Policies favoring clean energy and increased competition
would normally dim prospects for existing producers. Not in Chile, where
foreign investors are driving a renewable boom at a time of surging returns by
local utilities.
In the year since President Michelle Bachelet took office,
Chilean companies including Enersis SA and AES Gener SA are among the best
performers in Americas energy stocks tracked by Bloomberg. In the previous 12
months, they were the worst after years of opposition to coal and hydroelectric
projects and a prolonged drought crimped earnings and sent prices soaring.
“When companies see all this competition, their first
reaction is to see a short-term problem,” Pacheco said from his Santiago
office. “But when you have clear rules of the game, when you have public policy
that promotes competition and newcomers, the incumbents start to do things
better. Competition is very good for the industry.”
Contract Bidding
Chileans’ electricity bills have risen 30 percent in five
years and could increase by another 30 percent without Bachelet’s plan
including promoting renewables since the country imports more than 90 percent
of its oil and gas, Pacheco said. Chile also needs to stem energy costs to
capture copper and gold mining investments that could top $100 billion.
Chile received 17 offers to generate power from new
projects, mainly from renewable energy companies, at 17 percent cheaper values
compared with a December 2013 bidding round, according to the government.
“We started to feel there was a huge appetite from investors,”
Pacheco said. “There is a very attractive investment climate.”
EDF, GDF Suez, Acciona and Abengoa SA won contracts in
December to supply Chile in the coming decade, providing more competition for
Endesa SA, Colbun SA and AES Gener, which together account for about two-thirds
of power generation.
Chile had a portfolio of 45 power projects as of November
2014, of which 39 percent were non-conventional clean energy projects,
ministerial data show. That’s up from a government estimate that tracked 28
power projects in March last year.
Tapping Desert
Chile ranks seventh in generating power from renewable
sources among the 35 nations from the Organization for Economic Cooperation and
Development and G7. The Chilean energy ministry says renewables including large
hydro-power plants have accounted for about 60 percent of generation in recent
years.
Enel Green Power SpA leads Chile’s renewables market with
534 megawatts of generation capacity, more than double the second-ranked
producer.
The country’s greatest potential may lie in the Atacama
Desert, where radiation levels are higher than any other part of the world,
Pacheco said.
Spain’s Abengoa is investing 1.7 billion euros ($1.82
billion) on a solar park in the desert that will combine solar thermal and
photo-voltaic technologies to provide round-the- clock power in the copper
mining north, according to the company.
“There is a level of radiation in Chile that you can’t find
anywhere else,” Ivan Araneda, general manager of Abengoa Solar Chile unit, said
by telephone last week. “So there is an efficiency that you can’t get anywhere
else, and also there is demand from mining companies that doesn’t exist in
other countries.”
Regional Integration
Chile has the two sunniest places on earth while Sudan has
the third, meaning solar energy could provide cheap energy for the mining
industry and be exported to neighboring countries as the region works on grid
integration, according to Pacheco.
“Clearly we are in a place where solar energy is a
tremendous opportunity,” Pacheco said. Chile is building 1,164 megawatts of
solar capacity as of November, a third of the total.
The country will connect 741 megawatts of solar power to the
grid this year and continue to surge in 2016 before stabilizing in 2017,
according to Lilian Alves, a Sao Paulo- based analyst at Bloomberg New Energy
Finance.
Chilean companies in the NYSE Bloomberg Americas Clean
Energy Index returned an average of 28 percent in the past year, the best
performance after Peru’s 60 percent return. U.S. companies gained 1.3 percent
in the same span. In the previous 12-month span, the three Chilean members were
the worst performers with a 6.8 percent loss. Four of the top seven performers
in Chile’s benchmark stock index in the past year were power companies.
Capital Access
“The country’s supportive policy regime, transparent
competitive electricity market, and access to capital have all put Chile ahead
of some of its Latin American neighbors,” said Adam James, a solar energy
analyst at GTM Research. “We expect that the market will grow significantly in
2015.”
Electricity producers are also benefiting by a crude and
natural-gas price plunge and local currency depreciation given their supply
contracts are tied to the dollar, Gaston Forte, an analyst at Banchile
Inversiones, said by telephone.
“The government has said that it wants to help to unblock
all projects that have all of their permits approved,” Forte said. “We haven’t
seen any signs of interventionism here. We remain positive on the sector but
you have to be selective.”
For now, the renewable surge probably won’t faze Endesa and
AES Gener as Chile needs a big increase in megawatts to keep apace with
increasing demand from mining and as the middle-class buys more electrical
appliances, Pacheco said.
Even with the new projects, Chilean households won’t see any
reduction in their power bills until the beginning of the next decade, he said.
“There hasn’t been enough investment for developing
generation and transmission,” Pacheco said. “Our number one priority is to stop
the increase in prices.”
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