SunPower will gain revenue by selling electricity generated on the spot market and not through government subsidies
Developing a solar power project has reached a new chapter following the announcement of a 70MW photovoltaic (PV) plant to be constructed in Chile.
French oil and gas company Total S.A. and solar power company Etrion will build Project Salvador in the Atacama region which will be the world’s first solar installation to make money from selling the electricity without needing government subsidies to prop it up.
What makes the spot market attractive according to Deutsche Bank in Chile in particular is because its electricity market is characterised by high prices, especially across the two grids most attractive to solar; the central and northern grids.
“Project Salvador is an important step in the process of transforming the capabilities of solar power in the world. This merchant project confirms that solar energy is becoming competitive with other conventional energy sources,” said Philippe Boisseau, president of marketing and services and new energies at Total.
He continued, “Solar power is a compelling proposition in Chile due to the amount of solar irradiation received every day in the region. Combined with Chile’s high electricity prices, large energy demand and low construction costs, solar can compete with traditional sources of electricity in Chile without government subsidies.”
Project Salvador, to be built by Total’s affiliate, SunPower, is expected to start construction during the fourth quarter of 2013, and to be operational by the first quarter of 2015 at the latest.
Once operational, Project Salvador is expected to produce approximately 200GWh of solar electricity per year, enough to supply electricity to approximately 60,000 people in Chile.
Market research company IHS recently placed Chile among the four largest emerging markets for solar with a 2.2GW installed capacity, beaten only by South Africa which has 2.5GW.
Josefin Berg, senior analyst at IHS told RTCC that working from spot market prices is “a completely different kind of risk than if you’re working on a subsidy scheme,” but she insists that “projects like this they can be viable under the current spot prices.”
She cautioned that the more solar that is added to the grid could result in electricity prices falling and therefore offer a lower rate of return.
“But if you’re the first one to install then it can actually be a viable solution.”
Berg said selling electricity on the spot market is as risky as other fuels, but she is not aware yet of a threshold for renewable energy by when it stops becoming profitable.
“It is an interesting experiment – I think there are many that are watching to see how this will turn out.”