SAN PEDRO DE ATACAMA PROJECT

Studied by Valerio Matrone

1.Company introduction
Enel Green Power is an italian multinational company, which was founded to
concentrate the activities of Enel about renewable energy. It has a 2,966 mld € (
3,559 mld $) turnover.

2. Description of the project.

The project consists in a 70 MW PV plant in the Atacama desert, in the area
between the San Pedro de Atacama Airport and the city center, producing 189 GWh
per year, that corresponds to the yearly consumption of around 87’000 Chilean
families. It will occupy a 700’000 mq surface.
The total investment cost (TIC) is 86 M USD, in which the major cost is represented
by the acquisition of the hardware of the Energy system (modules, inverter,
cablings, etc.). The investment costs will be further detailed in Chapter 5.

Due to the high availability of free land (since we are in a desert), thin film solar
panels have been used. The PV array is composed by 500’000 140 W thin film solar
panels which have been furnished by 3-SUN, an Italian company owned by Enel
Green Power.
The project has been financed by the Business Finance model, considering 70% of
the funds granted by the bank and 30% of the funds granted by a joint cooperation
between Enel Green Power, the National Economic Development Agency CORFO6
and the German Development Bank, who have already experience in investing in
Chilean renewable energy market.

3. Description of the Site

Chile is 4 300 km long and, on average, 175 km wide, and has a total surface area of
757 000 square kilometres , Its length and diverse topography provide for a varied
climate, which ranges from the world’s driest desert – the Atacama Desert – in the
north, to a Mediterranean climate in the centre to a snow-prone Alpine climate in
the south, with glaciers, fjords and lakes.

The energy plant will take place in the Atacama desert. Atacama Desert is the area
with the highest solar radiation in the world (around 2800 equivalent hours per
year). It is also the driest non polar area in the world, due to the presence of the
Humboldt ocean current and the presence of the Andean Mountains in the East,
that creates a high pressure region on the desert.

Daily Solar radiation profile in January [W/mq]

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[Daily solar radiation profile in January]

Monthly average Solar radiation in a year [W/mq]

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[Monthly average solar radiation in a year]

Because of the hostile climate of the region the main city centers (like Antofagasta,
Iquique and Caldera) are located near the sea. The main economic activity of the
region is mining, due to the high presence of metallic mineral resources such as
copper, gold, silver and iron. San Pedro de Atacama is the main access to the desert
and it represents a popular touristic destination.
4. Energy market
4.1- Energy Background
Chile’s economy has grown considerably in the past decade. From 2006 to 2016 the
GDP increased by a 4,65% rate per year, despite a 1,7% fall in 2009 due to the global
economic crisis. Chilean economy is export driven, especially copper export (Chile is
the largest exporter in the world). However, due to the reduction of copper prices,
the importance of its export is decreasing (from 14,7% to 7,3% of the GDP), to the
benefit of Services’ relevance.
From the energy point of view, Chile largely depends on imports, since its domestic
energy production is only about one-third (34,7% in 2016) of the total primary
energy supply (TPES)1. Due to the small domestic production of fossil fuels, the
majority is imported.
hydro solar wind
4,5% 0,7% 0.5%

biofules
21%
coal
41%

gas
11,7%

oil
20,5%
coal oil gas biofules hydro wind solar

[Energy resources distribution in the TPES]

Fossil fuels accounted for the 73,2% of the TPES in 2016 (41,1% Oil, 20,5%Coal,
11,7% Natural Gas), from 2006 to 2016 the total contribution of fossil fuels
remained unchanged, while coal overtook natural gas as second most important
fossil fuel.

1
TPES is made up of production + imports – exports – international marine and aviation bunkers ± stock changes. This
equals the total supply of energy that is consumed domestically, either in transformation (e.g. power generation and
refining) or in final use [Energy Policy Beyond IEA Countries-IEA]..
4.2- Renewable energies in Chile
Renewable energies represent the remaining 26,8% of the total, however 21% of
the total TPES is represented by biofuels, while just 4,5% by hydro power, 0,5% by
wind power and 0,7% by solar power.
Biofuels (including solid biomass, such as wood pellets, wood chips and straw and
biogas) is the largest renewable-energy source and the second-largest energy source
after oil in Chile, accounting for over 20% of TPES. The large share of biofuels in TPES
results from the extensive use of firewood as a fuel for residential heating and
cooking, especially in south-central Chile, and from the burning of by-product waste
wood to generate electricity and heat in power plants and the pulp and paper
industry.
Hydro power, being at 4,5%, it is the second renewable energy source, and its
contribution to the TPES has been stable in the last decade.
Wind and solar power capacity installation has started recently, so the actual
installed capacity is still low. However the installed capacity it’s rapidly increasing
due to the high resource potential of the country2.
In particular solar resources are stronger in the North of the country, while wind
resources are stronger in the South. However, the best solar and wind resources are
located away from the load centre (which are placed in the area around Santiago, in
the center of the country, that makes deployment in these areas more difficult.
However, in November 2017 a new transmission lines that links SIC (Sistema
Interconnectado Central), that connects the area around Santiago, and SING
(Sistema Interconnectado de Norte Grande), that connects the Northern Area of the
country, has been realized. That allows to integrate the solar power production
plants in the North of the country directly with the main loads. That encourages
realization of new solar plants in the region, obstructing the congestion of the line.
4.3- Energy Policy and Market
The Ministry of Energy has the responsibility to elaborate, co-ordinate and
implement national energy policy. It realizes so coordinating several other
organizations in the Energy Sector. The most important ones are the CNE (Comisión
Nacional de Energía), that is a technical organisation with the responsibity to
analyse prices, tariffs and technical norms with which energy production,

2
In a 2014 joint study by the Ministry of Energy and the German Agency for International Co-operation (GIZ) (Ministry
of Energy/GIZ, 2014), solar photovoltaic (PV) potential was estimated at 1 263 gigawatts (GW), concentrated solar
power (CSP) at 548 GW and wind power at 37 GW [Energy Policy Beyond IEA Countries-IEA].
generation, transport and distribution companies must comply, and the National
Electricity Co-ordinator, that is responsible for the co-ordination of the short-term
operation of the National Power System.
Chilean energy policy aims to reach medium term (2030) and long term (2050) goals
in energy production and energy efficiency. In particular:
Goals to 2030:
-Being in the top 5 lowest electricity prices in OECD
-Generating 60% of electricity in Chile
-Reduce GHG emissions by 30%;
Goals to 2050:
- Being in the top 3 lowest electricity prices in OECD
-Generating 70% of electricity in Chile
-Reduce GHG emission consistently with the OECD tresholds.
In order to do so the Ministry of Energy promotes site and technology studies for
renewable energies. However it doesn’t emit incentives, since the production of
renewable energy, comparing to fossil fuels, is already competitive. This happens
due to the high renewable resources availability and the necessity to import fossil
fuels.

[Principal Energy Goals in 2030 and in 2050]

It is now appropriate to analyze how the energy market in Chile works from a
generator point of view.
In Chile, producers can choose to sell energy to:
-Private costumers, by a private PPA (Power Purchase Agreement)
-Distribution System, by a public PPA that is signed by several auctions during the
year.
-The spot market, in which the electricity price changes following a System Marginal
Price model, in addition to the Capacity Payment.
In our case a public 20-years Power Purchase Agreement has been chosen for
security reasons. Selling electricity to a private costumer would ensure a fixed price,
but it is not a suitable contract for a PV system, since the costumer will use the
energy in periods when our plant cannot provide it due to environmental conditions.
On the other hand, selling energy on the spot market may provide an higher
revenue, but prices will fluctuate in time, and introduce a risk factor that is hard to
handle for a PV plant.

5.Investment Costs
The total investment costs is equal to 86 M USD (1236,2 USD/kW). This can be
divided into hardware, installation costs and soft costs3.
Category Subcategory Chile
Module 404,2 USD/kW
Inverter 85,4 USD/kW
Cabling / wiring 43,4 USD/kW
Grid connection 69,4 USD/kW
Hardware
Monitoring and control 21,3 USD/kW
Racking and
79,2
mounting USD/kW
Safety and security 21,6 USD/kW
Electrical installation 62,9 USD/kW
Inspection 8,5 USD/kW
Installation
Mechanical
168,3
installation USD/kW
Customer acquisition 24,6 USD/kW
Margin 134,7 USD/kW
Soft costs Permitting 37,9 USD/kW
System design 74,8 USD/kW

3
All the data, apart from PV module costs, have been taken from IRENA Renewable Cost Database.
As it can be seen from the pie chart below, hardware costs represent the majority of
the investment costs. Installation costs have still a consistent influence on the TIC,
due to the young age of the renewable energy market, that causes a still low
competitiveness between installation companies.

Soft costs
22%

Hardware
Installation 59%
19%

Hardware Installation Soft costs

[Pie chart representing TIC].

The financial parameters adopted are 70/30 as debt/equity ratio, a debt cost of 6%,
an equity cost of 12% and a 25% tax rate4. The lifetime of the project has been set as
equal to the duration of the PPA contract (20 years) As O&M cost 2% of the TIC has
been considered. Interesting Financial parameters are reported in the tables below.

EBITDA
WACC 0,0675 147 USD/kW
alfa WACC 0,092566696 NPV 32,57182793 USD/kW

LRMC 40,86720431 alfa IRR 0,284648678

IRR 0,28
LRMC + O&M 41,6845484
DSCR 1,948505024

PPA price[USD/MWh] alfa kd 0,087184557

52,5
pbt 8,409319728 years

The plant will have a capacity factor of 2700 hours equivalent, producing 189 GWh
from a 70 MW power plant. PPA price has been set to have a convenient and

4
From the “Reforma Tributaria” of 6/02/2016
bankable investment also in the worst case scenario (which will be described in
Chapter 6). The IRR results being much higher than the WACC and the DSCR is higher
than 1,3; that is set as a threshold for bankable investments for solar plants. The
Payback time is around 8 years, that is acceptable for energy system investments.
The PPA price can be considered competitive on the Chilean market, as it can be
seen from the table below, reporting the Auction winning price in the last auctions,
collected by CNE(the offers are in USD/MWh to prevent the Chilean inflation).

FECHA PRECIO SUBASTA

FIJACION ($/MWh) VAR $ (%)
INDEX A MAY-2016 59,71 -11,70%
INDEX A NOV-2016 59,49 -0,40%
ABRIL 2017 58,77 -1,20%
INDEX A SEP-2017 54,49 -7,30%
OCTUBRE 2017 54,22 -0,50%
INDEX A OCT-2017 54,83 1,10%
INDEX A ABR-2018 54,83 0,00%

The PPA price presented is lower than the one that won the auction in April 2018.
In the graph below is represented the yearly revenue for the case presented (that is
our Best Case Scenario).

Yearly Revenue
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6.Risk Analysis
There may be several risks associated to the project. At first, the variation of the
investment costs due to delays or problems during the construction of the plant.
This risk will be prevented by hiring an EPC contractor, which will construct the plant
“turn-key”, assuming all the price variation risks. Since there is no investment
program released by the government, there is no risk of failure of the investment
plan, and by signing a PPA contract we ensure a constant revenue, which will not
vary with the electricity price (that is programmed to be lower in the next years by
the government). Since we are dealing with a non-programmable energy source,
there are risks associated with the energy production. These are taken into account
in the Worst Case Scenario by considering a Capacity Factor of 2500 equivalent
hours. That is quite a conservative hypothesis, since we are dealing with the highest
solar irradiation region in the world, and we are considering a capacity factor that is
slightly above the world average (2400 equivalent hours).
These are the financial parameters in the Worst Case Scenario:

EBITDA 131,25 USD/kW

NPV 16,82183 USD/kW
alfa IRR 0,147008
IRR 0,135
DSCR 1,739737
alfa kd 0,087185
pbt 9,418438 years
Even in the Worst Case scenario the IRR is higher than IRR (which is 6,75%) and the
DSCR is higher than 1,3 treshold for solar plants. Payback time is equal to 9,41 years.
In the graph below the yearly revenue for the Worst Case Scenario is reported.
Worst case
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7. Conclusion
The Chilean renewable energy market is expanding rapidly. The investment of the
Government in improving the grid transmission system will make more and more
convenient to install new renewable energy sources in one of the area with highest
renewable energy potential in the world. The connection between SIC and SING
encouraged Enel Green Power to increase its influence in the Chilean (and South
American) Energy Market.
The San Pedro de Atacama Project will help the country to reach the energy self
sufficiency more rapidly, according to the 2030 and 2050 goals and it will help
reducing the global GHG emissions. The high renewable energy potential and the
high dependency of the country from energy import makes Chile one of the most
interesting opportunities from entrepreneurs who want to invest in renewable
energies.