Yesterday, Tuesday, November 1, our General Manager, Rodrigo Jiménez, indicated in the newspaper La Tercera the importance of incorporating generation with management capacity in order to move towards carbon neutrality. He also emphasized the importance of streamlining the entry of transmission in its bidding, awarding, permitting and construction processes.
Source: La Tercera
Elimination of location signals; a transmission capacity that lags behind due to lack of planning and delay in its construction, as well as the speed with which solar and wind power plants are installed; lack of incorporation of technologies to manage and store these technologies; plus deficiencies in the evaluation of their projects, would be behind the financial complications that affect them.
The fact that renewable energy generators located in the north are permanently dumping their production due to insufficient transmission capacity, that when they manage to inject into the electricity system they do so at zero marginal cost and that more than 9,000 MW of solar and wind projects are preparing to enter by 2030 (in addition to nearly 10,000 MW already installed) does not mean that there is overinvestment in these technologies. This is what almost all industry voices affirm, regardless of the differences of opinion on the causes of the problems faced by the industry.
Ana Lía Rojas, executive director of the Chilean Association of Renewable Energies and Storage (Acera), strongly refuted any thesis in this sense in a seminar held on Monday, fueled by the cases of two companies that desisted from continuing to serve their contracts with regulated customers, due to inability to pay derived from deficit generation positions: “Dumping, decoupling and especially zero marginal cost valuations occur throughout the system, it is not a problem about solar installations in the north, it affects all technologies. Therefore, it is a systemic problem and not a problem of a few who made bad calculations or were more risk averse”.
In this regard, Rodrigo Jiménez, general manager of the consulting firm Systep, states: “I would not speak of overinvestment considering that the world is embarking on carbon neutrality to combat climate change with clean technologies”. In his opinion, the crux of the matter is that in order to replace the fossil fuel plant fleet, not only are these renewable energies from variable sources (sun, wind, run-of-river hydropower) needed, but also manageable energies that can be dispatched with certainty. And although these were traditionally coal and gas-fired plants, “new technologies have emerged to manage clean energies, such as concentrated solar power plants, pumped-storage plants and batteries, which make it possible to decarbonize the matrix in a safe way”. Thus, a sine qua non condition for meeting the goal of closing all coal plants is that the growing adoption of renewable sources is accompanied by storage: “The storage law goes in the right direction by recognizing that projects of this type without generation have the possibility of participating in the market and that they are remunerated for their power. But the law will not be enough; it will be essential to lower the price of these technologies”, emphasizes the executive.
Ramón Galaz, executive director of Valgesta Nueva Energía, is also categorical: “There is definitely no overinvestment. Chile must move towards a clean matrix that allows it to meet carbon neutrality goals, and renewables play a fundamental role in this. But it is necessary to generate the enabling conditions for this”.
The former executive secretary of the CNE, José Venegas says: “I do not think it is a problem of overinvestment, but a sum of several errors. First, the Transmission Law eliminated the location signal and that made the solar companies that are installed in the north not see that the cost of transmission is much more than the benefit of having more solar generation in that area. If the locational signal had not been lost, that energy would be injected in the center south and the lines would not be congested”. As a second point, he adds that there has been a “childish fantasy” of believing that it was possible to quickly replace the entire thermal park with NCRE: “We always said that this would take time and that we should be cautious with thermal retirement, even more so in the face of droughts. Now that we are facing the risk of shortages and high fuel costs, we are seeing the important impact of thermal generation and realizing that we will not be able to do without it for a long time”. Thirdly, he mentions that Chile has been unable to further develop transmission due to an excess of dogmas: “We said a hundred times that without transmission accompanying NCRE, these would be useless”. And he warns that while batteries are the future, the short and medium term lifeline is to have gas and oil, with additional storage: “It is incredible that no one mentions the need to expand LNG terminals”.
Transmission bottlenecks
Another point that generates consensus is that the transmission infrastructure lagged far behind the boom in photovoltaic and wind power plants, which began with the changes to the bidding process for regulated clients in 2014, which introduced the NCRE quota, although the real trigger for their multiplication was the rapid reduction in the price of these technologies, points out Systep’s manager, Rodrigo Jiménez. In addition, while the construction of reservoir plants took around six years, coal-fired plants between four to five years and gas-fired plants a little less, not counting permits, solar plants take at most two years. On the other hand, planning the transmission reinforcement lines, bidding for them, obtaining the permits and building them, plus possible problems with communities, takes five to seven years. For the time being, the only major line in process is Kimal-Lo Aguirre, a direct current line that will not start operating until October 2029, if there are no delays.
“The transmission planning process is perfectible, but it is also very important that the specific times for bidding, awarding, permitting and construction of the works are expedited. I can have a very good transmission expansion plan, but if the works take time to materialize due to bureaucratic hurdles, the works will continue to be late. The bottleneck is obtaining environmental and social permits. Territorial planning is important, but also execution and costs. Eduardo Escaffi, partner of the Weg-4 Investment Fund, adds: “With the Chilean geographic configuration (we are a line and not a network as in Spain, for example), the possibility of not having congestion in the lines would require investments in transmission that would make the system extraordinarily expensive. Storage is an obvious solution, which is only now becoming a reality, thanks to the tremendous progress made by the evolution of electromobility, but it requires very important investments that will only be made if the regulation that remunerates them is adequate. The recent approval of the law is a good step in that direction”.
Zero marginal cost
Ana Lía Rojas argued that there are more than 720 hours per year with zero marginals, which means that in at least one of the first nine months, renewables were awarded zero prices for their energy production: “It cannot be that a generator injects clean energy into the system and receives zero for its production. Hydropower is facing a water crisis and is also priced at zero”. He noted that the point is that the current regulatory system was not designed for the increased penetration of renewables.
For Rodrigo Moreno, professor at the University of Chile, it is very difficult to identify a single reason that justifies the origin of the zero marginal cost: “It is rather the action of several elements that occurred simultaneously, such as, for example, the rise in energy production costs at night in combination with the collapse of spot market prices during the day; congestion in transmission and low prices of some supply contracts that do not internalize all the risks that may arise. The question is whether it is efficient for some of these risks to be internalized in the contract price and to what extent the risk of transmission not expanding to adequate levels is reasonable.”
