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Project Document Inter-American Development Bank Chile CTF-IDB Concentrated Solar Power Project IDB Private Sector CTF Proposal for Submission to the CTF Trust-Fund Committee PUBLIC INFORMATION DOCUMENT Chile CTF-IDB Concentrated Solar Power Project IDB Private Sector CTF Proposal for Submission to the CTF Trust-Fund Committee TABLE OF CONTENTS Chile CTF-IDB Concentrated Solar Power Project 2 Executive Summary ................................................................................................................................................ 3 List of Abbreviations ............................................................................................................................................... 4 Sector and Country Context ................................................................................................................................... 5 Power Supply and Demand in the North of Chile ................................................................................................ 5 Electricity Market Structure in Chile .................................................................................................................... 7 Renewable Energy Policy in Chile ..................................................................................................................... 10 Renewable Energy Technologies in the North of Chile ...................................................................................... 11 Global Context for Concentrated Solar Power ................................................................................................... 13 Problem and Project Description ......................................................................................................................... 15 Problem Description ........................................................................................................................................... 15 Previous and Ongoing Activities ........................................................................................................................ 16 Project Description ............................................................................................................................................. 17 Knowledge Management and Capacity Building Component ............................................................................ 18 Financial Instruments .......................................................................................................................................... 19 Additional Support .............................................................................................................................................. 20 Financing Table ..................................................................................................................................................... 20 Fit with CTF Investment Criteria ........................................................................................................................ 21 Transformational Strategy .................................................................................................................................. 21 Fit with Chile’s Investment Plan ........................................................................................................................ 22 Potential GHG Emission Reductions .................................................................................................................. 22 Cost-Effectiveness .............................................................................................................................................. 23 Demonstration Potential at Scale ........................................................................................................................ 23 Development Impact ........................................................................................................................................... 23 Implementation Potential .................................................................................................................................... 24 Additional Costs and Risk Premium ................................................................................................................... 24 Financial Sustainability....................................................................................................................................... 25 Effective Utilization of Concessional Finance .................................................................................................... 26 Mitigation of Market Distortions ........................................................................................................................ 26 Risks and Risk Mitigation................................................................................................................................... 27 Performance Indicators ....................................................................................................................................... 28 Annex I. Provisional Implementation and Supervision Budget Error! Bookmark not defined. Chile CTF-IDB Concentrated Solar Power Project p. 2 Name of Project or Program Chile CTF-IDB Concentrated Solar Power Project CTF amount requested USD 66,120,000 loan for Project loan USD 600,000 grant for IDB-executed knowledge management and technical cooperation activities USD 250,000 fees for implementation and supervision USD 30,000 fees for TA/KM component TOTAL: USD 67,000,000 Country targeted Chile Indicate if proposal is a Private Sector Project Project or Program EXECUTIVE SUMMARY 1. Chile is highly dependent on imported fossil fuels, and this dependency is exacerbated in the North, which lacks hydropower resources, and where demand is rapidly growing, driven by the expansion of the mining sector. The northern power grid (SING) has the highest greenhouse gas emission of all the major Latin American electricity grids. Due to its technological characteristics, Concentrated Solar Power (CSP) with Thermal Energy Storage (TES) bears promise as the most appropriate renewable energy technology to reduce fossil fuel dependency in this region, while contributing to the mitigation of climate change. This is why the Government of Chile (GoC) has decided that this is its top priority within the CTF Investment Plan. 2. Developing CSP in Chile presents an almost unparalleled opportunity due to several factors. Some of the highest rates of solar radiation in the world increase the potential performance of CSP technology, making it potentially much more profitable than in other areas. Demand for CSP electricity is likely to be strong because of the off-takers’ increasing projected need for power, their increased willingness to sign power purchase agreements (PPAs) for a CSP project over another renewable energy due to a relatively better technical match of CSP plants with their demand profile, and other attractive factors like corporate social responsibility concerns and energy security. Demand is further supported by a renewable portfolio standard and open grid access regulations. CSP is a proven, commercially available technology that is experiencing rapid growth worldwide, and this first project in South America would have tremendous value in terms of reducing barriers for its implementation. 3. Despite favorable conditions, a price gap remains between CSP costs and the amount that off-takers are willing to pay for renewable energy power, making short-term public support necessary. Since scale is of utmost importance due to economies of scale and other considerations, a diversity of sources of finance and other sorts of support have been convened by the GoC in order to make this Project feasible. This includes a government grant and concessional and market-based loans from other sources. The GoC is organizing a competitive tendering process to determine access to its grant, and additional sources of financing would be made available to the winner. The competitive process, combined with open access to information about the concessional resources available, will ensure efficient use of resources and minimum concessionality. 4. The support of the CTF would be paramount for the development of the first solar CSP plant in the country and in South America. It will help offset the high capital investment required by solar CSP projects and will allow the Project to sign a long-term, fixed-price PPA with an off-taker at a competitive price. Complementary technical assistance and knowledge management activities will support financial sustainability and scaling up through facilitating learning in the market. Chile CTF-IDB Concentrated Solar Power Project p. 3 LIST OF ABBREVIATIONS a year IRR internal rate of return AChEE Agencia Chilena de Eficiencia ISE Fraunhofer Institute for Solar Energy Energética (Chilean Energy Efficiency Systems Agency) KfW Kreditanstalt für Wiederaufbau (German BIPV building-integrated PV development bank) BNEF Bloomberg New Energy Finance KM knowledge management CAPEX capital expenditure LAC Latin America and the Caribbean CCGT combined cycle gas turbine LCOE levelized cost of energy CDEC Centro de Despacho Económico de LFI local financial institutions Carga (Center for Economic Load LNG liquefied natural gas Dispatch) LSPVP large-scale photo-voltaic program CDM Clean Development Mechanism M million CNE Comisión Nacional de Energía (National MDBs multilateral development banks Energy Commission) MENA Middle East
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