Analysis: Aela rides Chile's wind comeback

CHILE: Aela Energia was the big winner in last October's round of electricity contracts in Chile, winning almost two thirds of the total on offer.

Aela’s first project, the 33MW Negrete wind farm, began commercial operation in February 2014
Aela’s first project, the 33MW Negrete wind farm, began commercial operation in February 2014

Aela Energia, a joint venture between Irish developer Mainstream Renewable Power and private-equity firm Actis formed in 2013, is already well established in Chile, and CEO Sergio del Campo puts its success down to the quality of its project portfolio.

Some of Chile’s early wind farms have disappointing capacity factors as low as 21%, but Aela’s projects average 39%. The grid operator recently recognised its 33MW Cuel wind farm as the country’s most efficient.

Aela’s portfolio also offers diversity, with projects spanning the length of Chile. This means its projects are close to most connection hubs, reducing its reliance on the country’s rickety transmission system. Thanks to the country’s huge range of climates, from desert in the north to temperate forest in the south, at most times of the day the wind will be blowing somewhere, at some of Aela’s projects.

United benefits

Aela aims to build 600MW of renewables capacity over three years, with an estimated investment of $1.4 billion.

Through the joint venture, Actis, which manages funds worth $7.6 billion, provides the financing, while Mainstream contributes investment opportunities from its portfolio of renewables projects in Chile.

The recent contract wins are in stark contrast to the company’s loss in a late 2014 tender, when a paperwork error meant it won none of the contracts for 1.3TWh annually. After unsuccessfully challenging the result in court, the team dropped its appeal and decided to move on. "We said we have very good projects and backers, let’s look to the future," said del Campo.

That decision was proved right when the company won 768GWh of the contracts in October to supply power from 2017. It beat a record 38 participants, including some of the world’s largest utilities. Aela will build two 265MW wind projects to meet its contracts: one by Lake Llanquihue; and one 1,700km north, by the Atacama Desert. Spain’s Ibereolica was the other major winner.

The increased competition for contracts saw prices plummet to an average $79.30/MWh — close to Aela’s winning bids, around 40% down on tenders held just two years ago.

But while the government offers no renewables subsidies, Chile’s huge potential for wind and solar, stable investment rules and relatively high power prices attract developers. The country’s target of 20% renewable energy by 2025, set by the previous administration, in which Del Campo served as deputy energy minister, is expected to be met by the end of the decade.

The strong show of wind in the recent tender is the first in recent years, when solar photovoltaic capacity has been strong. But Chile’s solar boom has been too fast and a glut has meant that some projects without power purchase contracts in place have had to give electricity away for free.

"I don’t see any new solar projects until the capacity of the transmission system is improved," Del Campo said.

This should not take long. In December, a new 753km 2x500kW power line was approved that will double transmission capacity between Copiapo and Santiago, and work is already under way on a link that connects Copiapo with the grid in the far north, joining the sunny Atacama Desert and blustery coasts with the main population hub in central Chile.  

Capacity benefits

In the longer term, despite Chile’s huge solar resource — the Atacama Desert could power the whole of South America — del Campo says wind’s high capacity factor and flexibility will give it the edge.

Attention is turning to April’s major tender, which is expected to receive more attention from conventional generators and new technologies such as geothermal energy. Older plants need to replace expired contracts, so competition will be tough. "Chile is a country to watch," said del Campo.

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