Stable Outlook for the Power Sector in Chile but Risks are Rising from Delays and Higher Oil Prices
Chile privatized its electricity sector in the 1980s and private capital owns all generation, transmission and distribution assets in the country. We are positive on the fundamentals for renewables, and negative on thermal power, leading to our stable outlook.
A stable political environment and a relatively attractive business will continue to make Chile a preferred destination for international investors in the power sector. The government is actively promoting the adoption of LNG and offering attractive terms for renewable energy projects.
Renewable Energy Projects Will Drive Power Prices Lower
We think the push towards renewables in Chile will push power prices lower, at the expense of thermal generating capacity. That said, we think that the implementation of some of the larger hydropower projects will face delays due to a long environmental permitting and opposition from local citizens. We do expect the smaller hydro projects to be completed on schedule.
However, since the mining sector consumes most of the electricity in Chile (mining share of energy consumption growing at 4%-5% annually), any delays which affect mining projects will have a serious negative feedback loop into the power sector. Chile’s mines pay twice as much for power as their mining peers in Peru and lowering operating costs is vital for the sector (which also pays the highest wages in the region).
Chile is a lot more exposed to oil prices than its other peers in Latin America since it is a net importer of hydrocarbons. Chile’s power prices are heavily exposed to rising oil and gas prices which could also have a negative impact on GDP.