Banking on batteries in Chile – pv magazine International

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From pv magazine July-August, 2024

Sometimes things just click. In Chile, market conditions appear perfectly poised for a step change in the number of hybrid projects that mix renewables technology. The timing couldn’t be better for a nation that’s grappling with a growing curtailment problem. Some 1,911 GWh of excess renewable electricity was curtailed in the first five months of 2024 in Chile, representing a 159% increase in electricity wastage compared to the same period of 2023, according to figures from Acera, the Chilean renewable energy association.

At the same time, solar generation capacity has been booming and has more than doubled since 2020. The latest data from consultancy Ember records 5.2 GW of new capacity installed in Chile from the start of 2021 to the end of 2023, to reach a total of 8.5 GW. That is impressive growth but it’s proving too much for the nation’s electricity transmission network. A more diverse generation profile is desirable.

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

Banking on batteries That represents great news for headline capacity figures but it risks further exacerbating Chile’s existing grid infrastructure problems. “I think, since two or three years ago there have been concerns about the transition capacity being able to withstand the enormous amounts of renewables entering the grid,” said Cancino. The S&P analyst also warned that growing solar capacity is exerting downward pressure on electricity prices. “As more solar plants or even wind enter the grid, the risk of revenue cannibalization is higher,” he said. “With more and more solar projects set for development over the next five years, revenue cannibalization is becoming a serious threat in the long term. So we see a lot of interest in solar and storage combined, a lot of new projects are being announced.”

“A lot” is no exaggeration. In July 2024, AES announced plans to construct a 763 MW solar plant with a 1,063 MW battery offering five-hour 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 an expected commissioning date in 2028. When it comes to renewables in Chile, Antofagasta is where the action is.

The net installed storage capacity in operation in Chile reached 404 MW/1,602 MWh in June 2024, according to the latest figures released by the country’s Ministry of Energy. That capacity is mainly concentrated in Antofagasta. The number is set to double within just a few months with the government projecting installed energy storage capacity of 806 MW/3,050 MWh by September 2024.

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

Then there is growing demand. Henrique Ribeiro, principal analyst for batteries and energy storage at S&P Global Commodity Insights, said battery revenues in Chile have, until now, been driven by arbitrage – storing electricity when tariffs are low for sale during peak demand periods. Unpredictable arbitrage revenue alone is not sufficient to justify an investment in battery energy storage systems (BESS), however, particularly for project owners in need of external finance.

The reality facing project developers now is a more fundamental need for storage in the country, as Ribeiro explained.

“You’ve got a lot of solar generation in the northern portion of the country and Chile has, of course, that very unique geography in terms of being very narrow and long,” said the analyst. “So it’s difficult to transport that energy resource from the north to the center of the country where most of the demand is, in the region of Santiago. There’s always been a structural deficit of transmission in Chile and storage, of course, is a great solution to help address that kind of problem.”

That’s a view that lawmakers in Santiago seem to share as they’ve taken their own steps to make the business case for storage stronger in Chile.

Capacity mechanism A new power sufficiency regulation, which essentially operates as a capacity mechanism – a method of securing enough generation and storage assets to guarantee electricity supply – is expected to create better revenue opportunities for BESS in Chile. The regulation has been defined and the rules made public. The legislation was on the verge of being published in Chile’s Official Gazette as pv magazine went to press. Under the regulations, storage assets will be eligible to receive capacity payments, opening up 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 the regulations are favorable for storage assets, and recent changes have spurred a surge in project announcements.

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

“Storage is something that can probably help address that, even if only momentarily, but I personally believe more retrofits are coming,” he said. It certainly looks that way.

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

“We are developing a BESS project pipeline associated with our existing renewables plants (solar and wind farms),” said Meza. “Our 2024 to 2026 strategic plan considers several storage-system linked solar projects that will be entering into operation over the coming years. The use of batteries in our renewables plants helps to move part of the renewable [electricity] generation to hours where the curtailment is less, or even nonexistent.”

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

Another answer In August 2022, commercial operations began at what Enel Chile described as the nation’s first hybrid renewable power plant on an industrial scale. Located in Antofagasta, the project comprises the 60.9 MW Azabache solar plant operating alongside the 90 MW Valle de Los Vientos wind park.

Why combine solar and wind? For one, they can have complementary power generation cycles. There are also “significant benefits” on inventory cost reductions related to replacement components, according to Meza.

“It’s possible to reduce operational costs related to waste disposal, drinking water, and security, among others,” said Meza, referring to co-location benefits. “Furthermore, there are savings in investment as they share storage; maintenance and operation facilities; and infrastructure such as the use of existing roads; and part of the electric installations, such as transmission lines and substations.”

Co-location is a strategy that Enel has put its weight behind. In July 2024, the company took things a step further when its new PV plant, the 205 MW stages one, two, and three of the PFV Las Salinas site went into commercial operation in conjunction with the company’s 112 MW Sierra Gorda Esta wind farm. The site is now the largest hybrid project in the country, according to Enel.

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