2024
Energy Storage Report
Key Regional Markets
Chile
In November 2022, Chile took steps to strengthen its climate policies and decarbonisation goals by updating its Nationally Determined Contribution (NDC), which is an emission pledge made during the COP27 climate summit held in Egypt. The updated targets aim to reverse the trend of increasing methane emissions by 2025, expand the protection of its ecosystem by 1 million hectares by 2030, and reduce CO2 emissions by 45% by 2030 compared to 2016 levels. Furthermore, Chile aims to achieve carbon neutrality by 2050 (IMF, 2023).
Chile is aiming to reduce its carbon footprint by focusing on two major industries: energy and transport. These industries contribute significantly to the country’s overall emissions, with the energy sector alone accounting for nearly three-quarters of the total emissions. To achieve this goal, the Chilean government has laid out a plan to retire 30% of the country’s coal-fired power plants by 2024, with the remaining plants being phased out by 2040. The transport sector, which is heavily reliant on diesel vehicles, will also need to undergo significant changes to reduce emissions (Solar Paces, 2021). In November 2022, the Energy Ministry proposed establishing a 60% electricity generation target, an upward revision from the 40% target set out earlier (BNAmericas, 2022). Chile considers energy storage as a crucial element of its transition policy towards renewable energy, which will help stabilise the electricity grid.
GDP (Current Prices) USD (2022) | 301bn |
GDP Growth Forecast (constant prices) (2023-2027) | 2% |
10yr Govt Bond Yield (12-month rolling average) | 5.65% |
Country Credit Rating (S&P) | A |
Battery Storage Capacity | 1.04GWh /261MW |
Pumped Hydro Storage Capacity | NA |
RE share of Total Electricity Capacity | 59.7% |
Battery Storage Outlook | 6.4GW of Storage Pipeline |
Note: Battery Storage Capacity Expressed in GWh assuming an average 4 hours of duration.
Source: IMF, Fred Economic Data, S&P Global, ACERA, IRENA, PV Magazine
Energy Mix and Case for Storage
Source: IRENA (2023)
Phasing out coal-based power generation ahead of the target year of 2040 is a top priority for policymakers in Chile, considering its disproportionate share in the country’s overall emissions. According to a recent study, phasing out 5GW of coal-based generation capacity will require 4GW of new replacement capacity every year, mainly sourced from renewable energy, for the remainder of the decade. In the first decade, 30GW of new electricity generation facilities will be needed, consisting of 15GW of solar, 5GW of wind, 8GW of battery storage, and 2GW of flexible gas generation capacity (BNAmericas, 2023). Between 2014-2022, the share of coal-based power generation in the total Chilean power mix declined from 41% to 23%, placing the country among the top ten for the pace of such a transition (WRI, 2023). Battery storage and flexible gas generation are expected to play a crucial role in facilitating the transition.
The importance of having enough energy storage capacity is clear from the rising amounts of curtailment observed in Chile’s power grid. According to ACERA, Chile’s National Renewable Energy Industry Association, the power grid curtailed 735GWh of renewable energy in the first five months of 2023, which is an 86% increase from the previous year (ReThink, 2023). The situation is likely to exacerbate as the project pipeline for solar PV, amounting to 1.6GW in the pre-commissioning stage, 4.2GW under construction, 20.5GW post-approval and 3.5GW in pre-approval settings massively dwarfs that for battery storage (ReThink, 2023).
Capacity: Status and Trend
The installed capacity for energy storage has been growing rapidly despite a low starting point. This growth has been particularly significant as energy storage has traditionally played a marginal role. According to the year-end report of 2023 from the Chilean Renewable Energy Association (ACERA), the installed battery storage capacity was 261MW. This included 114MW of operational capacity and 147MW in testing. It is worth noting that almost all of the operational battery storage capacity (113MW) installed as of December 2023 was co-located with utility-scale solar PV plants (ACERA, 2023).
The focus on storage capacities linked to power generation in Chile is a reflection of the country’s energy market growth pattern. The recent surge in renewable energy generation capacity has presented a number of challenges for industry players. While there has been a rapid increase in renewable energy capacity, the necessary modernization of transmission infrastructure has not kept pace, leading to issues such as congestion, curtailment, and zero marginal costs for producers.
Source: ACERA
Note: Data is as of December of every year.
The revenue losses emanating from these issues have served to dampen investor enthusiasm. As per Chile’s National Electricity Co-ordinator (CEN), there is an emerging consensus that battery storage capabilities are more likely to mitigate the prevailing issues through load shifting than sustained investment in expanding transmission lines. The share of renewables in electricity generation amounted to 30% in 2023, and this is likely to increase to 80% by 2030 as per Chile’s National Energy Policy, and eventually 100% by 2050. This will likely drive demand for sustained investment into developing energy storage capacities to balance the grid.
Chile is home to the largest reserve of lithium in the world, accounting for 36% of the world’s economically recoverable lithium reserves. It is worth noting that Chile processes its lithium deposits into lithium carbonate, for which it holds a 61% share globally. Lithium carbonate plays a critical role in the manufacturing of LFP batteries, which are increasingly replacing other lithium-ion battery technologies. From 2020 to 2023, the share of LFP batteries is expected to grow from 20% to 40% (Columbia SIPA, 2023). As a result, there is a natural bias towards BESS solutions for energy storage in Chile.
Other storage technologies are also being considered. Notable examples include a 300MW pumped hydro storage project developed by Chilean firm Valhalla (Valhalla). A UK-Chilean JV called Highview Enlasa is developing a 50MW liquid air energy storage project that recently got approval (Renewables Now, 2022). AES Andes is seeking environmental clearance for converting a coal-based power plant into a 560MW molten salt energy storage unit, reputed to be the first of its kind globally once operational (Renewables Now, 2022). If successful, the technology is likely to set a template for converting the remainder of Chile’s coal-based generation assets, thus accelerating the timeframe for decarbonising the power sector. Molten salt thermal storage projects are prevalent in Chile, with five operational assets having a cumulative installed capacity of 1.6GW (PV Magazine, 2023).
Policy and Regulation
In early October 2022, the Chilean Senate passed the Electromobility Bill to accelerate the development of the energy storage market. The new legislation provides incentives for the deployment of standalone energy storage and outlines the remuneration mechanism for it in Chile’s power market. This resulted in a surge in investment in the energy storage sector for standalone projects and a pipeline of more than 2GW of hybrid renewable energy projects co-located with solar and wind generation assets (LinkedIn, 2023). In June 2023, the Chilean government announced its intention to introduce a bill to procure large-scale energy storage systems via a $2 billion energy storage auction in 2024, with commissioning planned in 2026. This is in addition to the 5GWh of energy storage sought for commissioning in 2027-28 (BNAmericas, 2023).
The Electromobility Bill of 2022 defined the regulatory framework around energy storage and is subsequently being amended to expand the scope of storage on the broader energy market. The Chilean Energy Ministry has proposed additional rules for capacity payments to decree DS62/2006 that regulates the capacity market (BNAmericas, 2023). Notable amongst these is a proposal that enables hybrid renewable energy projects with a storage component to be compensated separately for each element. It also proposes the inclusion of storage in capacity market rules, enabling storage projects to be compensated for providing capacity to the grid. 100% capacity recognition is proposed for a storage capacity of five hours and beyond, progressively lowering to 50% for a capacity of up to 1 hour. These amendments, once enacted, could be a key growth enabler as capacity payments are expected to account for 40% of the BESS revenue stack (Local Information Services, 2023).
An amendment is proposed to the decree DS125/2017 that governs power grid coordination. The amendment aims to include energy storage in the overarching grid coordination plan, which will allow installations to draw and inject power from and to the grid. This change is expected to be enacted in the third quarter of 2024. Subsequent legislation is anticipated to provide more transparency into the full range of ancillary services and their compensation rules, which will give investors a clear understanding of the revenue stacking of battery storage projects and determine their financial viability.
Renewables curtailment reached its peak in 2023 due to the prevailing transmission network’s inability to match the rapid buildout in renewable generation capacity, hamstrung by unique geographical constraints. Energy storage is widely seen as the viable option to balance the grid, with estimates indicating that a 2GW energy storage capacity by 2026 will deliver savings of $513 million to the national power grid (BNAmericas, 2023).
The Chilean Ministry of Energy and the Ministry of National Assets unveiled a new resolution to allocate public land for energy storage projects that will start operations in 2026 and cover projects of about 13GWh, mainly in the regions from Arica y Parinacota to Atacama (PV Magazine, 2023).
Market Developments and Opportunities
The energy storage market in Chile has expanded rapidly since October 2022, in the aftermath of the Electromobility Bill. The bill has spured development and investments across the energy storage space, with both hybrid and standalone BESS projects planned, as well as alternative technologies.
The project pipeline looks particularly robust for hybrid renewable energy projects with cumulative capacity at 2GW and counting. Chilean utility AES Andes is particularly active with several projects in the pre-construction phase. The $800 million Papas Hybrid Park project consists of 140MW wind, 252MWp solar and 624MW battery storage to provide power for up to 5 hours (LinkedIn, 2023). The $750 million Parque Terra Energía Renovable project involves 350MW wind, 513MW solar and two battery storage systems (LinkedIn, 2023). The $710 million Cristales hybrid project will have 379MW solar PV capacity and 542MW battery storage capacity. In July 2023, AES commenced operations on the 180MW solar/112MW BESS Andes Solar IIB project, which is purported to be the largest installation in Latin America (ETN, 2023). In November 2023, Grenergy unveiled its 2023-2026 plan and highlighted its 4.1GWh BESS with a 1GW solar project in Chile (Energy Storage News, 2023). Global players are also expanding their footprint in Chile, with Engie’s 337MW wind farm with 291.2MW of BESS, EDF Renewables’ 416MW wind, 198MW solar and a battery storage system, Stakraft’s 671MW solar plant with BESS being some notable examples.
Standalone battery storage projects are also gaining traction. Canadian IPP Innergex has two projects in Chile slated for commissioning in 2023. This includes the 35 MW/175 MWh San Andrés battery energy storage project and the 50MW/250MWh Salvador battery project (INNERGEX, 2023). Finland-based Flexens was reported to have put three standalone BESS projects having a cumulative capacity of 1GW in the interconnection queue in September 2023 (Energy Storage News, 2023).
The storage technology deployment is skewed towards battery storage, with lithium-ion being the preferred technology, accounting for 79 projects out of a total pipeline of 85 energy storage projects in various stages of development as of August 2023. About 15 standalone energy storage projects involving investments of around $1.93 billion are submitted for environmental assessment in Chile, and all are battery-based (Bnamericas, 2023). In March 2024, Atlas Renewable Energy marked its entry into the standalone battery storage market through a 15-year PPA with Chilean energy trader Emoac. The agreement, based on a public tender, entails building a standalone battery storage unit (Renewables Now, 2024).
There is also scope for alternate technologies to capitalise on the growth of the energy storage market. The Santiago Cryobattery Storage System is a 2GW installation scheduled to be commissioned in 2023 (Power Technology, 2023). Highview Enlasa is planning a 50MW/500MWh liquid air energy storage plant. In addition, a hydrogen energy storage project is being developed by HIF Chile and is in the planning stages (PV Magazine, 2023).
Outlook
Rapid growth is expected in the Chilean energy storage market until 2030, driven essentially through utility-scale renewable energy projects. As of October 2023, the tracked battery storage project pipeline stood at 6.4GW across 85 projects (PV Magazine, 2023). Such estimates are highly dynamic as the market continues to attract new storage units in tandem with the renewable energy projects. The ACERA’s December 2023 report pointed to 346MW of approved battery storage capacity and another 610MW under construction (ACERA, 2023).
The decarbonisation of the power sector remains a significant milestone for Chile’s climate goals, and phasing out the country’s 5GW coal-based generation capacity will require at least 15GW of renewables and storage capacity (BNAmericas, 2023). Renewable energy projects are facing financial challenges due to increasing curtailments and zero marginal costs. In response, developers are choosing to build hybrid projects that include storage components. Capacity payment mechanisms have helped to support this trend. According to a recent study by the grid co-ordinator CEN, there will be a need for 1-4GW storage capacity between 2026 and 2032 to stabilize the grid (BNAmericas, 2023).
Chile has been working on creating regulations for energy storage as a crucial part of its energy transition plans. The private sector has shown a lot of interest in investing due to the clarity regarding payment mechanisms for different types of storage applications, starting with the capacity market. To further boost the storage market in Chile, it is important to expand the use of energy storage for both generation and transmission applications, and establish a remuneration framework for ancillary services.