In Chile, mining boom expands electricity market

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Electricity demand in the Interconnected Electrical System of Central Chile is expected to grow at a compound annual growth rate (CAGR) of 4.7 percent and the Interconnected Electrical System of Northern Chile, at 3.4 percent during 2012-2016.

This sustained demand, along with the boom in the country's mining industry, has brightened the prospects of stakeholders in the Chilean electricity market.

New analysis from Frost & Sullivan, Analysis of the Chilean Electricity Market, finds that the market earned revenues of $2.21 billion in 2011 and estimates this to reach $2.70 billion in 2016, mainly driven by sustained growth in electricity demand, the economic boom of the mining industry and foreign investment.

Chile is the largest producer of copper in the world. As the Chilean mining industry benefits from high international copper prices and favorable domestic market conditions, the opportunities for power generation and transmission companies will increase simultaneously, attracting foreign investments.

"Foreign investments will fuel activity in the new centralized generation plants, therefore augmenting power generation's installed capacity," said Frost & Sullivan Industry Analyst Martin Cataife. "Competitiveness in the generation segment has opened the doors to many investors looking for growth opportunities."

Transmission and distribution are also attractive investment options. Global companies, especially those funded by Spanish and Italian capital, have already established local offices in the country.

However, the energy matrix's dependence on fossil fuels does not bode well for power generation and therefore, power transmission and distribution. This trend will result in higher electricity tariffs, thereby pegging back the overall market.

A major imbalance between electricity demand and electricity production will occur in Chile if utilities do not reduce their reliance on thermal energy, and large utility projects are not terminated by judicial ruling.

"To sustain growth in the electricity market, current and future participants need to enlarge and diversify the energy matrix with renewable energies," noted Cataife. "Power utilities will succeed in expanding the electricity market by investing in renewable energy development (wind, solar and hydro power plants) as well as transmission network expansion."

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