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Developers eye major Chile tenders

CHILE: Wind developers are eyeing opportunities in two large-scale tenders the Chilean government is set to launch.

Chilean president Michelle Bachelet
Chilean president Michelle Bachelet

The tenders — for long-term contracts (up to 20 years) with privately-owned distribution companies — aim to cover around 15TWh of annual consumption not covered by existing contracts.

In line with the government's Energy Agenda launched last year to tackle the country's rising energy costs, the tenders aim to bring down Chile's soaring electricity prices by encouraging as many new participants as possible.

The first tender is due to be launched in May and will offer generators an estimated 14TWh of annual demand.

Once the tender conditions have been released, companies will have almost a year to present offers to give as much time as possible for new participants and projects to prepare bids.

These have until until January 2021 to inject electricity into the grid. This provides ample time for companies to design, permit and build new projects from scratch, as part of the government's efforts to break the hold of a handful of major generators over the country's power markets.

If a project is delayed for reasons outside the developer's responsibility, the start date for the contract can be delayed, significantly reducing the contract risk.

"This is a very good opportunity to enter the generation market in Chile," said Martin Osorio, head of regulation at the National Energy Commission, which is running the process.

A second short-term tender will offer around 1TWh to cover annual demand from 2017 onwards. The deadline for offers is expected to be in the second half of this year, Osorio said.

Following last December's tender, the government is expecting a strong participation in both processes from renewable sources, including wind and solar power, to help Chile meet its legally-mandated target of sourcing 20% of electricity from renewables by 2025.

It saw almost 20% of the demand on offer go to renewables as developers took advantage of blocks defined by time of day, giving a key advantage to solar and wind projects.

Additionally, it covered close to 100% of demand on offer, compared to just 20% in the previous major tender held in 2013. It also achieved an average long term price of $108/MWh, against $136/MWh, and reversing the upward trend seen since the tender system was launched in 2006.

Still such prices are many times those paid in other countries in the region, such as Colombia and Peru, a factor which, together with considerable natural resources and a stable investment climate has transformed Chile into one of the world's hottest markets for renewable investments in recent years.

The start of the contracts under the short-term tender will also coincide with another major development in Chile's electricity industry: the linking of the country's two largest grids to create a national energy market.

Signing a decree on 16 April authorising the construction of the transmission line between the north's SING grid and the central SIC grid, Chilean president Michelle Bachelet highlighted that linking the two is expected to result in price savings for regulated consumers of between $3/MWh and $13/MWh, depending on where they live.

A key part of the efficiencies gained by linking to the two grids reflect the new opportunities for connecting renewable projects (largely solar plants, but also wind farms) to copper mines in the north of the country and the major cities further south.

These opportunities should give a boost to the development of wind energy, construction of which has slowed significantly over the past 12  months, according to the Energy Ministry's centre for energy innovation and development.

Today there is just 188MW of wind energy capacity in construction, compared to 1,647MW for photovoltaic solar plants.

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