CHILE—Boom of Nonconventional Renewable Energy Projects in Chile

Author: Cristian Vallejo

Spanish

In recent years and consistently, Chile has experienced a significant increase in the development of power generation projects based on nonconventional renewable energy sources (“NCRE Projects”). In addition to Chile’s economic, political and legal stability, incentives and protections to foreign investment and abundance of natural resources, the increase in NCRE Projects in Chile is substantially due to the amendments to the General Electricity Services Law (“Electricity Law”) enacted in 2008 and 2013 by Laws 20,257 and 20,698, respectively, designed to foster the development of NCRE Projects.

As a result, and according to statistics from the Renewable Energy Center of Chile’s Ministry of Energy (“RNC”), for example:

1. More than 87 NCRE Projects have begun operations since 2009, which have increased the share of power generation from NCRE Projects in the national energy matrix by approximately 25% per annum.
2. Solar and wind projects are the NCRE Projects that have experienced the highest growth in terms of projects being submitted for environmental impact assessment.
3. As of August of this year, NCRE Projects totaling (i) 1,716 MW are in operation and (ii) 797 MW are under construction.
4. During 2013, NCRE Projects totaling 291.9 MW began operation.
5. When comparing the growth of energy injections to the grids from NCRE Projects between 2012 and 2013, solar projects experienced the highest proportional growth.
6. From January through July of this year, 600.9 MW from NCRE Projects have begun operation.

Likewise, Chile has been ranked number 13 in the latest (June 2014) “Renewable Energy Country Attractiveness Index” (“RECAI”), which ranks 40 countries based on their attractiveness for investment in renewable energy projects and investment opportunities in the renewable energy sector. In the RECAI, Chile ranks second in CSP solar projects and twelfth in PV solar projects. After Brazil, Chile is the highest-ranked Latin American country. Pursuant to the RECAI, Chile’s ranking is due to the constant flow of approved projects and the proposed carbon tax of US$5 per ton of CO2 on power plants over 50 MW.

Type of NCRE Projects That Have Begun Operations Since 2009

As indicated above, according to RNC’s statistics, over 87 NCRE Projects have begun operation since 2009, of which:

1. 11 are PV solar projects (2 began operation in 2012; 2 in 2013; and 6 in 2014) and their net capacities range from 0.2 MW to 93 MW.
2. 35 are mini-hydro projects (2 began operation in 2009; 12 in 2010; 8 in 2011; 4 in 2012; and 9 in 2013) and their net capacities range from 0.1 MW to 19.2 MW.
3. 4 are hydro projects (2 began operation in 2013; and 2 in 2014) and their net capacities range from 0.8 MW to 50 MW.
4. 15 are wind projects (4 began operation in 2009; 1 in 2010; 4 in 2011; 3 in 2013; and 3 in 2014) and their net capacities range from 1.5 MW to 115 MW.
5. 12 are biomass projects (1 began operation in 2010; 2 in 2011; 3 in 2012; 2 in 2013; and 4 in 2014) and their net capacities range from 7 MW to 98 MW.
6. 10 are biogas projects (1 began operation in 2010; 2 in 2011; and 7 in 2013) and their net capacities range from 0.2 MW to 14 MW.

Current State of NCRE Projects in Chile

According to RNC’s statistics, the following table represents the current state of NCRE Projects in Chile as of August of this year:

That is, pursuant to the foregoing:

1. The total installed capacity of NCRE Projects as of August of this year is 1,716 MW, equivalent to 8.7% of the total installed capacity in the country’s existing power grids, according to RNC’s statistics.
2. Of such capacity, 40% is wind power (682 MW), 27% biomass (461 MW), 20% mini-hydro (342 MW), 12% solar (189 MW) and 3% biogas (43 MW).
3. The portfolio of NCRE Projects exceeds 17,000 MW, with solar projects being the primary source.
4. 64% of such projects already have their corresponding environmental approval issued.

Submission of NCRE Projects for environmental impact assessment has remained constant. For example, and according to RNC’s statistics:

1. During June of this year:
   • A total of seven NCRE Projects were submitted for environmental impact assessment, of which (i) four are solar photovoltaic projects, totaling 477.6 MW (one of which would be for 370 MW, called “Parque del Sol del Desierto,” which, according to the RNC, constitutes the largest photovoltaic project in Latin America), (ii) two are wind farms, totaling 346.5 MW, and (iii) one is a biogas project for 8 MW; and
   • Two mini-hydro projects with a combined capacity of 4.1 MW received a favorable environmental impact assessment resolution.
2. During July of this year:
   • A total of eight NCRE Projects were submitted for environmental impact assessment, of which (i) three are solar photovoltaic projects, totaling 433 MW, (ii) three are wind farms, totaling 381.7 MW, (iii) one is a mini-hydro project for 1.5 MW, and (iv) one is a biodiesel project, with diesel backup, for 48 MW; and
   • Six NCRE Projects have received favorable environmental impact assessment resolution, of which (i) five are photovoltaic solar projects, totaling 361 MW and (ii) one is a biomass project for 20 MW.

Main Provisions of the Electricity Law Aimed at Fostering NCRE Projects

To foster the development of NCRE Projects, the Electricity Law (as amended by Law 20,257 and Law 20,698) provides, among other things, that:

1. Power companies that withdraw energy from power grids exceeding 200 MW for purposes of selling it to distributors or end consumers, whether or not they are subject to price regulations (“Subject Power Companies”), must prove to the relevant authority (respective Dirección de Peajes del Centro de Despacho Económico de Carga) that a minimum percentage of withdrawals in each calendar year has been injected into any of such grids from NCRE Projects, owned or contracted (“Minimum Legal Percentage”).
2. The Minimum Legal Percentage is 5% for the years 2010 through 2014, increased gradually from 2015 on as follows:
   • For contracts signed after August 31, 2007, and prior to July 1, 2013, the foregoing gradual increase will be 0.5% annually to reach 10% by 2024; and
   • For contracts signed after July 1, 2013, the foregoing gradual increase will be (i) 1% from 2014 to reach 12% in 2020, (ii) 1.5% from 2021 to reach 18% by 2024, and (iii) 2% by 2025 to reach 20% in that year.
3. The Subject Power Companies that exceed the corresponding Minimum Legal Percentage may transfer the corresponding excess to other power companies, whether of the same or any of the other power grids in the country.
4. The Subject Power Companies that do not meet the corresponding Minimum Legal Percentage shall be subject to the fines established by the Electricity Law per each megawatt/hour of deficit on their corresponding obligation.
5. To prove compliance with the Minimum Legal Percentage, energy injections to the grid from hydroelectric plants whose net capacity is equal to or less than 40,000 kilowatts shall also be recognized.
6. For purposes of the Electricity Law, NCRE Projects are those that have any of the following characteristics:
   • Those whose primary source is biomass energy obtained from organic and biodegradable materials, which can be used directly as a fuel or converted into other liquid, solid or gaseous biofuels; there shall be deemed included the biodegradable fraction of household and non-household solid waste;
   • Those whose primary source is hydropower energy and whose maximum capacity is less than 20,000 kilowatts;
   • Those whose primary source is geothermal energy, defined as the energy obtained from the natural heat from inside the earth;
   • Those whose primary source is solar energy from solar radiation;
   • Those whose primary source is wind energy, corresponding to the kinetic energy of wind;
   • Those whose primary source is the energy of the seas, corresponding to all forms of mechanical energy produced by the movement of the tides, waves and currents as well as by thermal gradient of the seas; and
   • Other means of generation reasonably determined by the National Energy Commission, using renewable energy for electricity generation, that contribute to diversify the sources of energy supply in the power grids and that cause low environmental impact, in accordance with the procedures established by the regulations.
7. The Ministry of Energy will conduct up to two tender processes per year for the provision of annual energy blocks from NCRE Projects.
8. The energy price to be received by the successful bidders in such tender processes shall be the price indicated by such bidders in their corresponding bids.
9. The plans for expansion of generation facilities in each power grid must contemplate NCRE Projects, which must be prioritized in relation to other primary energy sources.