Chile’ssolarmarket forecast has leapt up by 700 megawatts after record-low prices for renewables swept the country’s latest competitive bidding round.

“The strong price-competitiveness of solar in the recent auction makes us a bit more confident of the upside in the market,” said Mohit Anand, senior analyst for global solar markets at GTM Research. “We can see as much as 200 megawatts in 2016 and 500 megawatts in 2017 of additional solar capacity than what we project as a base case."

The forecast runs counter to predictions from Deutsche Bank that solar Chilean installations will drop next year by 50 percent, to 500 megawatts, and then fall further, to 400 megawatts, in 2017.

“Although the longer-term outlook looks promising, access to good transmission lines and grid saturation remain a major challenge which could potentially impact the growth outlook over the next two years,” wrote Deutsche Bank research analyst Vishal Shah in an industry update note.

Still, he said: “Checks indicate that solar is now the cheapest source of electricity generation, and 2015 installs could exceed 1 gigawatt.”

The predictions follow an energy auction by Chile’s National Energy Commission (Comisión Nacional de Energía or CNE) last month in which renewables beat fossil fuels across the board, taking all of the 1,200 gigawatt-hours on offer.

Two utilities, Endesa Chile and AES Gener, had hoped to win by bidding well below the prices achieved in Chile’s previous energy tender, in 2014. The average price for energy in that auction was $107.60 per megawatt-hour.

This year, Endesa bid $84.20 per megawatt-hour and AES offered $85. Both offers were conditional on winning the entire block of energy being tendered, however.

In the event, a group of five renewable energy developers offered bids that averaged out at $79.34 per megawatt-hour, putting the fossil-fuel generation players out of the running.

The lowest bid was from Amunche Solar, which is owned by the Spanish developer Solarpack and carried off 110 gigawatt-hours in a 20-year power-purchase agreement. 

Amunche tabled a bid of just $64 per megawatt-hour, not far from the world’s lowest unsubsidized rate for solar, the $59.80 a megawatt-hour awarded to ACWA Power for a 100-megawatt plant commissioned by the Dubai Electricity and Water Authority last year.

The First Solar subsidiary SCB, meanwhile, put in a bid of $67 per megawatt-hour. Aela Energía, a wind and solar developer owned by private equity firm Actis and developer Mainstream Renewable Power, offered $78.80.

Only two of the five renewable firms failed to beat fossil fuels. The Spanish wind, hydro and solar thermal plant developer Ibereólica matched AES at $85 per megawatt-hour. And another Spanish developer, the solar thermal and PV firm Abengoa, came in at $97 per megawatt-hour.

Overall, the price of energy purchased through the auction ended up being more than 26 percent cheaper than in 2014. “This was only possible thanks to the intelligent management of the auction, in allowing renewable energy to bid for all the hours on offer,” said a source at one of the winning companies.

It now remains to be seen how the auction will affect perceptions of renewable energy, and in particular solar, across the rest of Latin America. According to September’s Latin America PV Playbook, a record 363 megawatts of solar came on-line across the region in the second quarter of 2015.

A further 3.2 gigawatts were announced, bringing the total pipeline for Latin America to 38.2 gigawatts. After Chile, the top markets for deployment this year were forecast to be Honduras, with 460 megawatts; Mexico, with 195 megawatts; Guatemala, with 98 megawatts; and Panama, with 62 megawatts.

However, the prospects for solar across most of Central America have dampened because of the dropping prices for fossil fuels -- particularly diesel. In Honduras, Guatemala and Panama, the price differential between PV and fossil fuels has decreased so much that it no longer makes sense to invest in solar, according to insiders.

Against this backdrop, it seems likely solar developers will redouble their efforts in Chile, where PV is now clearly the market leader in terms of cost-effective generation. The CNE is expected to offer further tenders next year.

“There is a strong likelihood that electricity prices will continue to increase in Chile and the price-competitiveness momentum that solar has will likely place it very strongly to be able to grab a greater share of the pie than projected at the moment," said GTM Research's Anand.