At least one of the winning bids in Chile's latest renewable energy auction looks set to combine storage with solar.
Spain’s Cox Energía, which won 140 gigawatt-hours of generation at a price of $34.40 per megawatt-hour, is due to supply power at night as part of its bid, even though it is planning to cover the demand with PV.
“I’m assuming they are going to combine their awards with some kind of storage solution, because there is no way they can generate solar overnight,” said GTM Research Americas solar analyst Manan Parikh. “There’s got to be some other kind of technology in there.”
The result illustrates growing competition among solar developers in the Chilean market.
Firms that only build solar plants are more restricted in the range of generation blocks they can bet on, whereas those including wind or other generation sources in their portfolios have until now been able to bid for nighttime electricity supplies where there is less competition.
The Spanish developer Acciona resorted to solar-plus-storage as a way of securing higher prices on overnight generation in a previous auction, Parikh said.
Nevertheless, Cox Energía’s bid, close to the record-low average auction result of $32.50 per megawatt-hour, is a bold move. The company is presumably banking on solar-plus-storage costs falling far enough to make money on its projects when they enter operation in 2024. The lowest bid in Chile's auction reached $21.48 per megawatt-hour.
As recently evidenced in Lazard’s annual levelized cost of energy (LCOE) analysis, though, the cost-reduction curve of utility-scale solar appears to be bottoming out.
The current low end of LCOE for utility-scale crystalline silicon PV is around $46 per megawatt-hour, down slightly from $49 last year. Even in Australia, the most favorable market for solar studied by Lazard, the lowest LCOE is $37 per megawatt-hour.
On top of that, Cox Energía will have to factor in the cost of storage. The most likely candidate is lithium-ion batteries, since these are expected to fall faster on cost than other technologies.
Lazard estimates that by next year lithium-ion storage could cost $261 per megawatt-hour under its most optimistic use case, which is delivering front-of-meter services on the distribution network.
Lazard also calculates the capital cost of the technology could come down by 36 percent over the next five years. Assuming those reductions are reflected in the levelized cost of storage as well, that still leaves lithium-ion delivering each megawatt-hour for at least $167 by 2021.
Nevertheless, “there’s much that can happen" between now and 2024, said Parikh. "There’s an entire technology that could be created that we don’t even know about. It gives developers a lot of leeway in figuring out how they are going to go about doing all this.”
In this respect, Cox Energía’s play is no different to the strategy used by the winners of Europe’s offshore wind auctions this year, where developers have put forward record-low prices based on an expectation that turbines will get much cheaper in the future.
Meanwhile, said Parikh, there are indications the Chilean government is expecting some of the recent auction winners to drop out of the picture.
“They’re banking on the fact that because this is so far out in the future, project owners may change, there may be delays, there could be abandonment of contract or cancellations,” he said. “They’re hedging a little bit of the risk there.”
For now, Chile’s National Energy Commission has plenty to crow about. Since 2013 it has managed to cut the cost of generation by around 75 percent, thanks to renewables.
The nation’s first auction saw an average price of $129 per megawatt-hour, which dropped to $79.30 in a second contest held in 2015. The results of the latest auction, announced last month, saw Enel taking 54 percent of the capacity on offer.
“Today the price of the energy that households are paying for is $90 per megawatt-hour, a product of the contracts issued before this [administration] up until 2014,” said Andrés Romero, executive secretary of the National Energy Commission, in a press statement.
“Now, with this auction, we expect these new contracts to slowly drop to prices of around $50, which will directly benefit homes," he said.
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