LatinFinance - May/June 2015 - 36

CHILE
INFRASTRUCTURE

As the price of commodities falls, copper miners are shying away from
power purchase agreements. That's putting strain on renewable energy producers
looking to build projects with merchant financing. By Patrick Ferguson

In search of buyers

36 L ATINFINA NCE.COM - May/June 2015

Life goes on...for some
Pattern Energy is one of the luckier developers. In September, the company signed
a 22-year PPA for its 104 MW Conejo Solar
power plant in the Atacama Desert, also
with Antofagasta Minerals. Under the agreement, Conejo will sell 70% of its power to
the Los Pelambres mine.
"Lower gas prices have driven down the
price of power in the short run," says Mike
Garland, chief executive of Pattern Energy.
But, looking at the price of power over the
long term, "renewables are the cheapest
power source".
RIGHT CONDITIONS: Solar
panels in Chile's Atacama Desert

©REUTERS

S

unEdison is laying out more than a hundred thousand solar panels on the floor
of one of the driest places on earth, the Atacama Desert in northern Chile. SunEdison plans
to connect the 69.5-megawatt (MW) solar power plant, called Javiera, to Chile's central grid
system in the next couple of months. The plant will supply power to the Los Pelambres copper mine.
Last year, Chile installed more renewable energy projects than any other country in Latin
America and is on schedule to repeat the feat this year. Two years ago, the government began
a push to expand the country's renewable energy capacity to meet long-term environmental
goals, boost energy supply, and reduce costs to businesses and individuals. The government
plans to generate 20% of its energy with renewables by 2025.
"Investment in renewable energy in Chile has been fairly solid in recent years," says Ignacio
Moreno, undersecretary of mining in Chile. "Several significant companies have wind farms
or solar plants, which today are taking important steps inside the energy grid. Ten years ago,
this type of energy didn't exist."
SunEdison, which calls itself "the world's largest renewable energy development company", financed the Javiera plant through $130 million of non-recourse debt from BBVA and
CorpBanca, making it the first financing for a solar project in Chile provided only by commercial banks.
One of the elements that made the deal so attractive to the banks was the off-take agreement. The plant came with a 20-year power purchase agreement (PPA) with the country's
largest private mining company, Antofagasta Minerals, owner of the Los Pelambres mine.
But PPAs to finance renewable energy projects are becoming increasingly hard to come
by in Chile, says Carlos Barrera, vice-president and general director of SunEdison in Latin
America. Interest has waned as the country's mining companies, which consume half of
Chile's energy, reel from low commodity prices, he says. "A
lot of the companies that were spearheading these investments have put some projects on hold. They want to make
sure the pricing of commodities is high enough before they
restart investments," says Barrera.
Chile, the world's largest copper producer, saw its
economy grow last year by just 1.8%, the smallest increase in
five years, largely a result of weakening commodity prices
- copper prices hit a six-year low in April. Commodities
accounted for nearly half of the country's exports in 2014.
A lack of PPAs is making it harder for renewable developers to fund projects. Banks are reluctant to finance without
PPAs because volatile energy prices could send consumers
to the spot market, where they would forego energy from
the newer renewable sources.
"I think renewable energy projects will still be here next
year, but the main concern is access to the PPAs," says Gon-

zalo Ruiz de Angulo Gomez, BBVA's head of
energy project finance in Latin America. "If
delays in mining expansions continue, they
won't need as much power, so that affects
the number of PPAs.
"It's going to have a strong impact for
sure, at least from an international bank
perspective. Bankers aren't that willing to
consider pure merchant financing." Local
banks, meanwhile, are deterred by lower
spot prices on Chile's central power grid,
the SIC, Ruiz says.


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LatinFinance - May/June 2015

Table of Contents for the Digital Edition of LatinFinance - May/June 2015

Contents
LatinFinance - May/June 2015 - Cover1
LatinFinance - May/June 2015 - Cover2
LatinFinance - May/June 2015 - Contents
LatinFinance - May/June 2015 - 2
LatinFinance - May/June 2015 - 3
LatinFinance - May/June 2015 - 4
LatinFinance - May/June 2015 - 5
LatinFinance - May/June 2015 - 6
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