Industry-government collaboration releases report on geothermal in Chile’s electricity matrix

Two weeks ago, the Geothermal Table, a joint effort by Chile’s Ministry of Energy and the entire geothermal energy industry of Chile launched its final document.

The document highlights the role geothermal energy can play in Chile’s Electricity Matrix in the future and was supported by the Center of Energy by the FCFM University of Chile, the ESMAP program of the World Bank and Fundacion Chile.

The group of the “Geothermal Table” created a process of discussion and analysis from all segments of the geothermal industry in Chile, including institutions competent public, business associations, geothermal developers, service providers of the geothermal industry, academic institutions and professional associations, under the direction of Fundación Chile with a technical oversight. In total, 41 entities were invited to participate, of which they attended 34 and an average attendance of 21 entities was recorded per session, with an average attendance of 38 people in each of the work meetings.

All the arguments discussed have been summarized in minutes prepared at the end of each workshop, which are available on the Ministry of Energy’s website together with the presentations, data and documents generated or contributed during the discussion.

The objective was to establish the state of geothermal projects in Chile, identify the gaps to become an economic alternative for the development of the sector of our country, to detect the advantages of its incorporation in the operation of the electrical system and identify possible measures to achieve greater use of this source of energy.

The main conclusions of the Geothermal Table are presented below:

• The average range of geothermal potential developed in Chile for the period 2017-2050 is estimated at around 2,100 MW, with a potential in the order of 600 MW in the period 2017-2030 and 1,500 MW for the period 2031-2050.
• The average unit CAPEX in Chile for a 20 MW geothermal plant reaches currently USD 8.8 million per MW, while for a 50 MW plant and 100 MW reaches USD 6.5 million per MW and USD 5.7 million per MW, respectively. Relevant economies of scale were identified as the size of the plant increases from 20 to 50 and 100 MW, observing that the unit cost decreases by 25%
  and 33%, respectively.
• The LCOE for a 50 MW geothermal project, of average CAPEX and a rate of 10% discount varies between 100 USD / MWh and 140 USD / MWh, while maintains in the range 85-125 USD / MWh in case of considering a discount rate out of 8%. The cost drops to 75-110 USD / MWh for the case of a second project of 50 MW located in the same geothermal field as an existing geothermal plant.
• Under the simulated conditions, geothermal energy does not significantly modify the total system costs, for the year 2037 (in 20 years). With a generator park Based on current technologies, operating costs could decrease (14.6%) and emissions of greenhouse gases (4.7%), while in the year 2047 (in 30 years), with a generator park with a greater contribution of flexibility, could increase operating costs (3.7%) and greenhouse gas emissions (0.8%).
• According to the results obtained, in the resulting matrix for the year 2037 the flexibility required by the electrical system, can be obtained with the generation park existing traditional Considering that the thermal park (especially coal) reduce its participation in the matrix, due to obsolescence, low competitiveness, public policies or private decisions, it will be necessary to replace gradually with technologies that have the capacity to contribute to operational flexibility. On the other hand, and for a near horizon, the increase in the demand of the system and the increase of the participation of renewable energies with significant time variability will generate the need to increase the levels of flexibility of the national electricity system,
  independent of the future situation of the thermal park already installed, laying a opportunity for geothermal to provide flexibility to the system.
• The CAPEX gap between the 100 MW geothermal projects for the system simulated electricity is 243 USD / kW and 63 USD / kW for the years 2037 and 2047 respectively. The gap in LCOE is 3.5 USD / MWh and 1.0 USD / MWh in the matrices resulting from the years of evaluation. The simulations of the short-term operation show that the provision of
  frequency control services by geothermal units would occur in hours with the presence of solar clipping, where the valuation of the provision of this type of resources could be rather low (high reserve surpluses for regulation of frequency resulting from an operation close to a technical minimum by the hydraulic and thermal units).

Under the assumptions considered in the scenario selected in the Geothermal Table for the simulation of the electrical system (Base scenario 1.0, see Table 1), geothermal energy could achieve a competitive condition by reaching a CAPEX around the 4,800 USD / kW installed, compared to other technologies with similar attributes, such as natural gas (LNG) and solar concentration (CSP). This, taking into account that said technologies also exhibit uncertainty, either in their cost structure (CSP) and / or availability and price of its primary input (LNG). Such level of competitiveness
can be achieved by lowering its costs through the development of the market for local industry and services, and also through possible technological or operational improvements.

Proposals for different types of measures were made to deepen their penetration. Some of the proposals made by the actors have already been implemented or are in the process of implementation, while others require a technical consensus and political. These are:

1. Modernize payment by capacity, opening the discussion regarding the mechanism of payment for power.
2. Incorporate criteria to differentiate offers with specific attributes in Tenders of Supply to Regulated Customers.
3. Include evaluation report of geothermal resources of third parties to opt to the early cancellation mechanism of the contract or extension within the term of supply in Supply Tenders to Regulated Customers.
4. Tax provisions of interest for geothermal energy.
5. Incorporation of geothermal areas as potential candidates for poles of development under the Transmission Law.
6. Search for international cooperation funds to maintain an instrument of Mitigation of Risk of Geothermal Exploration permanently.
7. Creation of an expert committee for the decarbonization of the electrical matrix.
8. Creation of a CORFO Committee dedicated exclusively to geothermal energy.
9. Prepare a Development Plan for direct uses of Geothermal Energy.
10. Develop a program to boost Andean geothermal energy.
11. Amendment of Law No. 19.657 on geothermal concessions.

The evaluations made regarding the possibilities of geothermal insertion within the expansion of the electrical system, the results obtained with respect to existing economic gaps for the development of geothermal potential in the matrix power generation in the long term, the conclusions drawn regarding the benefits and advantages of the incorporation of geothermal in the operation of the system electricity and the proposed measures to deepen its penetration are the main work products of the Geothermal Table and are presented in this document for
the weighting and evaluation in its merit by the authorities.

The results presented in this document, show an analysis based on to the best information and methodologies available to the year 2017. However, given the existing dynamism in the sector in both technical, economic, political and social networks, the detection of new conditions in the market, together with new information and knowledge, could suggest the review of the exposed results.

The document can be downloaded here (pdf, in Spanish).

During the recently concluded GEOLAC conference Gabriel Prudencio, Head of the Renewable Energy Unit of the Ministry of Energy of Chile, provided an update on the Chilean situation and highlighted that the new administration that took office in March 2018, aims to address the issues of flexibility and security of the system, which although they are issues that will be seen in ten years, today is when you have to address them. In this area, geothermal energy is seen by the new administration as also part of the solution.

ThinkGeoEnergy thanks Carlos Jorquera for his coverage of GEOLAC and the work on PiensaGeotermia.

Source: our sister publication PiensaGeotermia