The renewables paradox - Part 2: The struggle of renewables to keep afloat

Patricia Darez founder of 350renewables discussed the generation market in Chile and the reasons why many renewable players are fighting to stay afloat. Part 1 defined the background issues that have made the electrical market be out of balance . This article is part 2 is an update of the market situation (and was meant to be the final part but I have had to make a Part 3 due to the length). Part 3 will discuss the short, medium and long term measures.

In part 1 I explained the significance of location-based risks (especially for regulated PPAs), marginal costs of zero and increasing curtailment. For an overview of what many generators were thinking about the market situation in Chile, you can see the Energyear panel I moderated in March (here is the link, only in Spanish).

Since Part 1 came out (31st May 2023), many things have happened and below is a short recap:

• Ibereólica Cabo Leones II has returned to the short-term energy market (their regulated contracts with the distribution companies have been abandoned and the CEN argued that they were suspended as they were putting the energy supply chain at risk – The CNE asked the CEN to let them back in since they had rescinded their guaranties and other generators were fulfilling the energy quota they had agreed to supply – therefore proving that the energy supply was not at risk)
• Two additional contracts from Mainstream Renewable Power Chile to supply the regulated tenders have been cancelled:

a) Ckani: The project won a regulated tender with the distribution companies in 2015/2016 (to start injecting in 2021, 374 GWh/a at 52,1 USD/MWh). However, during its construction very important archaeological findings paralyzed the works for a very long time … to the point where the company requested to the CNE to cancel the contract due to Force Majeure. The CNE agreed to this (as well as the distribution companies that they were due to supply).

Interesting angle to the story: This project won a Bienes Nacionales tender to obtain the land (projects located on private land have their location selected by the developer - this project is in PUBLIC land which was auctioned by the state institutions and specifically for the development of Renewable Energy projects… followed by an environmental study which was approved AND after that Monumentos Nacionales stopped the works indefinitely – so, a public entity auctions the land and then another public entity paralyses the works several years later and after many million USD have been spent by a private company -?I see room for improvements in state efficiency and in the environmental process - Transmission infrastructure and renewables are definitely affected by this and are an essential part of the energy transition and the decarbonization process).

Luckily the works have started again (with measures put in place) so the project will go ahead although it will no longer be part of the regulated market and has lost its PPA and guaranty.

B) The Copihue portfolio asked the CEN to execute their guaranty on 31st May and let them out of the short-term market. The portfolio was backed up by the Caman windfarm (148,5 MW ?MW, in the Los Rios region) which is currently under construction and has been subject to numerous delays (the icing on the cake was a vandalism attack which occurred a few days after the request to the CEN, on 17th June that resulted in 15 construction vehicles being burnt – no human injuries occurred, though some workers had a very stressful day until they were released)

Mainstream announced on 21st July that they are in the process of restructuring to be able to cover its debt (valued at 1,200 million USD).

• ILAP (Inversiones Latin American Power) have announced (4th July) that they are at risk of filing for insolvency. So far, they have managed to renegotiate more time with their debtors (until 3rd of September). Fitch downgraded their credit rating to C saying a default could be imminent due to their liquidity which was continuously worsening since last year . The company operates the San Juan (193.2MW, Atacama since 2017) and Totoral (45MW, Coquimbo, since 20210) windfarms and also has some small hydro (29MW) in the south since 2016.

On 12th July, the Senate received several renewable energy companies willing to discuss their financial situation (the full session is recorded here and available to the public as required by law in Chile to ensure transparency). Among them, Clean Capital Energy (CCE), ACCIONA Energía , Mainstream Renewable Power Latam , EDF Renewables Chile, Pelicano solar, wpd Chile , Grupo Ibereólica and Naturgy have all been discussing their current situation (some of which also took the matters to the ambassadors of their respective countries where they have their head office and even to Ursula von der Leyen , President of the European Commision who was in Chile a few weeks ago, 14th June).

Despite the market turmoil, companies like EY that rate the attractiveness of Renewable Energy markets , have given Chile an improvement raking (from position 17 to position 14, the same week this was published, the CEN sent a very worrying letter about the stabilized price – may discuss this on a different post to tackle the issues in distribution).

As a closing note, it is true that the government and institutions have not been idle, they have proposed some solutions which are in the process of being implemented (and I will be presenting later this week on a different post - I have it almost ready but the current post was already too long ;)). And there are some companies that have managed to finally close some project financing like Grenergy (300MW financing for 2 PV plants) or some interesting M&A like the Enel PV Assets which have been acquired by Sonnedix .