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Latin American neighbors working together to improve electric power supply

Latin American neighbors working together to improve electric power supply

This busy region is exploring a variety of technologies and fuels, bringing contracts and projects online with international consortiums

By Ann Chambers

Associate Editor

With a 628 GW hydroelectric potential, Latin America is expected to be second only to China in new hydroelectric capacity. Over the next 15 years, this region is projected to install 121 GW of new capacity. Of this total, hydropower will account for 58 GW, costing (US)$52 billion. Gas will provide 37 GW, at a cost of (US)$23 billion; and coal will fire 15 GW, for (US)$22 billion.

Over the next 20 years, electricity demand in Central and South America is expected to grow fairly steadily, at around 2.6 percent annually. Demand is expected to increase to accommodate an expected 2.2 percent annual population growth rate, to expand the percentage of the population served by electricity and to keep pace with economic growth. Increased demand will be met by new generating capacity and by greater use of existing capacity. There is currently surplus capacity in some Central and South American countries where demand growth has been lower than expected. For example, Venezuela is selling surplus to Brazil and Colombia.

Approximately 70 percent of the population has access to electricity as a result of large investments in generation, transmission and distribution facilities in the 1960s and 1970s. Consumption per capita has also increased dramatically in the past decade, from 1.0 to 1.4 MWh, placing it above many other developing regions but still below the 6.6 MWh average in developed countries.

Climate change

The electric power industry in Central and South America is undergoing significant change. The overall economic climate and the need of governments to focus their limited resources on social infrastructures, have led to a shortage of public financing for the region`s capital-intensive electricity industry. Concurrently, international lending institutions face severe competition for their resources and are focusing their emphasis on sectors that cannot find financing from the private sector. There is also a general perception of large inefficiencies in the region`s electricity production and consumption, which is moving many governments toward deregulation and privatization of electric power industries. Chile, Argentina and Peru have followed the lead of the UK in restructuring their power industries, including the separation of generation, transmission and distribution activities.

The restructuring is being followed by strong efforts to ensure competition and privatization. In Argentina, unbundling of the industry has entailed the sale of state-owned companies and the formation of private companies. Privatization is allowing more and more players into the field; and as construction continues and the infrastructure expands and diversifies, more of the population will have access to electricity, and demand growth should be only one step behind the spreading transmission lines.

Brazil is expected to be the biggest player in the region, accounting for more than 30 percent of the new capacity in the coming decade, a projected 25 GW. Mexico is next with around 12 GW of capacity additions expected. Colombia could add more than 8 GW and, Venezuela more than 7 GW. Argentina and Chile are also expected to have aggressive growth and construction.


With electrical demand forecast to grow by as much as 6 percent in several Latin American countries, energy ministers and secretaries in countries such as Colombia and Peru have redoubled their marketing efforts to attract prospective international investors and developers to their energy sector privatizations.

Colombia`s attempt to improve investor perceptions of domestic electricity market stability has created a market structure similar to England and Wales, with a competitive generating pool which determines the price daily. In Peru, the Special Commission for Privatization (CEPRI) recently prequalified eight consortia in the bidding to own and expand the 200 MW Ventanilla power station. The selections are the second solicitation in the continuing privatization of Empressa Publica de Electricidad del Peru S.A. (ElectroPeru), the country`s largest utility.

Brazil and Venezuela are working together toward energy goals. The two state-owned electricity companies, Electrobras and Edelca are planning to leverage the 13,000 MW generating capacity of the Guri and Macagua hydroelectric plants on Venezuela`s Caroni River. Edelca has also proposed a 1,600 km transmission line across the border.

As Latin American countries travel down the road toward a final privatization destination, at least two key themes are clear: Investors need to know they can compete for creditworthy customers, and new power stations can be built according to competitive tender.

Latin America continues to make progress in privatizing state-owned assets, while fostering a new round of independent power development. As countries around the region forge ahead in opening their power sectors to additional private participation, companies that offer a broad range of energy development and operational services will find steadily improving business opportunities.

Power resources

Wind energy is seen as a promising technology for this region, with an estimated market of (US)$250 million, according to some estimates. In addition to small wind plants, there is a steady stream of rural electrification projects using small hybrid wind and solar systems. There is currently more talk than action regarding wind and solar, but some projects are moving ahead. Developers are looking at 20 to 30 MW of wind projects for Chile`s northern regions, and in Ecuador the government is committed to wind but still working out its plans. The American Wind Energy Association estimates that 10 to 20 MW of wind power could be developed in Ecuador.

Natural gas is a big contender in this area for the coming years. The natural gas industry in the region is in the position to become an important force in the development of power generation across the continent. Natural gas projects are being spurred by the more stable political environment which allows the financing of these expensive projects. Location of gas reserves in relation to markets is slowing some development of the large reserves.

The general preference for hydroelectric power plants slowed entry of natural gas-fired power plants, and the hydro preference was driven also by the tendency of the region`s governments to construct large infrastructure projects regardless of their economic viability. South America has large proven gas reserves, up to 272 trillion cubic feet (TCF), plenty to supply regional demand and to produce gas for export.

In 1991, gas consumption in Latin America was less than 3.1 TCF, very low when compared to the 18.9 TCF consumed in the US or the 11.3 TCF in Western Europe. Only Argentina uses natural gas at levels comparable to the US, as this nation counts natural gas for 40 percent of its primary energy. Argentina, Bolivia, Brazil, Chile and Peru are the most promising markets for natural gas development.

Since hydroelectric facilities provide most of the electricity in many of these nations, power supply is heavily dependent on rainfall. The nations are looking to other sources of electricity, and they are increasingly turning to natural gas. Natural gas-fired facilities can be up and running much quicker than hydroelectric plants, and natural gas is less expensive to burn than other fossil fuels. Natural gas also burns cleaner, making it easier to fit into the stringent environmental regulations of the region.


The Central American countries are working to interconnect their utilities with a transmission line of 500 kV with an approximate length of 1,678 km called the Central American Electrical Interconnection System. The system will link stations in countries from Guatemala through Panama.

The project was planned by technicians to permit transport of all possible energy to reinforce and stabilize the distribution systems in the area. According to local officials, the electrical power systems in the region are partially interconnected by about 230 km of transmission lines, but the connection does not permit complete power exchanges among the countries.

The project will be developed over a 10-year period with the first stage set in 1997, interconnecting 230 km between El Salvador and Honduras. The complete main transmission line will have a capacity of 500 kV but will be energized only with 230 kV in the first stage. The second stage, between the year 2003 and 2004, includes energizing of the other 500 kV, including additional power generation projects to be developed in the region. The Central American interconnection project will require an investment of (US)$500 million and will be financed by the Inter American Development Bank.

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Contracts and developments in Latin American markets

Aguaytia Energy del Peru SR Ltd. has completed financing agreements for a (US)$250 million gas and power project in Peru. It is one of the first privately developed merchant power plants in Latin America. Other companies in the joint venture include El Paso Energy International, Maple Gas Corp., PanEnergy International Corp., Illinova Generating Co., Scudder Latin American Power Fund and Power Markets Development Co.

Valesul, a Brazilian aluminum company, has started work on a hydroelectric plant at Rio Preto in Minas Gerais. The plant will be the first energy generation unit built by a consumer under new legislation, according to Companhia Vale do Rio Doce, a Brazilian mining firm and principal shareholder in the plant.

Eight Argentine utilities are banding together to launch projects valued at (US)$275 million. The alliance has announced plans for a (US)$250 million line from Patagonia`s Comahue area and a (US)$25 million capacitor project to increase electrical supply to the Buenos Aires region from 2,700 MW to 4,600 MW within three years.

A consortium of Abengoa S.A. of Seville, Spain, and Siemens Corp. are providing turnkey construction of the Ventanilla gas turbine-fired power plant in Lima, Peru. The facility will have two 150 MW stages. Unit 1 is set to go online by the end of this year, followed by Unit 2 in the first quarter of 1997.

Luz del Sur, a Peruvian electricity distributor, has invited bids to supply it with 600 MW of extra generating capacity, starting in November 1998. Luz del Sur serves central, eastern and southern Lima, where consumption rose 9.3 percent in the first half of 1996.

Colbun Machicure, a Chilean utility, has awarded a (US)$132 million turkey contract to Siemens for the construction of the Nehuenco combined-cycle plant 50 miles northwest of Santiago, Chile. Plant commissioning is scheduled for May 1998.

Merilectrica S.A. ESP has received the environmental license from the Colombian government for its 160 MW gas-fired plant in Barrancabermeja. The license is considered the last major hurdle for the project.

CMS Generation Co. has purchased all equity interest from its partners in the YPF-La Plata Cogeneration Project, a 128 MW independent power plant under construction in Buenos Aires Province of Argentina. Construction of the natural gas-fueled plant began in April and is scheduled for completion in the fall of 1997.

CEPEL, the Electric Power Research Center of Electrobras, has awarded a (US)$1 million contract to Photocomm Inc. for solar electric power and water pumping systems to service 83 remote, off-grid villages in Brazil. Photocomm is providing 244 solar power systems for basic village electrification needs and 54 solar water pumping systems.

Paranapanema has signed a contract worth (US)$22 million with a Brazilian and Argentine consortium to supply equipment for the Sobragi hydroelectric plant in Minas Gerais. Construction of the facility began earlier this year, with completion scheduled for December 1998.

Repowering is under way on the Centrales Termicas Mendoza S.A. electric generation plant in western Argentina. The project includes refurbishment of an idled steam turbine and addition of a new gas turbine to upgrade the plant to combined-cycle operation. The work will boost the plant`s capacity from 242 MW to 506 MW of baseload capacity.

ABB has won a (US)$145 million order for a turnkey 165 MW coal-fired power plant, for private power producer Electricadora de Sochagota. The plant, Termopaipa IV, will be sited 150 km north of Bogota, Colombia. Construction has begun and commissioning is expected in about 30 month.

Besicorp Group Inc. has announced a memorandum of understanding (MOU) for the development of a bagasse-fired cogeneration project in Parana, Brazil. The MOU involves Companhia Paranaense de Energia, a state-owned Brazilian electric utility; Associacao do Produtores de Acucar e Alcool do Parana, a state association of sugar and alcohol producers; and Besicorp. Besicorp is performing feasibility studies for cogeneration projects of approximately 30 MW to 50 MW at various sites.

Intergen, a consortium of US independent power producers, has been chosen to construct a 600 MW thermal power facility in Cuzco, Peru. The plant is part of the efforts to develop the Camisea natural gas fields in Peru.

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