Mainstream Renewable Power are at the forefront of Chile’s dramatic increase in renewable energy production.

Bart Doyle

GENERAL MANAGER, MAINSTREAM RENEWABLE POWER CHILE

September 27, 2017

How has the renewable energy landscape evolved over the past several years?
Mainstream has been in Chile since 2008, and we are one of the longest independent renewable energy developers here. From 2008 to 2012, there was a very small market for renewable power and the larger consumers did not really consider renewable energy as a serious option. All of that started to change in 2013, particularly with the tender at the end of 2014, which was the first public distribution tender where renewables won a large portion. Since then, there has been a boom in renewable energy. There was a significant amount of renewable activity in the two-year period from December of 2014 to December of 2016, and the results are quite strong. As of this month, 13% of energy in Chile is provided by renewables, including 7% solar and 6% wind. It is phenomenal to go from nearly 2% to 13% in just two years, particularly compared to other countries where the growth is much slower. The next big jump is to have 25% of Chile’s power provided by new renewables (i.e. from new wind and solar PV and excluding existing and new hydro), and I think that will likely happen within the next two to three years.

What are Mainstream’s biggest projects right now?


The Cuel project, which is currently Mainstream’s only operating project in Chile, began operating in January 2014. It is a 33 MW wind project. Mainstream has a partnership with a UK fund called Actis and the joint venture is called Aela Energía; Actis owns 60% and Mainstream own 40%. That joint venture won 300 MW of wind in the October 2015 tender for Mainstream projects Aurora and Sarco. These two projects are due to reach financial close in July 2017 and start construction in August 2017. They will remain under construction through the first half of 2017. Sarco is a 170 MW project in northern Chile, and Aurora is a 130 MW project in southern Chile.

In the CNE distribution tender held in July 2016, Mainstream won 3,300 GWh of PPAs to be supplied by close to 1,000 MW of wind projects. Mainstream owns 100% of these PPAs and projects

How would you characterize the competitive landscape in the power industry?
The power industry is extremely competitive because new renewables have come in over the last two years and have taken PPAs away from the incumbents. The incumbents have retaliated by dropping their prices, which has led to a more competitive landscape. Enel is the largest renewable developer operating in the country and is part of the same group as conventional generator Endesa. The other three incumbents have been slower to embrace renewables but are doing so now. The competitiveness and changes in price have really been a revolution in the power sector in Chile, and it has been driven by new renewables.

How receptive will Chile’s mining industry be to moving away from fossil fuels and toward renewables?
In the past, when renewables were at the same price as fossil fuels, most mines were using renewables simply to be a green story because they have their own renewables and carbon targets. The key issue with mining companies was that they wanted to know if renewables could provide power 24 hours per day, seven days per week, and we have proven that renewables can do so. There is a big tender going on right now with a major mine and that will be announced between October and December. It will be interesting to see if renewables win that tender. The mining sector has been very slow due to the downturn in commodity prices but it is starting to pick up.

What is the threshold in terms of price per Mwh for a wind or solar farm now, and what do you think it will be in the future?
The average PPA price, at last bid, was US$50 per Mwh. Mainstream won at US$39 to US$44 per Mwh, so our average price is US$42. The PPA price includes the price to build the project and the trading risk. We expect prices to drop over the next three years. One reason we were able to bid less since the tender in 2015 is because there has been a change with the transmission cost. It used to be paid by the generator, but now it is paid by the customer. Starting in 2019, that is nearly a US$9 swing in our favor. In addition to this, our scale and geographical diversity enable us to bid lower prices. The fact that we have different projects from Arica to Puerto Montt in the South of Chile enables us to cover some of the trading risk and having a 1,000 MW turbine order means we can obtain better deals on turbine prices at scale, as well.

From a foreign investment perspective, how do these prices compare to other countries?
The prices here in Chile compare quite favorably to other countries. In Texas, for example, the price is down around US$40 per Mwh for wind, and lower for solar. Chile had been an extremely expensive place to buy power for many years because of lack of competition. In the next couple of years, we may see Chile jump ahead of other countries. The sector has yet to understand the impact of storage, and in Chile it is probably four or five years away. Distributed generation is something that should be big in Chile due to the excellent solar resource, but has not had a significant impact yet. Eventually, distributed generation and storage should greatly impact the sector.

Could you elaborate on Mainstream’s social responsibility program?
Historically, Chilean infrastructure projects have not been good at community engagement, including the mining sector. This has left a negative legacy between big businesses and local communities. Since Mainstream has been in Chile, we have invested in in-house community liaisons, who work with both indigenous and non-indigenous communities. Communities have a lot more power than they used to, and they are exercising that power. They want to be involved before projects are designed so they can influence how they are developed. In some cases, they want to stop projects. Doing any project without involving the community is simply not an option anymore. We are lucky that we engaged the community very early in Chile, and we have been equally lucky in being able to get our permits without any major opposition.

In terms of jobs, the renewables sector is much larger now,and there are many more people working within the sector. We are now seeing local contractors being able to take on these jobs with local staff. There is a significant number of projects that are going to start construction in 2018, so there is a whole construction industry building up in certain areas.

What is Mainstream’s long-term vision in Chile?
I do not think new conventional plants are going to be built in Chile for at least the next five years. If these storage and distribution generations come into play within the next five years at scale, then we may not see any new conventional plants built ever again in Chile. All future demand will be met by renewables. We have been very successful in distribution tenders, and I would like to win some of the private tenders, as well.

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