The Chilean Photovoltaic Market: Self-Consumption Up-And-Coming. 10 November 2014

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1 The Chilean Photovoltaic Market: Self-Consumption Up-And-Coming 10 November 2014

2 Everybody is talking about PV projects in Chile but what is behind the buzz? Summary Chile: a small electricity market with high electricity prices and an abundant solar potential. PV project business in Chile is booming. A lot of projects under construction are being built in the smaller northern system SING. The market for large-scale PV projects will cool down soon due to grid overload Project developers from Southern Europe and the US dominate the large-scale business Self consumption projects will play a more prominent role due to the net-metering law The law introduces an implicit market cap, through the passing-on of grid expansion costs Sum-Up: Market will move on to projects <10 MW in central Chile

3 Chile: a small electricity market Key facts on the Chilean electricity market SING (Sistema Interconectado del Norte Grande) 3.8 GW SIC (Sistema Interconectado Central) 13.8 GW Gas 38% Coal 52% Coal 24% Gas 23% Petrol 9% Others 1% Petrol 15% Wind/Bio/ Solar 4% Hidro 34% The northern interconnected grid SING covers the sparsely populated desert areas. Demand is growing by 3.8% annually (average ). Predominantly a thermal power plant park. CONNECTION SIC/SING 2017 THE EARLIST The central interconnected grid SIC covers the rather densely populated areas. Electricity demand is growing by 5.3% annually (average ). Source: bürof, based on CNE

4 with high electricity prices Spot market and end electricity prices in Chile SIC marginal costs (=spot market price) rarely <100 US$ End electricity prices are not subsidized Residential Commercial Average 0,19 USD 0,12 USD Min 0,15 USD 0,09 USD Max 0,22 USD 0,15 USD SIC SING In general, electricity prices are higher in the SIC than in the SING. Seasonal price variations in the SIC due to a 43% share of hydropower. Source: Systep, based on CDEC SING, CDEC SIC

5 and an abundant solar potential Solar potential Chile Irradiation Load factor of PV plants North of Santiago, solar irradiation is >2000kWh/m²/year Energy yield is between 1,5 2,5 kwh/kwp. Load factor of PV plants north of Santiago >20% (GER: 10%). Global horizontal irradiation (kwh/m²/day) Source: GIZ Chile / Ministerio de Energía

6 PV project business in Chile is booming Installed renewable energy capacities >7MW In Operation Under Construction Small Hydro 20% Wind 40% PV 11% 1,7 GW 61% 0,8 GW Biogas 2% Biomass 27% PV CSP 13% Small Hydro 4% Biomass 3% Wind 19% Source: Centro de Energías Renovables (CER)

7 A lot of projects under construction are being built in the smaller northern system SING Projects and project pipeline >10MW per interconnected system 300 MW 250 MW MW 150 MW SING 100 MW SIC 50 MW 0 MW 25 In Operation Under Construction (connection by Q2/2015) Source: bürof based on Systep, CDEC SING, CDEC SIC, company news, press articles

8 Market for large-scale PV projects will cool down soon due to grid overload Grid overload The enormous project pipeline will soon lead to network overloads and thus complicate the dispatch of PV electricity by the dispatch centers. In the SING, the current PV share of 0.6% will increase to 5% within the next six months. In addition, several PV parks are being built around a central network junctions (e.g. Diego de Almagro in the SING). Against this backdrop, smaller PV projects close to the load centers are becoming more and more attractive. Large-scale projects open the market, but in the short and medium term, business will shift to the rooftop segments.

9 Project developers from Southern Europe and the US dominate the large-scale business 140 MW Projects and project pipeline >10MW per project developer 120 MW 100 MW 80 MW 60 MW 40 MW Under Construction (connection by Q2/2015) In Operation 20 MW 0 MW Saferay (GER)/ Seltec (CL) Element Power (US) SK Eco (CL)/ Sky Solar (CN) Etrion (IT)/ Total (FR) Sun Edison (US) Solarpack (ESP) Source: bürof based on Systep, CDEC SING, CDEC SIC, company news, press articles

10 Self consumption projects will play a more prominent role due to the net-metering law The Chilean Net-Billing law at a glance On 22 April 2014, Chile introduced a net-billing law for renewable energy plants <100kW Net-billing means that only the wholesale price (hence the purchase price of the distribution providers) is credited for an fed-in kwh. In a pure net-metering regime, the electricity fed into the grid and the electricity consumed have the same value. The new law applies to electricity produced from renewable energy sources, including photovoltaics small wind power small hydropower efficient cogeneration For residential s, the plant owner gets approx. 50% of his electricity price for a fed-in kwh. Commercial s receive credits at approx. 100% of their electricity price. However, in these tariff classes, fees for connected load and peak load make up a large share of the electricity bill. The latter may be reduced by an intelligent plant design, suiting the electricity demand. One of the reasons for the net-billing regulation is to avoid cash flows from distribution network operator to the plant operator.

11 The law introduces an implicit market cap, through the passing-on of grid expansion costs Application process for plants <100 kw under Net-Billing (simplified) Before the project Project implementation (6 months for installation and connecting after approval through distribution grid operator) Appliance for grid connection -> distribution grid operator Answer (20 days) distribution grid operator -> Installation of the plant Announceme nt of commissionin g -> electricity grid supervisor SEC Announceme nt of gridconnection -> distribution grid operator Grid connection contract (5 days) & distribution grid operator Inspection of grid connection (20 days) distribution grid operator Commissionin g of the plant Distribution grid operator is demanding adjustments (Strengthening of grid and/or lowering of plant capacity) Customer assigns work on distribution grid and/or reduces plant capacity -> Market cap through possible passing on of grid-expansion costs to the latest coming plant owner. Source: bürof based on Ministerio de Energía, GIZ Chile

12 Sum-Up: Market will move on to projects <10 MW in central Chile Conclusion The prominent large-scale projects in Northern Chile are opening the PV market, but will cause grid overloads soon. Smaller open space plants <10 MW close to the load centers have a much higher potential in the mid-term. First plants in this sector are in the planning phase, however the market is only evolving. Rooftop plants for self-consumption get a regulatory framework through the Chilean Net- Metering law and increased publicity. Especially the mining industries, retail sectors and fruit industries are attractive for selfconsumption projects. Given the high solar irradiation and the non-subsidized electricity price, an attractive market for PV plants >10 MW is evolving, with new installations between MW annually.

13 You Want to know more? We re looking forward to hearing from you! Stephan Franz Lehmbruckstraße Berlin +49-(0) (0) stephan.franz@burof.de