Chile holds a number of promising opportunities for the US
energy efficiency industry. High electricity prices, rapid
economic growth and a dynamic private sector are driving
investments in energy-efficient products and processes. Chile's
economic stability and location also make it an attractive base
for export production.
This summary briefly reviews Chile's economy, electricity
sector and energy efficiency potential. It also summarizes market
opportunities by technology. More detailed information is
contained in IIEC's companion report.
Chile has a population of 14 million people and a Gross
Domestic Product of US$40 billion. It is one of Latin America's
economic leaders with a rapidly growing economy and a high degree
of economic stability. Between 1987 and 1992, the economy grew by
26 percent. In 1993, GDP grew by 6 percent. Principal industries
are copper mining, pulp and paper, industrial products, seafood
and fruit.
Chile's economy is beginning to diversify into manufacturing,
driven in part by record foreign investment in the country and
favorable government policies. For instance, Chile does not
restrict foreign ownership in companies, imposes relatively low
tariffs on imports (11 percent) and permits invested capital to
be repatriated after only one year. Chile's dynamic private
sector is capitalizing on these growing opportunities.
Chile is also an excellent base to access South America's
rapidly growing consumer market of 300 million people. This
status was recently confirmed when Chile became the first South
American country to be invited to join NAFTA, the North American
Free Trade Agreement.
Financing for US business in Chile is available through the
Inter-American Development Bank, the International Finance
Corporation, the Export-Import Bank, the Overseas Private
Investment Corporation and other public and private financial
institutions.
While Chile's government is openly supportive of economic
growth and foreign investment, it has yet to make improved energy
efficiency an official policy. Chile does not have energy
performance standards or utility incentives for demand-side
management, although performance standards are planned for
introduction in the next few years. The government has supported
selected efficiency projects like improved streetlighting and
large industry cogeneration.
Most of Chile's electricity is supplied by the private sector. The government regulates electricity prices but does not subsidize them and has a policy of non-intervention in energy markets. Wholesale markets and retail markets for large customers (> 2 megawatts) are largely deregulated. Electricity prices are relatively high (as shown in the following table) and offer a strong incentive for energy efficiency improvements.
| City | Node Price1 | Residential
(<100 kWh/mo) |
Street Lighting | Commercial/
Industrial, Low Tension |
Commercial/ Industrial, High Tension |
| Aysen Antofagasta La Serena Punta Arenas Valaparaiso Santiago Concepcion Puerto Montt |
7.78 7.19 4.87 4.62 4.05 4.05 3.85 3.31 |
19.52 16.33 13.69 11.32 11.54 10.97 10.50 11.19 |
14.85 12.21 9.27 7.71 8.23 7.81 7.51 7.86 |
18.70 14.70 11.76 10.33 10.55 10.15 9.59 10.15 |
11.64 10.30 6.87 5.76 5.98 5.68 5.61 5.68 |
Chile consumed roughly 23,000 GWh of electricity in 1994,
about the same as West Virginia. Electricity consumption grew by
8 percent per year between 1987 and 1992. Annual growth in
consumption is forecast to average 5 percent through the year
2004.
The industrial sector consumes 59 percent of Chile's
electricity. Copper mining alone consumes 26 percent while pulp
and paper consumes 11 percent. All other sectors together consume
26 percent of the nation's demand. Transmission and distribution
losses total 14 percent.
Motors are by far the largest end-use in the country, consuming 61 percent of the country's electricity. Lighting consumes 18 percent.
Chile has the potential for profitable energy efficiency
improvements in all sectors of its economy. The greatest
potential is in the industrial sector, the country's economic
foundation. In the last 10 years, this sector's electricity
consumption has increased by 30 percent while its energy
intensity has increased by 5 percent. Chile is planning to invest
US$25 billion by the end of the decade in new mining, industry,
energy and forestry infrastructure. Since much of this investment
will be in motors, industrial controls and other energy using
equipment, this represents an excellent opportunity for the
installation of energy-efficient equipment.
A recent study of energy efficiency potential among 6
industries that consume almost half of the country's electricity
identified potential savings of 28 percent or 2,614 GWh per year,
equal to over 10 percent of national electricity consumption.
Twenty percent of these savings were expected to have a payback
time of less than one year. The other 80 percent would pay back
over a three to seven year period.
The Codelco copper mining company examined the energy
efficiency potential at the world's largest open-pit copper mine.
It identified potential savings 77 GWh per year, mostly from the
installation of new energy-efficient motors.
Another study looked at the country's textile industry. It
found that minimal energy efficiency investments in this industry
could realize significant energy savings with a pay back of less
than one year.
In the commercial sector, energy efficiency is not yet
integrated into building and systems design. Nevertheless, the
installation of energy efficient lighting and energy management
systems is growing. Further, insulation improvements in
Santiago's commercial buildings would pay back within one year.
Opportunities also exist in Chile's public sector although no studies have yet identified the total potential savings. Over 150 municipalities throughout Chile participated in an efficient streetlighting program that has offered a payback of two years. The residential sector also offers opportunities given its high electricity prices (11 cents per kWh in Santiago) but without utility DSM programs, this sector is currently difficult to access.
The following pages summarize market opportunities for the US
energy efficiency industry in the following technologies or
activities: motors, ESCOs, industrial controls, transformers,
lighting, windows, refrigerators, and cogeneration.
Motors are the major end-use for electricity in Chile and
annual sales are growing rapidly. Chilean industries are
increasingly interested in energy-efficient motors, all of which
are imported. Chilean industry prefers US motors, making this an
excellent growth opportunity for US manufacturers of
energy-efficient motors.
Motors currently consume 61 percent (15,000 GWh) of the
country's electricity and 85 percent of industrial electricity.
All of Chile's motors are imported. Motor sales have been growing
by 15 percent per year. One study estimated that Chilean industry
could reduce electricity consumption by 28 percent through energy
efficiency improvements, mostly in motors.
In addition, Chile's public, industrial, energy and forestry
sectors are planning to invest US$25 billion by the year 2000,
and US$8 billion in the mining sector alone. Much of the latter
will be in new motors. This represents an excellent opportunity
to market energy-efficient technology. One step in this direction
is a US$2.8 million Global Environment Facility project, to begin
in May 1995, that will retrofit electric motors in the mining
industry and raise awareness about energy efficiency.
Chile imported $13 million worth of US motors in 1993. Chilean
industry prefers US motors, a fact that is important given the
high level of competition in the market. Thirty of the world's 45
motor manufacturers sell motors in Chile.
Standard motors make up roughly 80 percent of the Chilean motor market with high-quality motors making up the other 20 percent. Energy-efficient motors cost 25 percent to 40 percent more than standard motors in Chile. High-performance, energy-efficient motors represent less than 1 percent of the total market. Most of these come from the US and Europe.
One barrier to the increased sale of energy-efficient motors, in addition to the normal problems of higher capital costs and the lack of consumer awareness, is a preference among copper mines to rewind failed motors instead of purchasing new ones.
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.
Chile does not yet have a market in energy service companies
(ESCOs). The country does not have any energy performance
standards or utility DSM incentives. Two US ESCOs have begun to
investigate opportunities in Chile and at least one company is
expected to develop a project in 1995.
There exists in Chile, however, the demand for ESCO services.
The country's energy-intensive industries are becoming
increasingly interested in energy efficiency. High electricity
prices and energy efficiency potential coupled with a dynamic
private sector provide a receptive setting for the entry of
ESCOs. Chile has a strong engineering industry that can support
ESCOs. Energy-efficient products are either manufactured locally
or can be imported with low import tariffs.
The main opportunities for ESCOs in Chile are in the country's
major industries and in the new commercial building sector.
Chile's copper mining giant, Codelco, is in the process of
investigating the ESCO concept with the help of IIEC. Also, a
current Global Environment Facility project to increase the
energy efficiency of motors in Chile's copper mining industry
will highlight ESCOs.
Chile's industrial diversification, modernization and
investment in new infrastructure make it a good market for
industrial process controls. Sales of industrial controls are
growing rapidly and will continue to grow with planned
investments. US companies can enter the market immediately
through exports. The size of the local market warrants the
eventual establishment of a local production facility.
Sales of industrial controls totaled US$120 million in 1994
and are growing by 20 percent per year. Sales will continue to
grow with the planned US$25 billion of investment in Chile.
Industrial controls are currently imported and industry
experts do not expect local manufacture for at least several
years. US and European companies are the main competitors in the
market. Key products are programmable logic controllers, display
systems, communication systems, instrumentation and adjustable
speed drives (ASDs). ASDs have been in Chile for only 3 years and
sales are growing by 10 to 15 percent per year. Attractive
end-uses for ASDs in Chile are conveyor belts, pumps and fans,
direct current motors and AC wound rotor motors.
In installing industrial controls, Chilean industry seems to
be motivated more by the desire for modernization than greater
energy efficiency. In response, the industrial controls industry
has conducted training courses to educate customers about the
variety of benefits of industrial control technology.
Significant investment in new infrastructure in the
electricity and mining sectors will provide opportunities for the
export of transformers to Chile, particularly for power
distribution. These industries are increasingly concerned with
reducing electricity losses by installing energy-efficient
transformers. Electricity losses currently average 14 percent in
Chile.
Sales of transmission and distribution transformers totaled
roughly 800,000 KVA in 1994. This is estimated to have doubled
over the past 6 years. Four Chilean companies make transformers,
both standard and high-efficiency models. These local companies
dominate the market but compete with foreign manufacturers on
large projects, such as those in the mining sector. The US
exported almost $6 million worth of transformers to Chile in
1993, more than three times more than in 1990.
A barrier to the purchase of more energy-efficient
transformers in the past has been the reluctance of customers to
consider life-cycle costs. As noted above, this is beginning to
change.
The US lighting industry has an immediate opportunity to
increase sales of electronic ballasts in Chile and South America.
The commercial building industry is growing and lighting
designers and building developers are increasingly specifying
advanced technologies like electronic ballasts. These conditions,
coupled with high commercial electricity costs, will also create
longer term market opportunities for efficient luminaires and
controls.
Chile's lighting market is currently worth US$25 million per
year. Philips and General Electric are already well established
in Chile and Philips has been aggressively marketing
energy-efficient lighting.
Lamps: Chile's lamp market is currently very competitive and
does not hold much promise for any new US players. Seven million
fluorescent lamps are sold each year, worth US$8 million. Compact
fluorescent lamp (CFL) sales are estimated at 200,000 units per
year and worth $2 million per year. Sales of CFLs have doubled in
the last two years. There are also an estimated 716,000 public
lights in Chile.
Ballasts: Two million ballasts are sold every year in Chile,
worth US$5 million. Eight million are sold every year in the
Southern Cone region (Chile, Argentina, Brazil, Uruguay,
Paraguay), worth US$24 million. While magnetic ballasts make up
most of these sales, high electricity prices make the market ripe
for energy-efficient electronic ballasts. There are two local
players in the ballast market: one manufactures magnetic ballasts
and the other imports ballasts, including a small number of
electronic ballasts. GE and Philips both import ballasts and
purchase them locally. Chile's primary ballast manufacturer, B y
P Limited, is interested in a joint venture to manufacture
electronic ballasts for the Chilean and regional markets. The
company is ready to market electronic ballasts based on their
electricity savings. Philips is already preparing to expand its
sales of electronic ballasts in the regional market.
Luminaires: Two million fluorescent lamp fixtures are sold
each year in Chile. The demand for high quality luminaires is
growing. The best opportunity for US luminaire manufacturers is
in the high-quality fixture market. After the initial success of
the country's streetlighting retrofit program, another
opportunity is in high-intensity discharge luminaires.
Controls: Advanced lighting controls are currently imported to
Chile from the US and Europe. Honeywell and Lutron sell in the
Chilean market and Johnson is scheduled to enter in 1995. The
growing commercial building market is a good opportunity for
these energy-efficient technologies, especially given Chile's
high commercial electricity prices.
Growth in Chile's construction industry and the high
potential for improved building efficiency make it a good market
for manufacturers of high performance windows. Opportunities for
the US window industry are in the export of low-emissivity glass
to Chile and in the establishment of a joint venture to produce
low-emissivity glass in Chile.
The demand for windows in Chile has been growing at 7 percent
per year, driven by the growth in new commercial buildings,
especially in Santiago. Four local window manufacturers operate
in Chile; they all use imported glass. A new float glass factory
is scheduled to open in late 1995, but it will not produce
low-emissivity (low-e) glass. All low-e glass is imported to
Chile and most comes from the US.
Most windows sold in Chile are aluminum-framed and
single-paned without glazing. Twenty to thirty percent of windows
are sold with reflective coating. Very few low-e windows are
currently sold in Chile. Most low-e windows in Chile are sold to
foreign companies with international building specifications
(e.g. McDonald's).
Energy-efficient windows in Chile currently cost 30 to 40
percent more than standard windows. Many consumers are unaware of
the return on investment from energy-efficient windows. One local
window manufacturer, Vidropar, has aggressively marketed
energy-efficient and higher quality windows. It is interested in
a joint venture to produce low-e glass.
The government of Chile is currently considering the expansion
of a pilot program to provide builders with an incentive to use
energy-efficient windows.
Sales of refrigerators in Chile have grown by an average of
40 percent per year since 1985 yet the market is still only 55
percent saturated. A number of factors make the export of
energy-efficient refrigerators to Chile a good market opportunity
for US manufacturers.
Two Chilean companies make refrigerators locally and a variety
of foreign manufacturers export models to Chile. The majority of
annual sales are domestically-produced, manual-defrost models.2
Automatic defrost models cost two to three times more than manual
defrost models. Imports make up ten percent of annual sales and
are more energy efficient than domestic models.
Refrigerators are now the second-most prevalent home appliance
in Chilean households after a radio. They consume 25 percent of
residential electricity (lighting consumes 30 percent) for which
many households are paying as much as 11 cents per kWh.
Higher-income Chilean consumers prefer larger refrigerators, thus
favoring US brands over their European or Chilean competitors. In
response to NAFTA, the government plans to introduce an appliance
performance standard and testing program over the next 3 years.
The government has also committed to the phase-out of CFCs under
the Montreal Protocol.
In sum, high residential electricity prices, Chilean
consumers' increasing buying power, their appreciation of US
technology and the likely implementation of energy performance
standards all contribute to a good opportunity to increase the
export of energy-efficient refrigerators into the Chilean market.
Cogeneration project development is a good medium- to
long-term opportunity for US industry. Chile has an estimated
potential of 340 MW of cost-effective cogeneration. There are
currently 261 MW in operation. Chilean industry requires
technical and financial assistance to implement cogeneration
projects.
The technical potential for cogeneration in Chile is estimated
at 1,000 MW while 340 MW of this is estimated to be
cost-effective. Cogeneration potential exists in a variety of
industries from mining to manufacturing to hospitals. Many
industries will be responding to recently introduced national air
quality legislation by converting from petroleum to natural gas
between 1997 and 2000. This will provide opportunities to
incorporate cogeneration into industrial retrofits.
Chile's cogeneration fuels are biomass and, soon, natural gas.
Three pipelines have been proposed to sell Chile natural gas from
Argentina or Bolivia. The expected price of natural gas from
these pipelines will be roughly US$2.70 per MMBtu for
thermoelectric generation. This price is lower than all other
fuels except coal for thermoelectric generation.
A variety of barriers to cogeneration development still exist in Chile, including regulatory constraints, access to financing and the need for technical assistance. The European Community is helping to develop Chile's cogeneration industry but this should not preclude the involvement of US industry.
1 The node price is administratively
set every 6 months based on short term marginal costs and is used
to determine regulated prices for small customers (< 2 MW).
Prices for large customers are negotiated but must be within 10
percent of the node price.
2 Fifty percent of sales are 6.7 cubic foot, single
door, manual defrost models.
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