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Chile faces blackout risks on frail grid-energy min

Mon, 20 Feb 2012 12:40 GMT

Source: reuters // Reuters

A view of the drought-hit Runge reservoir, some 60 km (37 miles) north of Santiago. REUTERS/Ivan Alvarado

(Repeats Feb. 17 story for additional readers with no changes to headline or text)

* Chile grappling with third consecutive annual drought

* Fragile power grid susceptible to disruptions

* Government preparing energy reforms

By Alexandra Ulmer and Fabian Cambero

SANTIAGO, Feb 17 (Reuters) - Top copper producer Chile, already grappling with a severe drought, faces a risk of energy blackouts because of a creaking power grid that threatens the economy, the energy minister said.

Chile's power network is creaking after decades of underinvestment and it will take years to shore it up to head off a repetition of massive blackouts such as one in September that hit operations at major mines and cost state copper company Codelco over 1,400 tonnes in lost output.

A third year of drought, which has parched agricultural lands in central Chile and hit crops such as avocado and water supplies in some rural areas, is adding pressure. Reservoirs were at 40 percent capacity last month.

"(Blackouts) are a real risk. It doesn't even depend ... on the drought," Energy Minister Rodrigo Alvarez said on Friday. "Even if we had an enormous amount of water in our (hydroelectric) reservoirs, there could be a risk of an eventual blackout because the system is conditioned by problems in transmission and distribution."

Chile has been hit by several blackouts since a massive earthquake in early 2010 damaged transmission lines and stations in its south-central region.

GOVERNMENT TO WEIGH MORE DIESEL, GAS IMPORTS

The government will evaluate in March whether to prolong energy saving measures taken last year that include reducing voltages and saving water in reservoirs. It had said the measures would be lifted in April. The government also delayed the end of summer time last year to fend off the energy squeeze.

Alvarez said the government would also consider whether to increase diesel and gas imports.

Chile relies heavily on hydroelectric power and produces barely any crude of its own. Rain shortages force generators to rely on expensive fuel-driven plants, compounding inflation risks in an economy that is expected to slow sharply this year to around 4 percent growth after growing over 6 percent in 2011.

Earlier on Friday, the government announced a sharp drop in residential electricity bills, which should help ease inflationary pressures, but the move likely will not be enough on its own to restart the central bank's rate-cutting cycle.

La Nina, which is caused by an abnormal cooling of waters in the equatorial Pacific Ocean, has deprived key agricultural areas of crucial rainfall, triggering fears of crop shortfalls and higher food prices.

"It's a serious situation. We're in the third year of drought," said Alvarez, who whipped off his tie in a recent government advertisement urging Chileans to do the same to save energy during the summer.

"Diesel and gas are both products we need from international markets. Has the decision to import extra amounts due to the situation this year been taken? No ... We have to be clearer on what will happen with water and decide in March (what measures to take)."

Guinea provided nearly half of all liquefied natural gas (LNG) imports in 2010, according to Energy Ministry data, while Trinidad and Tobago, Egypt and Qatar together provided 44 percent of the total.

The United States, South Korea and Japan each accounted for roughly a third of 2010 diesel imports, the data showed.

"It's a real barrier to our productivity," Alvarez said. "We have expensive energy compared with competitor countries in Latin America, as well as expensive energy compared with other member countries of the OECD."

President Sebastian Pinera wants to boost energy generation to head off possible rationing, but key projects such as the massive HidroAysen hydropower dam project in Patagonia face strong resistance from environmental activists.

Industry groups, such as key miners BHP Billiton Ltd and Codelco, have urged the government to do more to meet growing energy needs and lower the cost of power, which has hurt their margins.

Pinera is due to announce a revamping of the country's shaky energy grid, which could include building a transmission line to link Chile's south-central and northern grids.

"Our government has taken the decision to not continue burying its head in the sand like an ostrich," Pinera said at an annual energy dinner last month. "We could face serious problems in the second part of the decade if we don't make decisions now." (Reporting by Alexandra Ulmer, Fabian Cambero and Simon Gardner; editing by Andre Grenon)