Developing South American Solar: Playing the Long Game

After securing a US$41.4 million loan from the Inter-American Development Bank in March, Spanish project developer Solarpack began construction on its 25.5 MW Pozo Almonte solar plant in Chile’s Atacama desert. The plant will sell its power to the Dona Ines de Collahuasi mining company, accounting for 13 percent of the mine’s energy use.

Solarpack says it has a pipeline of more than 120 MW in Chile, of which 20 MW are already fully developed. For example, in April 2012 it completed the 1 MW Calama Solar III project, also in the Atacama region, which sells power to another mining company, Codelco.

Solarpack has also developed close to 100 MW in Peru, under government sponsorship. In addition to two 20 MW projects in Majes and Reparticion, owned by independent power producer T-Solar, there are the Tacna and Panamericana plants, also 20 MW each and jointly built and owned with Spanish developer Gestamp. Solarpack also says it has been awarded a power purchase agreement (PPA) for a 16 MW plant in the province of Mariscal Nieto.

We discussed the challenges of developing large-scale solar in Latin America with Solarpack’s CEO, Pablo Burgos.

A Strategic Decision

According to Burgos, Solarpack has pursued a “slow and steady” strategy in relation to the South American market. When it was ready to expand, the company made a strategic decision to focus on countries that were likely to reach grid parity soon. Chile was of particular interest for several reasons.

First, the country features some of the highest global horizontal irradiation (GHI) levels in the world. In the Atacama desert region skies are cloudy for an average of only 30 days per year, with an annual rainfall of 0.01 mm. Second, Chile has an open electricity market, and third, its electricity prices are relatively high, due largely to the lack of indigenous fossil fuel sources.

“This was the origin of our bet on the region,” said Burgos. “We have been very patient for years doing development there.” The planned Pozo Almonte plant “is our milestone,” he continued, “although we already have megawatts on the ground.”

Expanding on its activities in Chile, in late 2009 Solarpack filed a proposal in response to neighbouring Peru’s request for proposals and was awarded projects totaling 80 MW.

Working With a Partner

Commercial mining in Chile uses roughly 18 percent of the nation’s power. The Doña Inés de Collahuasi mining company, which will buy the energy from the Pozo Almonte plant, is “an electricity consumer”, said Burgos.

In the Chilean market it is possible to buy electricity from different providers simultaneously. “One provider – our project – will be up and running at the end of the year,” Burgos said; to address the rest of its electricity needs Collahuasi has contracts in place with coal- and gas-fired plants.

Since Solarpack won an international tender to develop Pozo Almonte, while the project will be undertaken collaboratively with the mining company, the collaboration is a result of the tender process. However, said Burgos, until the industry matures vis à  vis this kind of project, collaboration can be important for both parties. “We need a customer with a very clear view and knowledge of what he’s buying so he can make the project viable in terms of the PPA’s terms and conditions,” he explained. “[Collahuasi] has understood very well what a renewable energy project needs to fly and to be competitive.”

Into Peru

Solarpack has developed two 20 MW projects in Peru with partner Gestamp, both completed at the end of 2012. The company’s process in Peru has been “quite different” from its experience in Chile, explained Burgos. In Peru Solarpack has won public tenders from the Ministry of Energy, which are open to technologies other than solar. Solarpack won a portion of the 2010 solar tender, and a second tender issued in 2011. The company’s two plants have a concession contract with the government – “basically a PPA,” says Burgos – which function within a “very regulated” process. “In Chile we worked with private entities,” he says; “here we are working with the government.”

Burgos sees his company’s position in Peru as very strong. “We have an advanced pipeline based on the number of years we have been on the ground,” he says. “We also have the experience as one of the few companies that have already installed plants of this size – over 20 MW – so we are in a good position to be competitive in tenders.”

New Markets

Solarpack is looking to move into other South American countries, and is also active in South Africa. “PV developers have to be constantly looking for new markets,” Burgos says. “To be sustainable you have to have a certain level of solar radiation. You don’t have to necessarily be in the highest-radiation country in the world, but it should be strong enough so costs are competitive.” And, he adds, his company is looking for markets where “you don’t face regulatory risks like in Spain.”

In Burgos’s opinion Spain’s energy reform has “killed” its PV market by eroding investor confidence. And, he continued, “Spain has an excess of capacity on the electricity market so there is no room for new installed megawatts here. For the next few years, prospects are very bad for PV technology.” So for Solarpack, moving into new markets was only partly a matter of choice. “We were prepared to go abroad and conquer new markets,” said Burgos, “but we really felt the Spanish market was decreasing so we had to go abroad.”

Burgos sees the South African solar market, with its government grants, as particularly interesting. It is a growth market and he notes that “we are all there – almost all the developers.” He pointed to finding sources of financing as an important difference between markets: “Where your debt comes from changes from market to market,” he said. Interconnection is also a challenge as different markets handle regulation differently. And how developers secure tariffs is “a big difference. It’s regulated in some countries, in others you go for private consumers and sign PPAs.”

A Critical Mass Advantage

Being first in Peru has been a challenge, Burgos said. “Our developments are the first PV plants to be built in the country, first from a regulatory perspective and second for the construction – you need to find and organise resources with enough experience to build this. In a place with more PV plants, more critical mass in the region, we would have had the advantage of better contractors who were more efficient.”

Burgos refers to Tacna and Panamericana, Solarpack’s two Peruvian plants, as “twins”. The plants are very similar in size, technology and equipment, and only slightly different in terms of GHI.

The plants are 100 km apart, and in describing them Burgos again invokes the idea of critical mass as a development and operational advantage. “Two times 20 MW was a good option,” he says, because it is more difficult to find grid connection points with 40 MW of capacity than with 20 MW. Other challenges included environmental and grid access regulations that specified different conditions for projects below and above 20 MW, another reason to go for “2×20”. Getting the contracts in place “was not easy,” Burgos said, but he also said the process was nothing special compared to other countries.

Moving Into South America

“If you want to move [into the South American market], you have to open shop and be patient and invest significant amounts of money until the projects come into operation,” Burgos advises. “In our case, in Chile, it’s been four years until we have started construction in one big project. So that’s the main comment. Invest heavily and be patient until the projects come out: this is an important message from our experience.”

On the other hand, he said, the South American market is “considered to be slightly larger in terms of size than what it is in reality, so you have to be careful with numbers. In terms of numbers of gigawatts that are announced, etc – this is not a gigawatt market,” he said. While he noted that “there’s a lot of expectation”, he predicted that many projects currently in development will never come online.

“Given the size of the region,” he cautioned, “the amount of PV power it can take at this moment is not that much. This is not a market where nobody has landed yet; lots of companies have landed in the last two years. And since it’s a free market you really have to be competitive to get PPAs with the consumers – that’s the main point.”

Lead image: the 20 MW Tacna PV plant in Peru via Solarpack

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