MW under construction.