Chile extends power auction deadline

Monday, September 9, 2013

Chile has delayed the first of three power auctions for long-term supply contracts with power distributors two months.

Bids will now be received until November 20 for the auction to supply 400GWh/y starting December 1, 2013 ramping up to 5,000GWh/y by end-2024.

The auction was delayed in order to make amendments to the tender process, according to a statement from the energy ministry.

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Generators will now have more time to finalize LNG supply contracts in order to switch plants burning diesel to the less expensive gas-fired option and the ministry to incorporate rules on the 20/25 renewable energy bill, which now has received congressional approval, according to local press reports.

Despite the auction's price cap (US$129/MWh) being 43.3% higher than that of the round which regulates prices today, there is concern in the industry, especially among distributors, that the tender will be declared null and void.

Generators are interested in the opportunity to secure long-term contracts with distributors but are concerned about development of their base load coal and large hydro projects which face legal battles stemming from local opposition to the projects

"Endesa has signed contracts for power generated by our existing plants. If in the future we can't build Punta Alcalde or HidroAysén and Castilla is not there, we don't know what power will be worth in the future or if we will have any or if it will have to be generated with oil [diesel]," José Venegas, Endesa Chile regional manager of energy management and marketing, told local daily La Tercera.

"If we are going to have to burn oil in plants where marginal costs are at US$250/MWh, to then sell the power at US$129/MWh, we are going to lose money and that is why the generators may refuse to do so [bid]," added Venegas.

The Endesa executive deemed that at 10% the national energy commission's energy demand growth figures are overestimated, causing the blocks in the auctions to be larger than real demand. Energy demand grows at a rate between 5% and 6% per annum in Chile, according to Venegas.