Renewables beat fossil fuels in a landmark Chilean tender

3 November 2015 by Jason Deign, Solarplaza

Bids as low as $64 per megawatt hour signal a new era of competitiveness for solar in Latin America.

Chile’s traditional energy companies are reeling in shock after a national generation tender that has seen renewable developers winning on price across the board. Two fossil-fuel generation firms, AES Gener and Endesa Chile, saw their most competitive offers undercut by solar and wind energy players in the latest tender by Chile’s National Energy Commission (Comisión Nacional de Energía o CNE).

The bid outcome has significant repercussions for solar developers across Latin America, as it signals that PV could potentially outgun traditional generation in other key markets such as Colombia.

The lowest-priced bid came from Amunche Solar, the Chilean arm of Spanish developer Solarpack, at just USD$64 per MWh. The company was awarded 110 GWh of the 1,200 GWh per year on offer in the auction. Another developer, SCB, came in close behind at $67 per MWh. Aela Generación, a developer owned by the UK’s Actis investment fund and Ireland’s Mainstream Renewable Power, picked up 65% of the capacity with a $78.8 per MWh bid.

Another renewable energy developer, Ibereólica, came in slightly above Endesa’s $84.20 per MWh rate and on a par with AES at $85 per MWh. Abengoa, the combined solar thermal-PV plant developer, put in the highest bid, at $97 per MWh. However, Endesa and AES’s bids were thrown out by the CNE because they were each conditional on winning the entire 1,200 GWh under auction.

The average price offered by the renewable energy firms was $79.34 per MWh, well below the rates put forward by the fossil-fuel players and also far less than the average bids achieved in 2014 (at $107.60 per MWh) and 2013 ($128.20 per MWh). Chilean observers believe AES and Endesa were caught off guard after tabling bids that the companies presumed renewable energy developers could not match.

“Electricity sector sources say the offers made by AES Gener and Endesa aimed, via an aggressive [pricing] strategy, to take out the renewable energy operators, but they were not able to,” said the Chilean Renewable Energy Association.

The move could cost AES, Endesa and Colbún, a third fossil-fuel firm that was excluded from the tender for administrative reasons, 4% of Chile’s regulated energy market, the association said. 

What is perhaps even more surprising is that the renewable energy operators achieved their low pricing without having to resort to novel business models or funding strategies. “There’s nothing unusual about our offer,” Pablo Burgos, Solarpack’s chief executive, told Solarplaza. “We understand the country, since we were the first solar player to enter it in 2008, and so we’re able to build projects that are right for the market. We are also vertically integrated and technology agnostic.”

Amunche Solar’s record low bid should give the company an income stream of $7 million a year over 20 years. The company intends to build a solar plant about 100km from the Chilean capital Santiago. Work on the plant will begin mid-2016 and will need to be completed by 2017 in order to meet the CNE’s eligibility criteria, Burgos said.

·         Get an update on the latest Latin America solar developments at the Solar PV Trade Mission Central America & Colombia, from November 16 to 20 in Bogotá and Panama City. Register now while places remain.