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Market Status: Chile - Renewables push creates wind boom

CHILE After a breakthrough year in 2014 when installed capacity jumped by almost 250%, wind power in Chile is expected to make further gains from a series of government-run tenders.

Current political backdrop

New government has put renewables at centre of strategy to bring down electricity prices by 2018. Tender rules have been redesigned to facilitate participation of renewables projects

High point of 2014

Solar and wind projects took 20% of demand at offer in major tender for regulated clients

Low point

After more than doubling installed capacity last year the volume of wind capacity currently under construction has fallen sharply

Key issue in 2015

A second tender process allows wind developers to compete for long-term PPAs

After a breakthrough year in 2014 when installed capacity jumped by almost 250%, wind power in Chile is expected to make further gains from a series of government-run tenders. Just over 500MW of new capacity was brought online last year, including projects owned by major global developers such as Acciona, Enel Green Power and Mainstream Renewable Power.

Pattern Energy signed the first power purchase agreement (PPA) between a wind farm and a Chilean mining company last year. Given the size of Chile's mining industry - the country is the world's leading producer of copper - and its need for competitively priced energy, similar deals are expected to follow.

More importantly, the centre-left administration led by socialist President Michelle Bachelet, which took office in March 2014, has put Chile's considerable potential for renewables at the heart of an ambitious strategy to tackle the country's cripplingly high power tariffs. As well as reiterating a legislative target to meet 20% of electricity from renewables by 2025, energy minister Maximo Pacheco set out concrete steps to meet the goal, including making more government land available for wind and solar projects, and adjusting rules to make it easier for renewables to compete with conventional generators.

The government scored its first big success with a tender for 15-year contracts to supply regulated clients. Not only was 20% of the demand on offer taken by renewables, mostly wind and solar, but the tender secured an average price of $107/MWh, 16% lower than the price set by the previous major tender in 2013. These contracts should help reverse the recent drop in the number of wind farms under construction, which fell to about 168MW in December, from 457MW a year earlier.

Government and industry are now confident that renewables will win more ground in an even larger tender to be held later this year for contracts beginning in 2021.

Although wind has lost ground in Chile to solar energy - 1GW of solar capacity is currently under construction and another 12GW at an earlier stage of development - the technology is expected to play a key role in meeting a major expansion in energy demand over the next decade.

In order to meet the 20% target, the government estimates 45% of new installed capacity will come from renewables. Renewable energy association Acera now expects it to be met by 2020, five years ahead of schedule.

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