Wind to benefit as drought hits hydro

CHINA: An independent wind developer has submitted plans for a project that would increase Chile's wind capacity by a third, encouraged by high power prices caused by a severe drought in the country.

Wind energy has the potential to counter the country's dependence on hydro electricity, but investment has so far been discouraged by unpredictable power prices.

Chile relies heavily on hydro power, but droughts have severely reduced the amount of energy produced from this source. The country's dams stored 1.9GWh at the end of February, according to state-run regulator the National Energy Commission, down from 3.4GWh on the same date in 2010. The energy ministry ordered a three-week delay in switching clocks back for the winter, hoping to prevent power cuts.

Power prices have surged as the country has been forced to import energy from Argentina. Chilean bank BICE Inversiones reported power prices averaging $242.70/MWh in February, up 75% compared with the same time last year.

Diesel support

Chile's water shortage was even more dramatic in 2008, when diesel was used at times to produce power in Santiago, notes Timothy Stephure, an analyst at Emerging Energy Research. BICE reported spot prices as high as $338/MWh, but when rains returned, prices fell just as sharply.

"The problem is that it is hard to build wind farms fast enough to respond to a quick upswing," he says.

Power companies in Chile have not been interested in developing wind because it is easier for them to make money from the mark-up on imported energy. Development so far has relied on mining companies and independent developers such as Wind Service.

Wind Service has submitted plans for a $108 million, 56MW project located in central region Valparaiso to the government regulator. Construction could begin in October and power production in June next year.

The country is set to reach 200MW of installed wind capacity this year, according to the Chilean Renewable Energy Association. Some 10MW has come online in Monte Redondo in Coquimbo, a region 300km north of Santiago, developed by GDF Suez. The Chilean unit of mining firm Barrick Gold is developing a further 20MW in Punta Colorado, on the Coquimbo coast.

Pipeline projects are much more substantial, but when they might materialise is unclear. Wind Services says it is working on a portfolio of 500MW spread across several projects, but will not give details. The Chilean unit of Irish developer Mainstream Renewable Energy is working on a portfolio of 800MW, according to its website.

Noah Long, a lawyer at US campaign group the Natural Resources Defense Council who visits Chile regularly, says that Chile deserves some accolades.

"They were the first in the region to set a real target. Three years ago, there was no serious interest in wind power."

In 2008, Chile's legislature passed a law forcing at least 5% of new electricity supplies to come from renewable sources, a figure that rises in stages to 10% in 2024. Companies that miss the quota must pay fines, while those that outperform can carry a credit forward to offset possible future fines or sell the credit to other firms. Based on this, the government estimates that the country will have 40GW of wind power by 2025.

Innovation fund

The government is planning an auction of some 5,700 hectares spread across two municipalities in northern region Antofagasta, which has been identified as having substantial wind resources. It has also announced a fund worth $85 million that will finance the best innovative projects across all renewable energies.

The 5% law was passed during the presidency of Michelle Bachelet, who left office in March last year. Long is critical of her successor, Sebastian Pinera, for not fulfilling campaign promises on the topic.

"The current government has yet to produce any meaningful legislative proposal for raising the proportion to 20% renewables," Long said. At the start of March, Pinera told a televised press conference that he did not know whether the 20% target would be achieved by 2020, and said nothing about making it law.

Chile's power industry is completely privatised, so investment led or guided by the state, which is the model for the rest of the continent, is not forthcoming.

In contrast, the Venezuelan government announced plans to install 1.7GW of wind capacity in the next five years, after the country experienced rolling power cuts triggered by droughts.

In Mexico, the Federal Electricity Commission, a state company which has a monopoly in distribution, commissions new capacity directly and also sells space on its network for so-called "self supply", where a private company sets up production where the wind is strongest and passes the power across the grid to where it is needed.

Stephure thinks that the most likely outcome is for Chile's government to speed up approvals for projects that are already partly under way and to craft long-term policies benefiting renewables in general.

"The government is likely to start looking at ways to boost renewable content overall, but they aren't very effective in a short-run emergency situation," he says.

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