Next Tuesday, the Committee of Ministers will decide the future of the megaproject. The company is already working on two options: to appeal to the Environmental Court, if the Executive expires the environmental permit, or to modify the initiative, if new conditions are proposed.
The cards that HidroAysén will play after the government’s ruling
HIDROAYSEN faces crucial moments, in the run-up to the pronouncement of the Committee of Ministers, scheduled for next Tuesday 10. While awaiting the resolution that will settle the future of the megaproject, the partners behind the country’s largest hydroelectric complex, the generators Endesa (51%) and Colbún (49%), are working quietly to prepare their strategy to face what will be the final verdict of Michelle Bachelet’s government, in addition to evaluating the alternatives that will make the emblematic initiative viable, in which they have already invested US$ 320 million. Thus, at HidroAysén’s headquarters on Miraflores Street, the executive staff is designing Plan B to ensure that the electricity complex finally comes to fruition.
With almost a decade in planning, HidroAysén contemplates the construction of five power plants on the Baker and Pascua rivers in the XI Region, to have 2,750 megawatts (MW) of installed capacity. The construction of the plants would cost some US$ 5 billion, to which must be added the value of the transmission line, estimated at US$ 4 billion.
The Committee of Ministers – made up of the Ministers of Mining, Agriculture, Environment, Health, Economy and Energy – must resolve 35 complaints filed against the Environmental Qualification Resolution (RCA), granted in May 2011 by the Aysén Corema, which has halted the project.
What could the interministerial group determine? In the last 60 days, HidroAysén’s legal teams have been in charge of anticipating possible scenarios. Company insiders say it is highly probable that the ministers will decide that the project, as it stands, is unfeasible.
The firm is working on two lines of argument that the committee’s resolution would have, not minor nuances that will define the course of action that HidroAysén will follow.
To the Environmental Court
The first alternative being considered within the company is for the Committee of Ministers to revoke the RCA of the project. For HidroAysén, this would be a worst-case scenario, according to executives linked to the shareholders. In this case, the company, far from abandoning the project, will vigorously defend the validity of its environmental authorization, “adopted by the Aysén Environmental Assessment Commission in 2011, subsequently confirmed by the Puerto Montt Court of Appeals the same year and ratified by the Supreme Court also in 2011”, the same sources state.
For the same reason, the consortium has already decided to defend the RCA by filing an appeal against the decision of the Committee of Ministers before the Third Environmental Court, based in Valdivia. This is the body in charge of resolving environmental disputes in the regions of Biobío, La Araucanía, Los Ríos, Los Lagos, Aysén and Magallanes.
The company argues that there are no technical elements to expire the RCA. Moreover, they recall that it was the first Bachelet administration that, in 2008, “admitted the project to environmental processing, giving validity, through environmental institutions, to the development of projects in Patagonia”. The firm estimates that the Environmental Court could resolve the appeal within four to six months.
Reformulate the project
A second option that has been analyzed by HidroAysén’s team of technical and legal advisors is for the Committee of Ministers, without the RCA expiring, to set conditions for the project to go ahead.
In this scenario, the partners are available to redesign and reformulate part of the project. Specifically, what has been discussed is the elimination of one of the five plants, Baker 2, “which has more complex environmental conditions,” admit executives linked to the company. This is a plant that contributes comparatively little to HidroAysén (it represents only 14% of the total power) and, on the other hand, comprises a larger flooding area than the rest of the plants (equivalent to 60% of the entire project). If this option were to materialize, the complex could be left as a project with a good part of its original power and, at the same time, with less environmental impact.
On the economic side, preliminary calculations also indicate that HidroAysén is viable with four power plants, although it would make the energy somewhat more expensive for those who buy it. “It is feasible with a price of US$ 120 per MWh. With the current project we are working with a value of US$ 97 MWh”, explained sources linked to the power company.
Third partner
The different alternatives that Endesa and Colbún have on the table for a new development plan for HidroAysén do not only consider rethinking technical aspects. They are also open to modifications at another level: the corporate level.
Why? The increased costs of the hydroelectric project, whose initial investment was estimated at some US$ 4.7 billion, together with the lack of clarity in its approval, have opened up the possibility of a new operator entering the project. HidroAysén must also pay US$ 7 million each year for the water rights it does not yet manage.
In addition to the cost increase, the delay in processing the project and public opposition are issues of particular concern to Italy’s Enel, owner of Endesa. “The project still does not have the political approval to be built, is still in uncertain terrain and, on the contrary, has had to assume a significant public image cost for the European firm,” say sources linked to the company.
Although the market indicates that HidroAysén would not be a strategic asset for Enel, executives linked to the company point out that for the Italian company the projects in Latin America are key. Therefore, they assure that there are no plans to sell, although they do admit that they could integrate a new partner.
In any case, those close to HidroAysén’s shareholders comment that, in order to face the future of the project, different formulas have been evaluated within the company to pave the way for the eventual arrival of a third strategic partner. The various options have been presented at several HidroAysén board meetings, according to executives linked to the electricity companies.
Specifically, there are two possible avenues. That a new partner enters for the construction of the transmission line or that Endesa and Colbún dilute their shareholdings to allow a third operator to enter the ownership of the power plants. For the time being, all paths are still in the exploration phase.
Looking forward to 2015
The power line has been defined as the “critical phase” for HidroAysén. But for the partners, the key to advancing in the environmental processing of the transmission project – which will allow energy to be transported from the XI Region to the central zone – is to reach a consensus and social acceptance, and thus avoid repeating the long and tortuous journey that the power plants have had to go through. For the same reason, the company is looking forward to 2015.
The Energy Agenda, launched in May by the government, defines that by next year a long-term Energy Policy will be developed, “validated by Chilean society through a participatory and regional process”. The third axis of the agenda states that “it is necessary to carry out a territorial energy planning process for future hydroelectric development”.
Thus, the company will wait for the authority to conclude these participatory processes and define the land-use planning architecture, determining factors for future energy locations, including power lines.
While this is happening, since last September, HidroAysén has been working on a socially surgical design of the route that avoids the most conflictive points, such as affecting the indigenous communities. This is due to the fact that the company would have to install 1,500 to 1,700 high voltage towers in the regions of Los Lagos and Aysén alone, in a 70-meter wide strip. These would have an average height of 50 meters. The installation of the towers, mostly via helicopter, would require the clearing of some 100 hectares of forest.
To mitigate this impact, the company is working on a fully subsea pipeline (see interview on page 12). Until then, HidroAysén had evaluated a 160-kilometer underwater section, between Chaitén and Puerto Montt, of the total 1,912-kilometer extension of the line to Santiago.
The project partners know that a minor intervention of the power line – which crosses nine regions, 66 communes and more than 3,000 private properties – is crucial to its success. But they are aware that much is at stake with the government’s verdict in two more days.
What would the project be replaced with?
Without the contribution of HidroAysén, the future of Chile’s energy matrix looks complex, warn experts. The initiative includes five hydroelectric reservoir power plants between the Baker and Pascua rivers in Region XI, with an installed capacity of 2,750 MW.
If the ruling is adverse, Ramón Galaz, general manager of Valgesta, assures that this power must be replaced and that the most economical option is thermoelectricity (especially coal), without closing to Liquefied Natural Gas (LNG).
Regarding hydroelectricity, he recalls that HidroAysén is intended to start operating in 10 to 20 years, but warns that to match its capacity it is necessary to develop reservoir hydroelectric plants and not run-of-river ones.
Francisco Aguirre, a partner at Electroconsultores, agrees, pointing out that the government’s Energy Agenda – which includes a study of basins and the need to improve the energy transmission network – is more focused on promoting the construction of run-of-river power plants (called mini-hydro) that do not make up for the lack of energy that the project would leave vacant.
He believes that there is no alternative to supply the energy that HidroAysén would provide. “For that it is necessary to build eight coal plants and in the almost 10 years since the gas crisis, only three coal plants have been built: Bocamina 2, Santa María I and Campiche,” he says. He adds that LNG is not competitive and that its prices will not go down, with hydroelectricity being the only choice, as its average cost varies between US$ 50-US$ 60 MWh. It is followed by coal, which at US$ 100 per ton, puts the average cost between US$ 80-US$ 85 MWh, and LNG, in a closed combined cycle power plant, that is, one that uses steam to generate more energy, the average operating cost is US$ 110-US$ 120 MWh. This is more expensive is an open combined cycle, whose cost reaches US$ 180 MWh, while with diesel, it exceeds US$ 200 per MWh.
For Hugh Rudnick, UC academic and director of the consulting firm Systep, LNG is not viable to replace HidroAysén’s contribution either, due to its high value. “There is a lot of enthusiasm for gas and for developing shale gas. But because of Chile’s location, the prices at which it arrives are not competitive. They are US$ 12 or US$ 14 per million BTU, which is very expensive compared to coal,” he says.
He states that it is necessary to look at the hydroelectric projects in the pipeline, such as those of Energía Austral or those planned for the Puelo River, but insists that the most economical energy is coal.
