2011 was a year of environmental controversy in Chile. It was a year in which three hotly debated projects were approved: Hidroaysen (a colossal hydroelectric project of more than 2000 megawatts located in the deep Patagonia), the Castilla coal-fired power plant (similar magnitude, but would by itself increase Chile's carbon dioxide emissions in 20 percent) and the Isla Riesco Coal Mining Project, located on a remote island. Of these projects only the Isla Riesco project is being constructed.
Hidroaysen and Castilla are stuck in litigation due to a sloppy approval process. Castilla construction plans were halted when the Court of Appeals of Chile stated that the Ministry of Health's last minute change in qualifying the project to be a "nuisance" (from its previous status of "polluting") was irregular. The Hidroaysen project is also stuck in litigation due to water rights. The Supreme Court will reach a final verdict on both cases during the year. But uncertainty looms in the approval of roughly 4500 megawatt of base load oriented power. At the same time three other contiguous coal fired power plant projects were pulled due to public opposition .
The renewable energy sector has been seizing on the opportunities that have come out of this uncertainty. President Piñera also announced a strategic energy plan that includes a target of 20 percent non-conventional renewable energy by 2020, 12 percent reduction of projected energy use through efficiency, renewable energy bidding blocks, net metering and a carbon tax. The free market think tanks oppose these plans as they state these plans will increase energy costs. However due to the marginalist electric tariff structure installed during the Pinochet years, renewable energy displaces energy with higher marginal costs, thus decreasing energy costs.
The outlook is positive for the emerging solar sector in Chile. Between 2011 and 2012 a total of 1400 megawatts of solar photovoltaic projects are undergoing, or have undergone environmental impact assessments. Declared installed costs range from 2.2-5.3 U.S. dollars per watt, but some private bids are offering solar PV at 1.3-1.6 U.S. dollars per watt.
Considering that the Atacama Desert boasts some of the highest solar irradiations in the world, with plant factors of 24-30 percent, energy can be produced at rates that compete with diesel, natural gas and sometimes even coal. The environmental permitting is much easier to overcome. Projects are approved in under six months versus the usual one to two year period of larger conventional projects. And there these projects aren't as contested. Marginal costs are projected to range from 71 to 202 USD/MWh of energy in the central energy grid (SIC), and similar values are true for the northern grid (SING). At this range solar, wind, and geothermal can compete. Solar in its lower range can profitably generate from 75-95 USD/MWh. This shows that projections by Bloomberg New Energy Finance last year that PV and concentrated solar would compete with conventional generation by 2020 was in fact a conservative estimate.
On a residential scale solar PV has also shown large progress. Ever since Congress approved a net metering regulation there's been a lot of activity in grid tie systems, which decrease costs. I myself installed a solar PV system (1.4 kW) at five USD/W, including state of the art inverters and remote analysis of my system output. My sources in the sector project that they can reach a four to five USD/watt price. Since residential energy costs are also high (I pay around 20 cents/KWh) payback periods for residential systems can range from 8 to 12 years, much faster than in California (with no subsidies!). Solar pumping projects are popping up across the country. One of them, when installed will be the largest PV project in Chile, period.. Chile will probably not implement a feed-in tariff for smaller scale systems, but then again energy is so expensive that maybe we don't need one.
Large scale solar projects are still a promise more than reality. Base load concerns still limit funding for these projects. Also these are generally installed in stages, pending on the funding of each stage. Generally private contracts between large industrial consumers and generators require firm power. Large energy producers (which dominate 90 percent of the market) can use conventional energy sources to supplement their contract requirements. New renewable energy companies do not have these backup systems, so they need more flexible contracts to compete.
The government is looking for mechanisms to overcome these limitations, and has announced a bidding process for large blocks of renewable energy. However conventional companies such as AES Gener have announced a 220 megawatt solar PV project for Northern Chile. Whether to meet the 20 percent 2020 target, or just due to a good business case, it will be the largest solar PV project in South America when it comes online in 2014.
Chile's high energy prices, energy dependence and renewable potential are setting the stage for a true revolution in energy generation. Amory Lovins himself said that current conditions make Chile a gold mine in renewables and efficiency. And this will occur in the Chilean way, with no subsidies. And with a carbon tax in place, the forecast for solar in Chile is as sunny as the Atacama Desert.
This post was made in collaboration with Daniel Díaz, formerly of CORFO, the Chilean Economic Development Council, and now a solar energy developer.
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