ANALYSIS - Chile: Land of opportunities for renewable energies

The El Romero Solar plant in Chile. Source: Acciona Energia.

October 31 (Renewables Now) - Chile has been historically characterised as a country heavily dependent on imported fuels and its growing need for energy has been satisfied by burning coal and diesel. This heavy reliance on fossil fuels sparked the interest in quickly developing renewable energy technologies, particularly solar photovoltaic (PV) power generation, after in 2013 the marginal costs of 1 MWh of electricity in Chile pierced USD 240.

The need to change the trajectory of ever higher energy prices has led the Chilean government to outline and implement a strategy to attract international capital and revolutionise energy generation in the country.

The most important renewable technologies in the Chilean market are hydro, solar PV and wind. Unlike in EMEA, their growth in Chile has been driven by the unregulated market, enabled by the above-mentioned high prices of electricity, an open and stable economic and political environment, and the dramatic decrease of the levelised cost of energy (LCOE).

In 2018, after five years of unprecedented boom across different renewable energy technologies, especially solar and wind, the country has managed to increase the share of generation from renewable energy sources from 5% to 18%. Utility scale solar PV has decreased in price from USD 350/MWh in 2009 to approximately USD 90/MWh in 2013 and USD 50/MWh in 2017, representing an overall decrease of 85%.


In September 2018, the cumulative installed capacity of solar PV in Chile reached 2.38 GW, up from just 12 MWp in 2013. The most numerous group of projects has been the PMGD category for plants of up to 9 MW.

The aggregate capacity of the 10 largest photovoltaic (PV) solar plants in Chile is 1,173 MW, with the largest plant being of 196 MW -- the El Romero park by Acciona. Chile has publicly announced green targets of 60% by 2035 and 70% by 2050. With the current pace of deployment of renewable energy technologies, these targets will likely be achieved ahead of schedule, investment banking boutique Prothea says.


With regard to the wind market, approximately 1.3 GW of installed capacity have been added since 2013. The LCOE decrease for wind, as a more mature technology, has not been as dramatic as that for solar, and its deployment has been relatively slower. The price of wind has fallen from approximately USD 170/MWh to USD 60/MWh between 2009 and 2013, representing an overall decrease of 64%.

Similarly to the solar PV market, the combined capacity of the 10 largest wind plants in Chile exceeds 1 GW and it is thus very concentrated. Still, a number of new projects in wind are being announced, most remarkably El Horizonte by Colbun, a 607-MW wind plant representing the largest project in LATAM and one of the largest in the world.


As said, Chile has not introduced feed-in tariffs (FiTs). Therefore, there are three basic options for project developers: i) a power purchase agreement (PPA) backed by a publicly owned utility; ii) Stabilised Price regime for small and medium solar projects; and iii) the fully merchant/spot market model.

A sought-after class of PPA contracts have been those obtained through public tenders organised by CNE and the Chilean government. In these tenders, producers compete to obtain 20-year PPA contracts with offtakers - Chilean distribution companies. Given the four largest distribution companies in Chile (Enel, CGE Distribución, Chilquinta, Saesa) concentrate 97% of the market, their counterparty credit risk is reduced to systemic risk. In the future, new opportunities in the PPA tenders are expected with the market being driven by fundamentals in electricity prices.

Martin Libra, head of LATAM at Prothea, observes that “with the advancements the Chilean market has undergone since 2013, the market will enter now in a consolidation phase as experienced in other more mature markets. The consolidation is mostly expected in the 3 to 9-MWp PV plants category, where the highest number of players are. Nevertheless, some large wind portfolios are coming to the market, and they will dominate in terms of equity ticket.”

As the market has matured and many players can already show one or more successfully connected plants, some of the transactions are taking place in earlier stages, that is during the project development or before construction. Private equity like investors and industrial players are acquiring ready-to-build projects to be transferred to long-term investors once in operation. Martin Libra acknowledges that “an important class of investors in Chile are family offices, with good access to capital looking to diversify their portfolios with renewable energy assets.”

Despite the expected consolidation phase, considering the long-term government targets, rapid development is expected in both solar and wind. The pace of growth for both small- and large-scale solar is expected to continue at levels similar to these experienced in the late few years. The solar PV market, in particular, will be dominated by new developments and new constructions for the next three to five years.

The absence of support mechanisms, tax benefits or feed-in tariffs is an important feature of the Chilean renewable market. When financed by investors or banks, strong emphasis is put on modelling and spot prices forecasts (as well as the Stabilised Price regime mentioned above).

Chile can be considered a pioneer market in the market parity trend that is currently developing in Southern Europe. David Armanini, MD of Prothea, highlights that “Chile is experiencing the same market prospect in terms of ability to bring projects to financial close under a merchant scenario which we have been experiencing in Australia and Southern Europe. Country stability, macroeconomic fundamentals, and the global race to energy transition make us convinced that Chile is a market with strong prospective.”

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About the author

Based in Santiago, Chile, Martin is in charge of independent advisory boutique Prothea’s renewables-related activities in Latin America. He has extensive experience in climate and renewable energy finance, project development and consulting.

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