IEEE Power & Energy Magazine - January/February 2021 - 80

India and China have also curtailed renewable generation due to transmission issues.
✔✔ Correlation to commodity prices: Electricity spot prices
are heavily affected by commodity price fluctuations.
When investing in a high oil price cycle, one should consider the possible effects of a future decline in oil prices.
✔✔ Technological disruption: Early investors in RE have
faced " first-mover disadvantage. " The collapse in renewable capital costs has also affected feed-in-tariff
schemes in Europe, with many being renegotiated. In
all of its new merchant investments, IFC runs a technological disruption scenario. When IFC invested in
Chile's first solar projects, the investment cost of PV
solar was at US$2,200/kW. Today, PV solar projects
can be built for fewer than US$1,000/kW.
✔✔ PPAs are not necessarily the best solution for all
problems: In a multinodal market hampered by transmission constraints, PPAs are not necessarily a better
alternative than merchant projects for investors and
lenders alike, given the potential for negative contract
margins due to transmission constraints. Furthermore, technological disruption is making first-mover
PPAs unsustainable for both the producer and offtaker, and those PPAs are quickly becoming out of

market, which poses long-term problems for 15-20year contracts.
✔✔ Capacity payments: IFC's past success in merchant
plant finance, in Chile, was mainly due to the existence
of capacity payments. It was the capacity payments
that made those projects bankable. (In some of IFC's
merchant investments in Chile, close to 30-40% of the
revenue came from capacity payments. These capacity
payments were guaranteed since they were regulated
payments.) With technology disrupting the power sector, capacity payments are at risk, especially for VRE,
since they are meant to remunerate plants that provide firm capacity at critical hours only, and as more
solar power penetrates the systems, the critical hours
keep shifting to the night. A lack of capacity payments
means that the structuring approach to merchant plant
financing needs to be re-evaluated and refined.

Focus on Asia: The Need for
Transition and Exit Strategies
Global coal capacity stands today at just more than 2,000 GW.
Almost 70% of this capacity is in Asia, with 1,000 GW in
China, 205 GW in India, and another 200 GW in the rest
of Asia. There are other significant coal-dominated systems,

Week of 13-19 June 2016
Marginal Cost Evolution
Zero Marginal Cost

Pan de
Azúcar
Azú

150

100

Charrúa
US$ 118/MWh

Puerto Montt
US$ 141/MWh

Monday

Santiags
Sa

Tuesday Wednesday Thursday
(a)

Friday

Saturday

Sunday

Saturday

Sunday

Week of 16-22 Sept. 2019
150

100

(US$/MWh)

Crucero
US$ 38.6/MWh
Diego de Almagro
US$ 37.9/MWh
Pan de Azúcar
US$ 39.6/MWh
Alto Jahuel
US$ 40.7/MWh
Charrúa
US$ 39.2/MWh
Puerto Montt
US$ 39.8/MWh

(US$/MWh)

Charrúa
Char
Puerto
o
Monttt

Pan de Azúcar
US$ 90/MWh
Alto Jahuel
US$ 120/MWh

Diego
go de
Almagro
magro
o

Alto
o
Jahuel
el

Diego de Almagro
US$ 58/MWh
(US$/MWh)

Crucero
Cru

200

0
Monday

Tuesday Wednesday Thursday

Friday

(b)

figure 4. Average weekly nodal prices (a) before and (b) after line commissioning. (Source: Antuko Energy.)
80

ieee power & energy magazine

january/february 2021

IEEE Power & Energy Magazine - January/February 2021

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - January/February 2021