Someday solar electricity generation won't require subsidies, incentives, tax breaks, feed-in tariffs or even a power purchase agreement to reach a customer. Solar power producers will simply bid into power or energy markets and compete head to head with coal, gas, and nuclear.

It's happening today in Chile.

Total and Etrion Corporation claim that their proposed Project Salvador is "the world’s largest solar power project based on spot market electricity (“merchant”) revenues." Power will be sold to the Sistema Interconectado Central electricity network.

The 70-megawatt deployment is in the Atacama region of Chile, a high-altitude region with some serious DNI. The Atacama Desert is more than 40,000 square miles and has the earth's most intense sunlight.

GTM Research has the data on the region: "With an energy-intensive mining sector accounting for one-third of the world's copper and a massive dependence on imported fossil fuels, Chile's electricity prices are very high. In 2012, some consumers were paying an average of $0.25 per kilowatt-hour on the spot market. Solar companies recognizing the need for cheaper, domestic generation in Chile have planned for more than 6 gigawatts of projects -- some of which could cost less than $2 per watt to develop."

The project will be built and maintained by Total’s affiliate, SunPower (SPWR).

We spoke with SunPower CEO Tom Werner this week. He defined "merchant solar" as essentially meaning that there's no PPA and said, "We are betting we will produce power at less than the going rate." Werner called this project a team effort that produced on the promise of Total's international reach.

Werner noted that the combination of Chile's high electricity prices and high DNI puts Chile in "a position to emerge as one of the leaders in the Latin American market for renewable energy -- in particular, ground-mounted solar PV," according to SunPower. Chile also has net metering and a 20 percent by 2015 Renewable Portfolio Standard. Werner said conditions on this project were ideal for interconnect and water availability.

Werner noted that most merchant solar projects were done on a much smaller scale. He also pointed out another first: Total has a 10 percent equity stake in the project, further demonstrating Total's commitment.

The Overseas Private Investment Corporation, the U.S. government’s development finance institution, is financing 70 percent of the $200 million project with the balance funded by Etrion, Total and Solventus. According to a release, Chile has an investment-grade rating, and the OPIC debt is "non-recourse project debt with a 19.5-year tenor."

“Project Salvador is an important step in the process of transforming the capabilities of solar power in the world. This merchant project confirms that solar energy is becoming competitive with other conventional energy sources,” said Philippe Boisseau, President of Marketing & Services and New Energies and a member of the Executive Committee of Total in a release.

Boisseau told us in an earlier interview, "‘We have some projects in South Africa and in Chile that we're bringing to SunPower. That's another one of the benefits we are bringing: access to the world where it is economical with no subsidy to produce electricity.” Boisseau commented to GTM yesterday that “[t]his is the first solar project in Chile for Total and SunPower. It is a proof of the strong collaboration between our teams. Total is leveraging its international footprint, with activities in 130 countries, to develop SunPower solar projects around the world.”

First Solar (FSLR) also regards Chile as a growth market. Earlier this year, First Solar acquired Solar Chile, a five-person Santiago-based solar developer with a 1.5-gigawatt early-stage pipeline of PV power projects in northern Chile, including the Atacama Desert. The thin-film solar panel manufacturer and project developer has applied for permits for the $370 million, 162-megawatt Luz del Norte project, according to a filing with Chile’s environmental licensing department. The project will use more than 1.7 million panels, with construction slated to start in June 2014.

Chile could be one of the first real, non-incentivized solar markets in the world. Its relatively unreliable and expensive electricity has made Chile an early adopter of energy storage technology in the mining industry, as well.

Stephen Lacey's recent article on Chilean power markets pointed out that:

- Installations will grow strongly in Chile, but it will take many years for the 6 gigawatts of project announcements to materialize.

- Initial development will focus on the mining sector, but larger projects will sell into the spot market. SunEdison recently signed an agreement with the Chilean mining company CAP to supply electricity from a 100-megawatt plant -- the largest so far in Latin America. OPIC was involved in financing this project as well.

- Only the most sophisticated companies will be able to navigate Chile's complicated electricity market. 

SunPower will deploy the Oasis single-axis tracker module, with construction expected to start before the end of the year.

Tags: chile, finance specialist, first solar, fslr, policy, solar electricity, solar pv, spwr, sunpower