Global Solar PV Market Report

The energy sector in Chile is going through a transformation phase as it is in the process of phasing out 28 coal- fired plants by 2040. Chile generates nearly 40% of its electricity from coal and the phase-out of this capacity trigger transformational changes in other energy-related sectors. The Chilean government and private sector have been working together since mid-2019 to decommission or repurpose coal power plants by 2040. Moreover, they have pledged not to invest in new coal-fired plants without carbon capture and storage. As of 2022, eight power plant units have been retired, with more set to be retired in the future. Such voluntary decarbonization measures set the stage for renewable energy, especially solar power generation.

The excellent solar resources in Chile have helped it to become a destination of choice for solar developers. The country receives some of the strongest and most consistent sunshine on the planet, especially in the Atacama Desert, in the north (2,400kWh/m2). Due to its aridity, irradiation, and market conditions, the Atacama Desert is among the best places on Earth for developing solar power. The country’s Northern region alone has an estimated 1,260GW of untapped solar PV potential. The available solar resource thus outstrips the different renewable energy resources, including wind energy, by a wide margin.

High-capacity factors allow energy production at a very low price, which is essential for the economic and competitive production of green hydrogen, in line with the country’s hydrogen ramp-up strategy. Chile has realized that green hydrogen could be one of its top exports alongside copper and plans to use its solar potential to expedite solar powered electrolysis. During the next 5 to 10 years, Chile will be able to produce green hydrogen for less than 2 USD/kg.

With more than 2.2GW of installed capacity, the PGMD segment has experienced rapid growth, thanks to incentives such as liberal grid connectivity regulations and a separate price determination mechanism that guarantees stable prices. The trend is expected to continue, as nearly 40% (2.3GW) of total PV projects under construction belong to this segment. To facilitate more such systems, in April 2023, the Chilean National Energy Commission (CNE) announced the start of the public consultation process for the draft modification of the technical standards for connection and operation of PMGD in medium voltage facilities.

Bloomberg New Energy Finance Climatescope 2022 report highlights Chile as one the most attractive emerging market for renewable energy investment. After achieving its goal of generating 20% of its energy from renewables by 2025 five years early, the country aims to generate 40% by 2030. Chile’s coal phase out policy is driving a surge in renewable energy investment from the private sector, and opportunities are multiplying. Chile’s clean energy sector has attracted US$20.8 billion of investment in the past seven years, mainly due to its well-structured electricity sector. This sector offers, for example, renewable energy auctions for standardized PPAs denominated in US dollars, as well as the option of developing bilateral contracts with large consumers outside the regulated market.

Chile’s success to date can be attributed to its innovative auction process, supported by regular tenders and a thriving PPA market.  In August 2022, Chile’s  national energy commission CNE awarded 777GWh/y of new supply for regulated electricity clients at an average price of US$37.4MWh/y. The plan is to allocate 5,250GWh/y, for 15 years starting in 2027. This means clean energy developers will have attractive opportunities to participate in the future tendering rounds when the remainder will be sought. Notably, in the latest auction, efficient prices for renewable technology with energy storage had been obtained.

The decarbonization of Chile’s mining industry would be an important step in transitioning to a low-carbon economy. Signing power purchase agreements with major power providers is a more straightforward route for mine projects with grid connections. Currently, 16 mining companies have signed clean energy supply contracts, while four have their own non-conventional renewable energy projects. Usage of renewable energy in mining has increased from 3.6% in 2019 to an astounding 47.5% in 2022 and is further estimated to reach 49.2% by 2030. The goal is likely to  be surpassed by long shot at current growth rate.

In order to address the issue of transmission bottleneck Government has taken several steps recently. In November 2022, the congress approved a bill encouraging investments in energy storage and electromobility to alleviate congestion in power transmission. Standalone storage projects will be able to receive payment for power they inject into the grid under the bill. Also, electric vehicles will have access to the power market and vehicle owners would be remunerated for injecting electricity into the grid. The National Electricity Coordinator (“NEC”) also announced its electrical expansion proposal for 2023 in January. The proposal consists of 23 projects totaling $279 million in investment value.