Large-scale photo-voltaic plants located in Chile’s northern Atacama Desert will pave the way for major development of the country’s abundant solar energy in a program carried out by the IDB and the International Finance Corporation with the help of financing from the Clean Technology Fund (CTF).
With Chile’s ideal solar resources, photo-voltaic plants could generate power on a gigawatt scale, in this way contributing to the country’s energy security and reducing GHG emissions.
The project. The Large-Scale Photo-Voltaic Program will be financed with a total of US$49 million in CTF loans, with half of the program implemented by the IDB and the other half by the IFC. The CTF resources will leverage additional funding from the IDB, the IFC, other multilaterals, the private sector, and other sources, for a total of approximately US$700 million. Based on this assumption, the program will result in the construction of approximately 300 MW of solar projects.
The program aims to accelerate private sector participation in solar photo-voltaic generation by supporting large-scale private sector projects that demonstrate the technical and financial viability of the sector both to the local banking sector and to large consumers. The IDB will channel CTF resources directly to photo-voltaic projects in the form of loans or guarantees with the minimum of concessionality needed to overcome investment barriers. The Bank will also provide financing from its own resources.
Northern Chile’s Atacama Desert has one of the best solar regimes in the world. At the same time, the country’s very high energy prices provide an opportunity for less costly energy sources, such as solar photo-voltaic generation, which has already reached competitive prices in northern Chile.
However, despite its potential, and recent strong growth photo-voltaic power generation still faces barriers. The country lacks a track record in the sector with a limited number of projects totaling 150MW (as of March 2014) currently operational. Also, there has been very little experience with signed power purchase agreements for photo-voltaic projects.
Large offtakers like mining companies are reluctant to enter into long-term agreements with photo-voltaic developers due to the perception of the inadequacy of intermittent renewable energy for their operations. Without such agreements, most local banks are not willing to finance less-familiar renewable energy technologies such as solar, wind, or geothermal. The CTF project is designed to help overcome these barriers.
Climate change impact. The GHG emission reductions of the program over its lifetime are estimated at 7.4 million metric tons of CO2. Projected additional financing for photo-voltaic projects leveraged by the CTF program could result in overall reductions of 44.3 metric tons of CO2 emissions.
High-priority on solar power. Fossil fuels accounted for about 75 percent of primary energy consumption in Chile and about 66 percent of the country’s overall national electricity matrix in 2011. Most of these fuels are imported and represent about 23 percent of total imports into the country. Accordingly, Chile is the second least energy self-sufficient country in Latin
America, with the result that energy supply an important national security issue. In addition, recent large-scale conventional fossil fuel and hydro power generation project proposals have been met with popular rejection due to perceived negative environmental impacts.
The CTF program will directly support Chile’s goal of providing 20 percent of the country’s electricity matrix from non-conventional renewable energy by 2025. It is also consistent with the climate change initiatives set forth in the IDB’s Ninth General Capital Increase.
The program will also benefit from an additional IDB technical cooperation for the ATACAMATEC project, which will assess the financing gap of individual projects currently under development in Chile. In addition, the IDB/Global Environment Fund Development and Promotion of Solar Energy project will implement pilot, grid-connected concentrated solar power and photo-voltaic plants.
Lessons learned. It is expected that the program will demonstrate to local banks and large- scale power consumers that photo-voltaic power generation is both reliable and cost-effective, which will reduce the perception of risk and improve financial terms for future projects.