CHILE'S ENERGY HIGHLIGHTS FEBRUARY 2009

UNCLAS SANTIAGO 000189

STATE FOR WHA/BSC, WHA/EPSC AND EEB/ESC/IEC

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ENRG KNNP SENV TRGY PGOV CI
SUBJECT: CHILE'S ENERGY HIGHLIGHTS FEBRUARY 2009

REF: SANTIAGO 93


1. (U) SUMMARY: This cable provides highlights of activity in the
Chilean energy sector during February 2009. Chile's Energy Minister
met with Secretary of Energy Chu in Washington to discuss
collaboration on renewable energy and energy efficiency. Supported
by recent profits and regulatory improvements, Chile's power sector
continues to expand with new thermal and wind projects. Developers
submitted environmental impact assessments for two new coal plants.
A French wind turbine manufacturer plans to invest in feasibility
studies and a French multinational signed a long-term power sale
agreement. The World Bank's International Finance Corporation (IFC)
will support Chile's first project-financed wind farm.
Environmental regulators rejected the environmental impact statement
(EIS) for a new hydroelectric project and eight companies
participated in a geothermal tender. High prices for long-term
energy supply contracts may result in increased consumer prices.
Chile's natural gas distributor reported net losses for 2008. End
summary.

Energy Minister Touts Chile's Renewable Resources
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2. (SBU) Energy Minister Marcelo Tokman met with U.S. Energy
Secretary Chu in Washington, D.C. on February 19 (septel). They
discussed Chile's desire to be a strong partner with the U.S. in the
as-yet-to-be-defined Energy Partnership of the Americas. Tokman
lauded collaboration with Lawrence Berkeley National Labs and
expressed Chile's interest in increasing collaboration on energy
efficiency and renewable energy. In meetings with State Department
officials, Tokman outlined plans for a renewable energy center,
solicited support for a 10-15 megawatt solar project in northern
Chile, and made the case for renewable energy pilot projects located
in Chile.

Power Sector Expands Despite Economic Crisis...
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3. (U) In recent press reports, Minister Tokman said energy projects
worth US$7.72 billion are under development in Chile and up to
US$13.3 billion more could be approved this year.

...New Thermal Plants and Wind Projects
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4. (U) Chilean firm Rio Seco submitted an EIS to Chile's national
environmental regulator (CONAMA) for a US$750 million coal-fired
plant in Chile's Region I. The plant would be located about 60km
south of Iquique and would add 350MW to the country's northern power
grid.


5. (U) Chilean generator Edelnor submitted an EIS for a 750MW
coal-fired plant in Mejillones (Region II) to be connected to the
SING grid. Proposed investment in the project is US$1.5 billion and
includes: dock construction to import diesel, coal, biomass, and
petcoke for the new plant; Edelnor's existing plant; and another
related company's thermal plant.


6. (U) At the beginning of February, UK renewable generation company
Seawind submitted an EIS to construct a US$63 million wind farm in
Canela. If approved, developers will install 13 wind turbines to
add 26MW of capacity to the country's central grid. Seawind has
several other wind farm projects in Chile including a 100MW, US$230
million project in Qillagua.


7. (U) On February 9, French wind turbine manufacturer Alstom
announced intentions to invest in wind feasibility studies in Chile,
with the goal of having the company's first operational wind farm
with 45-60MW of capacity in 2012-2013.


8. (U) According to GDF Suez's February 12 press release,
construction started on its Monte Redondo wind farm, located 320 km
north of Santiago, with an installed capacity of 38MW and a US$120
million price tag. On February 5, the company signed a 14-year
contract for 100 GWh/year from the farm starting 2010.

IFC Supports Chile's First-Ever Project Financed Wind Farm
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9. (U) On February 9, the World Bank's IFC signed an agreement to
invest US$61.5 million in Chile's first ever project-financed wind
farm, Totoral Park. IFC's financing monetizes expected carbon
revenues under the Kyoto Protocol's Clean Development Mechanism
(CDM). The 46MW project is being developed by Norvind SA, a
joint-venture between Norway's SN Power and the Chilean investment
company Centinela. Totoral Park should be completed this year, is
300 km north of Santiago, and will generate 110 GWh/year for the
central grid. According to the IFC, this is the first project under
Chile's March 2008 "Non-Conventional Renewable Energy Law."

Proposed New Hydro Project Stumbles on First Step
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10. (U) Chilean Hidroelectrica Trayenko, a joint-venture between SN
Power (80 percent) and the Chilean investment fund Centinela (20
percent),plans to invest US$1 billion in a 400MW hydroelectric
power project over the next 5 years. According to SN Power's
website, it is conducting environmental and economic feasibility
studies on four run-of-river projects in Chile's Region X. In
mid-February, however, CONAMA rejected the EIS for the first phase
of the project, a 320MW plant.

Eight Companies Participating in Geothermal Concessions Bid
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11. (U) According to the Ministry of Mining, eight companies
purchased bid packages (offers are due by March 31) for the tender
on two geothermal blocks in Chile's Region I, including: Energia
Andina (a joint-venture between ENAP and Antofagasta Minerales);
Canada's Magma Energy, Polaris Energy, and Nevada Geothermal Power;
New Zealand's GeoGlobal Energy; the Chilean branch of the British
company Seawind; and a Chilean mining firm. Also participating,
Aquavant SA, a local subsidiary of the Israeli geothermal company
Ormat Technologies, which has a major plant in Reno, Nevada.
Long-term Electricity Contracts Likely to Drive Up Prices
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12. (U) Chilean electricity distributors accepted offers from
electricity generators for long-term (12-15 years) power supplies of
7.11TWh/year, at an average price of US$104.312/MWh, beginning in

2010. The average price was above the US$75/MWh analysts expected
and likely reflects that there is limited new capacity coming
on-line before 2011. Besides guaranteeing a long-term supply of
power to distributors, the contracts play a key role in determining
the price regulated users will pay starting in 2010.

Chile Metrogas Posts Losses for 2008
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13. (U) Following announcements that Chile's national oil company,
ENAP, lost over US$800 million (reftel),on February 25 Chile's
natural gas distributor Metrogas reported a loss of about US$16.1
million in 2008. Higher Argentine taxes on gas exports increased
operating costs while reduced gas imports affected Metrogas' ability
to supply industrial customers.

COMMENT: Diversifying its Energy Matrix Will Help Economy
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14. (SBU) Minister Tokman was in Washington, D.C. to participate in
the Inter-American Development Bank's launch of "A Blueprint for
Green Energy in the Americas 2009," which reports that Latin America
and the Caribbean's share of CDM investment has decreased
significantly since 2006. As a stable country with a relatively
large economy and substantial natural resources, however, Chile is
still drawing foreign investment for renewable projects. Despite
murmurs of concern about greenhouse gas emissions, Chile also
continues to expand thermal plants and expects to bring its first
LNG regasification plant on-line this year. Along with large
hydroelectric projects, renewables are part of Chile's answer to its
on-going energy crisis, but the economy is slowing down and the
industrial demand for power may decrease, especially in the mining
sector. However, Chile is well-positioned to bounce back after the
current economic crisis and on-going investment in renewables will
provide an environmentally responsible way to fuel a return to
economic growth. End comment.