“Renewable energy companies… need to have the capacity to commercialize the energy” – Carlos Finat of ACERA on renewables and mining in Chile
Carlos Finat, Executive Director of the Chilean Association of Renewable Energy (ACERA), talks to Milk the Sun about the growing potential of renewable energies in the context of mining operations in Chile and goes deep into the challenges and opportunities in this vibrant market.
Milk the Sun: The conference, “Renewables and Mining Summit and Exhibition”, which took place in Santiago last month, was a great opportunity for the most important actors from the renewable energy and mining industries to meet and interface. Having had the unique experience of working in both the mining sector and the renewable energy sector in Chile, how would you characterize the results of the conference?
Carlos Finat: The mining and renewable energy conference was not the first that has taken place in Santiago on this topic. In recent years, there have been a great many such conferences. Of course, this is the most recent and achieved very high attendance. There were many participants representing investors and project developers, as well as participants from the mining industry. From what I observed, the mining companies showed great interest. I think all of the largest mining companies were in attendance and, of course, there was interest on the part of project developers that are in a position to offer contracts.
There was discussion about what gaps exist and what is necessary to fill or close them in order to facilitate drawing up renewable energy supply contracts with mining companies. It must be noted that today there are very important mining companies that already have PPA contracts with renewable energy companies, for example, Collahuasi, Antofagasta Minerals and CAP. In think that, in this sense, it was very positive.
MtS: The topic of PPAs has been a complicated one between renewable energy and mining companies. With the uncertainty of commodity prices and the mines´ aversion so signing long-term energy supply contracts, developers have a tough time securing financing. Is there a solution to this impasse?
CF: One has to look at this from the point of view of the renewable energies industry as well as the point of view of the mining industry. On the one hand, renewable and non-conventional energy companies wish to secure contracts to simply sell energy without the obligation to supply on a 24-hour basis. This is one extreme. On the other hand, the mining companies would like the generating companies to be able to offer supply contracts on a 24-hour basis. One can accept both postions. Let me give you an example. On the part of the renewable energy companies, they can improve their generation profile throughout the day by integrating, for example, wind generation and solar generation. On the other side, the mining companies, given that today that non-conventional/renewable energy is cheaper than conventional energy, are perfectly able to establish terms of bidding in a way that allows them to reap the advantages of contracts with conventional generators and the advantages of contracts with renewable generators. For example, a mining company wishing to incorporate – I´ll just throw out a random figure – 30% non-conventional, renewable energy into its supply mix could utilize a conventional generator with whom it already has a contract that allows it to change its demand to accommodate the 30% renewables contract. Of course, if you has a gas contract in your hands, today that can mean [US] $120 per megawatt-hour and a contract with solar or wind could be $85 per megawatt-hour. The combined result of these contracts will be cheaper than just gas.
But this requires a change of mentality on the part of the mining sector with respect to the “one-stop shopping” that were able to do before with a single generator. This is no longer valid. It is now preferable to negotiate with several providers and, in this way, keep electricity supply costs down.
MtS: Has a change of mentality also been necessary on the part of renewable energy companies and other involved actors?
CF: Yes, of course. I have not the slightest doubt that this is happening and not only in the mining industry. There was a tender that awarded supply contracts with distribution companies last year. In some cases, renewable/non-conventional energy companies participated in 24-hour electricity supply blocks.
There´s a study that we did with an external consultant that describes the results of the allocation. One of the more important results was that the average weighted price of the bids backed by renewable energy were $8 less than the same average weighted price of the contracts backed by conventional sources. And considering the volumen of energy, this means that in the next 15 years the final energy consumer will save $360 million.
MtS: Are there other creative or innovative ways in which a company can design a PPA to make it more attractive to mining companies?
CF: There are different modalities. Renewable/non-conventional generators could offer consumers a supply contract with an agreed price when the renewable plant is generating, when there´s sun, for instance, and another price, the marginal price of the electricity plus a commercialization fee, outside of these hours. In this way, a renewable energy company would be perfectly able to offer a contract on a 24-hour basis, especially at this point in time in which the marginal costs are relatively low.
One issue that I think is fundamental for renewable energy companies that come to Chile is that they need to have the capacity to commercialize the energy. There is the possibility to go to the spot market, but the spot market price is very volatile and therefore it is very difficult to finance a contract and finance a project. But the opportunity lies in the commercial market, the market of the end customer. They need competitive prices. Renewable energy can offer it to them and one has to be innovative with the commercialization format, for which flexibility both on the side of the buyer and the seller is required.
MtS: There are plants that are successfully selling in the spot market. What are the prospects for this segment of the market in coming years?
CF: The structure and design of the Chilean market is a design based on supply contracts. Therefore, I tend to think that the principal development of non-conventional projects will be through contracts, not through sale on the spot market. I must mention the following. Some companies may decide to enter the spot initially, but once the plant is running, they begin to look for contracts since they have the possibility of transmitting energy immediately.
MtS: The Chilean government is under a lot of pressure to assure the supply of electricity for the mining industry. Were there any new developments at the conference with respect to the role of the government in this issue?
CF: There is now a document called the “Energy Agenda”. The Energy Agenda was created by the current minister [Energy Minister Máximo Pacheco]. It was the first thing he did when he became minister. In this agenda, for the first time in Chile, an administration has declared in broad as well as detailed terms, a comprehensive energy policy for the country. One of the things that it indicates is that the government will take on an important role in the decisions of the energy sector. The government has the obligation to look after the wellbeing of the public. This cannot be delegated to the market. This must be done by the government. Therefore, there has been an advancement, with which we are aligned, with respect to the matters in which the government makes decisions that can affect the market in some way.
One example of this was the modification of the terms electricity supply tenders that was carried out last month on behalf of distribution companies, which allowed non-conventional energies the opportunity to participate in the tenders by eliminating certain risks that would have prevented their participation. This is an issue that is addressed in the Energy Agenda and I would say that this is not a new position. It is not a new position in the respect that the government takes a more active role in the planning and development of the sector. This is an initiative that we value greatly and it was launched by this administration [of President Michelle Bachelet]; before, it was up to the market to allocate the resources.
MtS: Mr. Finat, thank you so much for your time. We really appreciate it.
Carlos Finat Díaz, Executive Director of ACERA, started as an electrical engineer from the University of Chile. He has extensive professional experience developed in the energy, mining, information technology, defense and automation industries.
Finat has solid experience in electricity sector regulation, regulatory and operational framework of the CDEC, power supply tenders, negotiation of power and LNG contracts, and GHG emissions and energy management, among others.
In 1999 he was appointed Director of Operations and Wheeling at the Independent System Operator of Northern Chile interconnected system (CDEC-SING). In late 2008 he joined Compañía Minera Doña Inés de Collahuasi where he served as Strategic Supply Manager, VP (I) Administration and Services and Energy Manager.
Simultaneously, he joined the Board of the CDEC-SING, where he represented the large customers, and also was elected as his Chairman for the period 2011-2012
In September 2012 he left Collahuasi to join ACERA AG as its Executive Director.