The Chilean Energy Policy establishes that by the year 2050, 70% of its energy should come from renewable sources to reduce dependence on energy imports and to reduce emissions of greenhouse gases. Agricultural residues may contribute to producing energy from a local renewable source. The present study evaluates the economic viability of operating power plants with agricultural residue from cereal crops in southern Chile. To achieve the aim of the study, Geographic Information Systems (GIS) and discrete location models were used to identify the optimal location for a power plant based on the distance to the power grid and the access cost to biomass. The best location for a power plant with a capacity of 50 MWe was 11 km from the Victoria electric substation, with a demand of cereal straw of 293,600 t/yr. Additionally, the Levelized Cost of Electricity for a 50 MWe agricultural residue-based power plant was $77/MWh, which was greater than the average marginal cost of electricity at point-of-connection. Moreover, the results show that it is not cost-effective to generate electricity from agricultural residues, unless the cost of straw is below $12.13/t. Finally, sensitivity analysis showed the net present value is very sensitive to the marginal cost of electricity from the power grid and biomass costs.