Investment in Chile energy projects on the wane

Wednesday, November 8, 2017

Chile is seeing investment in energy projects slacken off after the sector saw large volumes disbursed in 2015.

At US$928mn, investment in 2Q17 was 17% lower than the previous quarter and 35.6% below 2Q16, according to the national energy commission's (CNE) latest financial report.

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The fall in investment is partly due to projects reaching completion, the CNE said.

Tracking investment in energy projects between 2014 and 2017, the CNE found that volumes reached US$1.86bn during 4Q15, continuing a rising trend that had begun a year earlier, during the last quarter of 2014.

Chile saw more than US$10bn investment in energy projects under construction as of end-2015, with the majority of investment allocated to power generation, outpacing all other sectors. The amount was double the investment in the infrastructure sector, according to the country's power generators association.

However, after peaking at end-2015, investment began to decline during subsequent quarters and dropped below US$1bn at the end of the first half of this year.

The CNE also highlighted the credit rating outlooks of Chilean energy companies. Only one, Colbun, has a positive outlook, from ratings agency Humphreys, while Celulosa Arauco y Constitución has a negative outlook from Fitch. All the others listed, including Enel Generación, Transelec and AES Gener, have stable outlooks.

Investment may recover, particularly for projects awarded in the country's November 2 power auction, which saw prices drop to a record low of US$32.5/MWh, 75% below 2013 levels. A total of 24 bidders participated, bidding for 2,200GWh/y of power supply.

Enel Generación Chile was awarded 1,180Wh/y, which represents 54% of the total power auctioned, while Energía Renovable Verano Tres won 540Wh/y (25%) and Atacama Solar 220Wh/y (10%), Cox Energía secured 140Wh/y (6%) and Atacama Energy Holdings 120Wh/y (5%).

However, Engie Energía Chile and AES Gener did not participate.

Engie Energía Chile CFO Eduardo Milligan said during the company's Q3 earnings conference call that the auction represented "a long shot" since energy will need to be supplied for 20 years starting in 2024.

Investment will also be required in electricity infrastructure.

National power grid coordinator Coordinador Eléctrico Nacional on Tuesday launched an international tender to build and operate 67 transmission expansion works on the new Zonal system, formerly known as subtransmission. This is part of a process to build 31 new Zonal works, which together with the 67 projects will require investment of US$760mn.

The country plans to tender over US$1bn worth of transmission works in 2017-18