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ENGIE Energía Chile S.A.: Focus on expanding footprint in Chilean market [free access]

May 10, 2017

ENGIE Energía Chile S.A. (EECL) is one of the largest power players in Chile’s Sistema Interconectado del Norte Grande (SING) or the northern interconnected system, which accounts for 25 per cent of the country’s installed capacity and meets 23 per cent of the total power demand. EECL accounts for 38 per cent of the total installed generation capacity and 30 per cent of the transmission network in SING, where it has several long-term contracts with unregulated clients (mainly mining companies). Having established a strong foothold in the SING, it is now looking to expand its presence in Chile’s main electricity market – the Sistema Interconectado Central (SIC) or the central interconnected grid, which is three times larger than the SING – with the signing of 15-year contracts to supply electricity to distribution companies (regulated consumers). This represents a significant increase in contracted sales and a more diversified client portfolio for EECL, which will support the financial growth of the company. To supply power to SIC, the company is working on two big projects, Infraestructura Energética Mejillones (IEM) and the SIC–SING Interconnection. These projects will increase the generation base of EECL by 20 per cent and expand its grid network by around 750 km by 2018.

 

Company overview

Earlier known as E-CL, EECL is a subsidiary of France’s ENGIE Group (previously known as GDF SUEZ). The company is mainly engaged in the business of power generation and transmission. It also undertakes other business activities such as purchase, sale, distribution and marketing of gas and its by-products, as well as other fuels. EECL is controlled by ENGIE (with a 52.76 per cent share), local institutions (16.97 per cent), pension funds (22.7 per cent), foreign institutes (7.07 per cent) and individuals (0.5 per cent).

 

It is present in the power generation segment through its subsidiaries, Central Termoeléctrica Hornitos S.A. (CTH), in which it holds a 60 per cent share, and Central Termoeléctrica Andina S.A. (CTA), which is wholly owned by EECL. It also owns two power transmission subsidiaries, Transmisora Eléctrica del Norte S.A. (TEN), in which it has a 50 per cent share, and Edelnor Transmisión S.A. (ETSA), in which it has a 100 per cent share. It has two gas subsidiaries, Gasoducto Norandino S.A. (100 per cent share) and Gasoducto Norandino Argentina S.A. (100 per cent share), and a port subsidiary, Electroandina S.A. (100 per cent share).

 

As of March 2017, the company had 1,971 MW of installed power generation capacity, of which 57 per cent was coal-based, 32 per cent was gas-based, 10 per cent was diesel-based, and the rest was renewables-based. Its transmission network consists of 2,328 km of high and medium voltage transmission lines and 20 substations. Of the total line network, only 213 km are part of the trunk transmission system (national transmission system), 379 km are part of the sub-transmission assets (zonal transmission systems), and the remaining 1,648 km are additional transmission assets (dedicated systems).

 

Operational and financial indicators

During the period 2011-16, EECL’s total revenue declined at a compound annual growth rate (CAGR) of 5 per cent. In 2016, the company earned operating revenue of USD967 million, representing a decline of 15 per cent over 2015. The decrease was mainly due to lower energy prices in both the regulated and unregulated customer segments as well as lower sales of natural gas. These factors also affected earnings before interest, tax, depreciation and amortisation (EBITDA), which fell by 9 per cent during 2016 to USD284.8 million.

 

The company’s net income increased at a CAGR of 7 per cent during 2011-16. The net income increased significantly from USD94 million in 2015 to USD255 million in 2016. This increase was due mainly to the sale of a 50 per cent share of its subsidiary TEN to Spain-based Red Eléctrica Corporación S.A. in January 2016. Under the deal, EECL received USD218 million for the shares plus an amount corresponding to 50 per cent of the advances granted by EECL to TEN to finance the SIC–SING Interconnection project since the beginning of its construction. The TEN stake sale will help EECL finance its ongoing energy project.

 

In December 2016, TEN also signed a multi-tranche long-term project financing of USD745 million plus a USD111 million value-added tax (VAT) financing with 10 national and foreign institutions. The first disbursement of about USD457 million in December 2016 allowed TEN to repay USD171 million of the funds provided by EECL to develop the SIC–SING interconnection project (also known as TEN project).

 

During 2016, EECL also invested USD170 million on sleeve filters and emission reduction systems (SO2 and NOX), specifically low NOX burners and hydrated desulfurisation systems to meet the new emissions reduction standards published in 2011.

 

The highlight of 2016 was the effort made by the company to reduce management and sales expenses by USD11.7 million.

 

Table 1: Key financial indicators (USD million)

 

2011

2012

2013

2014

2015

2016

Revenue

1,257

1,185

1,207

1,241

1,143

967

–Transmission revenue

20

18

14

14

15

NA

Net income

179

56

30

89

94

255

Administrative expenditure 

47

51

45

51

52

35

Note: Financial figures are for EECL’s entire business operations and not specific to transmission unless specified.

NA: not available

Source: EECL

 

Future plans

During 2017 and 2018, EECL plans to undertake USD500 million and USD226 million in capex, respectively. Majority of the planned investment will be focused on developing the USD1 billion IEM project. Under this, a 375 MW pulverised coal-fired power plant and a mechanised port, suitable for capesize carriers, will be constructed in the port city of Mejillones in Antofagasta Province. The port is scheduled to be completed by end-2017 and the coal plant by the third quarter of 2018. EECL plans to spend USD414 million on the IEM project (including port) in 2017 and USD 167 million in 2018. The project is being developed to supply electricity to SIC distribution companies under 15-year sale contracts signed in 2014. Under this, it will supply 2,016 GWh of electricity in 2018, and up to 5,040 GWh per year from 2019 to 2032.

 

EECL is also expanding its footprint in the renewable energy segment, and studying various solar and wind power projects at various locations. In 2016, it signed a contract with Solairedirect Chile Ltda, another Chile-based subsidiary of ENGIE, to develop 400 MW of solar power projects in the northern and central parts of Chile. Along with this, EECL is exploring investment opportunities in energy storage solutions to remedy the intermittence of renewable sources and to guarantee continuous electricity supply. Its first 2-MW battery storage pilot is under final development, and will be constructed during 2017.

 

EECL is also working on the TEN project. Under this, a 600-km, 500 kV double-circuit alternating current (AC) line will be constructed to connect Mejillones (SING) to Cardones (SIC). The project will cost close to USD1 billion, including USD827 million in capex, and is scheduled to be completed by end-2017. As of March 2017, more than 85 per cent of project work had been completed. In 2017, EECL will contribute USD36 million to the TEN project, about 10 per cent of the total investment planned for the project during the year.

 

To support its power network, EECL is undertaking several power transmission projects, which are at various stages of development. These include the 220 kV Chacaya–Crucero line expansion project; upgrade of the 220 kV Pozo Almonte and Crucero substations; normalisation of the 1x220 Labyrinth–El Cobre line connection to the 220 kV Laberinto and El Cobre substations; and expansion of connections to the interior of the Cruise substation for relocation to the New Cruise Encounter substation.

 

Table 2: Key planned transmission projects of EECL

Project

Voltage (kV)

Line length (km)

Estimated cost (USD million)

Expected completion

Mejillones (SING)–Cardones (SIC) interconnection (also known as the TEN project)

500

600

776.0

2017

220 kV Chacaya–Crucero line expansion project

220

145

70.5

2018

Expansion and changing configuration of the 220 kV Pozo Almonte substation

220

-

NA

2018

Normalisation of the 1x220 Labyrinth–El Cobre line connection to the 220 kV Laberinto substation

220

-

NA

2018

Normalisation of the 220 kV El Cobre substation

220

-

NA

2018

Expansion of the Crucero substation

NA

-

NA

2019

Expansion of connections to the interior of the Cruise substation for relocation to New Cruise Encounter substation

NA

-

NA

2019

Note: NA – not available; SIC – Sistema Interconectado Central; SING – Sistema Interconectado del Norte Grande 

Sources: EECL; Comisión Nacional de Energía, Chile; Global Transmission Research

 

Conclusion

Chile’s transmission sector has suffered from years of underinvestment, which has led to congestion on the main corridors, resulting in high electricity prices for the final consumers. Further, lack of incentives, limited access to networks, and social and environmental demands have hindered the timely development of transmission projects. To deal with these issues, the government has approved a new bill that seeks to restructure and reorganise the country’s electricity transmission sector. This, along with the company’s efforts to expand its electric infrastructure and client base, will help EECL emerge as a strong player in the power market.