The renewable energy paradox: an update on the chilean renewable market

Social media continues to play a fundamental role in the development of professional profiles, where experts in various fields share high-quality content. Patricia Dárez has been part of the Vector Renewables team since 2022 and is a perfect example of someone who outlines her ideas on her well-known LinkedIn profile. With over seventeen thousand followers, the Country Manager of Vector Renewables Chile has shared her opinion on the most significant challenges the country faces in the quest for a solid renewable market.

In this article, we summarize some of the most important points from "The Renewable Energy Paradox: an update on the Chile renewables market".

In Chile, many renewable energy companies are having to roll up their sleeves due to the barriers currently present in the market. One key problem is Curtailment, which occurs when there is insufficient transmission capacity to deliver all the generated renewable energy to consumption points. This results in renewable plants not injecting their energy into the grid, leading to significant energy losses.

In response to this situation, the National Electric Coordinator (CEN), the Chilean transmission system operator responsible for maintaining supply reliability and security, simply asks renewable power plants not to inject their energy as it goes to waste. The reason for this is that Chile's grid connection policy is very open, not only continuing to grant permits when transmission capacity is insufficient but also failing to provide any protection to projects that connect first. Whether you are first or last in line, everyone faces the same curtailments.

The reality is that Chile's transmission system was designed over 40 years ago, primarily for hydroelectric and thermal generation, and by 2023, it still hasn't been updated to accommodate the growing share of variable renewable energies.

Another significant challenge Patricia considers important is the Marginal Cost (CMg) of zero. In Chile's marginalist system, generators are dispatched based on their variable costs, and renewables, whose "fuel" is free and have variable costs close to zero, take priority. This means that when renewable generation covers the total demand, the electricity price is set at zero. This directly affects the revenues of renewable plants that rely on selling electricity to cover their investment and operation costs. To give you an idea, last year, 1,900 hours of generation were valued at a price of zero.

Patricia also focuses on the Location-based Risks of plants. Electricity prices can vary in different areas of the transmission system, affecting plants that are far from consumption points. This can result in negative revenues for companies with supply contracts in unfavourable locations.

These challenges have led to many renewable energy companies in Chile facing financial difficulties and struggling to access project financing. The lack of adequate transmission lines and energy storage exacerbates the situation in the Andes region.

The Chilean government has acknowledged the need for reforms in the electricity market, particularly in areas such as transmission and distribution.

However, no short-term measures have been implemented to address the current challenges. The lack of immediate action raises questions about whether the renewable energy market in Chile can maintain its diversity and access project financing, or if market concentration will occur in the coming months.

As an overall picture, renewable energy companies in Chile are facing significant challenges due to Curtailment, Marginal Costs of zero, and location-based risks. The lack of short-term measures and the need for electricity market reforms raise uncertainty about the future of the renewable energy sector in the country.

Here is the Linkedin profile of Patricia Dárez, one of the great leaders in the Chilean renewable market who leads Vector Renewables' activities in Chile. If you want to read her full article, you can do so by clicking here.