In Energy
Arthur Deakin

Arthur Deakin
Director of Energy Practice
AMI

With transmission lines at overcapacity and permitting delays slowing the development of new grid infrastructure, battery energy storage systems (BESS) have surged as a profitable alternative for Chilean power producers. Since Chilean co-located storage assets don’t require an Environmental Impact Statement (known locally as the DIA), development times for storage assets have been cut in half compared to solar or wind assets. This momentum is reflected in the data: AMI estimates that there is a 7.7 GW pipeline of BESS projects in Chile, far and away the most advanced front of the meter (FTM) storage market in Latin America.1 Only 505 MW of BESS projects are currently operational in the entire region.

Top 10 energy storage IPPs in Chile, MWh of BESS projects

Nearly 2 GWh of renewable energy was curtailed in Chile in March of 2024, with a heavy concentration in the Northern regions of Atacama and Antofagasta.2 Both regions, according to AMI estimates as of April 2024, have a BESS pipeline of 4.8 GW, 1.6 GW of which are assets already under construction or have an approved environmental license.

Upcoming capacity payment and expected BESS revenues in Chile

All Chilean energy storage players, ranging from IPPs to PCS providers, are now closely awaiting the publication of the capacity market decree (DS N 62) expected in Q2 of 2024. This decree is expected to provide capacity payments based on the duration of storage projects as seen in the table below, adding an important source of revenue for a storage market that already benefits from one of the highest energy spreads in the world. In fact, batteries charged at nearly $0/MWh during the day in the sunny, northern desert regions of Chile, sell energy at night for over $100/MWh. Although projects such as Engie’s BESS Coya are already enjoying these large spreads, this capacity payment will partially de-risk Chile’s dependence on volatile, but still profitable, merchant revenues.

BESS Revenues in Chile - Expected capacity payment based on DS N62
4 The Initial Power of a storage system will correspond to the multiplication between the Maximum Power of that system, and the percentage of Initial Power recognition, determined according to the above table.

As soon as the capacity payment decree for BESS is published, it will apply to all existing and future projects from that date onwards. New utility-scale renewable and PMGE assets in Chile (most of which are distributed solar plants smaller than 9 MW) will likely all have storage components moving forward. Since the capacity charge is a fixed amount set every four years by the CNE (Energy Commission), and it was last updated three years ago, a new price will likely be applied for 2025. Although it is practically impossible to accurately calculate long-term revenues for a BESS project, the expectation is that capacity payments will pay roughly $90KW/year ($8/KW month). This will account for an estimated 15% of stand-alone storage revenues with the remaining 85% coming from energy arbitrage. With greater clarity on revenue streams, BESS developers should be able to access lower-cost financing and retain a larger portion of their initial revenues.

Estimated percentage of BESS Revenues in the Chilean vs European markets, 2025

The anticipation of the capacity market, the high energy spreads, and the lack of an ancillary services market in Chile has led project owners to develop large projects (100MWh+) with longer-duration batteries (4–5 hours). Similar to other capacity markets, participating technologies are subject to a derating factor based on their duration, meaning longer-duration batteries will be favored due to their higher remuneration. Moreover, the lack of an ancillary services market in Chile discourages shorter duration batteries (1-2 hours) as seen in the US and Europe.

The general industry consensus is to maximize the availability of the battery and focus on 2-3 revenue streams instead of 4 to 5 (e.g., energy arbitrage, capacity payment, and frequency reserve). Fewer revenue streams allow for more accurate forecasting and better optimization of the battery, while availability can be the reason behind either a fantastic or a sub-par year. Albeit it is a different and more advanced market, Modo Analytics estimates that one BESS in ERCOT missed out on nearly 40,000/MW (20% of annual revenues) despite being available 96% of the year. BESS operators must ensure that assets are available close to 100% of the year (by working with optimization services) and are located in areas in which energy arbitrage spreads are especially attractive. This includes additional upfront investment in reliable and durable storage equipment instead of betting on cheap equipment providers that lower your initial capex.

Looking ahead: is a flattening duck curve a risk?

Few Chilean IPPs and battery storage asset owners are concerned about a flattening of the duck curve, but the addition of BESS at such a rapid pace magnifies said risk. For example, the relative oversupply of BESS, coupled with a mature ancillary services market, makes UK BESS returns much less attractive than the more volatile and less developed ERCOT market. Chile currently has 1.3 GWh of operational storage, but AMI predicts that 10.2 GWh will be added by 2026 in an optimistic scenario analysis. In a pessimistic scenario, in which projects are impacted by high financing costs, permitting delays, and unclear remuneration for BESS projects, the total operational assets will be over 5GWh, still reflective of a fivefold increase. Even this type of capacity could significantly impact future energy arbitrage spreads.

Different scenarios of installed BESS in Chile, from 2024-2026, in MWH

Next Steps

Through market intelligence, AMI helps BESS equipment manufacturers, integrators, operators and customers understand the following:

  1. Their competition (i.e., who are their key clients, how are they pricing their products, what are their sales strategies)
  2. Expected revenues and costs based on regulatory and market analysis.
  3. Most promising locations for BESS projects based on a variety of local factors (e.g., arbitrage spreads, land costs, tolling agreements)
  4. The current and future market size for both BESS projects and BESS equipment sales in Latin America
  5. Identifying the optimal local partner and entry strategy for successful BESS operations in the region

AMI has over 20 years of experience in Latin America’s energy sector and a proven track record of helping both multinationals and investors understand the changing storage market to ensure a successful venture into the region. Contact our Energy Practice at adeakin@americasmi.com or Click here to get in touch.


Sources:

  1. This includes Front of the Meter (FTM) lithium-ion storage projects that are operating, approved or have been announced in local press, government statistics, and local documents. Other types of storage technologies are not included. ↩︎
  2. ACERA ↩︎

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