Boston, MA -- (SBWIRE) -- 05/02/2014 -- Chile is one of the most attractive markets in Latin America, with political stability, abundant natural resources and a healthy economic growth outlook all adding to its appeal. But in terms of energy, Chile's geography and considerable distances between urban areas and potential sources of power, all create challenges in the electricity market. Hydroelectricity accounts for about one-third of production, but it is a sector shrouded in regulatory uncertainty and lengthy appeals processes. While rumours of new hydro projects abound, there is no guarantee these proposals will become a reality soon. In the thermal sector, gas-fired projects are gaining ground and these are appealing because of their reliability when compared to renewable sources of power. That said, renewable energy will continue to play an increasing role in the electricity mix, with solar and wind power projects particularly popular.

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Domestic demand for energy in Chile is growing, and as electricity generation struggles to keep up with the pace of demand, energy shortages are feared, and price hikes are already emerging. Chile needs to diversify its electricity-generating mix to ensure that supply meets the growing demands of the population and its energy-intensive mining industry. However, efforts to boost electricity production from other sources, such as coal at the Punta Alcalde power plant, are held back by lengthy approval and appeals processes, while environmental concerns continue to disrupt investment in established sectors such as hydroelectricity.

During the period 2014-2023, BMI forecasts that Chile's total power generation will increase by an annual average of 5.4%, reaching 115.3 terawatt hours (TWh). The population is expected to rise from 17.5mn to 18.9mn during this period, with net power consumption set to rise from 63.5TWh in 2014 to 76.6TWh by 2018 and then to 95.8TWh by 2023.

The key developments in Chile's power sector since last quarter are:

- The planned construction of a US$730mn hydroelectric dam - approved in late 2013 after lengthy a lengthy legal process - has been blocked once more by an appeals court on Coyhaique, which cited environmental concerns. The project, a joint venture between Origin Energy and Glencore Xstrata, will produce 640MW of electricity and is a further example of the uncertain regulatory climate faced by investors in Chile.
- Copec announced in November 2013 it plans to sell its share in the thermal power plant Guacolda. AES Gener - which already holds a stake in the power plant - is tipped to be keen to bid, to take full control of the power station.

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