by Jason Deign, Solarplaza
Solar developers are looking into a new asset management model to unlock the potential for smaller plants in Latin America’s top market.
Soventix has launched a fund for sub-9 MW Chilean plants amid growing interest in projects covered by the country’s small means of distributed generation scheme. The German asset owner is hoping the fund will help to finance up to 100 MW of projects within the scheme, known locally as the Pequeños Medios de Generación Distribuidos or PMGD programme.
Soventix has already signed letters of intent with other developers to install 54 MW of production with finance from the fund. The remaining capacity would be built over the next three years, said Thomas Stetter, managing director of Soventix Chile. The PMGD scheme has been in operation for some time and is open to any form of electricity generation of less than 9 MW. Until recently, however, solar developers have struggled to find a way of exploiting it for PV.
Until the end of 2015, Chilean spot prices were significantly above the node price, which made the two-tier pricing mechanism largely irrelevant to solar developers
The programme offers generation asset owners a choice of two revenue models. Electricity can either be offered on the spot market or sold at what is called the ‘node’ or ‘stabilised’ price that is fixed for six-month periods. This price, currently around USD$64 per MWh, is based on a complex calculation of power-purchase agreement (PPA) rates across the energy system but is essentially similar to a feed-in tariff, with reduced risk but a lower upside.
Until the end of 2015, Chilean spot prices were significantly above the node price, which made the two-tier pricing mechanism largely irrelevant to solar developers. Stetter said this led most PV firms to focus on large-scale merchant plants, of between 50 MW and 100 MW, which were much easier to fund through widely available non-recourse project finance.
This is no longer the case, and at times of renewable energy over-supply the spot price for electricity can go down to almost zero. Since the node price is only subject to minor adjustments every six months it now makes sense for solar developers to enter the PMGD scheme and take advantage of these fixed payments.
“There is a shift in attention to this price mechanism and to the PMGDs,” Stetter told Solarplaza.
The first solar plant to be launched within the PMGD scheme is thought to have been a 3.2 MW project built by Grenergy Renovables in Coquimbo, which was connected to the distribution network last November. A major attraction of solar plants built under the PMGD scheme is that their smaller size makes them less likely to suffer from grid connection problems.
Approved PMGD projects are granted automatic connection to the grid along with a guarantee that all output will be accepted, unlike large-scale plants.
PMGD solar plants can take advantage of weaker, more dispersed grids and because they require less land can also be built closer to urban areas where there is higher energy demand. Furthermore, approved PMGD projects are granted automatic connection to the grid along with a guarantee that all output will be accepted, unlike large-scale plants where the distribution network operator can decide to curtail production if needed.
Building a 3 MW plant in Chile currently costs around $3.5 million.
Although the PMGD scheme can apply to plants up to 9 MW, in practice the sweet spot for developers is just under 3 MW since these plants do not have to complete an environmental impact assessment, which helps reduce the cost. Building a 3 MW plant in Chile currently costs around $3.5 million, according to Stetter. “This is too small for project finance because the transaction costs are too high,” he said, “and it’s too big to finance it out of your own pocket.
“This is the reason this category hasn’t been promoted as much as big projects, until today. What we at Soventix have done is we’ve said: ‘We need to take a portfolio approach, bringing together, say, 30 projects of 3 MW.’”
Financing the entire 100 MW-or-so portfolio is likely much easier than funding individual 3 MW projects, he said. Another benefit of the portfolio approach, he says, is that it might help streamline construction and operations and maintenance costs.
For plant build-outs, Soventix is planning to have three engineering, procurement and construction teams on the ground, each moving from one project to another and learning from its mistakes. Regarding maintenance, Stetter said the plan was to have the projects spread out in a 500km radius across the country but to be in clusters, with a single engineer per every five plants or so.
Soventix’s Chile Solar Fund is focused exclusively on the PMGD niche and has an aim of raising $50 million in equity. In theory, said Stetter, all the plants created through the fund will make revenues through the PMGD node price. But once built, Soventix will also aim to gain extra income for each plant by signing PPAs with local energy users.
“We are convinced that once you are building projects and you talk to the industries nearby then there is considerable interest to buy the electricity from you,” Stetter said. “We see a mixture of PPA and stabilised price.”
The PMGD solar market could grow to equal the 1 GW of large-scale PV capacity already installed in Chile’s 17 GW energy market.
Soventix is believed to be one of the first multinational developers exploiting this revenue model. No other players are known to have launched a fund to finance PMGD projects. And many of the few solar projects built so far under the PMGD scheme are thought to have opted for spot-price payments, although the programme allows asset owners to switch between spot and node pricing every four years.
Soventix is hoping to close the Chile Solar Fund by the end of this September, with plants commencing operations in the fourth quarter of 2017. Over time, Stetter believes the PMGD solar market could grow to equal the 1 GW of large-scale PV capacity already installed in Chile’s 17 GW energy market.
Stetter said that in future the solar portfolio approach could evolve to include storage, biomass or hydro assets, providing round-the-clock electricity suppliers. “This is a next step that we see and we’re working on that,” he said.
Meet Mr. Stetter and discover more aspects of Latin American PV operations and maintenance at Solar Asset Management Latin America, on September 28 and 29 in Santiago de Chile. Register now for your very early bird discount.