With Chile planning to phase out coal-fired generation by 2040, an analysis of the country’s “four biggest generators” shows that Enel Generacion and Colbun are well-positioned due in part to their concentration on hydro and other renewables, says BNamericas.
For another company, while about 58% of Engie Energia Chile’s installed capacity is coal-based, its recently finished US$1.1 billion Infraestructura Energetica Mejillones project will help the company finance investments in renewable capacity without significantly increasing its debt, according to Fitch Ratings. The agreement to phase out coal is seen as being credit neutral for Enel and Colbun, “as both companies are well positioned to meet this challenge, with generation assets more concentrated in hydro, renewables and natural gas,” said the report.
The deal thus opens opportunities to invest in renewables for “Enel, which has already been doing it through its arm Enel Green Power,…Colbun, which already has a 45% installed capacity between hydro and renewables,…and Engie, which… will have the capacity to finance its energy transition program shifting toward more renewable energy,” Fitch Ratings analyst Jose Ramon Rio told BNamericas.
The situation of AES Gener, however, is more limited as 89% of its installed capacity in Chile is coal-based. Given development of its US$3 billion Alto Maipo hydroelectric project, which is 80% complete, the company “has limited room to execute a decarbonization strategy without affecting leverage given its current capital structure,” according to Fitch.
The two units the company will retire as part of the first section of the agreement, Ventanas I in 2022 and Ventanas II in 2024, are old and do not represent a significant cash flow loss for the company.
The agreement also leaves some room for companies in the form of a “strategic reserve” they could put their plants into. Under this scheme, generation units cannot be summoned to dispatch energy daily, but it must be available to dispatch with a 60-day notice from the regulator. “It is ultimately [grid coordinator] CEN that will determine if these plants go into a technical reserve state that will allow them to dispatch whenever the demand [requires it],” Rio said.
For example, if the drought in Chile remained, and hydroelectric generators injected below projected numbers, the regulator could call these coal-based units into operation. Units that apply and are accepted for strategic reserve will also be compensated with a payment for available capacity for five years after their retirement.
Under the coal retirement plan, announced by the government in April, the four companies will retire eight of the 28 coal plants by 2024, starting with the oldest ones. By 2040, all plants should be retired, although an exact date for the complete phase out will be negotiated between the plant owners and the government every five years.
The phase out is part of a plan to make Chile carbon neutral by 2050.