'Chile's current water deficit, combined with further disruptions in the supply of Argentine natural gas, has raised concerns about possible power shortages beginning as soon as March, the month when demand historically increases,' according to Giovanny Grosso, Director in Fitch's Latin America Corporates Group.

Due to the severity of the current situation, the Chilean government announced a series of measures on Feb. 7, expected to result in electricity savings of approximately 4.4% in 2008.

With no end in sight to these problems (at least in the medium term), Chile has been trying to lessen its dependence on Argentine natural gas, by converting existing natural gas fired plants into dual-fired systems and building new thermal facilities based on alternative fuel sources. Companies are also investing in regasification plants for liquefied natural gas (LNG), and the government is actively promoting the exploration of other energy sources.

These developments combined with the opening of new hydro plants should allow for a drop in generating costs, and electricity prices should come down once the first LNG project is completed in 2009/2010 and at least 1,000 megawatts (MW) of coal-based generating capacity comes onstream during that same period.

The current crisis has taken its toll on some generators' financial flexibility, as contracted prices have been unable to keep up with growing generating costs. This has particularly been the case with companies such as Colbun S.A. and GasAtacama Generacion S.A.(GasAtacama) which had relied heavily on natural gas and/or hydro power as their main energy sources and whose contracts were largely signed at prices that did not foresee the current shortages and cost hikes.

The least affected companies are those that have been using coal as their main energy source, such as Empresa Electrica Guacolda S.A. (Guacolda). Empresa Nacional de Electricidad S.A. (Endesa-Chile) is also notable for its conservative commercial policies and lower contracted position, which allow it to be a net seller of electricity in the spot market during normal-low hydrological conditions, despite the fact that its energy matrix is highly dependent on hydro power.

In Fitch's opinion, the power industry is well situated to finance the projected increase in capital expenditures for new generation projects. The solid track record of the individual companies, with their vast experience and adequate financial profiles reflected in their investment-grade ratings, combines with a strong local financial market characterized by high liquidity and eagerness to invest in the energy sector.

Moreover, the industry's well-established regulatory framework, combined with the long-term nature of the supply contracts signed with distribution companies, should allow generators to readily raise funds for their investments, primarily through project finance structures.

Community
Email This Article
Comment On This Article

Related Links
Fitch Ratings

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News