Major players fall short in historic Chile power auction

Chile's latest electric power supply auction made international headlines due to the volume of renewable energy contracted and the low prices obtained.

Non-conventional renewable energy (NCRE) projects representing some 2GW of capacity snapped up more than half of the 12,430GWh/y of supply blocks on offer, according to local renewable energies association Acera.

Equally noteworthy was the list of generators that didn't make the cut.

Major local players AES Gener, Engie Energía Chile, Colbún and Pacific Hydro, along with national oil company Enap, all failed to obtain supply contracts.

What's more, PPA prices in this tender averaged US$47.6/MWh, down 63% from a 2013 auction in which prices surpassed US$130/MWh.

Neither fact bodes well for Colbún, which has 4,000GWh of supply contracts set to expire by 2021, according to a Fitch research note published earlier this week, before the tender results were known.

"Fitch believes Colbún's imbalance in the company's long-term contracted position may affect its credit profile," the note said.

If Colbún is unable to re-contract those supply commitments, it will have to rely on Chile's volatile spot market, from which banks and generators have shied away in the last two years.

Gener, meanwhile, "has less flexibility to withstand lower margins resulting from potentially lower awarded prices given its higher generation cost," Fitch said. "Additionally, AES Gener is still under a significant capex intensive phase, which coupled with a more aggressive capital structure reduce its tolerance to lower margins."

The auction attracted 84 offers totaling 85,000GWh/y, with half that amount corresponding to new projects. The other half was intended to come from power plants already in operation.

Chile's national energy commission will launch another tender for 3,800GWh/y at the end of 2016, a second one for 7,200GWh/y in 2017 and a third one for 8,900GWh/y in 2018. PPAs for the three auctions will take effect in 2023, 2024 and 2025, respectively.