Chilean electricity distributor Empresas Emel SA (EMEL.SN) has
awarded power generator Empresa Electrica del Norte Grande SA
(EDELNOR.SN) a 14-year contract worth about $3 billion to supply
its distribution subsidiaries in northern Chile from 2012 to
2026.
Edelnor will supply Emel's subsidiaries Empresa Electrica de
Arica SA, or Emelari; Empresa Electrica de Iquique SA, or Eliqsa;
and Empresa Electrica de Antofagasta SA, or Elecda, with a total
1,800 gigawatt hours of energy annually from 2012, gradually
increasing to 2,300GWh by 2016 and remaining at that level until
2026.
Edelnor submitted the lowest economic bid - $89.99 per megawatt
hour indexed 60% to the monthly average Henry Hub
liquefied-natural-gas price and 40% to the U.S. consumer price
index - for all 23 sub-blocks of energy supplies on offer.
The generator linked its bid to the LNG price because it is
controlled by state copper miner Corporacion Nacional del Cobre de
Chile and Belgian-French energy giant Suez (SZE.FR), which are
developing a project to import LNG to northern Chile. The
Mejillones regasification terminal is scheduled to start receiving
LNG in early 2010.
Edelnor's 250 megawatt CTM3 unit at its Mejillones
thermoelectric complex is currently operating with diesel in the
absence of Argentine gas supplies, but will switch back to burning
natural gas once LNG arrives. Argentina began restricting gas
exports to Chile in 2004, forcing power generators to switch to
diesel.
Edelnor has told the local securities regulator that most of the
energy supplied to Emel's clients will be generated using
regasified LNG from Mejillones.
But it does not need to burn imported gas to supply Emel. Plants
in northern Chile's Sistema Interconectado Norte Grande, or SING,
grid are dispatched in order of the lowest marginal cost, which
means that coal-fired plants, which are cheaper to run than plants
using LNG, would be dispatched before Edelnor's CTM3 plant.
Edelnor's CTM1 and CTM2 plants burn coal and there are several
new coal projects in construction in the SING, so it is likely CTM3
would act as back-up supply while most of the energy would come
from coal generation, said Jorge Donoso, an analyst with brokerage
LarrainVial.
"Either way, whether Edelnor generates with LNG or buys cheaper
power on the spot market, it is good business for Edelnor," Donoso
told Dow Jones.
Moreover, Edelnor does not have to make any new investments to
meet its contract obligations. "It can switch over its CTM3 plant
[to gas], but it doesn't have to build any new ones," said
Donoso.
The contract will double Edelnor's capacity and energy sales
with a total contracted capacity of 680MW from 2012, the company
said.
"It's good for Edelnor to secure its supply volumes and
operating income going forward," said Adolfo Moreno, a utilities
analyst at IM Trust.
Edelnor's bid came in well below the maximum price set by Emel
for the tender, which was $138.22/MWh, and below those of its rival
generators.
AES Gener (GENER.SN), owned by AES Corp. (AES) of the U.S., bid
$105/MWh for one sub-block indexed 65% to the U.S. CPI and 35% to
the monthly average coal price.
The other bidder, GasAtacama Chile SA bid between $105 and $138
for four sub-blocks indexed 90% to the monthly average diesel price
and 10% to the U.S. CPI.
GasAtacama is controlled by Chilean generator Empresa Nacional
de Electricidad SA, or Endesa (EOC) and Latin American private
equity fund Southern Cross.
"We are happy, the tender attracted great interest in the market
and we received bids that exceeded by a large amount the energy
required," said Emel's general manager, Cristian Saphores.
Energy Minister Marcelo Tokman also applauded the result of the
tender, highlighting that energy supplies are now assured in
Chile's central and northern grids for the next decade.
"This is a sign that the country has entered another stage of
energy development," Tokman told reporters Thursday.
As to how the deal will affect consumers in the SING grid, the
price offered by Edelnor is lower than consumers currently pay for
power, which is over $100/MWh, but it depends on the future Henry
Hub gas price, which is linked to the oil price, Donoso said.
According to its Web site, Emel supplies power to 575,634
clients in northern Chile through 895 kilometers of transmission
and sub-transmission lines.
Edelnor operates the 591MW Mejillones thermoelectric complex in
the SING as well as several smaller diesel plants and one
hydroelectric plant.
Edelnor posted net profit of $129 million in 2008 with profit
expected to fall 24% to $98 million in 2009 due to lower energy
prices in the SING as a result of lower fuel prices, according to
LarrainVial
As a result of the contract, LarrainVial changed its
recommendation for Edelnor's shares to attractive from not
attractive.
Edelnor's shares were trading up 3.4% to CLP827.00 midday
Thursday, while the Ipsa blue chip index was up 0.6% overall.
Edelnor has traded at a 52-week high of CLP799.91 and a low of
CLP401.10.
-By Julian Dowling, Dow Jones Newswires; 56-2-820-4241;
julian.dowling@dowjones.com