Special report: Endesa – Crossing a minefield

Environmental activism is getting tough on energy projects in Chile

Borja Prado, Endesa’s President. Photo: Mario Ruiz

They said it would be hard to do and so it has proved.

Six years after Endesa Chile and Colbun formed HidroAysen – a joint venture to build a series of hydroelectric projects in the far-south Patagonia region – their goal still seems tantalizingly out of reach.

More than a year has passed since environmental regulators granted a permit for the five dams – the result of a three-year assessment process.

The companies sat tight as huge protests opposed the project, as surveys claimed three out of four Chileans opposed it, and as legal challenges made their way through the courts. They were eventually quashed by the country’s Supreme Court.

In the meantime, the cost of the project has skyrocketed from $6 billion four years ago to an estimated $10 billion today, although neither firm has published updated figures.

But with power prices in Chile still amongst the highest in the world, thanks to a reliance on diesel to cover shortfalls in dry years, it remains “a very attractive project which Endesa still wants to develop,” says Tomas Gonzalez, an energy industry analyst at Chilean investment bank Celfin.

The companies are now facing perhaps the biggest challenge: finding a way to transfer the electricity produced on the raging Baker and Pascua rivers to the main consumption areas in Santiago and the mining-dependent north. With their license to build in hand, the transmission line still poses a hurdle.

Their preference is for a dedicated direct current transmission line to run the 2,000 kilometers between Aysen – a thinly populated town with little industry – and Santiago.

But this implies tortuous negotiations for access rights and permits with eight regions, dozen of municipalities and thousands of landowners, including indigenous communities and U.S. entrepreneur and environmentalist Douglas Tompkins. The co-founder of The North Face outdoor clothing company, Tompkins has spent millions of dollars of his own money opposing the dams.

The government estimates Chile requires an additional 8,000MW of installed capacity by 2020, equivalent to a 47 percent increase. But despite the desperate need for energy, investors who want to build new plants face a regulatory quagmire.

Brazil’s MPX, for example, which is looking to build the country’s largest thermoelectric plant in the Atacama Desert, has seen the project declared a polluting health risk twice. Environmentalists fear the energy plant will cause irreversible damage to a pristine part of the country; the company notes the site is located 25 kilometers from the nearest settlement.

A license granted to Energia Austral, controlled by Australia’s Origin Energy, to build another dam in Aysen was suspended just days later after the Supreme Court ordered further geological studies into seismic risk.

Renewables have traveled the same path: last March, the Supreme Court cancelled a permit for a wind farm on the southern island of Chiloe, citing a failure to consult properly with local indigenous groups.

Sensing looming disaster over HidroAysen, the government, which sees hydropower as crucial to weaning Chile off its diet of imported fossil fuels, has proposed a new transmission system. It would consist of a public power highway, according to President Sebastian Pinera, that would overcome permit difficulties and environmental opposition.

But more than a year since first broaching the idea, the government has shed little light on its proposal. It appears to have backed off early ideas of owning either the lines or the land, while restricting issuing planning guidelines and facilitating permits.

Frustrated by the lack of progress, Endesa’s partner Colbun issued an angry note to the Santiago Stock Exchange in May, recommending that work on HidroAysen be halted until the government and legislators put their heads together and come up with a policy that allows the project to advance.

The government has promised to deliver legislation on the public power highway by September. Expect delays.

 

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