The market for large-scale photovoltaic solar projects in Chile has largely cooled off, at least for the moment.
A glut of installed PV capacity in the Atacama desert, combined with tepid projections for power demand growth, have created an ultra-competitive buyer’s market in which long-term PPAs – now considered the only viable option for financing utility-scale solar projects in Chile – are increasingly hard to obtain.
However, the market for PV plants up to 9MW is starting to heat up, according to Dylan Rudney, CEO of Chile-based solar developer Verano Capital, which has about 25 of these projects in varying stages of development – nine of which Verano hopes to connect to the grid this year.
The smaller projects are attractive for several reasons, Rudney told BNamericas in an interview at Verano’s Santiago offices. For example, they’re easier to finance, cheaper to connect, and can be installed closer to the point of consumption.
“But the main attractive thing is, without a doubt, the stabilized price,” he said. Rather than selling their output on the often volatile spot market, owners of PV arrays with installed capacities up to 9MW have the option to sell their energy at the precio estabilizado, or stabilized price, which national energy commission CNE sets every six months.
CNE factors in average PPA prices in the local market, as well as projected spot prices over the subsequent four-year period, in its calculation of the stabilized price, which is paid by offtakers at the point of injection.
The mechanism removes much of the risk associated with merchant solar plants, making banks much more willing to provide project financing, Rudney said.
When the stabilized pricing scheme was introduced, the spot price was higher than the stabilized price, meaning that offtakers – namely large conventional power generators – were more than willing to pay the stabilized price.
However, electricity prices in Chile have plummeted over the last three years, which means that the stabilized price is now often higher than the spot price, leading to grumbling from large generators and rumors of an impending change to the mechanism.
“We did approach some of the authorities to see if there was a foreseeable change,” Rudney said, “and the answer was across all boards no.”
This was confirmed to BNamericas on Wednesday by Carlos Finat, head of local renewable energy trade association Acera, who stressed the importance of maintaining the stabilized price in order to attract investment in small solar projects.
According to Acera’s calculations, the stabilized price will not have a meaningful impact on the bottom lines of conventional generators over the long term, Finat said.
Chile breaks down solar plants up to 9MW into two categories: pequeños medios de generación (PMG) and pequeños medios de generación distribuida (PMGD). The former refers to PV arrays that feed into the transmission or sub-transmission network, while PMGD refers to projects that connect directly to the distribution grid.