Why Chile has emerged as a big solar market

It might surprise you to learn that Latin America — including Mexico, South America, Central America, and the Caribbean — was the region that showed the fastest growth in history for solar panel projects last year, according to a recent report from GTM Research. While the area’s 625 MW worth of solar panels installed in 2014 might look small compared to the estimated 6.5 GW installed in the U.S. during the same time (1000 MW = 1 GW), the annual growth rate for Latin America was a staggering 370 percent between 2013 and 2014, while the U.S. was just 36 percent.

Why did that happen? Well, more than three quarters of that growth in Latin America came from the quick emergence of solar panel projects being installed in Chile — in particular, in the high, hot, flat, barren desert lands of Northern Chile. The Atacama Desert has some of the world’s most intense sunlight and an area of 40,000 square miles.

For example, just two weeks ago a 70 MW solar panel farm — one of the largest in the world built to sell power on the wholesale market — was completed by SunPower in El Salvador in the Atacama Desert. The site uses 160,000 solar panels on single-axis trackers built on 328 acres leased from the Chilean government. The solar system can provide the equivalent electricity for 70,000 Chilean homes.

First Solar is building what could be the largest solar project in Latin America, a 141 MW solar panel farm called the Luz del Norte Solar Power Plant, north of the city of Copiapó, Chile. That site is expected to be finished by the end of 2015, will use 1.7 million of First Solar’s solar modules, and will produce enough electricity for over 173,962 homes.

The Topaz solar panel farm, that uses First Solar panels in CA.

The Topaz solar panel farm that uses First Solar panels.

Because of the unique geography of northern Chile, it’s one of the most productive solar regions in the world. And there’s also a growing desire for power in the area, from mining and other industries that are ready to buy up as much solar power as the local utilities and power markets are willing to generate.

All of this means that Chile has emerged as one of the areas in the world where solar panels are truly competitive economically, even without subsidies. In the U.S., the federal investment tax credit and loan guarantee programs, as well as state mandates like California’s renewable portfolio standard, have largely pushed the solar market. While Chile does have some solar incentives, the economics are good before they kick in.

In Chile, financial institutions are eager to back projects and new business models around solar projects have emerged. The U.S. government’s development finance institution, the Overseas Private Investment Corporation (OPIC), financed 70 percent of the $200 million El Salvador project through long-term non-recourse project debt.

Despite the fast growth rate, it will take several more years for the Chilean solar market to grow to muliple gigawatts. Chile is expected to have another solar boom in 2015.

Dutch and Slovenian regulators nail carriers over net neutrality

While the European Union dithers over EU-wide net neutrality, some European countries are marching on regardless. On Friday Slovenia’s regulators nailed carriers Telekom Slovenije and Si.mobil for violating net neutrality principles, and on Tuesday Dutch regulators fined KPN and Vodafone for similar violations.

The latest ruling, by the Dutch consumer protection agency ACM, saw [company]KPN[/company] fined €250,000 ($283,000) and [company]Vodafone[/company] €200,000. KPN was caught for blocking some VoIP services on its free Wi-Fi hotspots, and Vodafone was zero-rating the [company]HBO[/company] Go app – that is, it was providing free traffic for that service in particular, a practise technically known as “positive price discrimination”.

ACM’s statement read in part:

In addition to the ban on blocking, internet providers may also not charge differing tariffs for the use of services and applications on the internet. This contributes to an open internet. An open internet is important for freely disseminating information and increasing choice on the internet.

The Slovenian ruling was also about zero-rating: [company]Telekom Slovenije[/company] has been providing free data for the music streamer [company]Deezer[/company], and [company]Si.mobil[/company] for cloud storage service [company]Hanger Mapa[/company]. Those carriers now have two months to stop breaking the rules.

The European Parliament voted for strong net neutrality rules in April 2014, but since then the legislative process has stalled, largely due to some member states demanding vague principles rather than strictly-defined terms. The European Commission is dead set against this development, so it and the Council of the European Union, which represents the states, are currently negotiating a compromise.

However, even if that legislation’s strong definitions survive, it doesn’t ban zero-rating, which some argue is not a net neutrality issue because users can still access services other than those being zero-rated, even if it means using up their data allowance.

Those who argue that it is a net neutrality issue maintain that it violates the principles because it favors particular services and apps over others. That includes regulators in the Netherlands, Slovenia, Norway (not part of the EU but part of the European Economic Area, where EU net neutrality legislation would apply), and Chile (definitely nowhere near the EU.)

Last week the Latvian Presidency of the Council indicated that proposals to include an explicit ban on zero-rating in the EU-wide net neutrality legislation would not gain enough support among the states. Some had also suggested making selective blocking a self-regulatory matter, but those proposals seem to be sunk as they would conflict with existing EU legislation and fundamental rights.

In other words, the current situation – where zero-rating is banned in some European countries but not others – looks set to continue into the foreseeable future, whether or not a broader ban on blocking and throttling comes into force.

Looking for low hanging fruit markets in renewables deployment

When one considers how low retail electricity rates in the U.S. are relative to other countries, the continued growth of the solar and wind industries is particularly impressive. But what happens when renewable energy developers look outside the U.S. and target those countries which don’t have the abundance of coal and natural gas that has kept U.S. electricity rates so low.

Data from the Energy Information Agency shows that average end user retail electricity rates are around 10 cents per kilowatt-hour. The Japanese pay 26 cents per kilowatt-hour. The Germans pay 35 cents per kilowatt-hour and the Danes pay a whopping 41 cents per kilowatt-hour.

One nation that I’ve been paying attention to recently has been Chile. It has ideal market conditions for renewable energy development. Chile has essentially zero domestic gas or coal, and there are earthquakes, making the prospect of nuclear power unappealing. Additionally the nation is at high altitude, with cool desert weather and a high level of solar radiation. Chile gets most of its power from hydro and coal.

Most importantly, power generators can often fetch a reliable 20 cents per kilowatt-hour. In the spring I spoke with Dylan Rudney, the founder of Verano Capital which invests in and develops solar projects in Chile, who noted to me that Verano’s research indicates that Chile’s electricity rates are 220 percent higher than the rest of South America. Verano is developing a 100 megawatt project and partners with other funds interested in construction equity.

“All of those reasons make it more surprising to me that it’s just taking off. And it is taking off but I’m surprised that just now it’s happening,” said Verano. “As panel pricing has gone down dramatically, it’s becoming so obvious that it’s hard to miss. We’re targeting a 40 percent levered IRR [internal rate of return] for our spot market sales.”

The bottom line for Rudney is that Chilean solar doesn’t require government subsidies to turn a profit. Rudney is not alone in seeing the opportunity even if he remains surprised at the dearth of developers in Chile.

Sunpower plans to build and maintain a 70-megawatt deployment in the Atacama region of Chile in affiliation with Total and Etrion Corporation. First Solar acquired Solar Chile earlier this year, a solar developer with 1.5 gigawatts of early stage pipeline.

What’s unique about Chile is that many projects are being developed without power purchase agreements in place, which means developers are taking the risks associated with selling solar power openly on the spot market. But they are confident that because electricity prices are so high, the cost of solar will be able to more than compete.

Some projects still look for power purchase agreements because when developers have such agreements banks will loan them a higher ratio of capital, increasing leverage and return for investors. Local banks will typically only finance with a PPA, and Verano says they’ve gone to larger international development banks like the World Bank for finance.

Currently there is a miniscule 3.2 megawatts plugged into the Chilean grid with 2000 megawatts in the pipeline. Not surprisingly the main bottleneck remains grid connection, a common problem dogging every renewable energy market, including leading markets like China and the U.S. Rudney estimates that projects are often looking at 6-12 month lags to figure out grid connectivity. Additionally, as solar becomes big in mining focused Chile where energy can be required in the evening, grid energy storage and demand side energy management could become necessary.

Where else in South America is Rudney curious about? While Chile is the low hanging fruit, he notes Uruguay has a government program that is opening up the country to solar. He’s also investigating projects in Colombia and Peru. But for now with panel prices falling and electricity rates sky high, Chile is optimal for solar development.

Use Social Media to Track the Chilean Earthquake

As they did during the earthquake in Haiti and other natural disasters, social-media tools such as Twitter and various other web resources have become a key source of information on what is happening to the country. Here is a partial list of some of those resources.