Chilean President Michelle Bachelet projected the end of the local electricity market's stagnation back in June. Indeed, the power industry has recently had reasons to celebrate.
At the end of 2014, the country successfully tendered new supply contracts, after scrapping several earlier attempts because the participating distributors and generators could not agree on prices. Contrary to most expectations, the December auction also managed to reduce contract prices to an average of US$108/MWh, compared to US$130/MWh in 2013. A second auction in October 2015 produced even better results, with prices averaging US$79/MWh.
Renewable energies have played a central role in this turnaround, securing supply blocks in the auctions for the first time thanks to changes in the bidding system. Solar, wind and mini hydro developers picked up all of the 1,200 GWh/year tendered in October and 24% of the nearly 12,000GWh/year awarded in December, helping drive down prices in the latter tender with an average bid of US$102/MWh (versus US$110/MWh for conventional sources).
These recent successes were an important milestone for the local renewables sector. Chile, which lacks domestic fossil fuel reserves, is finally tapping into its abundant native energy resources - namely, solar and wind power. As of October, renewable projects accounted for almost half of the 5.2GW in new capacity under construction. Currently, some 2.5GW of renewable capacity is operational or ramping up, and an ongoing solar construction boom is expected to bring that figure to 3GW by end-2015.
Non-conventional renewable energies (NCREs) - photovoltaic (PV) solar, wind, mini hydro, and bioenergy - contributed 10.8% of the electricity supply in September, putting Chile comfortably on track to its 20% renewable generation target for 2025.
Chile's long-term goals are even more ambitious. In September, the energy ministry released its 2050 energy road map, a landmark study involving experts from the public and private sectors, academia and citizens organizations. This study envisions NCREs - a category that also includes concentrating solar power (CSP), geothermal and wave energy - providing 70% of the country's electricity by 2050.
The falling costs of solar and wind technologies, along with regulatory changes, have helped usher in Chile's renewable energy boom. But for that growth to continue, the country will need to address several obstacles, the most important of which are expanding the national transmission system and repairing the power industry's relationship with the communities who live near power projects. It will also likely need to develop its conventional sources, namely large hydro and gas-fired thermo plants, to facilitate the incorporation of variable renewable energies on the grid.
This report aims to examine and understand the challenges and opportunities on the road to Chile's renewable energy goals, as well as the other major issues affecting the local power market.