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Panel - The Business and Financial Case for Renewables in Current Energy Market

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LAC Climate Business Forum 2016 in Bogotá, Colombia, June 14-15, 2016.

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Panel - The Business and Financial Case for Renewables in Current Energy Market

  1. 1. Agosto, 2015 Renewable Energy in LATAM Notes for IFC Panel, Bogota 2016
  2. 2. Renewable Energy in the Andean Region-LATAM › Three countries: Chile, Peru and Colombia › These three countries have an historical energy matrix dominated by renewable energy plants for about 50%; conventional hydro power plants: greater than 20 MW, run of the river and reservoirs › Renewable energy policies seek to develop: small hydro (about 20 MW), biomass, solar and wind power (I will talk about this development only, not conventional hydros) › The three countries have differences and similarities which explain the different stage of renewable energy development › With a similar regulatory framework: marginal cost tariff system, centralized dispatch based in variable cost, subsidiary role of the government (predominance of the private sector), free market › Non relevant power interconnections › Fossil resources: › Chile: no coal, no gas, no oil › Peru: no coal, oil and gas available › Colombia: oil, gas and coal available Strictly private and confidential 2
  3. 3. Renewable Energy in the Andean Region-LATAM › Renewable resources: › The three countries have renewable resources › Small hydro, biomass, solar (specially Chile and Peru) and wind › Different size of the power sector: 8.000 MW (Peru), 15.500 MW (Colombia) 20.000 MW (Chile) installed capacity › Different stage of development: › Chile: 3.800 kWh/per capita › Peru: 1.200 kWh/per capita › Colombia: 1.150 kWh/per capita › Different energy development cost: › Chile: 10 cents/kWh, expansion LNG and hydro › Peru: 5 to 6 cents/kWh, expansion domestic natural gas and hydro › Colombia: 7 to 9 cents/kWh, expansion coal, hydro and imported LNG?? › Different penetration of renewable energy: › Chile:11,3% with a target of 20%; 40% wind, 23% solar, 20% biomass, 17% hydro › Peru: 5% moving to 10% (under construction); 58% hydro, 27% wind, 11% solar, 4% biomass › Colombia: 4,5%, 86% hydro, 11% biomass, 3% wind Strictly private and confidential 3
  4. 4. Market situation: Chile › Highest penetration in the region › Highest energy prices in the region (10 cents/kWh) due to: › Lack of fossil resources › More expensive cost of development due labor costs, and environmental and communities costs › Incentives through a market intervention: › Obligation of the power companies having PPAs with final customers to supply a % of the demand with renewable energies (started in 5%, moving to 20% by 2025) › If not they pay a penalty starting at 2,5 cents/kWh › Costs are transferred to the demand (higher investment costs, volatility (solar and wind), penalties) › Challenges: › More than 60% of the renewable energy is solar an wind, which is intermittent: load factor is below 30% as average. › Intermittency must be replaced by fossil plants: peaking facilities - CO2 emissions!! › Solar production is concentrated in the northern part of the system which produces bottle necks in the transmission systems and local or trapped spot prices › Due intermittency there are few chances to have long term PPA´s, then, to have local or trapped spot prices (normally low prices) affects the economics of the solar plants › After the boom there are difficulties to access to debt structures for solar and wind power › Hydro and biomass have no significant problems for development, financing and operation › With a market intervention like this, government must coordinate growth and location Strictly private and confidential 4
  5. 5. Market situation: Peru › Current penetration: 5% (other 450 MW under construction-additional 5% in three years) › Lowest energy price due to domestic natural gas availability (5 to 6 cents/kWh) › Incentives through a market intervention: › RER Auctions called by the Government through its agencies › Incentives: › Dispatch priority › Access priority to transmission and distribution systems › Minimum price, paid through distribution companies, after return on the spot market › Three auctions since 2009: › 1st auction: 430 MW – Prices: 22,5 cents/kWh solar- 5,5 cents/kWh hydro › 2nd auction: 210 MW – Prices: 12 cents/kWh solar – 5 cents/kWh hydro › 3rd auction: 211 MW – Prices: 5 cents/kWh hydro › Challenges: › Current oversupply due to conventional sources: gas power plants and conventional hydro › Potential delay of new RER auctions › Increase of tariffs to guarantee minimum price for RER: less than 3%. A good thing!! › Hydro power plants are very competitive; however is difficult to get PPA´s due low energy availability during dry years Strictly private and confidential 5
  6. 6. Market situation: Colombia › Current penetration: 4,5% › There is no market intervention, there are tax exemptions (Law 1715-Nov 2014) › Taxes to investors: ability to reduce up to 50% of the investment during the first 5 years of operation, in its personal taxes declaration › VAT: no payment during construction › Import duties: no payment for imported equipments › Accelerated depreciation › Challenges: › Current penetration is due to old projects which were built by its own merit › To increase penetration, a different scheme is required: more likely as the Peruvian one Strictly private and confidential 6

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