Navigant Research Blog

Once Again, Renewables Costs Reach a Record Low

Roberto Rodriguez Labastida — September 1, 2016

Rooftop SolarOn August 17, Chile announced the results of what the specialized media called the Mega Tender. The country’s energy regulators tendered 12,430 GWh per year of electricity over 20 years starting in 2021—that’s 30% of the load of Chile’s regulated market (residential and small commercial consumers). Not surprisingly, the country received the lowest bids for renewables in history; this is the fourth or fifth time in 2016 that we are seeing record low numbers—it’s also happened in Peru, Mexico, and Dubai.

The lowest solar bid, by Solarpark, will sell electricity for $29.10 per MWh, while wind’s lowest bid was also a record-setting $38.00 per MWh. It is important to note that the projects will start producing electricity in 2021, and as such will probably be built in late 2019 and 2020, giving the developers another 4 years of technology innovations before construction.

One interesting feature of Chile’s auction system is that it splits total load to be tendered into different blocks, differentiating by time of the day when the electricity must be provided instead of dividing it by technology. Block 1 allowed for generation at any time of the day, block 2-A allowed generation only between 11 p.m. and 8 a.m., 2-B allowed generation between 8 a.m. and 6 p.m., and 2-C between 6 p.m. and 11 p.m.

It was expected that wind developers would dominate Blocks 1, 2-A, and 2-C; interestingly, they also got most of 2-B. Solarpark’s Maria Elena Solar project was the lowest bidder in the whole tender, but it was the only winning solar bid in a country famous for its excellent solar resources.

Connecting the Sun

The problem for Chile’s solar industry is that its best resources are concentrated in an unpopulated area of the country—in and around the Atacama desert. A significant number of solar projects were proposed there in the last few years to supply the copper miners in the area, but with the collapse in the price of the metal, a significant amount of solar projects in the area have struggled. For the Chilean solar industry to see significant growth, the country first needs to connect the sunny north to the rest of the country where most population lives.

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