ID: 189760
DATE: 1/30/2009 20:33
SOURCE: Embassy Santiago

DE RUEHSG #0093/01 0302033
O 302033Z JAN 09




E.O. 12958: N/A


REF: (A) 08 SANTIAGO 1147
(B) 08 SANTIAGO 1087

1. SUMMARY: This cable provides a summary of developments in the Chilean energy sector during January 2009. Thanks to a recent vote in the Chamber of Deputies, Chile moved closer to creating a new Ministry of Energy, which may pass into law by the end of March. Seeking to increase the flow of renewable energy technology into the country, Chile became one of 75 countries that signed the founding document for the new International Renewable Energy Agency (IRENA). A subsidiary of a California-based company is shipping 10 DS-2000 wind turbines for a wind power generation project in Chile. An Irish company has formed a joint venture with a Chilean company as part of plans for a 400MW wind pipeline in Chile over the next five years. A tax cut for the use of solar panels in new construction and revisions of Chile’s geothermal concessions law are being considered by lawmakers. Russia and Chile’s bilateral trade/commercial agenda reportedly includes discussions and exchanges on nuclear energy. Chile’s national oil company, ENAP, issued $335 million in bonds in mid-January to counteract debt. In contrast, Chile’s electricity sector announced major profits for 2008. END SUMMARY

Chile One Step Closer to Creating a Ministry of Energy
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2. At the beginning of January, the Chamber of Deputies voted 81 to 1 to create a Ministry of Energy. This moves Chile one step closer to combining a number of disparate offices covering energy issues within several ministries and the Chilean National Energy Commission into a single ministry under the direction of a Minister of Energy. The new ministry would be responsible for formulating policies, laws, regulations, planning, and programs. The proposal would also create a sub-secretary (or deputy-minister) for internal administration and coordination of public services as well as six regional energy secretariats to represent the Ministry in one or more of Chile’s 13 regions. It is expected that the changes will help in the design, coordination, and implementation of programs related to social development, energy efficiency, and rural electrification.

3. The bill still needs to be approved by the Senate’s Energy and Mining Committee and, if approved without changes, will be voted on by the whole Senate. After it is approved by the Senate, it goes to the President, who has 10 days to review and sign it or exercise her right to veto it. The GOC then has 10 days to publish it in the Official Gazette and it becomes law upon publication. [Comment: Post believes it is unlikely that President Bachelet would veto the law. Based on other priorities, late March is the earliest the law would likely come into effect. End comment.]

Chile Joins International Renewable Energy Agency

4. On January 26, Chile became one of the 75 countries that signed the founding document for the new International Renewable Energy Agency (IRENA) in Germany (additional information at According to Energy Minister Marcelo Tokman, the agency will promote renewable energy as a way to address climate change. He noted IRENA is important because it will facilitate the transfer of new technological developments so that countries like Chile, with a wide array of natural energy resources, can take advantage of such resources as soon as possible. Tokman affirmed Chile’s continued support for developing renewable energy as a way to stabilize energy costs and supply.

U.S. Company Ships 10 Wind Turbines to Chile

5. California-based Composite Technology Corporation announced on December 29 that its DeWind subsidiary shipped the last five DS-2000 wind turbines, which were assembled in Texas, for a wind power generation project in Chile. Five other turbines were previously shipped to the Port of Houston, and all ten units will be placed on a ship for immediate transport to Chile. This equipment will join blades from Germany and customer-supplied towers in Chile. The president of DeWind stated, “”We now look forward to the successful erection and commissioning [in Chile] per the customer schedule.””

Company to Develop up to 400MW of Wind Capacity

6. Ireland-based Mainstream Renewable Power plans to develop an initial pipeline of 400MW of wind farms in Chile during the next five years. With this goal in mind, Mainstream has already signed a 1 billion Euro (worth US$1.3 billion in November 2008) joint venture agreement with Chilean firm Andes Energy, which has two projects under environmental review. The joint venture first plans to develop the Laguna Verde wind farm in Chile’s Region V, at an estimated cost of US$34 million. Pending approval of the environmental impact assessment submitted in July 2008, the 35MW plant could start construction by the end of 2009 and would link to the central SIC grid, possibly by the end of 2010.

7. According to a company official, Mainstream expects to provide more detailed plans for Chile at an event in March. Founded in early 2008, Mainstream is focusing on wind farms and intends to develop and operate greenfield projects with local partners before selling the projects to pension funds. Andes Energy was established in March 2007 and is focused on clean and renewable energy generation.

Revision of Geothermal Concessions Law Under Consideration
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8. Chile’s National Energy Commission developed a draft bill to modify the country’s 2000 law on geothermal energy concessions and introduced it to the Chamber of Deputies Mining Committee January 27. The 2000 law established the legal framework for geothermal investment, but has not resulted in any power generation projects. The bill’s preface cites Chile’s March 2008 law requiring that 5 percent of energy generated must come from non-conventional renewable energy by 2010 and 10 percent by 2024 as a potential incentive for geothermal investment. The bill proposes accelerating the approval process, which involves at least six different government entities. It also aims to reduce speculation by requiring adherence to technical proposals, guarantees, or insurance for promised investments and periodic progress reports. The bill does not include specific economic incentives or measures to offset exploration costs.

Proposed Tax Cut for Solar Panel Use in Construction
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9. The Chamber of Deputies passed a proposal that would give government tax cuts to builders who install solar panels for water heating in new homes, provided the panels supply at least 30 percent of the home’s average estimated annual water heating demand. The tax break, which still needs to be approved by the Senate, would benefit building permits issued as of January 1, 2008, through December 31 2013. While this tax cut serves the dual purpose of promoting clean energy sources and stimulating the construction sector, it applies to new construction only. Authorities are developing a more comprehensive law promoting renewable energy components in buildings for 2013.

Russia-Chile Bilateral Agenda Includes Nuclear Energy
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10. After a break of several months, Russian experts are traveling to Chile in February 2009 to meet with their Chilean counterparts to discuss ways to deepen commercial exchanges (reportedly including ties in the nuclear energy, transportation, and mining sectors), which may lead to an eventual Russia-Chile free trade agreement. With regard to nuclear energy, Russian interest in Chile dates back to at least 2005 when a private Russian company began promoting nuclear technology. This firm, Intermash, was one of the companies selected to investigate the feasibility of developing nuclear energy in Chile (ref b).

National Oil Company Issues $335 Million in Bonds
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11. On January 15, Chile’s state oil company, Empresa Nacional del Petroleo (ENAP), issued $335 million worth of 10-year bonds denominated in inflation-indexed units (UF) to refinance short-term debt. ENAP claims the bonds have an effective yield of 4.33 percent and the issue was oversubscribed by 35 percent. In the company’s press release, ENAP’s chief executive stated that “”This transaction means that the Chilean market values ENAP as a strategic state company and reaffirms its confidence in the strength of its businesses and projects.””

12. ENAP may have lost more than $550 million in 2008 after costs increased. 2008 saw reduced natural gas supplies from Argentina combined with drought-decreased hydroelectric output. This forced ENAP to increase diesel imports for power generation, particularly during the first six months of last year, when crude prices were at record highs. The company experienced a further, negative impact when international oil prices fell sharply causing losses on sales of petroleum products, which it sells about 60 days after importing the original crude.

Chile Electricity Sector Profits Surge in 2008

13. In spite of last year’s drought, cuts in natural gas supplies from Argentina, and high diesel prices, leading electricity generator Endesa Chile saw its profits double in 2008 (from 2007). Enersis, the Chile-based, Latin American arm of Endesa Spain, saw profits nearly triple to 570.88 billion pesos (about US$907 million). Endesa attributed the rise to increased sales in Chile, Colombia, and Brazil, as well as higher electricity prices. Endesa said it was pushing ahead with three generation projects in Chile set to enter operation during 2009-2011. Endesa is also looking to expand capacity in Peru. The company stated that, “”Despite the financial crisis markets are going through … Endesa Chile has solid liquidity and a balance sheet to face coming challenges like refinancing debt in 2009 and projects being developed to meet growing energy demand in the long-term.””

14. Chilectra, Chile’s largest electricity distributor, stated that its net profit rose 93.5 percent in 2008 from a year earlier as revenues rose, though costs also increased due to higher prices paid to generators. Chile’s second power generator, Colbun, posted a net profit of 28.83 billion pesos (about $37.9 million) in 2008, compared with a 50.92 billion peso loss the previous year. Colbun announced on January 20 that, despite the global financial crisis, it was pushing ahead with a planned $1 billion investment in two new hydroelectric plants that will together generate 500MW. Colbun’s Chief Executive Officer welcomed the fall in international oil prices, saying the drop could translate into lower electricity prices for consumers.