The North of Chile is where most of the mining industry and the world’s largest copper reserves are located. The mining industry is one of the largest energy off -takers in the market accounting for 33 per cent of the total energy consumption. Even though the mining industry has suffered from lower prices, the energy requirement from the mining sector is expected to increase by 53 per cent during the next years. Its operations require a continuous power supply, yet there is limited power in the North. Grid access and reliability of power supply are also problematic.
The North of Chile also hosts the Atacama Desert, which has one of the highest rates of solar radiation in the world. The potential for the development of solar technologies in the North is vast and represent a sensible alternative to overcome the barriers the mining industry face.
As a consequence, solar projects are being developed in close proximity to the mining sites, allowing easy grid access and overcoming grid capacity constraints. Finally, solar power can be produced at a competitive price in a country where power prices have been traditionally high, particularly by eliminating the risk and costs associated with bringing fuel supplies to remote mining sites. Some of the largest mining actors, like the Canadian Mandalay Resources and the Belgian Nyrstar, have signed PPAs with solar project companies and are already reaping the associated economic benefits.
Ring of fire
Chile is located in the Pacific ring of fire and its estimated geothermal potential is at least 3,350 MW and the legal and institutional framework has been in place since 2000. The regime sets up the social, environmental, technical and the economic requirements for geothermal projects. Despite the great untapped potential for geothermal development in the rest of the region, Chile is jumping ahead and will host the first project of this kind in Latin America. Enel Green Power is developing the 48 MW Cerro Pabellon project, operations are expected to start in 2017 and an expansion is already being discuss to take the project to 100 MW.
However, the costs involved in geothermal energy production are still discouraging for larger investments. With the support of the World Bank and the Inter-American Development Bank, Chile is studying the alternatives to lower geothermal development prices and encourage further competition in the sector. In the 2016 tender process the cheapest registered energy price for Geothermal projects was US$66/MWh.
Surfing the waves
A renewable resource not prepared to be thrown into the shade by solar is ocean energy. With its long coastline of over 4,000 Km, powerful waves and tidal currents, Chile has 164 MW of potential capacity available through marine energy resources, according to the Chilean government’s assessment. According to a study by the British Embassy in Chile, Chile has the greatest potential in the world for the development of wave energy and will have a competitive marine energy market in coming years. As a consequence, the Chilean government created the national Marine Energy Centre, which was the first to be established in Latin America.
Merchant power and bankability
Even though the general rule is that renewable projects are financed on a contract basis, Chile already hosts renewable projects financed on a merchant basis. One of these projects is the SunEdison’s 73 MW Maria Elena located in Antofagasta. The financing for the project of US$155 million was provided by the Inter-American Development Bank (IDB), the Overseas Private Investment Corporation, Corpbanca (Chile), and Clean Technology Fund (CTF) of the IDB. This project is one of the largest merchant solar power plants not only in Latin America, but worldwide. Another completed merchant project is the Total-SunPower 70MW PV Salvador Solar Plant, which is expected to produce approximately 200GWh of solar electricity per year, enough to supply electricity to approximately 70,000 households in the country.
Such projects represent a welcome solution for developers who sometimes struggle to negotiate long-term PPAs. For these projects, the merchant risk is arguably limited, because plants in Chile are dispatched in order of their cost of generation to ensure that electricity is supplied at the lowest available cost. This system favours renewables with no fuel costs, such as wind and solar, which means that developers and financiers face reduced risk.
Favourable climate for investors
According to Transparency International’s 2015 Corruption Perceptions Index, Chile, ranks at 23rd place and its corruption level is competitively low in Latin America. Chile has for a long time also been one of the most attractive countries for doing business in Latin America and is wellknown for its openness to trade, capital flows, exchange of technology and ideas, labour movements and cultural integration. The county has been an OECD member since 2010 and ranks 57th in the World Bank Doing Business Report 2016.
Chile is well integrated into the global market, with 15 FTA, 26 double taxation avoidance agreements, and more than 40 treaties for the promotion and protection of investments. Thanks to all these characteristics, Chile accounted for US$23 billion of FDI in 2015. Its favourable reputation has led Chile to be ranked before any other Latin American country in the EY Globalisation Index (2012).