In great news from Chile, the country’s largest energy company, Endesa Chile, announced Tuesday evening that it was giving up the water rights for five different hydroelectric projects. After investing US$52 million in those water rights over the years, the company’s analysis showed that maintaining ownership was simply not profitable as the projects were neither technically viable nor accepted by local communities.
This is a big deal. It represents a real and significant shift in Chile’s energy sector. Previously, energy companies could build large hydro projects without giving much thought to social or environmental impacts. Overall, a company’s only real concern was its balance sheet, and profits were boosted by the fact that large hydro was one of the cheapest options for new power generation.
The main difference now –illustrated by Endesa Chile’s announcement—is that companies are recognizing that social and environmental concerns can significantly alter that balance sheet. In addition—and this is also critical to understanding the sector—Chile’s August 17 energy auction proved that large hydro is no longer the cheapest option for new generation, as wind and solar power projects competed at lower prices than conventional technologies and won over 50 percent of the energy that was contracted.
Simply put, as non-conventional renewables become more established in the market, and communities and environmentalists play an increasingly active role in the project evaluation process, building large and technically complex hydro projects—particularly far away in Patagonia—is not good business.
The five projects that Endesa Chile effectively canceled (by returning the water rights) would have had a combined installed capacity of 2,151 MW – not far off from the company’s existing portfolio of 2,725 MW in hydro. They are:
· Bardón on Cautín River, in the Araucanía Region with an installed capacity of 14 MW;
· Chillán 1 and 2 on the Chillán River, in the Biobío Region with an installed capacity of 17 MW;
· Futaleufú on the Futaleufú River, in the Los Lagos Region, with an installed capacity of 1,330 MW;
· Puelo on the Puelo River, also in the Los Lagos Region with an installed capacity of 750 MW); and
· Huechún in the Metropolitan Region, with an installed capacity of 40 MW.
Unfortunately, a key phrase in Endesa Chile’s announcement points to a cause for us all to be cautious in our enthusiasm for the announcement. When Valter Moro, general manager said, “we are returning these water rights to the country so that they can be used for another type of development,” he alluded to the fact that these rights will likely be bought by another company for another project – be it hydroelectric or something else.
Since Chile’s 1981 Water Code privatized the country’s freshwater resources, people and companies can buy and sell rights to those resources much as they can buy and sell land. The code is designed to exploit rivers for economically productive ends. Said differently, it is not set up to allow the government to value water unless it is used for ‘productive’ purposes. It does not value a free-flowing river as such.
This is unfortunate, since the country’s rivers that are threatened by large hydro play important roles in the local economies, namely in the tourism industry. The Cautín, Chillán, Futaleufú and Puelo Rivers, for example, have renowned rapids for whitewater rafting and kayaking, great opportunities for fishing, and stunning landscapes for hiking that attract tourists from Chile and around the world – tourists who also spend money on lodging, food, transportation and more. Aesthetics aside, there is great value in keeping these rivers flowing freely.
This is where the Water Code reform that is now underway could benefit from looking at international examples of river conservation. One example is the 1968 U.S. Wild and Scenic Rivers Act that protects rivers with “outstandingly remarkable scenic, recreational, geologic, fish and wildlife, historic, cultural or other similar values.” It maintains the “free-flowing condition” of designated rivers while still recognizing their potential use and development.
Endesa Chile’s decision to return the water rights of these five river systems is certainly cause for celebration and also an acknowledgement of the energy sector’s overall transition towards truly sustainable and clean energy sources. Yet it is also a reminder that Chile’s rivers – and the local communities and economies that depend on them – need broader protection if they are going to avoid the impacts of being dammed in the future.