Aurora Energy Research Launches Chile Flexible Energy Report Highlighting BESS Profitability Risks

Aurora Energy Research has released its inaugural Chile Flexible Energy Market Outlook report, revealing that the Internal Rate of Return (IRR) for battery energy storage systems (BESS) can fluctuate by up to five percentage points based on varying market scenarios. The study emphasizes that while high battery penetration may compress spreads, factors such as dry hydrology and participation in ancillary services can significantly bolster project revenues. As Chile transitions from a capacity-building phase to one focused on operational optimization, the report underscores the necessity of sophisticated risk assessment for the nearly 9 GW of operational and planned storage assets.

Aurora Energy Research’s new report provides a comprehensive economic analysis of the Chilean BESS market, forecasting revenues through 2060 by incorporating energy arbitrage, capacity payments, and ancillary services. The analysis indicates that project IRRs are highly sensitive to market conditions, potentially swinging from a four-percentage-point decrease to a one-percentage-point increase compared to base-case expectations. The research highlights that specific geographic nodes, such as Cardones, currently offer some of the strongest investment returns. However, the report warns that increased battery penetration across the grid could lead to compressed price spreads, thereby reducing overall project returns and reinforcing the need for developers to incorporate sensitivity analyses into their financial evaluations.

A critical finding of the report is the impact of operational dispatch on revenue, noting that differences between theoretical models and actual dispatch by the System Operator can diminish arbitrage earnings. To mitigate this, Aurora identifies ancillary services as a vital revenue stream, estimating that failure to participate in these markets could result in a loss of up to 11% of total revenue. Early market entrants are expected to capture the most significant opportunities in ancillary services before the market reaches saturation. The report suggests that while arbitrage remains a core component of the business model, the ability to recover revenue through these secondary services is essential for maintaining project viability against the backdrop of a rapidly evolving grid.

Chile is currently at a turning point in its energy storage journey, with over 2 GW of batteries already operational and a pipeline of nearly 7 GW under construction. Aurora notes that the market is evolving from a focus on sheer capacity installation to a phase where profitability depends on operational optimization and sophisticated risk management. Environmental factors like dry hydrology are also noted as potential boons for BESS projects, as they increase price volatility and create favorable conditions for storage systems. Ultimately, the report serves as a guide for navigating a complex landscape where variables like battery over-installation, hydrology, and system operator behavior will dictate the long-term success of storage investments in the region.