Chile Sees Surge in Wind Power, Rattles Incumbents

  • AES Gener, Colbun, Engie missed out on power supply contracts
  • Chile auctioned 12,340 GWh of power supply beginning in 2021

Mainstream Renewable Power Ltd. and Empresa Nacional de Electricidad/Chile SA won more than two thirds of Chile’s largest ever electricity supply auction Wednesday, slashing prices in the process and rattling the shares of the other incumbent power suppliers.

Mainstream won 30 percent of the 12.34 Tera-watt hours per year auctioned, while Endesa, a unit of Italy’s Enel SpA, obtained 40 percent. The contracts represented almost a third of supply to regulated customers in Chile and the average price tumbled to $47.59 MWh from $79.34 MWh at the previous auction.

Companies such as Engie Energia Chile SA (formerly E.CL SA), Colbun SA and AES Gener SA came away empty handed, sending their shares tumbling. AES Gener led losses with a 6 percent retreat, after also announcing today that the costs at one of its key hydroelectric projects, Alto Maipo, may rise as much as 20 percent due to construction problems. Shares of Engie slid 3.4 percent and Colbun fell 3.7 percent.

"The auction was very competitive and such low prices weren’t expected by the market," said Ana Verena Lima, a Bloomberg New Energy Finance analyst in Sao Paulo.

Mainstream won contracts for seven wind projects. The company will invest $1.65 billion to build 985 megawatts of wind capacity over the next five years, according to Bart Doyle, Chile country manager at Mainstream. The lowest Mainstream’s bid was $38.8 per megawatt-hour and the highest was $47.2 per megawatt-hour.

"The auction puts a lot of pressure on conventional power and utilities now,” Doyle said in a telephone interview. “It is a big wake up for the conventional utilities, to have a part of their portfolio in renewables,"

Endesa won about 5.95 TWh in contracts, the company said in a statement. That compares with the 6 TWh of the company’s contracts that will expire between 2019 and 2022, according to a note from LarrainVial. Colbun has 3.3 TWh in contracts expiring over the same period, while AES Gener has 2.4 TWh.

The average price on the block of which Endesa won the majority was $50.83 per MWh, compared with the $52 on its contracts that are expiring, according to LarrainVial.

In Chile’s power auctions, developers offer to provide a certain amount of capacity at a specific price, without saying what type of power plant they’re planning to build. Bids are listed from cheapest to most expensive, and distribution companies select the lowest-cost proposals available until reaching their target capacity.

Among the other winners, Spain’s Acciona SA obtained contracts for 506 GWh per year, according to a company statement.

About half of the auctioned energy will be provided by existing infrastructure and the rest will require an investment of about $3 billion, Energy Minister Maximo Pacheco told a press conference today.

"Chile has the world’s highest solar radiation, 3,000 kilometers of coast and large rivers, so it has the conditions to increase renewable energy sources," Pacheco said.

(Corrects amount awarded to Endesa in story published Aug. 17.)
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