Chile seen as unlikely to change power auction rules soon

Mainstream Renewable Power does not expect Chilean authorities to change the conditions of regulated market power auctions in the short-term.

That's according to a research note from Citi, which held a meeting with Mainstream to discuss the outlook for Chile's electricity market, where electricity prices have declined steeply of late.

The country's most recent regulated market tender cleared at US$46.7/MWh, well below expectations, with non-conventional renewable energy developers winning more than half of the supply blocks.

"[Mainstream] believes that it was a combination of factors: focus of authorities on lowering prices; five-year timeframe before start of PPA; new transmission law which designates payment of transmission tolls directly to the final customer (no longer a component of generators' electricity prices) and a perception of a more agile/responsive planning of future grid requirements by authorities," Citi said.

Mainstream was one of the auction's biggest winners, obtaining contracts for the supply of 3,336GWh/y to power distributors for 20 years, a commitment that it will meet through the construction of seven wind farms totaling 986MW.

José Ignacio Escobar, CEO of Acciona Energía Chile - another winner in the last auction - told BNamericas recently that the government must tweak the tenders to make them technology-specific and limit the amount of capacity awarded in given geographical zones, thereby curbing problems of transmission congestion that have increasingly hurt the profitability of solar and wind farms.

Chile has three more regulated market power auctions scheduled for the 2016-18 period.

While Mainstream does not foresee the adjustments mentioned by Escobar happening in the short-term, "The company sees that auctions by technology may eventually be required to ensure system security and define the best power matrix for Chile that includes the correct percentage of different technologies," Citi said. "Medium-term view (2021) on spot prices is US$40/MWh."