BMI View: Chile may have dropped from second to fourth position in our Q4 2012 Latin America Power Risk/Reward Ratings (RRRs), but we believe that the outlook for renewables is still positive. Our view is underpinned by our expectations for economic growth in the country, as well as the current power situation.
We forecast non-hydropower renewable energy generation to grow at 11.9% in Chile in 2012, accounting for 8.8% of total electricity generated in the country. The majority of growth will come from wind generation, stemming from strong independent power producer (IPP) interest in the sector. Biomass will also play an important role, and we expect to see 7.3% of total energy derived from this energy source.
|Biomass Remains Important, But Growth In Wind|
|Chile - Energy Generation By Type, 2011 (LHS); 2012 (RHS)|
Our upbeat growth forecast for renewable energy is underpinned by several factors. Firstly, the country still faces power shortages, as extreme weather conditions and dry periods have punished the country for its high reliance on hydropower. We also expect the Chilean economy to grow modestly this year (we are forecasting real GDP growth of 4.8% in 2012), with considerable growth in energy intensive sectors such as copper mining and industrial production.
That said, we believe that current macroeconomic factors pose downside risks to our outlook, despite the Chilean economy's position of strength. Exports account for 40% of GDP, and nearly half of the total is sent to China and the eurozone. Copper is one of the country's main exports, and we could see a slowdown in Chinese copper demand in the near future, given our anticipation of a hard landing.
We are forecasting growth in non-hydropower renewable energy generation to average 6.2% per annum between 2012 and 2021. This modest growth will be necessary to maintain domestic economic growth, and to achieve the diversification of the country's power mix.
Diversification of the energy mix is a top priority for the Chilean government, as laid out in its National Energy Strategy, released in February 2012. The country is currently reliant on hydropower, and a period of drought in late 2010 and early 2011 led to severe power shortages. Shortages have occurred recently as well, and power rationing measures were in place between early 2011 and April 2012.
|Modest Growth In Renewables, Especially Wind|
|Non-Hydropower Renewables Generation By Type, TWh (LHS); Wind Generation, % growth y-o-y|
The government was previously keen on expanding the country's gas-fired generating capacity, but reversed its position due to the cost and unreliability of gas imports. The country also lacks oil reserves - so renewable energy appears to be the government's preferred option.
Booming Wind Sector To Grow Further
We expect wind generation to grow at an average of 15.1% per annum between 2012 and 2021, as the country looks to capitalise on an estimated 40 gigawatts (GW) of wind potential. There are already a large number of projects in the pipeline, as Chile's power market is much more developed than other Latin American countries, owing to positive regulatory efforts and fiscal prudence.
A number of international players are currently active in the market, including Italy's Enel Green Power (EGP), Mainstream from Ireland, and Pacific Hydro from Australia. EGP was awarded a concession to build a 99MW wind farm in the Antofagasta region in January 2012, while Pacific Hydro announced plans to build an 80MW wind farm at a cost of US$250mn in March 2012.
We also expect a strong showing on the part of equipment manufacturers. At present, Chinese turbine manufacturer Goldwind and Denmark's Vestas are the most established players. Vestas has a deal with Chilean holding company Phoenix to invest approximately US$250mn in the construction of the 120MW Talinay Oriente project, which is the first of five phases that will see a total installed capacity of 500MW. Siemens Energy also won an order to supply 115MW of turbines for the El Arrayan power project, which is being developed jointly by Pattern Energy and AEI Energy.