Electric flow.

Author:Azzopardi, Tom
Position:INDUSTRY REPORT: ELECTRICITY
 
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Few regions are as rich in energy resources as South America--from huge rivers, massive reserves of fossil fuels and significant potential for solar and wind power--but converting these into competitive and reliable electricity supplies is often far from simple.

In Brazil, Argentina and Chile, changing climatic conditions, badly designed public policies and growing environmentalism have undermined the power sectors attempts to expand in line with the needs of their economies.

But others, like Colombia and Peru, through long-term planning and diversifying supplies, have been able to provide their industries with the energy to grow.

CHILE

Chile is one of South Americas star economies, but securing competitive power supplies has long been its Achilles' heel.

Nature partly explains Chile's energy difficulties. Tire country is almost alone in South America in lacking significant oil and gas reserves. Meanwhile, hydroelectric reserves have been drained by a severe drought now running in its fifth year.

But there are also human explanations. A rise in environmental activism has made building new generation capacity much more difficult, especially for coal and hydroelectric projects. Just last year, ministers blocked an unpopular proposal to dam two rivers in Chilean Patagonia.

As a result, marginal costs have been rising, from less than US$30/MWh a decade ago before Argentina turned off cheap gas supplies, to over US$200/MWh in the worst of the recent crisis. Unregulated clients, like large industrial consumers, usually sign contracts with generators which are indexed to costs, but do not move erratically as spot prices.

Prices paid by the country's mining industry, which consumes a third of Chile's electricity, have almost doubled from US$54/MWh in 2006 to over US$90/MWh in 2014. That's down from over US$130/MWh at the peak of the commodities boom, but the depreciation of the Chilean peso explains much of the decline, said the Consejo Minero, the industry board for the largest mining companies in Chile.

According to industry figures, high power prices are draining Chile's copper industry, the world's largest, of competitiveness. Peru, where electricity prices are two thirds lower, is rapidly catching up with Chile in terms of copper production. Other industries are also suffering. Steel producer CAP has shut half its Huachipato works in the face of cheap imports from China where power supplies are subsidized. To protect smaller firms, the...

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