Battery-powered banking in Chile – SPE

From pv magazine July-August 2024

Sometimes things just click. In Chile, market conditions seem perfectly poised for a step change in the number of hybrid projects combining renewable energy technology. The timing couldn’t be better for a country struggling with a growing austerity problem. In Chile, around 1,911 GWh of excess renewable electricity was curtailed in the first five months of 2024, representing a 159% increase in electricity waste compared to the same period of 2023, according to figures from Acera, the Chilean renewable energy association.

At the same time, solar energy generation capacity has grown explosively and has more than doubled since 2020. The latest data from consultancy Ember states that 5.2 GW of new capacity was installed in Chile between the beginning of 2021 and the end of 2023, for a total of 5.2 GW of new capacity. 8.5 GW. That is impressive growth, but it appears to be too much for the national electricity transmission network. A more diverse generation profile is desirable.

Despite increased pressure on the power grid, Chile’s solar boom has not slowed. Ángel Cancino of S&P Global Commodity Insights said pv magazine that Chile is “one of the strongest markets in Latin America” for solar energy, after Brazil. The market analyst for solar and other clean energy technologies added that “pequeños medios de generacion distribuida” (PMGD) projects – “distributed generation projects” with a scale of 500 kW to 9 MW – are driving much of the capacity growth. “From what I have been following, there are over 100 projects currently under construction,” Cancino said.

Battery-powered banking

That’s great news for overall capacity figures, but it risks further exacerbating existing network infrastructure problems in Chile. “I think there have been concerns since two or three years ago that the transition capacity will be able to withstand the enormous amounts of renewable energy coming into the grid,” Cancino said. The S&P analyst also warned that growing solar capacity is putting downward pressure on electricity prices. “As more solar power plants or even wind energy come onto the grid, the risk of revenue cannibalization increases,” he said. “With more and more solar projects set to be developed over the next five years, revenue cannibalization will become a serious threat in the long term. So we see a lot of interest in the combination of solar energy and storage and many new projects are being announced.”

‘A lot’ is not an exaggeration. In July 2024, AES announced plans to build a 763 MW solar power plant with a 1,063 MW battery that would provide five hours of storage, as reported in pv magazine LatAm. Construction is expected to begin in April 2025 in the Antofagasta region in the north of the country, ahead of the expected commissioning date in 2028. When it comes to renewables in Chile, Antofagasta is where the action is.

Net installed storage capacity in use in Chile reached 404 MW/1,602 MWh as of June 2024, according to the latest figures from the country’s Ministry of Energy. This capacity is mainly concentrated in Antofagasta. The number is expected to double in just a few months, with the government expecting an installed energy storage capacity of 806 MW/3,050 MWh by September 2024.

Push and pull

There are a few factors driving battery growth in Chile. Lower investment costs haven’t done any harm. Analyst BloombergNEF’s annual battery price survey, published in November 2023, recorded a 14% drop in costs between 2022 and 2023, to a record low of $139/kWh.

Then there is a growing demand. Henrique Ribeiro, principal analyst for batteries and energy storage at S&P Global Commodity Insights, says Chile’s battery revenues so far have been driven by arbitrage – storing electricity when rates for sale are low during periods of peak demand. However, unpredictable arbitrage revenues alone are not enough to justify an investment in battery energy storage systems (BESS), especially for project owners requiring external financing.

The reality that developers now face is a more fundamental need for warehousing in the country, as Ribeiro explained.

“You have a lot of solar generation in the northern part of the country and Chile, of course, has that very unique geography because it is very narrow and long,” the analyst said. “So it is difficult to transport that energy source from the north to the center of the country where there is the most demand, in the Santiago region. There has always been a structural transport shortage in Chile and storage is obviously a great solution to address those types of problems.”

That’s a view that lawmakers in Santiago appear to share, as they have taken their own steps to strengthen the business case for storage in Chile.

Capacity mechanism

A new energy supply regulation, which essentially functions as a capacity mechanism – a method of securing sufficient generation and storage resources to guarantee electricity supply – is expected to create better revenue opportunities for BESS in Chile. The scheme has been defined and the rules have been made public. The legislation was about to be published in the Chilean official gazette pv magazine went to press. Under the regulations, storage assets are eligible to receive capacity payments, creating new revenue streams for BESS owners. The capacity mechanism will also treat the generation and storage parts of hybrid plants as separate assets, meaning they would receive separate payments.

For investors considering BESS in Chile, Ribeiro said regulations are favorable for storage assets, and recent changes have led to a flurry of project announcements.

“It is by far the most attractive market for storage in the region,” the S&P analyst added. The majority of BESS announcements in Chile are for new installations, most of which are solar plus storage sites, although some standalone battery storage projects also exist. That may be the case right now, but as solar capacity in Chile continues to grow, so does the problem of cannibalization in the solar energy market. Ribeiro suggested that storage could also play a role here.

“Storage is something that can probably help address this problem, even if only temporarily, but I personally think more innovations are on the way,” he said. It certainly looks that way.

Strategic storage

Fernando Meza, head of business development at Enel Green Power Chile, said pv magazine that batteries are one of the “strategic pillars” that the company is developing to make its portfolio in Chile “more flexible and diverse.”

“We are developing a BESS project pipeline related to our existing renewable energy plants (solar and wind farms),” said Meza. “Our strategic plan for the period 2024 to 2026 takes into account several solar energy projects linked to a storage system that will be commissioned in the coming years. The use of batteries in our renewable energy plants helps move some of the renewable energy [electricity] generation to hours where the restriction is less, or even non-existent.”

Enel currently has about 2 GW of installed solar capacity in Chile, plus about 900 MW of operational wind capacity. Meza said the company’s pipeline now includes a mix of projects combining different technologies, such as solar and wind, BESS and wind, and BESS and solar. Such hybrids are nothing new for the company.

Another answer

In August 2022, commercial operations began in what Enel Chile described as the country’s first industrial-scale hybrid renewable energy plant. Located in Antofagasta, the project includes the 60.9 MW Azabache solar power plant next to the 90 MW Valle de Los Vientos wind farm.

Why combine sun and wind? First, they can have complementary energy generation cycles. According to Meza, there are also “significant benefits” in inventory cost savings related to replacement components.

“It is possible to reduce operational costs related to waste processing, drinking water and safety, among other things,” says Meza, referring to the benefits of co-location. “In addition, there are savings on investments because they share storage; maintenance and operating facilities; and infrastructure such as the use of existing roads; and some of the electrical installations, such as transmission lines and substations.”

Co-location is a strategy that Enel has supported. In July 2024, the company went one step further when its new PV plant, the 205 MW phase one, two and three of the PFV Las Salinas site, was put into commercial operation in combination with the 112 MW Sierra Gorda Esta wind farm of the company. According to Enel, the site is now the largest hybrid project in the country.