A Surprise Announcement Paralyzes HidroAysén

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In a surprise announcement yesterday evening, Colbún –partial owner of HidroAysén and one of the largest energy companies in Chile—announced that it is indefinitely suspending the environmental impact assessment process for HidroAysén’s transmission line. This move can be interpreted as a display of discontent with an unclear government policy, or as a way for the company to get out of the increasingly expensive project. But one thing is clear: this announcement clearly demonstrates that the future of HidroAysén is a big question mark – and that investors and international financial institutions should steer clear of this project.

HidroAysén is a $10 billion joint venture between Colbún (49 percent) and Endesa Chile (51 percent), aiming to build five mega-dams on two of Chile’s wildest rivers, the Baker and the Pascua, located in the heart of pristine Patagonia. After a twelve-year construction period, all five operational dams would have a combined installed capacity of 2,750 MW, and their power would be sent to the main grid via a new 1,200 mile-long transmission line. In May 2011, after a contentious three-year review of its woefully deficient environmental impact assessment, HidroAysén received the environmental permit for its dams. The next big hurdle for the company is the environmental review of the transmission line, which is likely to take years. HidroAysén has already delayed that review process many times, and the most recent indication from executives was that they would deliver the environmental impact assessment at the end of 2012. Now, it is unclear how long that delay could last.

                  site of one of the two dams HidroAysen plans for the Baker River

Colbún’s board cited unclear government policy as a reason for removing itself from the environmental review process, saying that Chile has no clear long-term energy strategy with anything resembling broad consensus or support. Interestingly, the International Energy Agency said the same thing back in 2009 in its Energy Policy Review for Chile. And NRDC and our partners have also been making the call for a strategic and coherent energy policy for Chile. President Piñera did release a new National Energy Strategy in February, but the document is ultimately vague and lacking the specificity which project developers, investors and indeed the general public need to understand where the future of the energy sector is headed. The company correctly stated that this clarity is necessary to “develop energy projects of this magnitude and complexity.” No other energy project in Chile is as big or as complex as HidroAysén, and to push ahead with it, despite an unclear future for the energy sector and in the face of massive public opposition would be an incredible gamble.

Some surmise that this could be Colbún’s way of getting out of the project altogether. Such a situation would leave the door open for Endesa Chile, owned by Italian energy giant Enel, to become the full owner. Alternatively, several foreign companies have also recently shown interest in HidroAysén’s transmission line:  Petrobras (Brazil), Interconexion Electrica or Isa (Colombia), and State Grid (China). Any of these options would leave HidroAysén entirely in the hands of foreigners, putting the claim that HidroAysén is in the national interest on the chopping block.

This project was a risky bet from the beginning, and now it is clear that HidroAysén’s future is more uncertain than ever. The project’s price tag has grown from $4 billion in 2007 to $10 billion, and the longer it is delayed, the more expensive it will become.

However, this is also an opportunity for Chile to advance less destructive and more flexible energy options. Non-conventional renewable energy projects are on the rise throughout the country: solar projects in the north, geothermal along the Andes, wind farms all over and ocean energy in the very southern tip. Energy efficiency also has a major role to play in helping Chile meet its future energy needs. A study by international energy experts (disclaimer: NRDC helped fund the study) showed that Chile has more than enough potential in its renewable resources and efficiency options to generate more than double what HidroAysén would by 2025.

So if Colbún is looking to get out of HidroAysén, it is on the right track. The project is a political and financial folly. Chile, then, should also get out of the HidroAysén business and instead allow the new renewable and efficiency sectors to grow, to ultimately create a more diverse, secure and modern energy future.