Energy Investment Opportunities in Chile in 2022 and Beyond

By Arthur Deakin  Posted July 27, 2022  In Energy

Latin America continues to search for innovative solutions to reach net zero by 2050, not all of which are currently feasible. Although Chile is a pioneer for renewable energy in the region, AMI’s market intelligence shows that green energy investors and operators still face major hurdles in its energy sector:

Green hydrogen – Despite the country’s cheap renewable energy and investor-friendly regulatory framework, green hydrogen will face high production costs, limited domestic use-cases and insufficient midstream infrastructure. Successful green hydrogen projects in Chile will be those that directly substitute gray hydrogen. This includes using green H2 to produce ammonia (e.g., Engie’s HyEx project) and to refine oil (e.g., Linde’s HyPro project). Green hydrogen for heating, transportation, and heavy equipment, as well as exportation, is not economically feasible.

Energy storage – Energy storage is still in its very early stages in Chile, as the current regulatory framework has delayed at least 400MW of storage projects. The country only has 64MW of deployed storage capacity (all operated by AES Andes) and the current regulation doesn’t allow consumers to sell stored energy back to the grid. This makes standalone storage projects uneconomical. While the market waits for further movement on law N.14738-08, AES is moving along with a US$400 million investment to double storage capacity by 2023. The expected development of regulation and the growth of an ancillary services market, coupled with falling battery costs, do make this an attractive mid to long-term opportunity. However, until there is a more concrete timeline for storage regulation (likely after the constitutional vote), energy players should remain wary of developing storage projects in Chile.

Distributed generation – Despite the phase out of PMGD subsidies for projects approved after April 2022, Chile’s cheap, solar capacity and aggressive climate targets still make this subsegment an attractive opportunity for energy investors and operators. With 4 GW of solar PV under construction, the challenge will be finding projects in areas with less transmission congestion. Those assets will have a higher likelihood of successfully connecting grid. Projects in central Chile, closer to urban centers and existing transmission infrastructure, continue to be the most sought-out assets. Although distributed generation IRRs will not be as high as those experienced in the last decade, they can provide stable USD-dollar denominated returns. As of June 2022, 1.9 GW in PGMD projects are operating in Chile.[1]

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