“What the population will start to see are energy price hikes.”
He states that this is the natural consequence of the 8,000 MW of energy supply that has been paralyzed in the country. He argues that the cancellation of Punta Alcalde is part of a trend and that a solution must be found.
by Christian Viancos – 03/08/2013 – Santiago
Source: La Tercera.com
The decision of the Court of Appeals to annul the approval of Endesa’s Punta Alcalde power plant is viewed with concern by Hugh Rudnick, professor emeritus of the Pontificia Universidad Católica de Chile, member of Cade’s advisory committee and director of Systep. The electricity expert explains that this plant is part of the 8,000 megawatts (MW) that have been paralyzed, suspended or cancelled in the country, which complicates the situation of the sector. Not so much from a supply point of view, but from an energy price point of view.
What is the effect of the Court of Appeals ruling on Punta Alcalde on the electricity system?
The only thing it does is to add more uncertainty to the development of the electricity system in the coming years. With the elimination of the Castilla and Barrancones power plants, together with the uncertainty presented by HidroAysén and the Cuervo and Neltume power plants, we are talking about 8,000 MW. Punta Alcalde is 740 MW of that capacity and its situation implies aggravating the future situation of the electricity system. We face a shortfall of 1,200 MW, comprising the growth in energy demand that will be required by 2018 and that is not being built.
Why are we so complicated if we don’t see power outages?
I am not one of those who promote terror campaigns that say that the electricity is going to be cut; this is a matter of prices and costs, because Chile has alternatives to which it can quickly resort. After the suspension of Argentine gas, the construction of diesel power plants was encouraged, i.e., engines and generators that burn very expensive fuels, but very fast and cheap to install. We have tools, but they mean a much higher cost of electricity, which is the main concern of the country and the industry.
Aren’t people’s electricity bills going up?
Households or home consumers are protected. We have contracts that distributors signed between 2006, 2007 and 2008, with quite reasonable prices. All that energy means today, on average, a tariff at generation costs of US$ 80 per MWh, while industries see values of US$ 200/MWh. As a population, we are not perceiving the crisis.
However, at this moment, the government is calling for new supply tenders and what is anticipated is that these contracts have ceiling prices of US$ 129 per MWh, which are almost 50% higher than the current tariff, so the population will start to see increases in the price of energy. This is the consequence of the 8,000 MW power projects that have been put on hold.
When will these increases occur and how large will they be?
It would be rather improvised to project the trend. It will depend on the final bid prices. The generators have said that they will not submit to the ceiling price and are asking for an indexation to marginal cost; that is, that part of the energy is not sold at a fixed price, but at market value. They argue that, with the installed capacity they have, they cannot risk contracting energy.
Is it healthy to incorporate marginal cost to the household tariff?
It is healthy for the home consumer to understand what is happening with prices and to be informed of the market situation. If we have a population immune to very high energy prices, they are not going to take any decision, any action.
Here we have several flaws. Punta Alcalde is the icing on the cake that crowns a trend, which is basically having a population that opposes everything. Power generation and transmission have an impact and citizens are objecting. We are very responsible for the situation, but since we have not suffered, we are calm.
But is opposition to coal and hydroelectricity justified?
Due to ignorance of the population, it has been positioned in people’s minds that the most attractive energies for Chile are renewable energies, especially the sun and wind, which are relatively expensive compared to the others. With natural concern, communities say that coal-fired power is dirty and polluting, even though we have a standard that is at the best European level. There is opposition to coal and large power plants because the population thinks that the sun and wind are free; they do not know that these technologies have restrictions. These include higher investment costs and the fact that they are not always available, requiring backup power.
How much difference is there in values between the various energies?
In rough figures, a large hydroelectric plant (HidroAysén or Río Cuervo) should have average costs of US$ 40 per MWh to around US$ 60 per MWh; a coal-fired plant, US$ 80 per MWh, and a wind plant ranges from US$ 110 to US$ 120 per MWh. It is true that there are different environmental impacts associated with costs, but if we get ultra-environmentalist, that means going to more expensive energies on a permanent basis.
What is the solution, considering the citizenry’s vision?
In the long term, we must resolve the investment bottleneck. Seek mechanisms for energies to develop. The Cade advisory committee proposed alternatives: education of the population, improvement of environmental impact studies, land-use planning, compensation to communities. There must be an effort by the electric companies and then by Congress to reach a consensus: that we need energy and that we must accept some environmental impact, and compensate the communities that are affected.
In the case of electric utilities, should they improve competition?
We have a serious competition problem here, because it is not happening. The electricity companies are the ones that make the offers, evaluate the risks and see whether or not to pass them on to the end consumer.
There are few companies and we have stopped new competitors. The Castilla plant was owned by a Brazilian consortium that expected to install 2,000 MW. We would have had a fourth electric company competing with Endesa, Gener and Colbún, which would have been very beneficial for the system. Barrancones belonged to the GDF Suez group and was a fifth competitor. These same barriers to investment have limited us to those who are there to offer prices, without competition.
Why don’t they compete?
Everyone looks for the best price that meets their risk, in a situation where there is no third party offering cheaper prices. All are in similar situations of supply constraints and are all contracted. Since there is no one to “threaten”, in theory, they could ask any price. I am not saying that they are exercising monopoly power, but they have the facilities to do so.
