Chile is by far South America’s most stable economy. As a growing economy, the country requires electricity to power GDP growth, however Chile has been facing energy supply problems since 2004 when Argentina began reducing natural gas supplies. Argentina’s cuts in natural gas (typically during the winter months of June, July and August) have a direct impact on electricity production. The country produces electricity via natural gas power plants and hydroelectric power plants (Italian utility Endesa is currently Chile’s largest energy producer).

Chile - ©istockphoto.com

During the Chilean winter of 2007, shortages of natural gas forced electricty generators to shift over to diesel. In 2007, diesel demand in Chile was about 1.2 million cubic meters per month, up sharply from about 500,000 cubic meters per month in 2006. State oil company ENAP produces about 350,000 cubic meters per month of diesel, meaning it has to import the remainder.

To make matters worse, droughts in 2007 and 2008 reduced reservoir levels at hydroelectric plants, further lowering electricity output. This caused the government to extend daylight savings time by 2 weeks in order to provide more natural light to households as an energy conservation method.

Chile has been facing an energy security problem for the last three years. The country currently produces only 2.4% of their energy from renewable sources (hydro) and the country only has one operating wind farm (20MW owned by Endesa).

The country’s initial response to the energy crisis was to announce the development of a second liquid natural gas (LNG) reception port in Quintero at a cost of $1.2 billion. Chile also enacted renewable energy legislation in March 2008, requiring utilities to invest and produce electricity from non-conventional energy sources (renewables). Currently there are no support subsidies, only a target of 5% by 2010 racheting up by 0.5% each year to 10% by 2020.

Meanwhile, Codelco, the country’s largest copper company, decided to take matters into their own hands holding a tender for the construction of a 20MW wind farm at their Gabriela Mistral mine. The project was awarded to the UK’s Seawind who have since ordered ten 2MW turbines from US wind turbine company DeWind.

Seawind state they are developing between 250-450MW of wind (based on press announcements by the company). Northern Chile’s region II environmental regulator Corema approved the EIA submitted for the 100MW Quillagua wind farm to be developed in Tocopill. And last month Seawind stated they are currently seeking a financial partner to assist them with 1.2GW of wind development in the country.

Since enactment of the renewable energy targets, wind power has accelerated in Chile’s Region IV, where a handful of companies have disclosed plans to build wind parks. The region is currently home to the country’s largest wind farm (20MW), Parque Monte Redondo. French utility SUEZ announced in March 2008 that they were investigating two thermoelectric plants and some wind. In July Spain’s Grupo Enhol announced 500MW of wind in conjunction with Chilean developer Haciendas Talinay.

However, it appears that Chile’s next wind farm (to be the country’s largest) will be built by the Norwegians. At the end of 2008, Norwegian developer SN Power announced 46MW in the region of Coquimbo. The Totoral Wind Farm received a $61.5 million project finance commitment from the IFC in March, making it the first ever project financed wind farm in Chile. The project developer is Norvind S.A., a special-purpose vehicle set up by the project sponsors, Statkraft Norfund Power Invest A.S, the Norwegian power developer, and its Chilean partner, Centinela.

It’s incredible what a bit of legislation can do for a country’s renewables market. Chile’s National Energy Commission is predicting 100MW installed by 2010. Projects under development currently exceed more than 2,000MW. Naturally the financial crisis is affecting the ability for wind projects to access debt financing, but developers are hoping that by the time projects are fully permitted in 2-3 years, that banks will be lending again.

In November 2008, Irish developers Mainstream signed a $1 billion joint venture deal with Chilean company Anders Energy to develop wind farms. In May 2009 , Italian utility ENEL announced that 850MW of wind was under development.

So, there seems to be no shortage of wind farms under development in Chile, although a lack of wind resource maps are stated as a barrier to even more wind farms. Moving over to solar…

Last summer the Atacama Solar Platform Initiative was established by a consortium comprised of Fundacion Chile, State mining company Codelco and several government agencies. The plan is to develop solar zones over the next three years that would include both the manufacturing of solar panels and the construction of solar power plants.

In June 2008 Chilean president Michelle Bachelet and California governor Arnold Schwarzenegger signed a pact to “promote active collaboration in alternative energy, higher education and innovation.” That month also saw the launch of Sistemas Automáticas, a consortium of 30 companies, who announced plans to submit an Environmental Impact Assessment (EIA) for the Atacama Desert’s first major solar energy farm, Ícaro. Work on the project is expected to begin sometime in 2009.

In December 2008, Korean group Daekyeonsolar stated they would invest $1.3 billion for a 150MW solar farm in the Atacama Desert. An environmental permit for the project was submitted for approval in February. The first 10 MW of the Sun Rice project is expected to be built by the end of October and will require an estimated $90 million, including 600 hectares of land.

Daekyeonsolar is a private company focused on the production, distribution and installation of photovoltaic cells. It currently has presence in Nigeria and Thailand, where several 30MW projects are already in operation.

Finally, a high profile group of investors (including Al Gore) are working on the Andean Solar 200 MW solar and wind project in the Chilean region of Antofagasta. The stated goal is to become “the first self-sustainable, financially viable plant without any kind of government subsidies.” The project wants to generate enough energy to provide electricity to three mining towns in Escondida (the largest private copper producer in the country), Chuquicamata (Codelco) y El Abra (Codelco and Freeport McMoran).

In 2005, Chile joined REEEP (Renewable Energy and Energy Efficiency Partnership) and at the end of 2008 they joined IRENA (International Renewable Energy Agency).  Germany pledged $126 million to fund Chilean research into renewable energy and energy efficiency, with Chile receiving a donation of $11.5 million for renewables research in remote areas of the country with the balance to be provided as a loan.