Enel, wind projects excel in Chile power auction

OREANDA-NEWS. August 18, 2016. Wind projects were the surprise big winner in Chile's largest-ever auction for long-term electricity supply that left all but one of the country's traditional conventional generators empty-handed.

The average price of the awards plunged by 56pc to \\$47.552/MWh compared with the last major auction in 2014, reinforcing a downward trend mainly driven by an enormous influx of renewable solar and wind projects.

The proposals from 84 projects touched bottom at \\$29/MWh, and far exceeded sought-after supply of 12,430GWh/year starting in 2021. Wind accounted for 36.7pc of the total offered capacity, followed by solar with 29.8pc, LNG 22.1pc, hydro 7.2pc, and other conventional and renewables such as geothermal 4.3pc.

Renewable awards alone represented more than 2GW and more than 50pc of the total awards, putting Chile on track to meet a 20pc renewable generation target five years ahead of schedule in 2020, according to renewable energy chamber Acera.

As expected, new projects based on LNG fell short because of a provision that tied bids to a rising international price projection. Among the LNG-based projects that presented unsuccessful bids were Shell-led 540MW Andes LNG; 510MW Nueva Era and 760MW Luz Minera presented by Chile's state-run Enap and Japan's Mitsui; and France's EDF with US partner Cheniere for 640MW El Carmen. Spain's Gas Natural Fenosa unit Global Power Generation also participated with a gas-fired project.

Disappointed LNG industry executives grumbled that the auction terms contradicted a government aim to introduce more gas into the grid.

Italy's Enel was the only incumbent conventional generator to land contracts in the auction, securing a full 48pc of the total supply. "This result confirms our leading position in the generation market," Enel unit Endesa Chile chief executive Valter Moro said. "We are very happy because we won a good portion of the energy at a competitive price, creating value for the company and for the country."

Enel, which operates in Chile through its Enersis and Endesa units that it is currently restructuring, has a mixed local portfolio with significant hydro assets.

Chile's other three incumbent generators, local firm Colbun, US AES-controlled Gener and France's Engie, were unsuccessful in the auction, leaving soon-to-expire contracts for existing generating assets uncommitted.

A big renewable energy winner was Germany's WPD, which bid around \\$50/MWh for four wind projects totaling some 350MW, including Negrete, Malleco 1 and 2, Duqueco and Santa Fe, located in the southern regions of Bio Bio and Araucania. All but Santa Fe won contracts for 100pc of their capacity.

"The auction represents the strength of the Chilean market, where there are no market distortions or subsidies," WPD chief executive Tomas Schroter told Argus.

Today's awards are the company's first foray into Latin America.

Veteran electricity sector executives told Argus on the sidelines of the standing-room-only event that the price outcome is exciting for regulated customers, but the energy mix raises some red flags for future supply security. "This sends a shocking message to conventional generators, because such low prices don't cover the cost of LNG or coal," one said. "Right now Chile has enough conventional power to back up the existing renewables, but it doesn't have enough to back up all of this new wind power."

Another warned that some of the renewable developers may fall out of compliance. "They are betting that costs will fall, but if they don't, they will have to pay a penalty."

Andres Romero, head of the National Energy Commission (CNE) that conducted the auction on behalf of distributors, dismissed concerns over a potential imbalance and said technology-based tenders are off the table for now.

"We are not considering technology-based tenders in the short term, but the law gives us the tools to do this if we see a risk to supply," he told Argus just before the auction. "We don't see that risk, and there is still room for renewables to grow without creating an imbalance."

The CNE plans to invite bids for another auction by the end of 2016.