After the boom in 2022 faded, China's domestic energy storage industry entered a period of deep adjustment. After the rapid expansion of the industry for a period of time, the market competition has become fierce rapidly, and the enterprises in the industry are obviously under pressure. Therefore, various companies have sought to "go overseas" in order to find new profit growth points. When investors and equipment suppliers identify countries with both potential and feasibility, Chile, which has the right time, location, political communication, and people, has attracted the attention of the industry.
Time: The expansion cycle of Chile's renewable energy and energy storage market meets the adjustment cycle of the domestic market;
Geographical advantages: Chile has excellent renewable energy endowment and considerable mineral reserves;
Political communication: the government and the opposition are pragmatic, open to China, and there are few obstacles to investment cooperation;
Renhe: The degree of marketization of electricity prices is high, the energy transition is on track, and the demand for energy storage is strong.
<<< Multinational investors have laid out the >>> of the Chilean energy storage market
In November 2022, Chile approved Law 21505, which aims to promote the development of energy storage and electric vehicles. Since then, Chile's energy storage market has entered a new round of expansion cycle, and international investors have flocked to it, and by 2024, there is a trend of boiling oil and flowers.
Currently, Chile is the second largest energy storage market in the Americas region after the United States.
As of the end of 2023, the country has 12 energy storage projects in operation with a total capacity of 1.3GW, and another 85 energy storage projects are still in various stages of development with a total capacity of 6.4GW. Of the 85 projects, 51 are expected to be in commercial operation between 2024 and 2026, with a capacity of 3.9GW.
In March 2023, French renewable energy company ENGIE's second energy storage project, BESS Coya, in Chile, went into commercial operation, making it the largest battery storage facility in operation in Latin America. The BESS Coya project has a storage capacity of 639MWh and an installed capacity of 139MW, providing supporting energy storage for the adjacent Coya PV plant (180MW). The 232 modules of the BESS Coya project can store 5 hours of electricity to supply power to the grid during periods of expansion in power demand. BESS Coya is expected to output 200GWh of electricity per year to the Chilean power grid.
ENGIE is currently developing four energy storage facilities in Chile, BESS Tamaya (68MW/418MWh) and BESS Capricornio (48MW/264MWh), in addition to the first experimental 2MW/2MWh project and the recently commercially launched BESS Coya (139MW/630MWh).
The former started construction on August 30, 2023, providing supporting energy storage for the Tamaya PV power plant (114MW). The project includes 152 modules, and the energy storage batteries are supplied by the Chinese manufacturer Sungrow.
The latter will start construction in February 2024 to provide supporting energy storage for the Capricornio PV plant (88MW). The project includes 96 modules and BESS Capricornio is expected to be commercially operational in the first half of 2025.
If BESS Coya, BESS Tamaya and BESS Capricornio are successfully commissioned in the future, ENGIE will have 1.1 GWh of electricity stored in Chile per day.
In addition to French companies, Spanish company Grenergy is also a significant player in the Chilean energy storage market. On January 29, 2024, the company announced that it would spend US$1.4 billion (about 10 billion yuan) to build the Oasis de Atacama photovoltaic + energy storage project. With a planned installed PV capacity of 950MW and a supporting energy storage capacity of 820MW, the project will become the world's largest energy storage project with a total power generation capacity of 4.1GWh, so it has attracted much attention from the outside world.
The project will be divided into five phases and is expected to be put into commercial operation in phases "within the next 36 months". The project signed a 15-year PPA with EMOAC, the energy trading subsidiary of COPEC in Chile, to supply it with more than 8TWh of green electricity. At present, the project has received nearly US$1 billion in development financing from a syndicate of five banks, including BNP Paribas and Natixis, and the first phase of the project has been rolled out.
There is no shortage of Chinese companies involved in this energy storage project. On January 12, Grenergy reached a purchase agreement with BYD for 1.1GWh of the energy storage system. BYD will provide a total of 2,136 storage systems for the project. In addition, in December 2023, Pacific Hydro Chile, a subsidiary of CLP International, issued a commencement order for the Atacama energy storage project (113MW/243MWh), marking the official start of the construction phase of the project.
In the American market, U.S. companies are not far behind. In March 2024, US renewable energy developer Atlas plans to develop an energy storage project (200MW/800MWh) in Chile. At the same time, Atlas signed a 15-year PPA with EMOAC, a subsidiary of COPEC Chile. It should be noted that, unlike the "renewable energy + energy storage" of Spanish and French companies mentioned above, the energy storage project is described as a "self-contained energy storage solution" and is not connected to an adjacent photovoltaic power plant, but directly to the Chilean power grid. Atlas has not disclosed when the project is expected to be commercially operational.
In addition, on March 6, 2024, Atlas also previously signed a 15-year, round-the-clock PPA with Codelco, the world's largest copper producer, to provide it with 375GWh of electricity per year.
With the Chilean government's large-scale renewable energy and energy storage tenders in recent years, international investors are entering the Chilean market in an orderly manner. Chile's natural endowment and actual demand are generally conducive to the development of renewable energy and energy storage, but it faces uncertainties in terms of regulatory policies and economics.
<<< Uncertainty facing energy storage in Chile >>>
Chile's natural resource endowment determines the country's demand for energy storage systems in the energy transition process to a certain extent:
Spatially, the country's renewable energy is unevenly distributed, with photovoltaic power projects in Chile concentrated in the desert areas in the north with superior sunlight conditions, and wind power projects concentrated in the central and southern regions, which are extremely rich in wind resources due to their location in the westerly wind belt.
In terms of time, due to the extremely narrow range of the country's territory across the longitude from east to west, the whole country almost simultaneously ushers in sunrise and sunset every day, and the imbalance in the time of photovoltaic power generation is also particularly prominent.
On the industrial side, Chile's mining industry depends on a stable energy supply. Renewable energy projects need to be equipped with energy storage to achieve a stable supply of electricity to the industrial and mining industries around the clock.
However, while the development of the project is soaring, Chile's energy storage facilities are also facing uncertainties in terms of policy, market, and regulation, which will have a serious impact on the economics of energy storage projects in the long run. For companies interested in investing in Chile and developing related fields, it is necessary to continue to track the dynamics and carefully consider the plan.
At present, the business model of energy storage in Chile is still in the exploratory stage, and the calculation of the long-term investment income of the project is still facing great uncertainty, which is mainly reflected in the following aspects:
For Chinese companies, it is important to avoid blindly following the herd and to seriously assess the long-term returns of investing in energy storage projects in the country.
# Short-term fluctuations and long-term trends in the peak-to-valley spread of electricity spots #
The Chilean electricity market is highly market-oriented, and prices can fluctuate freely. There is currently a trend of increasing peak-to-valley electricity price differentials in the country, but it is debatable how sustainable this trend is. Short-term fluctuations and long-term trends in the peak-to-valley price spread in the spot market will directly affect the return on investment of energy storage facilities, so special attention needs to be followed.
In addition, in terms of electricity consumption, the Chilean government has given power users with access to more than 5,000kW the right to negotiate prices independently. This means that investors may need more due diligence and upstream and downstream interviews. Determine the electricity price level according to the specific power consumption destination of the project, build a financial model, and participate in relevant electricity price negotiations if necessary. This is significantly different from the way in which transmission and distribution e-commerce companies purchase electricity on a wholesale basis, which is common in other countries.
# The specific rules for capacity compensation and ancillary services have not yet been officially announced #
Although Chile has approved the relevant law in 2022 to implement an aggressive industrial policy for energy storage, the details of its policy and regulatory system have not yet been clarified, and the technical details have not been perfected. Among them, the price of power grid dispatching auxiliary services and the price of capacity compensation are directly related to the investment income of energy storage facilities.
Independent energy storage system operators need to participate in the dispatch of the grid, but the specific dispatch coordination mechanism and operational guidelines have not yet been issued. The degree of standardization of ancillary services provided by operators to the grid is still insufficient, and naturally there is no clear pricing standard for ancillary services.
In addition, Chile's payment standards for capacity compensation for energy storage projects have not yet been explicitly approved. In December 2023, the Chilean Ministry of Energy has submitted amendments to the current capacity compensation regulations to the Comptroller General's Office. Considering that capacity compensation will provide important certainty for the investment income of energy storage projects, the market has high expectations for the introduction of new regulations. The Comptroller is expected to approve the new rules in the first few months of 2024.
The current practice in the country is to maintain the old rules, which have an important transitional provision. That is, in order to promote the development of energy storage and ensure that energy storage facilities have more reliable energy storage capacity within ten years, the current transitional capacity compensation mechanism is intended to tilt the resource allocation of the system with a longer storage time. The specific rules are shown in the table:
Based on the current transitional mechanism, it is not surprising that energy storage developers in the Chilean market tend to develop facilities with energy storage durations of more than 5 hours. It is expected that there will be a similar mechanism in the new regulations approved in the future. This may directly affect the decision-making tendency of investors in terms of technical roadmap and design of energy storage projects in Chile.
# The possible impact of market competition on industrial policy making #
As mentioned above, Chile's current policies and regulations in the field of energy storage need to be supplemented with technical details. Given the fact that Chile's electricity market is highly market-oriented, it is likely that the Chilean government will refer to the data generated by market competition in the process of policy formulation to develop standards. This means that the pricing of capacity compensation, ancillary services, etc., may refer to or even follow the price level generated by free market competition, rather than being mechanically formulated based on administrative power.
Given that international investors are accelerating their entry into the market, the market in Chile in the energy storage sector is likely to become more intense. At that time, the price level formed in the market may be low to exclude energy storage players who are not strong enough. This will be a big challenge for Chinese companies that want to enter the market.
# Capacity transfer regulations and localization requirements #
Even if they are not directly involved in the investment and development of energy storage projects in the Chilean market, Chinese companies can enter the market by EPC contracting, providing operation and maintenance services, and supplying key energy storage equipment (in the case mentioned above, Chinese companies have already participated in this way). This does not mean that the latest developments in the regulatory environment in the field can be ignored.
According to some sources, the upcoming new regulations on energy storage regulations by Chilean authorities may include some regulations related to capacity transfer. If this situation is finally confirmed, it may mean that energy storage equipment suppliers need to transfer part of their production to Chile, or even passively meet certain localization requirements. Chile has a total of about 9.3 million tons of lithium reserves, making it the largest in the world. With this resource endowment, the Chilean government's motivation to pursue development opportunities in energy storage and battery-related industries is reasonable. Therefore, Chinese energy storage equipment suppliers entering the Chilean market also need to plan for possible future supply chain changes.
<<< 结语 >>>
In Chile's energy storage market, the time has come for potential investors to make a choice.
On the one hand, European and American renewable energy companies are already actively deploying the Chilean energy storage market, and hesitant and incompetent latecomers may need to pay more to seize fewer market opportunities;
On the other hand, the uncertainty of industrial policies and regulatory details directly affects the evaluation of the long-term return on investment of energy storage projects.
Author: Guofu Consulting Lu Shi
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