A Glance at the Energy Matrix up to 2025

(1)

A Glance at the Energy

Matrix up to 2025

Presentation Colegio de

Ingenieros

June 2009

Sebastián Fernández C.

(2)

I. Evolution of the Electricity Market in Chile.

II. Current context, energy perspectives and economic

growth.

III. Something about Endesa

IV. Endesa’s response to Chile’s energy needs.

V. Conclusions

(3)

Towards 1996 the Entrance of Natural Gas marked a

milestone in the development of the electricity sector

Ö

Stable regulation and growing demand motivated long-term investments.

Ö

The new technology of combined cycles presented a favorable scenario for the electricity

supply in the medium and long-term (2 Gas pipelines).

Ö

An increase of efficiency and the availability of energy was expected. The combined cycles

assured an optimum use of hydro resources.

Ö

A substantial drop of electricity supply prices was foreseen, given oversupply of energy.

Ö

No one doubted the stability of the Argentine gas supply.

Ö

Three large thermal-electric generation projects were developed.

Nueva

Renca

(GENER)

San Isidro

(ENDESA)

Nehuenco

(COLBUN)

379 MW

370 MW

Ö

Additionally, there were other important projects for 332 MW Hydro and 195 MW Thermal, all

of them operating today, of which standing out are:

Ö

Tal Tal (120 MW-NG) and Petropower (75 MW-Diesel).

(4)

The 1998-1999 Drought, the worst over the past 40

years, changes the optimistic scenario.

Ö

The effect of the entrance of generation projects is neutralized and a deficit of energy

in the system is produced.

Ö

The delay of Generation projects with Natural Gas forces an anticipated use of hydro

resources, leading to a reduction of reservoir levels.

Situation aggravated due to “Incorrect Economic Signals”

Node Prices reach historic

minimum

Changes in Electricity Law

Ö

ENDESA invests US$ 180 m in 588 MW

(turbines).

Ö

Mg costs reach historic maximum.

Ö

Strong losses for the generators.

Ö

Article 99 BIS is replaced.

Ö

Drought is not force majeure.

Ö

Equal rationing and compensation.

Main consequences

Ö

Major Market Risk

Ö

Supply of electricity distributors deserted

Ö

RM-88 arises which forces Generators to supply

distributors with no contracts.

Ö

Regulatory uncertainty (Tolls).

Generation projects are

suspended and/or

(5)

0 100 200 300 400 500 600 700 800 2006 2007 2008 2009 2010 2011 2012 Hydro NG Interconnection Argentina RNCE

0 200 400 600 800 1000 1200 2008 2009 2010 2011 2012 2013 Hydro Coal RNCE Diesel

SING

SIC

After investing more than US$ 2 billion to adjust the electricity development to the Argentine NG,

Chile had to totally reconsider its future development and regulatory framework, and had to

reassume its hydrological development and expensive thermal generation for back-up.

Since tariff fixed in April 2005, power plants with Argentine NG

disappeared. LNG and coal technology emerge in the MT and LT.

Gx Projects Plan SIC before gas crisis gas (Oct03)

Node Pr.

(US$/MWh)

35.4 90 – 100

Methanex:

5.25 m M3/day

Gas Andes:

9.5 m M3/día

Gas Pacífico: 3.5 m M3/día

Installed Cap. C.C.: 1.509 MW

Investment:

US$ 811m

% Installed cap. System: 19%

Norandino:

5.0 m M3/day

Gas Atacama: 5.0 m M3/day

Installed Cap. C.C.: 1,432 MW

Investment:

US$

720m

% Installed cap. System: 49%

After the drought the focus was on NG, but the crisis of the

Argentine supply changed the Chilean energy matrix completely

(6)

Demand growth and evolution node prices; period 1996 - 2008

Ö

Since 2007, the price increase was higher due to extreme cuts of the Argentine gas, to the strong

increase in prices, and a more expensive generation matrix (future LNG, Coal, Crude Oil).

Ö

Up to mid 2007, the increase in prices did not affect the growth in demand, which remained at a rate of

approximately 6% per year.

Ö

Since the end of 2007 there was a decline in the demand growth, coinciding with a strong increase of

the node price from approximately US$ 60/MWh to over US$ 100/MWh. In 2008, the demand growth

was -0,9%.

Consequently, since 2004 onwards, the system experiments

a sustained increase of node prices in the SIC

In 2008 we observed a reaction from the consumers given the intense energy

efficiency and savings campaign promoted by the authorities, generators, distributors

and others.

1,000 1,500 2,000 2,500 3,000 3,500 4,000 Jan-96 Ju l-96 Jan-97 Ju l-97 Jan-98 Ju l-98 Jan-99 Ju l-99 Jan-00 Ju l-00 Jan-01 Ju l-01 Jan-02 Ju l-02 Jan-03 Ju l-03 Jan-04 Ju l-04 Jan-05 Ju l-05 Jan-06 Ju l-06 Jan-07 Ju l-07 Jan-08 Ju l-08 Jan-09 GWh 0 10 20 30 40 50 60 70 80 90 100 110 US $/MWh Sales SIC Node Price

(7)

I. Evolution of the Electricity Market in Chile.

II. Current context, energy perspectives and economic

growth.

III. Something about Endesa

IV. Endesa’s response to Chile’s energy needs.

V. Conclusions

(8)

Ö

Energy tightness due to the delay of investments during

2003-2006.

Ö

Gas from Argentina is almost nil.

Ö

Volatility of the oil price.

Ö

LNG is arriving soon.

Ö

Large thermal-diesel capacity (1,000 MW between 2008 – 2009)

Ö

Effects in the industrial activity and therefore in the economic

growth.

There is a stable environment and regulation, nevertheless

the adaptation of the Chilean energy matrix is still in process

(9)

In other words:

Ö

The gas restrictions have led to additional costs for

US$ 4.6 billion.

Ö

In 2008, for Endesa, the over-costs exceeded

US$ 680

million.

Situación en el SIC

With Gas:

US$ 1.3 billion

Generation Cost limited since

2004 up to December 2008

With Diesel

US$ 5.9 billion

The replacement of gas to diesel has led to significantly

higher electricity generation costs

(10)

This is unnoticed Ö There’s always energy ….. There’s always light.

The 2008 over-cost itself, which was app. US$ 1.9 million, is equivalent to:

The annual consumption cost of half of a

million cars (62% of Chile’s industry)

Construction and equipment

of 7 modern and high complex

hospitals (like the new military

hospital in La Reina)

The cost of 47,000 houses

worth UF 1,000 each

The country and electricity companies are absorbing and

facing a tremendous industrial and economic effort

Twice the construction cost of the Vespucio

Oriente highway of 11 kms in mining tunnel

(11)

Energy Matrix of transition

Ö

The energy matrix which we count on today reflects:

Ö

Argentine fuel problems and high dependence

on diesel

Ö

the delay, due to various considerations, of

efficient projects:

Æ

hydro projects in the pipeline of investments

(12)

Generation SIC Apr09-Mar10 0 5 10 15 20 25 30 35 40 45 50 G en e ra tion , TW h

And still need to significantly improve the generation mix towards

more efficient technology than diesel

Run-of-the-river 27% Reservoirs 42% Diesel 10% Coal 16% Renewable 4% Gas 1%

Generation SIC Hydrological Year 2011

34 34 34 33 33 ₃₂ ₃₂ ₃₂ 32 32 ₃₁ 32 31 32 31 ₃₀ 31 30 30 31 31 30 29 29 29 ₂₈ 29 28 28 ₂₇ ₂₇ 26 25 ₂₅ ₂₅ 25 25 24 ₂₃ 24 22 20 17 ₁₆ 0 5 10 15 20 25 30 35 40 45 50 1 2 3 4 5 6 7 8 9 ₁₀ ₁₁ ₁₂ ₁₃ ₁₄ ₁₅ ₁₆ ₁₇ ₁₈ ₁₉ ₂₀ ₂₁ ₂₂ ₂₃ ₂₄ 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 ₄₂ ₄₃ 44 Hydrology

Run-of-the-river reservoirs coal gas diesel Renewable ffailure res+run of river

c Run-of-the-river 27% Reservoirs 38% Gas 6% Coal 22% Renewable 5% Diesel 2% G en e ra tion , TW h

(13)

Ö

Global environmental requirements

Ö

Global warming

Æ World trend to reduce CO2 emissions

Æ Obtaining of carbon credits, eventual increase of generation cost with coal.

Ö

Chile

Æ Governmental promotion of Non-Conventional Renewable Energy

Æ Joined the OCDE (Organization for the Cooperation and Economic Development

Chile has good possibilities to

invest

Future Investments Conditioned

Country risk

(14)

Ö

Take advantage of hydrological resources.

Ö

Work on potential renewable non-conventional energy.

Ö

Expansion with thermal generation whenever necessary

.

Æ

In the LT all available options have to be considered:

expansion of LNG and coal but with more environmental and

emission reduction requirements that will imply a higher cost.

2025 Energy Matrix Considerations

Endesa was the only generation company that has committed to and

invested in the development of the re-gasification terminal in Quintero.

(15)

Endesa wants to be part of the solution to this

problem, prioritizing hydroelectric projects, in the

framework of the country’s commitment:

We need energy…but not any type

Key criteria proposed to expand and manage the mismatch between

supply and demand.

Renewable

energy

National

energy

independence

Sustainable

Development

Current and

Competitive

Technology

SAFETY

EFFICIENCY

ENVIRONMENT

SUPPLY – HYDROLOGY - PRICE

INVESTMENT AND OPERATING COST

TARIFF FLEXIBILITY

LOCAL AND GLOBAL IMPACTS

Contribution to Regional and

Community development

Efficiency and tariff

Flexibility

(16)

I. Evolution of the Electricity Market in Chile.

II. Current context, energy perspectives and economic

growth.

III. Something about Endesa

IV. Endesa’s response to Chile’s energy needs.

V. Conclusions

(17)

CHILE

Installed Capacity 5,284 MW Number of power plants: 25 Gas Atacama 780 MW

PERU

Installed Capacity 1,467 MW Number of power plants: 9 Delegated Administration: Eepsa: 130 MW

COLOMBIA

Installed Capacity 2,895 MW Number of power plants: 11

ARGENTINA

Installed Capacity: 3,652MW Number of power plants: 5 Delegated Administration: Dock Sud 870 MW

BRAZIL

Delegated Administration: C. Cachoeira 665 MW C. Fortaleza 322 MW

Installed Capacity Line of

Business: 15,666 MW

EBITDA 2008 US$2.2 bn

(18)

N° power plants: 8

Installed Capacity: 1,414 MW

THERMAL POWER PLANTS

Endesa Chile and its subsidiaries in Chile

operate and control, as of December 2008,

25 power plants, with an installed capacity

of 5,284 MW.

(70.7% hydro, 28.9% thermal, and 0.4%

wind power).

N° power plants: 1

Installed Capacity: 18 MW

WIND POWER PLANTS

N° power plants: 16

Installed Capacity: 3,461 MW

HYDROELECTRIC POWER PLANTS

(19)

Endesa is leader in Chile

Ö

Endesa is leader in terms of market share in Chile

(48% SIC, 16% SING).

Ö

Endesa faces the development of the energy industry

in Chile considering the following factors:

Æ

the structure of the energy matrix in the country

Æ

the level of dependence on foreign supply

Æ

reliable energy supply

(20)

Relationship of prices SIC 83,2 54,9 43,5 57,4 24,03 29,55 41,05 50,14 52,0 113,9 _108,9 91,8 89,0 210,9 67,0 74,8 71,1 57,7 96,2 _86,8 82,5 _72,7 75,2 0 50 100 150 200 250 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US $/ M W h Non-regulated Regulated Spot

US$ 1.5 billion average per year will be the cost for the country of

the replacement of gas restrictions with diesel and LNG

Ö

Hydro capacity would maintain in nearly 50%.

Ö

Diesel generation would strongly decrease.

Ö

Coal generation a would decrease to nearly 22%.

Future energy supply and prices depend upon the changes

in the energy matrix in Chile

Between 2009-2010

Between 2011-2015

US$ 490 million average per year will be the cost for the country

of the replacement of gas restrictions with LNG and coal

Ö

Energy prices.

Ö

Regulated and unregulated sales of Endesa.

Demand in the SIC y SING – Reserve Margin

2020 Hydro 46% NCRE 9% Liquid Thermal 29% Carbón 16% 2009 Coal 9% Hydro 47% Liquid Thermal 42% NCRE 2% Hydro 43% Liquid Thermal 35% NCRE 4% Coal 17% 2013

(21)

I. Evolution of the Electricity Market in Chile.

II. Current context, energy perspectives and economic

growth.

III. Something about Endesa

IV. Endesa’s response to Chile’s energy needs.

V. Conclusions

(22)

Source: Endesa Chile

Hydroelectric projects will contribute with approx. 3,400 MW of new capacity:

AYSÉN

9 2,750 MW hydro

9 2013 onwards

PALMUCHO

9 32 MW hydro

9 Oct-2007

LOS CÓNDORES

9 148 MW hydro

9 4Q-2013

NELTUME

9 473 MW hydro

9 4Q-2014

Strong investments in the development of new generation

projects

(23)

Source: Endesa Chile

Thermal projects will contribute with approx. 1,100 MW of new capacity:

BOCAMINA II

9 370 MW coal

9 4Q 2010

SAN ISIDRO II

9 Jan.08: 350 MW CC diesel

9 Jul-09: 377 MW CC LNG

QUINTERO

9 2010: LNG

TALTAL

9 Conv. 120 MW

diesel/gas

9 Mar-2008

Energy projects - ECO 95 MW:

CANELA 1

9 18.15 MW wind

9 Dec-2007

CANELA 2

9 60 MW wind

9 Nov-2009

_{OJOS DE AGUA}

9 9.5 MW mini-hydro

9 Jun-2008

PIRUQUINA

9 7.6 MW mini-hydro

9 4Q 2012

Strong investments in the development of new generation

projects

(24)

MAIN CHARACTERISTICS:

• Capacity : 250 MW (2x125 MW)

• Type of plant : Open-cycle thermal plant

• Fuel : Diesel Oil/LNG

LOCATION

• Located in Quintero, Fifth Region of Valparaíso. DESCRIPTION

• The project consists in the construction of a thermal plant located alongside the Quintero re-gasification plant (GNL Chile). The plant will operate in open cycle with diesel oil until LNG is available, being possible to close the open cycle in the future. This thermal plant will connect to the SIC in the “Patio de Alta San Luis” (San Isidro plant).

TIMING

• Start-up is planned for June, 2009.

Projects under construction

(25)

MAIN CHARACTERISTICS

• Capacity : 60 MW

• Average generation/year : 137 GWh • Type of plant : Wind farm

• Wind generators : 40 units of 1.5 MW each

LOCATION

• Located in Canela, Fourth Region of Coquimbo. DESCRIPTION

• The project consists in the construction of a wind farm of 40 wind generators, to be installed in the south of the existing wing farm Canela I, on a 1,082 há and located in Canela, Fourth Region, 80 Km. north of the city of Los Vilos. The plant will connect to the SIC in the SS/EE Canela, under construction.

OTHER CONSIDERATIONS

• Will contribute to the requirements of the NCRE law (10% of the energy contracted starting from 2010). • Commitment of Endesa with the environment through the development of NCRE projects.

• Carbon credits. TIMING

• Start-up is planned for November, 2009.

Canela II Wind Farm

(Endesa Eco holds 75% share)

(26)

MAIN CHARACTERISTICS:

• Capacity : 370 MW (1 unit)

• Average generation/year : 2,128 GWh

• Type of plant : Coal-fired thermal

• Fuel : Pulverized bituminous coal

LOCATION

• Located in the Eighth Region of Bío-Bío, province of Concepción, Coronel. DESCRIPTION

• The project consists in the construction of a coal-fired thermal plant, alongside the existing Bocamina plant, using pulverized bituminous coal as fuel. This plant will connect to the Central Interconnected System (SIC) through a S/E located in the Lagunillas area, which is currently being developed by Transelec.

TIMING

• Start-up is planned for 4Q2010.

Projects under construction

(27)

• Capacity : 7.6 MW.

• Average generation/year : 30.4 GWh

• Flow : 32 m3/s

• Net height : 27 m

• Type of plant : Pass-through mini-hydro plant

LOCATION

• Located in the Tenth Region of Los Lagos, province of Chiloé, near Dalcahue, located 17 Km. north of the city of Castro. DESCRIPTION

• The project consists in the construction of a 7.6 MW pass-through mini-hydro plant in the main island of Chiloé. It will use the waters of the river Carihueico, with a flow of 32 m3/s. This plant will directly connect to the distribution system of Chiloé.

OTHER ASPECTS

• Will contribute to the requirements of the NCRE law (10% of the energy contracted starting from 2010). • Commitment of Endesa with the environment through the development of NCRE projects.

• Carbon credits. TIMING

• Start-up is estimated for 4Q2012.

Projects under study

Piruquina mini-hydroelectric plant

(28)

• Average generation/year : 560 GWh

• Flow : 25 m3/s

• Net height : 703 m

• Type of plant : Pass-through hydro plant

LOCATION

• Located near the mountain range of the Andes in San Clemente, province of Talca, Seventh Region of Maule, in the Maule river basin.

DESCRIPTION

• The project consists in the construction of a 148 MW pass-through hydro plant, with an average generation of 560 GWh/ year and uses the 765 meters altitude difference between the Maule Lake and the confluence of the river Maule with the Las Luces stream, through a 16 km. mixed conduction (tunnel and pressure canal). The plant will connect to the SIC through the S/E Ancoa.

TIMING

• Star-up is planned for 4Q 2013.

Projects under study

(29)

• Average generation/year : 2,207 GWh

• Flow : 140 m3/s

• Net Height : 386 m

• Type of plant : Pass-through hydroelectric plant

LOCATION

• Located in the Fourteenth Region of Los Ríos, 115 Km. east of the city of Valdivia and 40 Km. south-east of the city of Panguipulli, in the basin of the Valdivia river. This hydro plant takes advantage of the energy potential of the rivers Pirehueico and Neltume.

DESCRIPTION

• The project consists in the construction of a 473 MW pass-through hydro plant at the junction with the Fui and Neltume rivers. The connection to the SIC is in double circuit in 220 KV from Neltume plant to the S/E Loncoche (the final line from the Pullinque area to Loncoche is under study).

TIMING

• Start-up is planned for 4Q 2014.

Projects under study

(30)

Î

The 2005 study comprised the construction of 4 plants in the

rivers Baker and Pascua, with a total installed capacity of 2,430

MW, the expected generation was 18,090 GW/year and the

reservoir area was 9,300 ha (3.8 ha/MW).

Î

In order to decrease the environmental impact, the project was

revised, and in 2007 a new solution was released: the building

of 5 power plants, a total capacity of 2,750 MW and the

expected generation was 18,430 GWh/year.

Î

The new solution reflects the company’s efforts to reduce the

flooded area to 5,910 ha (36% vs. the 2005 project and 80% vs.

the 1998 project) and also to increase the estimated generation

of electricity.

Aysén Project

Description of the generation project

2005

Plant Capacity Generation Flooded Area/Capacity MW GWh/year Area (ha) ha/MW Baker 1 680 5,030 2,300 3.4 Baker 2 360 2,600 5,600 15.6 Pascua 1 450 3,250 500 1.1 Pascua 2 940 7,210 900 1 Total 2,430 18,090 9,300 3.8 Conceptual Study 2007 Revised Project

Plant Capacity Generation Flooded Area/Capacity MW GWh/year Area (ha) ha/MW Baker 1 660 4,420 710 1.1 Baker 2 360 2,540 3,600 10 Pascua 1 460 3,020 500 1.1 Pascua 2 770 5,110 990 1.3 Pascua 2.2 500 3,340 110 0.2 Total 2,750 18,430 5,910 2.1 +13% +2% -36% -44%

(31)

Aysén Project

Baker 1

Capacity: 660 MW

Generation: 4,420 GWh/year

Reservoir size: 710 ha

Baker 2

Capacity: 360 MW

Generation: 2,540 GWh/year

Reservoir size: 3,600 ha

Pascua 1

Capacity: 460 MW

Generation: 3,020 GWh/year

Reservoir size: 500 ha

Pascua 2.1

Capacity: 770 MW

Generation: 5.110 GWh/year

Reservoir size: 990 ha

Pascua 2.2

Capacity: 500 MW

Generation:3,340 GWh/year

Reservoir size: 110 ha

Installed capacity

(1)

2,750 MW

Average energy per year

(1)

18,430 GWh

Mini-hydro Río del Salto

Plant for the installation of works Capacity: 15 MW

(32)

I. Evolution of the Electricity Market in Chile.

II. Current context, energy perspectives and economic

growth.

III. Something about Endesa

IV. Endesa’s response to Chile’s energy needs.

V. Conclusions

(33)

Conclusions

1. Diversification of the sources has to be one of the key issues of the Energy

Matrix development.

Energy integration ≠ Energy Dependence

2. New capacity should be less invasive with the environment and energy prices

will incorporate these higher costs.

Î

Global warming might affect the structure of generation matrix.

3. While generation matrix adapts itself, energy prices should move towards long

term equilibrium prices.

4. NCRE will play an important role in the development of the energy matrix.

Î

Chile has privileged conditions to develop these sources and will be one of the

main pillars of the energy matrix in the long term.

As a country, we must take advantage of our best resources and even

more if those resources are renewable.

(34)