Chile’s Mining Sector Boosts Energy Sector Opportunities

Chile’s electricity market is set to reach an estimated US$2.70 billion by 2016.
Published: Mon 21 Jul 2014

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Electricity demand in the Interconnected Electrical System of Central Chile is expected to grow at a compound annual growth rate of 4.7% and the Interconnected Electrical System of Northern Chile, at 3.4% during 2012-2016.

This sustained demand, along with the significant development in the country's mining industry, has brightened the prospects of stake holders in the Chilean electricity market.

Growth opportunities

Frost & Sullivan’s research report, Analysis of the Chilean Electricity Market, reveals that the market earned revenues of US$2.21 billion in 2011 and estimates this to reach US$2.70 billion in 2016. This is driven mainly by the sustained growth in electricity demand, the economic boom of the mining industry, and foreign investment.

Chile is the largest producer of copper in the world and, as the Chilean mining industry benefits from high international copper prices and favorable domestic market conditions, the opportunities for power generation and transmission companies will also increase, attracting even more foreign investments.

"Foreign investments will fuel activity in the new centralized generation plants, therefore augmenting power generation's installed capacity," said Frost & Sullivan Industry Analyst Martin Cataife. "Competitiveness in the generation segment has opened the doors to many investors looking for growth opportunities."

Transmission and distribution are also attractive investment options. Global companies, especially those funded by Spanish and Italian capital, have already set up office space in Chile.

Fossil fuels-an obstacle

However, the energy sector relies heavily on fossil fuels. This does not bode well for power generation and therefore, power transmission and distribution due to higher electricity tariffs. This could hold back the overall market. [Engerati-Chile as a Green Energy Producer: Integrating Renewables to the Grid.

A major imbalance between electricity demand and electricity production will occur in Chile if utilities do not reduce their reliance on thermal energy, and large utility projects are not terminated by judicial ruling.

"To sustain growth in the electricity market, current and future participants need to enlarge and diversify the energy matrix with renewable energies," noted Cataife. "Power utilities will succeed in expanding the electricity market by investing in renewable energy development (wind, solar and hydro power plants) as well as transmission network expansion." [and Engerati-Toward Green Energy Production in Chile: A Successful Case of a Dissonant Policy Framework in Latin America].

 

Further reading

Frost & Sullivan-Analysis of the Chilean Electricity Market