Already one of Latin America’s top markets for renewables, Chile leads the region on energy storage — and in embracing concepts that could break new ground in a global context.
Chile’s installed base of 64 megawatts and 79 megawatt-hours of storage (based on figures from BloombergNEF) is puny compared to the U.S. or China, for instance. But the country is already grappling with issues more commonly seen in much larger markets.
Chile has a long, narrow geographical footprint — the country extends 2,653 miles from north to south, but is only 217 miles wide at its broadest point. As a result, most of its renewable resources are located far from areas of high electricity demand. This heightens the need for the buffer of energy storage to support weak interconnections across the country’s southern, central and northern grids.
At the same time, the country’s ambitious decarbonization plans, which include axing 65 percent of coal generation from its energy mix by 2025, have accelerated demand for the kind of long-duration storage assets that are only just beginning to emerge in more advanced markets.
One of the country’s more eye-catching proposals is to convert coal plants to massive Carnot batteries, a type of thermal storage. This plan would see coal generation being replaced with molten salt thermal storage as the power source for steam turbines.
The concept has been in development since 2018, when Chilean consultancy Inodú carried out a study for German development agency Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) on new uses for Chile’s relatively young coal power plant fleet.
GIZ and the German Aerospace Center (Deutsches Zentrum für Luft- und Raumfahrt) have calculated that Chilean coal plant operators Engie and AES Gener could provide Carnot-battery-based energy at a cost of between $80 and $100 per megawatt-hour. That’s flirting with cost-effective pricing against the primary shorter-duration energy storage from lithium-ion batteries.
Dependent on payments for inertia
These costs are still more expensive than coal-fired power, at between $63 and $76 per megawatt-hour, or natural-gas-fired generation, at between $65 to $91, but are still low enough to “open possibilities and private-sector interest in starting tests on the ground,” local media has reported.
Vicente Javier Giorgio, chief operating officer for AES’ South American operations, which include AES Gener, said the only thing missing is a regulatory framework to reward Carnot batteries not only for energy storage but also for providing grid inertia — a key grid-balancing feature of spinning generators like coal- and gas-fired power plants.
“We want to take advantage of the coal plants we have, some of which are new, and carry on using the steam turbines, generating the steam from molten salt heated by renewable energy,” he said in an interview. “But that requires a lot of investment.”
To convert a 250-megawatt coal plant to molten salt would cost around $200 million, he said. “There needs to be an auction for assets that can provide inertia,” he said. “If I get a contract for 20 years of inertia, then I can pay off the investment.”
Developing energy storage since 2007
AES Gener is no stranger to working with Chilean regulators on the evolution of the country’s energy storage market. The company was the first to introduce lithium-ion battery storage into the country, scoping the market in 2007 and installing an initial 12 megawatts of 20-minute utility-scale battery capacity at its Norgener coal plant in northern Chile in 2009.
The battery system, provided by now-defunct vendor A123, replaced 7 megawatts of coal-fired thermal capacity that AES Gener had been obliged to set aside for primary frequency control.
This allowed AES Gener to sell the thermal capacity on Chile’s energy markets instead, at a rate of around $100 per megawatt-hour.
AES Gener repeated this trick at two other northern Chile coal plants, installing 20 megawatts of 20-minute battery capacity at the 554-megawatt Electrica Angamos plant in 2012 and a similar volume at the 531-megawatt Cochrane Power Station in 2016.
Using storage to extend hydro capacity
Still working with lithium-ion battery storage, AES Gener last year introduced a new concept to the Chilean market. Its $14 million "virtual reservoir" pilot project provided 10 megawatts with 5 hours of storage and was installed behind the meter at the company’s Alfalfal hydro plant southeast of Santiago.
The battery storage system allows AES Gener to artificially extend the 178-megawatt capacity of the hydro project, improving the profitability of the plant.
Based on the success of the pilot, AES Gener is looking to expand the Alfalfal virtual reservoir up to 40 megawatts and is pondering an installation of up to 200 megawatts of battery storage at its new Alto Maipo hydro plant, 30 miles from Santiago.
“This is a world first,” said Giorgio.
AES Gener’s projects to date make up around 97 percent of all the battery capacity in Chile, and the company is continuing to ramp up installations.
More lithium-ion projects on the way
Alongside upcoming virtual reservoir projects, AES Gener this year plans to complete the installation 112 megawatts of 5-hour storage at its 180-megawatt Andes Solar II B PV plant in Antofagasta. It will be the biggest battery project in Latin America, Giorgio said.
This will be followed by another solar-plus-storage project, Andes Solar IV, where 237 megawatts of PV will be tied to a 148-megawatt, 5-hour battery system.
Chilean regulators have been working to accommodate this growing energy storage market with the introduction of four remuneration schemes over the last decade.
The first scheme, for standalone battery systems, allows asset owners to carry out energy arbitrage and sell ancillary services. A second, for energy storage integrated with renewable energy plants, also rewards power capacity.
Third, the Chilean independent system operator or Coordinador Eléctrico Nacional can procure ancillary services from energy storage.
Energy storage for grid strengthening
And finally, Chile's energy regulator (Comisión Nacional de Energía or CNE) can pay for energy storage assets to support grid infrastructure. This last market is being targeted by Hydrostor, a Canadian compressed-air energy storage player.
But the regulation is still very much work in progress, according to Jon Norman, Hydrostor’s president.
“We were first attracted to the market about four years ago, when the regulator said, ‘We need 500 megawatts of 13-hour storage,’” Norman said in an interview. “That’s right in our bailiwick. We’ve been working our way through the regulated process since.”
Hydrostor is working on two possible grid-strengthening projects, to be located next to the Pozo Almonte and Lagunas substations on Chile’s northern grid. The company has proposed 250- and 500-megawatt projects, each with 8 hours of storage.
Market reforms could favor compressed air
“We’re like a locatable pumped hydro asset,” Norman said. “If there are fossil plants shutting down or there’s a transmission line that is going to be really expensive to replace, this is a better solution.”
The challenge for now is to get the CNE to see things this way. Progress has been slow, but Norman is upbeat about the prospects. “Storage is a really cost-effective alternative,” said Norman. “That’s what we’re working on with the regulator right now.”
He added: “There’s also a series of market reforms going on to value flexible generation and storage. This is going to be an important part of the business case going forward.”
Chile’s skinny grid infrastructure offers plenty of scope for projects such as Hydrostor’s.
The northern grid accounts for 44 percent of generation but only 35 percent of demand, while the central grid, with 33 percent of generation, has 50 percent of demand. The southern grid has 23 percent of generation and 15 percent of demand.
Flow batteries paired with hydro
This uneven distribution favors storage assets that can store generation and pass it up or down the country to where it is needed.
The flow battery maker ESS is taking advantage of this need with a project linked to run-of-river hydro and backup diesel generation in the south of the country.
“They’re spilling energy when the load is less than what the river can produce,” Hugh McDermott, ESS senior vice president of business development and sales, said in an interview.
ESS calculates that Patagonian utility Edelaysen will be able to save 12 years' worth of diesel emissions and $3 million in fuel and maintenance costs over 25 years thanks to a 300-kilowatt, 2-megawatt-hour Energy Warehouse flow battery.
These savings are three times what could be achieved with lithium-ion batteries, ESS said in a press release. Despite Covid-19-related delays, ESS hopes to commission the project before the end of the year, McDermott said.
The emerging model of energy-storage-as-a-service
“We know there are multiple...situations like that, not only with this utility,” McDermott said. “Other utilities have similar requirements or could benefit from similar applications.”
Beyond this straightforward business play, ESS is also in talks with a local partner about creating an energy-storage-as-a-service business using flow batteries.
Unlike lithium-ion units, which degrade over time, flow batteries could last for 20 years with no major servicing, McDermott said. This could allow ESS to lease its batteries out, using asset-backed financing to cover the costs of battery manufacturing.
“You can achieve potentially higher margins as an owner of that asset than you might as a developer,” he said.
Liquid air energy storage in development
Hydrostor and ESS are not the only long-duration storage players with high hopes for the Chilean market. Last October, the liquid air energy storage developer Highview Power launched a joint venture with backup power generation provider Energía Latina to co-develop gigawatt-scale projects in Latin America.
The first of these will be a $150 million 50-megawatt, 500-megawatt-hour CryoBattery project at Diego de Almagro in Chile’s Atacama Region. Construction is slated to start in 2023.
"The objective of our company is to make this innovative technology available to the market and to all actors in the electrical and mining sectors," Fernando del Sol, president of the Highview Enlasa joint venture, said in a press release.
Going forward, Chilean energy storage growth will likely be driven by private power-purchase agreements as energy offtakers seek to comply with Chile’s decarbonization agenda, said Paula Jara, a renewable energy research analyst with Wood Mackenzie.
“We’re expecting demand to increase by 2024 due to mining companies coming in,” she told Canary Media in an interview.
Another potential boost for energy storage could come in August, when Chile is scheduled to hold a once-delayed auction for low-carbon energy capacity.
While most of that capacity is expected to go to solar and wind, the auction will aim to procure some evening or nighttime capacity that may be met by pairing intermittent renewables with storage.
“In Latin America, Chile remains the key market for storage, both in terms of announcements of new, large projects [and] evolving favorable regulation,” James Ellis, head of research for Latin America at BloombergNEF, said in an email.
“We expect Chile's storage market to increase in the coming years, particularly for energy shifting, as companies announce more wind and solar projects paired with batteries,” added Natalia Castilhos Rypl, BloombergNEF South America associate.
“The country will also likely face transmission bottlenecks as large volumes of wind and solar are set to come online in the next few years, which will open up more opportunities for energy storage assets,” she said.
(Lead image credit: AES Chile)
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