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The downside of renewable ‘energy too cheap to meter’

Chile has been generating so much solar electricity that it has to give it away free.  And while this looks good for both consumers and the environment, it spells trouble ahead for Chile’s infrastructure.

As Vanessa Dezem and  Javiera Quiroga at Bloomberg report:

“Spot prices reached zero in parts of the country on 113 days through April, a number that’s on track to beat last year’s total of 192 days, according to Chile’s central grid operator. While that may be good for consumers, it’s bad news for companies that own power plants struggling to generate revenue and developers seeking financing for new facilities.”

What Chile is witnessing with solar is in essence the same problem with global oil, coal and gas – as prices fall below production costs, future investment is cancelled.  So Chile might be seen as a warning signal for other countries – including the UK – that intend switching from fossil fuels to renewables like wind and solar that require built in over-capacity because of the intermittency problem.

Interconnectors are part of the solution.  Chile has two separate power grids covering different parts of the country:

“That means one region can have too much power, driving down prices because the surplus can’t be delivered to other parts of the country.”

In Europe, the process of connecting the various national grids is well underway.  When complete, this should iron out some of the problems.  But overcapacity is likely to be a feature of any energy system that depends upon diffuse intermittent sources such as wind and solar.  This could make investment in the plant difficult to secure.

The current oil and gas industry problems suggest that the traditional methods for investing in future energy capacity may be failing.  Just as nobody is going to invest in drilling $100+ oil that cannot be sold for more than $50; so nobody is going to invest in renewable energy plant if price of the electricity it generates is too low to meter.

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