Will Chile's latest power auction produce baseload PPAs?

Although Chile's latest regulated market power auction drew bids from 18 generators, two important questions remain, according to Systep consultancy head Hugh Rudnick.

The first is how many of the firms' economic offers will qualify. The second is whether the call will elicit PPAs for base load production.

Transmission and distribution association Empresas Eléctricas administered the auction – Chile's first to include blocks designed for non-conventional renewable energy (NCRE) generators – and will open economic offers on December 11.

"Until we know the value of the offers, not much can be concluded with respect to whether the auction was a success or not," Rudnick told BNamericas.

NCRE companies comprised the majority of bidders for the auction, which included elements of a bill currently being discussed in the senate to overhaul the auction system and allow for NCRE participation.

Empresas Eléctricas made four blocks available. Two are designed to accommodate the intermittent nature of NCRE output, while the other two are designed for baseload generation.

The NCRE-oriented blocks are each broken into three, eight-hour sub-blocks to account for all 24 hours in each day, so that NCRE generators (namely wind and solar plants) are only required to supply power during their peak producing hours.

The eight-hour blocks require generators to produce 1,000GWh/y over 15 year-periods starting in 2016 and 2017, respectively.

The baseload blocks require production of 6,000GWh/y and 5,000GWh/y over 15-year periods starting in 2018 and 2019, respectively.

"At this time a year ago, only two offers were presented," national energy commission (CNE) head Andrés Romero was quoted as saying in an Empresas Eléctricas release. "Today there are 18 and this fills us with satisfaction – as it's a strong signal that we're recovering the confidence [of generators]."

But as Rudnick pointed out, other than Endesa Chile, E-Cl and El Campesino (owner of the namesake 640MW combined-cycle plant still awaiting environmental approval), all of the bidders were NCRE companies.

Chile's two other principal baseload generators, AES Gener and Colbún, were conspicuously absent from the list, Rudnick said.

Chilean President Michelle Bachelet's 2014-18 energy agenda is largely based on a mandate to reduce power auction prices 20% by 2018, in order to reduce consumer electricity prices.

Prices fetched in 2012-13 auctions averaged US$130/MWh, up from US$70/MWh in 2006, according to BNamericas' September electric power Intelligence Series Report.

Empresas Eléctricas made a point not to reveal the price caps for the current auction's blocks until after the bidding submission process closed, in order to discourage generators from making offers just under the limit.

The price caps for the eight-hour blocks ranged from US$113.40/MWh to US$120.10/MWh, while the baseload blocks were limited to US$119.70/MWh and US$118.50/MWh.