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Chile’s solar market is booming, but as restrictions tighten, a hybrid approach to generation is taking hold. Storage project announcements are becoming more frequent as co-location with wind turbines offers cost-effectiveness and a smoother generation profile. Meanwhile, new capacity mechanism rules could bring Chile closer to uncontrolled battery growth. Sometimes things just fall into place. In Chile, market conditions seem perfectly primed for a step change in the number of hybrid projects mixing renewable technologies. The timing couldn’t be better for a country facing a growing problem of constraints. In the first five months of 2024, some 1,911 GWh of surplus renewable electricity was cut in Chile, representing a 159% increase in electricity waste compared to the same period in 2023, according to figures from Acera, the Chilean renewable energy association. At the same time, solar generation capacity has been booming and has more than doubled since 2020. The latest data from consultancy firm Ember records 5.2 GW of new capacity installed in Chile from the beginning of 2021 to the end of 2023, for a total of 8.5 GW. This is impressive growth, but it is proving to be too much for the countrys electricity transmission grid. A more diversified generation profile is desirable. Despite increasing pressure on the grid, Chile’s solar boom has not slowed. Angel Cancino of S&P Global Commodity Insights told pv magazine that Chile is “one of the strongest markets in Latin America” for solar, second only to Brazil. The market analyst for solar and other clean energy technologies added that “small distributed generation” (PMGD) projects – “distributed generation” projects between 500 kW and 9 MW – are driving much of the capacity growth. “From what I’ve been following, there are over 100 projects being built right now,” Cancino said. Betting on batteries It’s great news for capacity numbers, but it may exacerbate Chile’s grid infrastructure problems. “I think there has been concern for the last two or three years that transition capacity will be able to support the huge amounts of renewables coming into the grid,” Cancino said. The S&P analyst also warned that growing solar capacity is putting downward pressure on electricity prices. “As more solar or even wind plants come into the grid, the risk of revenue cannibalization is higher,” he said. “With more and more solar projects set to be developed in the next five years, revenue cannibalization is becoming a serious long-term threat. So we see a lot of interest in the combination of solar and storage, a lot of new projects being announced.” “A lot” is not an exaggeration. In July 2024, AES announced plans to build a 763 MW solar plant with a 1,063 MW battery that will offer five hours of storage . Construction is expected to begin in April 2025 in the Antofagasta region in the north of the country, with commissioning expected in 2028. When it comes to renewable energy in Chile, Antofagasta is where the action is. Chiles net installed storage capacity in operation reached 404 MW/1,602 MWh in June 2024, according to figures released by the countrys Ministry of Energy. This capacity is mainly concentrated in Antofagasta. The figure is set to double in a few months, as the government forecasts an installed energy storage capacity of 806 MW/3,050 MWh by September 2024. Push and pull There are several factors driving the battery boom in Chile. Lower investment costs have not hurt. BloombergNEF analysts annual battery price survey, published in November 2023, recorded a 14% drop in costs from 2022 to 2023, to a record low of $139/kWh. Then there’s the growing demand. Henrique Ribeiro, principal analyst for batteries and energy storage at S&P Global Commodity Insights, said battery revenues in Chile have so far been driven by arbitrage — storing electricity when rates are low for sale during peak demand periods. However, unpredictable revenues from arbitrage alone are not enough to justify an investment in battery energy storage systems (BESS), especially for project owners who need external financing. The reality facing project developers now is a more fundamental need for storage in the country, as Ribeiro explained. “There is a lot of solar generation in the northern part of the country and Chile has, of course, a unique geography in terms of narrowness and length,” the analyst said. “So it is difficult to transport that energy resource from the north to the center of the country, where most of the demand is, in the Santiago region. There has always been a structural transmission deficit in Chile and storage, of course, is a great solution to help address that kind of problem.” Lawmakers appear to share this view, having taken their own steps to bolster the business case for storage in Chile. Capacity mechanism A new energy sufficiency regulation, which essentially functions as a capacity mechanism – a method of securing sufficient generation and storage assets to guarantee electricity supply – is expected to create better revenue opportunities for BESS in Chile. The regulation has already been defined and its rules made public. The legislation was about to be published in Chile’s Official Gazette at the time of writing pv magazine . Under the regulation, storage assets will be eligible for capacity payments, opening up new revenue streams for BESS owners. The capacity mechanism will also treat the generation and storage parts of hybrid plants as separate assets, meaning they will receive separate payments. As for investors considering BESS in Chile, Ribeiro said regulations are favorable for storage assets, and recent changes have spurred an increase in project announcements. “It is by far the most attractive market for storage in the region,” the S&P analyst added. The bulk of BESS announcements in Chile concern new installations, most of them solar plus storage, although there are some standalone battery storage projects. This may be so for now, but as solar capacity in Chile continues to grow, so does the issue of cannibalization within the solar market. Ribeiro suggested that storage could play a role here as well. “Storage is something that can probably help solve that problem, even if it’s momentarily, but I personally think more renovations are coming,” he said. And so it seems. Strategic storage Fernando Meza, head of business development at Enel Green Power Chile, told pv magazine that batteries are one of the “strategic pillars” that the company is developing to make its portfolio in Chile “more flexible and diverse.” “We are developing a portfolio of BESS projects associated with our existing renewable plants (solar and wind farms),” said Meza. “Our strategic plan from 2024 to 2026 includes several solar projects linked to storage systems that will come into operation in the coming years. The use of batteries in our renewable plants helps to transfer part of the renewable [electricity] generation to hours when the discharge is lower, or even non-existent.” Enel currently has approximately 2 GW of installed solar capacity in Chile, in addition to around 900 MW of operational wind capacity. Meza noted that the companys project portfolio now includes a mix of projects combining different technologies, such as solar and wind, BESS and wind, and BESS and solar. These hybrids are nothing new for the company. Another answer Commercial operations began in August 2022 at what Enel Chile described as the country’s first industrial-scale hybrid renewable power plant. Located in Antofagasta, the project comprises the 60.9 MW Azabache solar plant operating alongside the 90 MW Valle de Los Vientos wind farm . Why combine solar and wind power? For starters, they can have complementary power generation cycles. There are also “significant benefits” in reducing inventory costs related to replacing components, according to Meza. “It is possible to reduce operating costs related to waste disposal, drinking water and security, among others,” said Meza, referring to the advantages of co-location. “In addition, there are savings in investment by sharing storage; maintenance and operation facilities; and infrastructure such as the use of existing roads; and part of the electrical facilities, such as transmission lines and substations.” Co-location is a strategy that Enel has strongly backed. In July 2024, the company took another step forward when its new PV plant – stages one, two and three of the 205 MW PFV Las Salinas site – entered commercial operation alongside the company’s 112 MW Sierra Gorda Este wind farm. The site is now the largest hybrid project in the country, according to Enel. |