This year more than 3,000 MW will enter the system between the SIC and the SING, a figure equivalent to almost 5 times the capacity of the Ralco power plant. These are not only NCRE units but also gas-fired plants, such as Kelar and coal-fired (Cochrane II).
2016 will be a record year for electricity capacity entry, but demand will remain flat
From the specter of deficit to surplus. 2016 will mark a record in the electricity sector, with the entry of more than 3,000 MW in installed capacity, a milestone rarely seen in the industry and which will provide slack to the national electricity system on the eve of the union of the SING and the SIC.
This is the largest historical growth in installed capacity, adding both systems. In 2009, another record year, 1,858 MW came into operation – according to data from the National Energy Commission (CNE) – while 1,140 MW did so in 2012.
Last year, meanwhile, only 540 MW were added to the system, mostly NCRE.
On the other hand, for this 2016, units totaling 3,114 MW are expected to come into operation, according to projections by the CDECs and the National Energy Commission. There are 52 initiatives, most of them renewable, most of them in the SIC, although in terms of power, the largest contribution will be in the Norte Grande Interconnected System (SING).
Another important point is that, except in the case of Cochrane II – linked to AES Gener and with 236 MW – the companies developing these new projects are not part of the dominant group, made up of AES Corp’s own subsidiary plus Endesa, Colbún and E-CL, which have dominated this industry in recent years.
This is in line with the search for more competition that Máximo Pacheco’s administration is seeking to introduce in the Energy Ministry.
This growth in installed capacity, although supported by renewable plants, is also made up of conventional units that will enter mainly in the north. The largest of all is Kelar, a power plant being built by a Korean consortium on behalf of the mining company BHP Billiton. The project, currently under construction, will contribute 517 MW to the electricity system and is by far the largest of all the initiatives that will enter this year.
Another important project is the Atacama I combined power plant – formerly known as Cerro Dominador – which integrates a photovoltaic and a solar thermal power plant. The timetable managed by the CDEC and the CNE speaks of starting operations this year, but doubts about the future of the Spanish company could modify these plans.
In the case of the SIC, the bulk of the new initiatives is given by renewable units, which in the next 12 months are expected to enter into operation of 1,351 MW of new renewable capacity “of which 940 MW are solar, 298 MW wind, 109 MW hydro, and 5 MW of cogeneration. It should be noted that an important part of the generation projects have advanced their entry date by one or two months with respect to the dates reported in the previous month”, warns the consulting firm Systep, headed by engineer Hugh Rudnick.
Variables
The combination between conventional and renewable units is very relevant because NCRE plants, mainly wind and solar, have a low plant factor. That is, they are not injecting most of the time. In the case of wind turbines, another element is added: they are difficult to predict because, unlike the sun, it is not so easy to estimate the hours of the day when they will be in operation. For the northern system, the main consequence will be a drop in system operating costs, which in December averaged around US$50 per MWh. According to Systep, next year the projected average will be close to US$37 per MWh, which will be maintained with the entry of new initiatives.
“Considering the base demand scenario, an average marginal cost of US$36.9/MWh is projected for the 12-month window. For the low demand and high demand scenarios, the projected costs reach values of 35.8 US$/MWh and 38.6 US$/MWh respectively. This indicates that the generation projects planned for 2016 would be sufficient to maintain marginal costs at around US$ 37/MWh even in a high demand scenario”, states the consultant in its latest monthly report.
All this, before the two systems are merged to create a single national power grid, which will occur as soon as the Transmission bill, currently being processed in Congress, is approved and the line that will connect the Crucero-Encuentro substation with Los Changos, in Mejillones, and from there to Cardones, in the Atacama region, comes into operation.
Lower demand
Another point that will contribute to the system’s greater slack is the drop in estimated demand for the coming years. In December 2015, peak demand in the SIC was just 1.3% higher than the peak demand recorded in December 2014, according to CDEC data, while expected energy sales in December 2015 reached 4,298.5 GWh, 2.1% higher than the 4,210.9 GWh traded in the same month of the previous year.
In the SING, meanwhile, demand grew with respect to 2014 but less than initially estimated.
“According to the latest information published by CDEC-SING and that reported by the large consumers of the SING, during 2015, a growth in demand of 7% was observed, which was lower than that projected as of December 2014 (16.5%). Likewise, CDECSING projects a demand growth of 14% for this year. However, considering the current scenario of deceleration of mining activity in the country, which has involved announcements of stoppage of some sites and the reduction of production in others, it is not possible to guarantee that demand projections will be maintained in the short term”, states Systep.
Demand estimates have already been corrected by the National Energy Commission. Just five years ago, it was thought that an extra 1,000 MW of installed capacity would need to be added each year – at least until 2030 – to cope with a sharp expansion in electricity demand that was then expected to grow by around %-6% each year.
But the reality has been different. Energy demand has not grown at the pace anticipated at the time and, moreover, its expansion will moderate in the medium term, considering the latest projections, which are much more conservative than previously expected.
Thus, while the October 2010 technical report on node prices prepared by the National Energy Commission expected the country to reach an electricity demand of 97,873 GWh by 2020, adding SING and SIC. This means that, considering that the current ratio between installed capacity and peak demand is 2.5 times on average, the installed capacity that the country would require would be at least 27,932 MW, i.e., almost 8,000 MW more than the current capacity.
But five years later, in last October’s report, the demand projection dropped to 82,870 GWh for the same year, which means that the country’s installed capacity should be around 23,650 MW.
This would mean that the country would need to install 3,729 MW in addition to what already exists. In other words, between one scenario and the other, there are almost 4,280 MW that will no longer need to be incorporated due to reduced electricity demand prospects.
This represents an investment of between US$5,564 million if considering investment in natural gas combined cycle plants, or up to US$14,552 million if it were to be made with run-of-river hydroelectric plants or US$12,840 million for coal-fired plants.
Key projects that will come into operation
1. Kelar, the first large unit led by a mining company
Kelar is the largest of all the generation plants that will start operations this year. The initiative is financed, designed, built and operated by Kelar S.A., a consortium formed by Korea Southern Power Co. (65%) and Samsung C&T Corp. (35%).
In 2014, BHP Billiton awarded this consortium a long-term power contract to develop the Kelar project as a result of a competitive bidding process. The company had maintained this project for many years, but initially it would use coal as fuel.
Its entry into operation is intended to supply energy to the operations of Minera Escondida’s expansion projects, which is developing important investments in the OGP1 and OLAP projects.
2. Will Atacama I stop? The pioneer solar thermal plant in Latam
The problems for the development of Abengoa’s entire portfolio of projects have affected its most important project in Chile: Atacama Solar I.
In December, the company explained to PULSO that it would make adjustments to its entire portfolio of projects in the country, including this initiative which, moreover, has committed part of its energy to electricity distributors.
“The company, as part of its restructuring plan, is carrying out ongoing adjustments that involve, among others, the reduction of headcount at sites and the transfer of equipment. All this in order to adapt operations to efficiency objectives and meet the competitiveness targets required in the current situation,” the Spanish company said at the end of last year.
3. Cerro Pabellón, ENAP and ENEL’s geothermal power plant.
It will not enter until 2017, but when it does, it will mark a milestone for the Chilean electricity sector as it will be the first geothermal power plant not only in Chile, but also in South America.
It will also be the first geothermal plant built at an elevation of 4,500 meters above sea level. The project is expected to start operations during the first half of 2017.
With an installed capacity of 48 MW, the geothermal project requires an investment of approximately US$320 million, which translates into US$6.6 million per MW.
One of the doubts that remains to be clarified is what will happen with ENAP’s shareholding in the company, where it shares ownership with the Italian ENEL. The company is seeking to reduce it from the current 40% to 20%.
