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Chile’s energy sector stuck in vicious circle: Antofagasta

Keywords: Tags  Chilean power, Antofagasta, Diego Hernandez, copper, Cesco Week, energy sector, Andrea Hotter

SANTIAGO — Chile’s energy sector needs to break out of the vicious circle in which it is stuck before the country is left facing a critical shortage, Antofagasta Plc chief executive officer Diego Hernández told AMM.

"The country still has power available for the next four years, but any more than that and we will start having problems. We need to have projects approved now as it takes three to four years to get plants generating, from starting pre-feasibility through permitting to production," he said.

The crux of the problem is that Chile has very little new power-generation capacity coming to the grid, and a period of dry weather in the central circuit has limited hydropower capacity and forced coal-fired plants to work at full capacity, Hernández said.

The power balance is being made up partly by liquefied natural gas, but mostly by diesel, which is more expensive.

At the same time, once long-term contracts with power generators expire, mining companies are being forced to either renew at very high prices or find themselves unable to renew altogether, with the latter leaving them exposed to the marginal cost of the grid.

This is the situation faced by Antofagasta’s Los Pelambres Mine in Coquimbo.

"The big power generators are in a monopoly. For them, the status quo is quite convenient, as they can sell part of their power at a high price, at the marginal cost, and it’s very difficult to bring newcomers to the table," he said. "We haven’t been able to break this vicious circle," Hernández said in an interview in Santiago ahead of the Center for Copper and Mining Studies’ annual Cesco Week.

The Chilean copper industry is unlikely to go down the same route as the power-intensive aluminum industry, namely self-generation of energy, but Hernández said it could be forced to take some short-term measures to secure power.

"As mining companies, our scope is not to produce power and we want to avoid that because it would also add a link to the copper value chain that is capital intensive. We prefer to invest that money in mining and not in power generation," he said.

"If finally there is no power available at reasonable cost, we need to start thinking of solving the problem ourselves. But once you establish additional power, and the power-generating companies that currently dominate the market start to lose share as newcomers enter, then probably I don’t see it as something we’d have to get involved in for the long term," Hernández added.

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