Demand analysis of emerging PV markets: Chile of South and Central America
February 11, 2020 PV InfoLink
Chile, a country with an estimated population of 18.73 million, recently encountered the largest protest in the nation’s history—over rising living costs, economic inequality, and the falling price for cooper, the staple of Chilean economy. Although Chile achieved a 4% GDP growth in 2018, the country’s ongoing turmoil has led to a conservative economic outlook this year and the years ahead.
Chile’s long and narrow geography divides the country into distinct climatic regions. The climate in north is low desert, with no rainfall records in some regions; the central part is Mediterranean climate; and the south is oceanic. The average temperature averages 20 °C in summers, which lasts from December to March, and -1 °C in winter, which lasts from May to August. Chile abounds in sunlight, receiving an average daily solar radiation of 6 kWh/m2.
Renewable energy development in Chile
The Chilean government has been making continuous efforts to promote renewable energy development. It launched the “Energy 2050” plan in 2016 with a mandated goal of meeting 20% of national electricity generation from renewable sources by 2025 and 70% by 2050. The government is now aiming to reach 70% of renewables by 2030.
Various measures have been introduced to facilitate the development of the domestic renewables industry. These include providing subsidies, seeking technical cooperation with foreign investors, and building research facilities. Thanks to a significant reduction in solar costs, solar energy outshines other renewables in Chile. So far, it accounts for 50% of renewable installations nationwide, followed by wind power at 30%, small hydro 10%, biomass 9%, and geothermal energy 1%.
Solar policies and outcomes in Chile
Due to high electricity prices and heavy dependence on energy imports, Chile has been developing renewables to become energy independent. Geographically endowed with abundant sunlight, the country has long embraced solar energy as a critical part of its renewable development project. Since 2012, the government has designated lands for solar projects and actively approved proposals submitted by domestic and foreign developers. This has significantly increased inflows of foreign investment to domestic PV market. The government has also improved adoption of green energy among the public through sales of renewable certificates.
PV projects in Chile have been developed on scales small and large. The small-scale projects are intended to encourage self-generation and self-consumption purposes. In 2014, the government adopted net-metering policy to promote distributed generation systems through paying renewable energy exported to the grid by systems smaller than 100 Kw in size. Recently, the maximum size of systems eligible for net-metering has been raised to 300 kW.
The development of large-scale PV projects takes place through the signing of independent-power-producer (IPP) contracts. It has also been achieved by means of three renewable procurement exercises, held every year from 2015 to 2017. Although the tendered capacity of all renewable projects is out of reach, the installation figures revealed that PV may have been assigned the highest capacity. Moreover, marked reductions in solar costs prompted the average bid prices to trend downward, from US$ 79.3/MWh in 2015 to US$ 32.5/MWh in 2017, a decrease of nearly 60%. A new renewable auction is under planning and due to take place this June.
In 2017, Chile added 768 MW of installed PV capacity, higher than in the other years; some of that addition may have come from projects awarded in auctions held during 2015 to 2016. In 2019, another 511 MW of PV was installed, a 50% growth from the preceding year. This addition may in part have come from projects assigned through the 2017 auction. Overall, Chile sees stable annual growth in installed PV capacity, except in a given year when it made a markedly greater addition.
A barrier that hinders the solar development in Chile is the long and narrow geography, which drove most developers to build projects in the north. At present, 1.6 GW of PV projects are under construction, while 4 GW are under review nationwide. However, with power grid becoming loaded in northern Chile, it may become increasingly difficult for PV projects under construction or in the pipeline to get commissioned, because most of these projects are located in the north.
Chile-China trade: Module import and export
Driven by the need to commission tendered projects, Chile imported 914 MW of modules during January to November in 2019 from China, a 43% increase from 637 MW imported in 2018. After a new round of auction, scheduled for June, is completed, Chile may not start to draw in modules until the second half of 2021, considering the one-to-two year lead time needed to bring a tendered project online.
Chile has been promoting renewables development in place of fossil fuels. Solar energy is the fastest growing technology of the domestic renewables industry. It is being developed on an IPP basis and through three auctions. Projects auctioned off from the first and second auctions were mostly completed in 2017, whereas those from the third may have already proceeded this year with module draw-in, judging from this year’s customs data on module shipment. The upcoming auction may take place this June. The maximum installed capacity of distributed systems qualifying for net-metering subsidies has been raised to 300 kW.
While solar energy development seems to be going well in Chile, the 1.6 GW of PV projects under construction and 4 GW under review are disproportionately concentrated in the north, which enjoys more sunlight than other regions. Yet, as the grid in the north is becoming loaded, one difficulty after another may arise in the development of projects for PV and other renewables. Thus, it will be increasingly difficult to commission those under-way PV projects.
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