Title: Chile’s energy sector goes green

Sub-title: New Chilean legislation requiring the use of renewable power has sparked significant opportunities for Canadian exporters

 

As is the case in many countries these days, gasoline, natural gas and other energy prices are hitting Chilean households and businesses hard. However recently, this South American nation, which has long been plagued by energy-related challenges, has reacted in a big way, by passing new legislation to spur development from renewable sources.

 

Chile’s new Non-Conventional Renewable Energy Law, which was enacted in March of this year, requires all generating companies that withdraw energy from the market between the years 2010 and 2034, to draw between five and 10 percent of their requirements from non-conventional renewable resources.

 

The law also creates incentives for energy producers that use renewable technologies. According to one trade expert, the new legislation, which applies to all contracts signed after August 31, 2007, will create both challenges and opportunities for Canadian companies that are exporting or investing in Chile.

 

“Current and projected energy prices and new government incentives are rendering the development of renewable sources of power increasingly promising from an economic standpoint,” says Christian Daroch, EDC’s Regional Manager for Chile. “This is true of a variety of sectors, such as wind farms, small hydro-electricity plants, geothermal plants, biomass plants, solar panels and specific cogeneration plants, many of which have only recently been developing real traction.”

 

Chile’s energy predicament

Earlier this year EDC led a trade mission to Chile, Argentina and Uruguay to get a better understanding of opportunities for Canadian companies in the power sectors in those nations. An important part of the mission was the matchmaking between Canadian companies and local Chilean firms players such as power producers and developers, transmission and distribution firms and regulators.

 

According to EDC’s Daroch, the initiative, which took place just a few short months after the Chilean non-conventional energy sources legislation was enacted, could not have come at a better time. “Energy consumption in Chile has increased at significant rates in recent years and is projected to continue to grow faster in coming years,” says Daroch. “Yet Chile has only limited domestic resources so eventually something was going to have to be done.”

 

Growing energy demand in Chile stems from several sources. These include the rapid growth of that country’s copper industry, increasing access to electricity grids in rural areas and a general rising standard of living among Chileans.

 

However the country’s lack of energy supplies has made Chile vulnerable to external shocks. For example earlier this year Merrill Lynch began a report on Chile’s power industry by assessing how much rainfall had accumulated in that country’s hydro-electricity reservoirs. When experts study the clouds to figure out whether there will be enough electricity in coming months, you know challenges exist. Argentina’s April 2004 decision to restrict its natural gas shipments to Chile also hit hard.

 

Opportunities for Canadian companies

As a result, Chile’s latest push into energy production from renewable sources was almost inevitable says one expert who work’s at a major Canadian engineering firm’s offices in Santiago. “Even before the latest challenges, energy here has always been expensive. So cost-benefit calculations of developing new initiatives have always been more favourable than they might have been elsewhere,” says Antonio Velez, Director (Wind and Hydro Projects), at Hatch’s Chilean operations. “However the new legislation will open up significant opportunities for Canadian companies in a variety of areas.”

 

According to Velez, Hatch has significant expertise that it can bring to bear to help tackle Chile’s renewable energy challenges. The company is already involved in the development El Salta, a small hydro-electric project, which will divert part of the flow from the Pelmaiquén River into a generating station and then return the excess flows back in. It’s a small 20 MW initiative, however since the river’s main flow is not unduly affected, the energy produced from the effort is classified by the Chilean government as coming from renewable sources. The company is also pursuing a variety of other non-conventional energy initiatives in sectors ranging from solar to wind power.

 

Hatch already employs 700 people in Chile, including 320 engineers. Until recently, it looked like Velez’s five-man team would remain a relatively small part of the operation. However projections now are that the team will grow at least ten-fold in the coming years.

 

According to EDC’s Daroch, Hatch is not the only Canadian firm that stands to benefit from Chile’s push into the development of non-conventional energy sources. “There are a number of Canadian companies involved in solar, small hydro and wind sectors or that provide excellent engineering and environmental services,” says Daroch. “But many of them are also able to manufacture components such as turbines, solar panels, blades and poles for wind power as well as the power transmission and distribution equipment that is needed to connect new systems up to the current grid.”

 

Energy demand from Chile’s copper sector

Another Canadian company that is exceptionally well-positioned to help contribute towards Chile’s growing demand for energy from non-conventional sources is SNC-Lavalin. The Montreal-based firm has substantial expertise in both the mining and energy sectors, a promising combination, because much of Chile’s energy demand stems from its burgeoning copper industry.

 

“Our Santiago office hosts our global center of excellence for copper and about 60 people there are working on projects around the world providing support to cooper-related projects,” says Marco Merino, a business development manager at SNC-Lavalin. “However our strategy is to diversify in the future in order to help meet the growing energy demands of that country.” 

 

“Problems arising out of the lack of energy are going to affect not only the mining sector in Chile, but could in fact affect the entire country,” says Merino. “Furthermore, it is striking evident how few skilled engineers there are in Chile between the ages of 40 and 50. In short, demand here is so extensive that one is forced to work here with younger and less experienced people. This implies significant opportunities for a consulting engineering firm.”

 

Getting a foot in the door

That said, non-conventional energy projects are heavily capital intensive and take a lot time to get of the ground. As a result, Daroch advises Canadian companies that are looking to develop a foothold in the sector to use a systematic approach. “Take the time to learn about the market, to understand how bids are conducted in Chile and then register with main local players as an official supplier,” says Daroch. “It’s also very important to identify specific opportunities where you think your company has a competitive advantage. Conduct an honest self-assessment that includes both strengths and weaknesses. Chile has a very competitive environment, so it is important to define what sets you apart.”

 

Developing an effective entry strategy is also crucial. “You have to decide whether it is more effective for you to export directly, use an agent, look for alliances, or to try to get a foot in the door as a subcontractor in a major venture,” says Daroch.

 

And finally says Daroch, it pays to be patient. Because although Chile’s Non-Conventional Renewable Energy initiatives are only in there initial stages, the potential long term benefits to early entrants into the market could be significant.

 

*****

 

For more information please contact:

 

Christian Daroch, Regional Manager (Chile)

Export Development Canada 

cdaroch@edc.ca

 

Antonio Vélez, Project Director (Wind and Hydro)

Hatch Chile

avelez@hatch.cl

 

Marco Merino, Business Development Manager

SNC-Lavalin

Marco.merino@snclavalin.com

 

Canadian Trade Commissioner Service, Chile

Santiago.commerce@international.gc.ca

 

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is a Montreal-based freelance business and economics writer.

 

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