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Chile may face energy squeeze, could ration power

by (c) Copyright Thomson Reuters 2011. Click For Restrictions. http://about.reuters.com/fulllegal.asp | Thomson Reuters Foundation
Thursday, 3 February 2011 20:58 GMT

(c) Copyright Thomson Reuters 2011. Click For Restrictions. http://about.reuters.com/fulllegal.asp

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* Long drought seen hitting hydroelectric generation

* Reserves at dams touch lowest levels in a decade

* Greater reliance on thermal plants hurts earnings (Updates with minister comments, plant delays, background)

By Brad Haynes

SANTIAGO, Feb 3 (Reuters) - Chile may face an energy squeeze by as early as midyear because of drought and high demand, and could resort to rationing electricity if needed, Energy and Mining Minister Laurence Golborne said on Thursday.

Chile relies heavily on hydroelectric power to meet energy needs in the world&${esc.hash}39;s top copper producer, and rain shortages force generators to rely on costly fuel-driven plants, compounding inflation risks in country&${esc.hash}39;s fast-growing economy.

"We will analyze conditions ... to take measures, which could include a rationing decree if it&${esc.hash}39;s necessary," Golborne told reporters only hours after a mishap at a substation triggered a brief blackout in south-central Chile.

Chile was hit by several blackouts last year after a massive earthquake on Feb. 27 damaged transmission infrastructure.

Analysts in Chile play down the risk of energy shortages, but warn of possible blackouts given reliance on backup generators. They also point to rising prices as the country relies more on thermoelectric plants after reserves at hydroelectric dams dropped in 2010 to their lowest level in ten years.

Consumers aren&${esc.hash}39;t the only ones feeling the pinch.

Regional energy group Enersis <ENE.SN> <ENI.N> and local subsidiary Endesa Chile <END.SN> <EOC.N> reported last week that their bottom lines suffered in 2010 due to reliance on fuel-driven plants.

Thermoelectric generation outpaced hydro energy last year for the first time in at least a decade, according to Santiago-based engineering firm Systep, helping roughly quadruple electricity prices since 2000.

The central grid, or SIC in its Spanish initials, which supplies more than 90 percent of the population, is most likely to be hit by the energy squeeze because of its reliance on hydro power. The far northern grid, which powers miners in the copper-rich north, uses energy generated by thermal plants.

INFLATION WORRIES

Golborne said local energy costs could keep rising as international oil prices spike on unrest in Egypt that has spread to Arab countries in the Middle East, the world&${esc.hash}39;s top oil producer.

Higher energy costs are seen adding to fast-rising inflation, which has become a concern for the central bank as world food prices exert upward pressure. The central bank is seen by many in the market raising its key rate at its Feb. 17 monetary policy meeting to keep a lid on consumer prices.

Energy shortages and rationing could hit output at several industries, including the crucial mining sector that produces about a third of the world&${esc.hash}39;s mined copper.

Key copper mines in central Chile, like the 400,000 tonnes per-year El Teniente mine owned by state giant Codelco, and Anglo American&${esc.hash}39;s <AAL.L> Los Bronces, were briefly hit by blackouts last year, at times slowing output.

More generation has been slow to come online as environmental concerns have snagged mega-projects like the 2,750 MW Patagonian dam project HidroAysen and the 2,350 MW coal-fired Castilla plant proposed by Brazil&${esc.hash}39;s MPX Energia.

For details, see [ID:nN30138247] and [ID:nN15275276]

Last year&${esc.hash}39;s devastating earthquake also pushed back completion dates for two new 340 MW coal plants, Endesa&${esc.hash}39;s Bocamina 2 and Colbun&${esc.hash}39;s <COL.SN> Santa Maria, to June and August respectively.

Now, President Sebastian Pinera has charged Golborne, who assumed control of the energy ministry last month, with preparing the country to double its generation capacity in the next ten years.

"We can&${esc.hash}39;t keep debating new plants case by case," warned Golborne. "We need a long term vision for energy supply." (Editing By Alonso Soto and Marguerita Choy)

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