In January 2014 the Government of Chile named Abengoa the winner of its “Concurso Planta Térmica de Concentración Solar de Potencia”. Abengoa won the tender with its planned Cerro Dominador project, a 110 MW concentrated solar power (CSP) tower plant with up to 17.5 hours storage capacity in northern Chile. As the winner of the tender, the Abengoa project is eligible to receive a US$20 million grant from the Government of Chile. The plant would be the first of its kind in Chile and in South America.
In the case of CSP technology, mirrors concentrate the sun’s rays to heat a fluid and produce steam. The steam drives a turbine and generates power in the same way as conventional power plants. A relatively large scale plant is critical not only to achieve the economies of scale needed to bring down the cost of the power produced, but also to attract the interest of both global industry leaders and local large-scale off-takers, whose participation is key to the success of the project.
Despite Chile’s favorable regulatory framework for renewable energy production, as well as reductions in the cost of CSP technology, the project requires concessional financing to lower its high capital cost compared to power presently being produced in northern Chile from coal and natural gas. The use of concessional funding to finance part of the costs will help offset the high capital investment required by the project and enable the project owners to sign a long-term, fixed-price power purchase agreement at a competitive price.
The project. IDB has worked with the Government of Chile and the German Development Bank KfW to raise a package of concessional financing to support the development of a CSP project in Chile, given the high cost of CSP technology. The package would include a US$66.12 million loan from the Clean Technology Fund (CTF) and a US$30 million loan from the IDB-managed Canadian Climate Fund for the Private Sector in the Americas (C2F). Also, in order to engage to local financial sector, a CSP-dedicated €100 million credit line is offered by KfW for commercial banks and a €15 million grant from the European Union’s Latin-American Investment Facility (LAIF) will be made available. The final availability of the concessional financing package as well as market-based financing from IDB and other banks will be subject to a due diligence review related to all aspects of the project, including its financial, legal, technical and environmental characteristics.
The CSP technology for the project will be enhanced by thermal energy storage to make it possible to deliver power when sunlight is not present, and therefore meet industrial demand. Northern Chile has very rich sodium and potassium nitrate resources, which are the standard heat storage fluids used in molten salt technology. Higher storage capacity increases the plant capacity factor, i.e., more energy can be delivered in a given year for a given capacity of the plant. The Atacama Desert’s 3,000 hours of sun per year,and DNI (Direct Normal Irradiance) of around 3000kWh/m2 per year, combined with its large areas of flat land, places it among the world’s best regions for large-scale solar energy applications.
Demand for CSP electricity is likely to be strong, particularly for the mining sector, where significant quantities of high-temperature thermal energy are needed. The project’s technical cooperation activities will include generating and disseminating information on solar power performance, lessons learned, and impacts in terms of substitution of fossil fuels, GHG emission reductions, and benefits to the local economy; creation of a clearinghouse on solar micro-systems; and support for the transfer of solar energy knowledge to build capacity for the development of local supply chains.
Climate change impact. Chile’s northern power grid has the highest greenhouse gas emissions of all the major Latin American electricity grids. CSP with thermal energy storage will reduce fossil fuel dependency in this region while contributing to the mitigation of GHG emissions. Assuming a plant with a 110MW capacity, the expected reductions resulting from implementation of the CTF-financed project are estimated to total 19million metric tons of CO2 over 30 years. Ten similar projects coming on line in Chile within the following 15 years would abate an additional 190million metric tons of CO2 emissions.
High-priority on power production. Chile’s economy has been growing at a fast pace, which has been accompanied by average increases in electricity production of 5 percent annually. GDP is expected to grow at a rate of 4 percent until 2030, resulting in a sustained expansion of energy demand.
In northern Chile, the rapid expansion of the mining sector will drive even higher growth, requiring almost 800 additional megawatts of generation capacity per year. Under business as usual, most of this new installed capacity will be coal- and diesel-fired production. In recent years Chilean citizens have taken a strong position against large energy projects, resulting in the cancellation of several coal plants. Scaling up CSP technology in the northern region would help increase energy security by diversifying the energy supply, reducing fuel imports of fuels, and reducing carbon emissions.
In 2012 Chile developed a National Energy Strategy that stresses energy independence and security, environmental protection, market competitiveness, and technology innovation. Among the strategy’s six pillars is the development of private sector energy production and scaled up production from non-conventional energy sources.