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Winds of Change: Energy in Chile

Winds of Change: Energy in Chile

Posted by Shanelle Weir on September 05, 2014

Chile's vast copper mines have an energy problem to match. They consume 39% of the country’s electricity. But most of them are located in the parched north of the country, and Chile’s hydroelectric power is mainly generated in the rain-drenched south.

Plans for a huge new hydroelectric plant in Patagonia, from which energy could be sent north, were shelved earlier this year. A government scheme to unify Chile’s two electricity grids, the SIC (which serves Santiago and the central heartland) and the SING (which supplies the north), will still require electricity to be piped over long distances, which is expensive. Nearby Bolivia refuses to sell natural gas to Chile because of a border dispute dating from the 19th century.

As a result the mines have to get by on a mix of non-Bolivian gas, coal-fired power and diesel—a concoction as expensive as it is dirty. Chile’s mines pay twice as much for their energy as their peers in neighbouring Peru. Fuel can account for up to a fifth of a mine’s operational costs.

Fed-up miners are increasingly taking matters into their own hands and turning to renewables to get their costs down. Northern Chile may be short of rain for hydro-electricity but it has plenty of sunshine and wind. On August 26th Chile launched its biggest wind farm to date on a coastal hilltop 400 kilometres north of Santiago. Fifty wind turbines with an installed capacity of 115 megawatts will provide energy to Los Pelambres, a nearby mine. The farm is a joint venture between Pattern Energy, a US firm, and Antofagasta Minerals, the Chilean-based, London-listed owner of Los Pelambres. It will provide around 20% of the mine’s electricity. Further north, in the Atacama Desert, another US company, SunEdison, is building a solar plant for Antofagasta. Once operational early next year, it will provide Los Pelambres with a further 12% of its requirements.

Antofagasta is not the only miner to be turning to renewables. State-owned Codelco plans a wind farm near its Chuquicamata mine. Escondida, a mine owned by BHP Billiton, has studied a possible geothermal project. Collahuasi, another big northern mine, has teamed up with Spain’s Solarpack to build a solar plant.

Projects such as these encourage hopes that renewables can help to meet Chile’s rising energy needs. This year has been something of a watershed. Between January and July, the country added 600 MW of renewable-energy capacity to its grid, more than twice as much as in the whole of 2013. Renewables now account for nearly 9% of Chile’s installed capacity. Since March the government has granted 76 concessions for renewable-energy projects in northern Chile, earmarking 21,000 hectares of state-owned land for solar and wind development. In theory, those projects will add 3,100 MW to the grid, enough to power dozens of mines.

In practice, however, many of those projects will never see the light of day. The economics of renewables projects are precarious. The state refuses to subsidise renewables. “There are people building projects and selling into the spot market but it’s a very risky business and it’s hard to get long-term financing for it,” says Mike Garland, Pattern Energy’s chief executive. He reckons the key to success lies is getting a reliable partner on board who’s willing to buy at least some of your energy at long-term fixed prices. Pattern will sell 70% of its energy to Antofagasta, for example, and only the remaining 30% will be exposed to the vagaries of the spot market. The miners are giving renewables a lift, but they cannot solve all the country’s energy problems.

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