Chile's electric power future uncertain following HidroAysén rejection

Wednesday, June 11, 2014

The Chilean government finally made a decision in the HidroAysén debate on Tuesday, with a committee of ministers voting unanimously to kill the 2.75GW mega-dam project, mainly due to environmental complaints.

But questions about how the country will meet its energy shortfalls in the face of growing demand and relentless drought, and about the project's drawn-out evaluation process, remained without a definitive answer.

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HidroAysén "was under environmental review for six years just to get rejected," economist Susana Jiménez told BNamericas.

"So it's difficult to imagine in the short term that any [hydro] initiatives of importance will emerge."

HidroAysén's capacity would have equaled approximately 20% of that currently installed on Chile's central SIC grid.

Jiménez said it's "very probable" that the void left by HidroAysén will have to be filled largely by thermo projects, with gas as the leading candidate as the country continues to develop LNG import capacity.

Presented in 2007, the US$3.5bn, five-dam project received environmental approval in 2011 from then-president Sebastián Piñera's administration.

But subsequent complaints halted its development, leaving the project's fate unknown until yesterday's decision by President Michelle Bachelet's ministers.

"It speaks poorly of Chile that important projects are processed this way," legislator Nicolás Monckeberg said in an address to media following the announcement.

"A bad project should be rejected from day one and a good one should be quickly approved."

The rejection of HidroAysén and the way the process was handled are also likely to have implications for investment in power generation projects in Chile.

A BNamericas survey of 93 electricity company executives in February found that availability of resources and government support were two of the three main competitive advantages for investment in Latin American power projects.

Chile imports the majority of its primary energy resources and almost all of its oil and gas, leaving hydro as the country's most abundant indigenous power resource.

As a result of the decision, thermo plants powered by imported gas will almost certainly have to form the backbone of electric power development in Chile, Jiménez said, even as renewables become more economically competitive, making it difficult to achieve the cost control measures outlined in President Michelle Bachelet's 2014-18 energy agenda.

Meanwhile, thermo projects like MPX's Castilla (2.1GW) and GDF Suez's Barrancones (566MW) have been held up by social opposition.

HidroAysén's owners, Endesa (51%) and Colbún (49%) were given 30 days to appeal the government's decision.