Market Assessment of Chile

11. Energy Service Companies

Market Opportunity

US energy service and management companies have an immediate opportunity to develop projects in Chile. Relatively costly electricity, the progressive nature of the private sector, significant potential for improved energy efficiency in buildings and industry and a supportive investment environment make Chile an attractive market.

Market Conditions

Chile does not require its electric utilities to conduct integrated resource planning or demand-side management, nor does it provide regulatory incentives for DSM. As a result, there is very little DSM activity among Chilean utilities and no existing market in energy service companies (ESCOs).⁵³ There is, however, a strong potential demand for ESCO services in Chile. Two US ESCOs have begun to investigate opportunities in Chile and at least one company is expected to develop a project in 1995.

Chile's economy is based in energy-intensive industries, particularly copper mining, pulp and paper, textiles and food processing. These industries are under pressure to reduce production costs, part of which result from the consumption of expensive electricity. In some parts of the country, companies pay as much as US$0.10 per kWh. As a result, there is growing awareness and interest among industry regarding the life-cycle cost of energy technologies.

A National Energy Commission study has identified the potential to reduce electricity consumption by 28 percent among Chile's major energy-using industries via improved energy efficiency. Twenty percent of these savings are expected to have a payback time of less than one year. Other studies have also identified cost-effective efficiency opportunities in the textile industry and commercial building sector.

Chile's engineering, financial and energy technologies industries can effectively support ESCOs. The country has an excellent private engineering sector with the capacity to handle 2.5 million man-hours of engineering per year. There are 250 established engineering firms in Chile, including subsidiaries of US companies such as Fluor Daniel, Bechtel, Dames & Moore and Foster-Wheeler. Extensive engineering expertise is also located within large companies, such as Chile's largest copper company, Codelco. Energy-efficient technologies for commercial buildings and industrial applications are manufactured locally or can be imported to Chile. Also, the Chilean financial community is open to financing energy efficiency projects.

Energy Efficiency and ESCOs in Chile

Both the industrial and commercial sectors offer opportunities for ESCOs in Chile. The industrial sector consumes an estimated 59 percent of the country's electricity and contains many opportunities for improved energy efficiency. Studies to date on energy efficiency potential have looked at the copper and textile industries (see Section 4). Chile's commercial building sector is growing rapidly and high electricity prices are making energy-efficient technologies increasingly attractive to building designers and builders (see Section 4).

The concept of ESCOs has begun to generate interest in Codelco, Chile's copper mining giant. IIEC and the University of Chile have a contract with Codelco to increase awareness of energy efficiency within the company's management and possibly to create an ESCO within a division of the company. The project will also investigate the feasibility of a division-wide life-cycle costing policy for new energy-using equipment.

A current Global Environment Facility (GEF) project will highlight the potential for ESCOs in Chile's industry. The project will use ESCOs to help improve the energy efficiency of motors in the Chilean copper mining industry (see Section 6 for more details).

IIEC Seminar on ESCOs in Chile

ESCOs are invited to attend IIEC's seminar on market opportunities for ESCOs in Chile. It will take place in September 1995 in Santiago. More details are available from IIEC.

ESCOs with experience internationally are likely to play a role as advisors and in training and pilot projects. Since the project has not yet begun, ESCOs with international experience still have the opportunity to get involved in the project.

Notes:

⁵³. An exception is the participation of some distribution utilities in Chile's municipal streetlighting retrofit efforts.