Copper Mine Glut Puts Brakes on Latin America's Clean-Power Boom

  • As Chile mines contract, demand slows for surplus electricity
  • Too many solar, wind plants and no way to send power elsewhere

The global copper slump is helping to tap the brakes on Latin America’s fastest-growing renewable-energy market.

Chile, the world’s biggest copper producer, has been adding solar panels and wind turbines for two years to supply power-thirsty smelters that process ore from remote mines in the sun-baked northern desert. But with metal prices half what they were five years ago, output fell and energy demand slowed. That’s compounding an electricity glut in a self-contained power grid thousands of miles from population centers in the stick-shaped South American country.

“The first boom of clean energy is over,” said Carlos Barria, a former chief of the government’s renewable-energy division who is now a professor at the Pontificia Universidad Catolica de Chile University in Santiago. “We are going to see fewer new projects.”

While solar installations will triple this year, reflecting projects financed before the electricity-price slump, banks have pulled back on financing, which means the number of new panels in 2017 will plunge by 66 percent, according to Bloomberg New Energy Finance. For wind turbines, the slump will happen sooner, with installations dropping 62 percent in 2016, after developers added 900 megawatts in the previous two years, BNEF estimates.

Northern Expansion

Most of the new capacity has been built in the northern region of a country that stretches more than 4,200 kilometers (2,600 miles) along the Pacific Ocean from Peru to the Southern Ocean of Antarctica. There are no transmission lines to connect electricity generated for the mining industry -- which uses a third off Chile’s energy -- to the power grid serving the more-populated areas in the central part of the country, or further south.

Spot electricity in Chile tumbled last year to $104 per megawatt hour, down 34 percent from 2013, Energy Ministry data show. Prices in the regulated market also are falling, fulfilling a pledge by the government to reduce power costs. As recently as October, as more wind and solar plants came online, electricity was being auctioned at $79.30. 

“There is overcapacity in the north of Chile, and the prices are going down,” said Rafael Mateo, chief executive officer of the energy unit at Acciona SA, which already has a wind farm in Chile and is building solar projects in the country. Alcobendas, Spain-based Acciona wants to have 1 gigawatt of renewable energy capacity by 2020.

Compounding the glut is the mining slump. Too much copper and slowing global demand sent the metal to a seven-year low in January, and several big producers including BHP Billiton Ltd. and Anglo American Plc have reduced operations in Chile. The country’s total production in the first two months of the year were 6.7 percent lower than the same period in 2015, according to the National Statistics Institute.

Spending Freeze

More than 70 percent of planned spending on new production is either frozen or under review, and investments over the next decade may reach $40 billion at most, less than the $110 billion expected in 2012, according to the National Society of Mining, known as Sonami. The organization now estimates the industry’s electricity needs will rise by 54 percent in the next decade, down from a forecast of 80 percent in 2014.

“Consumption is still growing, but not at the same pace as before,” said Alvaro Merino, manager at Sonami.

That’s altered the economics of new power plants, especially those unable to secure long-term contracts to supply customers.

“To finance solar energy in Chile now is a hard thing to do, because most of them are in the north,”said Rodrigo Violic, head of project finance at the Santiago-based lender Banco Bice. “From now on, not all projects will get financing contracts.”

The government is still pushing ahead. It wants to reduce carbon emissions, and is targeting 70 percent of its power coming from clean sources by 2050, a seven-fold increase.

"In two years of government we have doubled the number of renewable energy parks under construction," Energy Minister Maximo Pacheco said in an interview in his office in Santiago. "Almost half of all projects that we are building are from clean sources."

More Power

As of February, there were 52 clean-power plants under construction in Chile, with total capacity of 2.8 gigawatts. About 4.7 gigawatts of new capacity will be added over the next three years, according to New Energy Finance.

The country still has supply bottlenecks. It can’t easily move power from hydroelectric plants in the south to copper mines in the north. Even as renewable sources expanded in the north, the electricity couldn’t be delivered to other parts of the country in times of drought.

The government is developing transmission projects to connect the two main grids by 2017, and is planning a 3,000-kilometer line that will link renewable-power plants in the north to the main distribution system by 2018. Until then, there will be a mismatch between the supply and demand, which is bad news for plant developers.

"You just can’t have so many developers at the same place,” Acciona’s Mateo said. “Like any other, renewables growth must be ordered, and in Chile, it grew disordered.”

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