Marginal costs in Chile’s two main interconnected systems could be reduced by US$10-22/MWh between 2016 and 2021, according to energy consultancy Systep.

Marginal cost of electricity in Chile is expected to drop

In a report, Systep explains it by the projected drop in electricity demand as a result of the slowdown in economic growth and delays in high consumption mining projects such as Pascua Lama, El Morro and Relincho.

The consultant also highlighted the lower projected fuel costs, specifically for diesel and coal, which together make up the majority of Chile’s energy matrix.

Another important factor will be the entry of more than 2.4 GW of new generation capacity between now and 2019 as a result of the last electricity supply auction held in Chile. Of this total, conventional and renewable energy sources would contribute 1.4 GW and 1 GW, respectively.

As the auction granted long-term supply contracts to renewable energy producers, they will be protected against spot market price fluctuations, which will help stabilize their costs, said Systep.

The company also referred to the granting of a block of 5,040 GWh per year to the generator E-CL, which plans to meet its supply commitments with its CTM thermoelectric complex in the Norte Grande Interconnected System (SING).

As E-CL has acquired commitments to supply the Central Interconnected System (SIC) grid, the company must complete its Mejillones-Cardones transmission line, which will interconnect the SING and the SIC.

Basic engineering has been completed and the project has obtained environmental approval.

The lower marginal costs depend on the timely completion of the aforementioned works, according to the report. For example, the 1.4 GW of conventional capacity includes the 600 MW El Campesino combined cycle natural gas plant, which has not yet received environmental approval.

The government’s energy agenda contemplates a 30% reduction in marginal costs in the SIC during the 2014-2018 period.