LatinFinance - May/June 2015 - 37

"Banks want good sponsors, good equipment, and reasonable project operating
assumptions," he continues. "Typically they
want the power purchase agreement to last
one to two years longer than the debt maturity." But, since most banks will not take
much, if any, merchant price risk, often the
debt maturity is much shorter than the life
of the assets, says Garland. "We would like
to see longer maturities."
Energy concerns have dogged Chile since
the early 2000s, when Argentina, emerging
from a financial crisis, cut off gas exports,
and energy prices in Chile increased as supplies dwindled. Chile became home to some
of the highest energy rates on the continent.
Since 2008, electricity prices in Chile
have fluctuated wildly between $80 MWh
and $130 MWh. Recent volatility in the spot
price market has translated to higher risk for
merchant projects as financiers find it more
difficult to forecast energy prices.
"I think the time that sponsors were
willing to finance wind and solar energy on
a merchant basis are past," says Felipe Díaz,
chief representative of Sumitomo Mitsui
Banking Corp in Chile.
Volatility could continue as the Chilean
government plans to connect its northern
and central grid systems, called the SING
and SIC, respectively, during the next few
years. "It has always been expected that the

ENAP AD.indd 1

FELIPE DÍAZ, SMBC

"I THINK THE TIME
THAT SPONSORS WERE
WILLING TO FINANCE
WIND AND SOLAR
ENERGY ON A
MERCHANT BASIS
ARE PAST"
price of energy is going to be high, but in the
last year, structural changes - such as the
plans to connect the country's two grids -
may change the dynamics of the market,"
says Díaz.
That creates more uncertainty for sponsors uncomfortable in taking the risk of
building a project without a PPA. James
Meffen, director of structured finance at
the Overseas Private Investment Corp, says
Chile also faces transmission capacity limitations in the SIC grid, which affects prices in
the spot market. "Prices can be very low in
the day time and spike at night. Better transmission would positively affect pricing."
Still, demand for renewable energy
projects remains high. In December,
renewable energy developers won almost
20% of the government's 11 gigawatt hours

of tenders for energy projects. In 2015's
first quarter, builders received contracts
to construct more than 24 solar and wind
plants, which are expected to produce
more than 1,000 MW.
The Chilean government is headed in the
right direction "to support the development
of renewable energy," says Jean-Marc Aboussouan, chief of structured and corporate
finance at the Inter-American Development
Bank. "But how much of those megawatts
will materialize into specific projects, I don't
know. We have to see how the market will
evolve to understand what merchant risk is
going to be."
The Chilean government estimated that
the mining sector's appetite for energy
would double by 2025 as the country's demand for power increases by more than 4%
a year and doubles over the next 15 years.
Although energy derived from coal has provided most of Chile's internal production,
electricity generated from renewable resources has become cheaper with improved
technology and could offer miners, with
tighter margins, a way to cut overhead.
Barrera, of SunEdison, says that declining
gas prices may give miners an incentive to
use combined-cycle plants fueled by a mix
of gas and solar power. "We think therein
lies a unique solution for the north of the
country." LF

May/June 2015 - L ATINFINA NCE.COM 37
5/5/15 9:45 AM


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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
LatinFinance - May/June 2015 - 7
LatinFinance - May/June 2015 - 8
LatinFinance - May/June 2015 - 9
LatinFinance - May/June 2015 - 10
LatinFinance - May/June 2015 - 11
LatinFinance - May/June 2015 - 12
LatinFinance - May/June 2015 - 13
LatinFinance - May/June 2015 - 14
LatinFinance - May/June 2015 - 15
LatinFinance - May/June 2015 - 16
LatinFinance - May/June 2015 - 17
LatinFinance - May/June 2015 - 18
LatinFinance - May/June 2015 - 19
LatinFinance - May/June 2015 - 20
LatinFinance - May/June 2015 - 21
LatinFinance - May/June 2015 - 22
LatinFinance - May/June 2015 - 23
LatinFinance - May/June 2015 - 24
LatinFinance - May/June 2015 - 25
LatinFinance - May/June 2015 - 26
LatinFinance - May/June 2015 - 27
LatinFinance - May/June 2015 - 28
LatinFinance - May/June 2015 - 29
LatinFinance - May/June 2015 - 30
LatinFinance - May/June 2015 - 31
LatinFinance - May/June 2015 - 32
LatinFinance - May/June 2015 - 33
LatinFinance - May/June 2015 - 34
LatinFinance - May/June 2015 - 35
LatinFinance - May/June 2015 - 36
LatinFinance - May/June 2015 - 37
LatinFinance - May/June 2015 - 38
LatinFinance - May/June 2015 - 39
LatinFinance - May/June 2015 - 40
LatinFinance - May/June 2015 - 41
LatinFinance - May/June 2015 - 42
LatinFinance - May/June 2015 - 43
LatinFinance - May/June 2015 - 44
LatinFinance - May/June 2015 - 45
LatinFinance - May/June 2015 - 46
LatinFinance - May/June 2015 - 47
LatinFinance - May/June 2015 - 48
LatinFinance - May/June 2015 - Cover3
LatinFinance - May/June 2015 - Cover4
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