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Chile seeks new investors to break power gridlock


by Tom Azzorpardi, Platts.com, May 15 ,2014

Electrical power towerThe Chilean government on Thursday launched efforts inject greater competition and new suppliers onto its energy markets to bring down high electricity prices and tackle a looming power shortage, Chilean President Michelle Bachelet said.

“We need to take urgent measures,” Bachelet said, noting that the price of electricity could rise as much as 34% over the next decade if no action was taken.

Last year, marginal costs averaged $151/MWh on the SIC grid. But the government hopes the measures it is promoting will help to reduce power prices to around $106/MWh by 2017.

A critical issue is competition, according to the government.

Three companies — ENEL-controlled Endesa Chile, US-owned AES Gener and local firm Colbun — currently account for more than 76% of installed capacity on central Chile’s SIC grid. On the northern SING grid, which supplies the bulk of the country’s copper mines, the largest three — led by GDF Suez-controlled E.CL — represents 98% of capacity.

Energy Minister Maximo Pacheco has accused leading power firms of failing to invest sufficiently to meet rising demand.

Launching her government’s energy agenda at the La Moneda government palace in Santiago, Bachelet said that the state will assume a new role in planning, regulating and managing energy supplies.

That marks a break from the hands-off approach adopted thirty years ago when Chile become the first country in the world to liberalize its electricity sector.

To encourage new companies to enter the market, the government will redesign supply contracts for regulated clients, by giving participants more time to make offers and build new capacity.

“We want new participants to enter the market, so we will redesign the rules for supply tenders,” the president said.

The government will also tender state land for the development of power projects next year and implement regulations to make idle capacity on existing LNG terminals, estimated at around 9 million cubic meters/d from next year, available to third parties.

State oil firm ENAP, which owns a stake in the Quintero LNG terminal, will also make 1.1 million cu m/year to generators over the next 10 years, sufficient to power 240 MW of installed capacity.

The government will also monitor the development of new power projects to circumvent the legal challenges which have delayed and derailed a series of major energy projects in recent years, such as Endesa’s HydroAysen hydropower complex and MPX Energy’s Castilla project, sharpening the country’s energy crisis.

Blocks will also be redesigned so that renewable energy projects, including solar power and wind farms, can compete for contracts.

To meet immediate demand, the government will design “short term products” suitable for existing power suppliers, especially through renewable technologies.

The government will also promote the linking of Chile’s two main grids, allowing idle gas-fired capacity in northern Chile to meet growing demand further south. GDF Suez has already begun work on such a line.

An energy-efficiency program will also seek to reduce future energy demand by 20% by 2025.


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