Geothermal developers from around the world flocked to Santiago, Chile, in early December for a conference hosted by the UN's Economic Commission for Latin America and the Caribbean (Eclac).
While the conference focused on the entire region, the various discussions inevitably began to center on Chile. With its unique geography that spans a vast swath of the Andes mountain range, the country is home to 10% of the world's volcanoes and its potential for geothermal development is widely known.
The conference provided a forum for officials from Chile's mining ministry and national energy commission to meet one-on-one with geothermal developers.
The country's mining minister Santiago González was quick to stress the important role that geothermal power could play in Chile's two main grids. The minister acknowledged that most estimates put the country's potential around 3GW but said some studies showed that nearly 20GW could be developed.
"It's a lot more than the country's total installed capacity," he said.
But geothermal exploration has been going on in Chile for more than 50 years and the country has yet to develop a single geothermal power plant.
Companies represented at the conference included players already actively exploring or preparing to explore for geothermal potential in Chile, including Italy's Enel, Chile's state oil company Enap, miner Antofagasta Minerals and the JVs they operate ENG and Energía Andina.
Representatives from a slew of other companies also attended including Canada's Western GeoPower, Israel's Ormat, US-based Baker Hughes and Thermasource, Italy's Geosystem, Iceland's Geysir, New Zealand's GNS, Germany's GTN and Australia's Hot Rock.
THE SETBACKS
The hurdles to developing Chile's geothermal market became clear during a roundtable discussion with foreign companies.
Companies want to begin extensive exploration works but face problems along the entire chain from obtaining a concession to acquiring scarce rigs once approval is received.
Authorities have, for example, received requests for more than 100 geothermal concessions. Only 19 have been approved to date and two are in the exploration phase.
Simply having geothermal resources is not enough to develop an industry, one attendee said, noting Indonesia with its similar geothermal potential has faced similar challenges.
Developers complain the current mining concession laws used to issue geothermal concessions are ineffective and cumbersome. Under the regulations, a company must spend time and money to propose a concession to the mining ministry, which must in turn allow other firms to compete. An entire industry has sprung up that allows companies to acquire and sit on concessions proposed by others.
Chile's energy minister Marcelo Tokman admitted at the conference the government has had a tough time distinguishing the companies that actually want to develop geothermal power from those that want to acquire concessions for speculative purposes.
Companies also would like more flexibility in defining the size of geothermal concessions and the ability to obtain extensions. Some would like clearer laws to obtain the right to enter concession areas via private property.
HELP ON THE WAY
Chile's government is aware of the setbacks and the national energy commission and mining ministry this month will submit legislation intended to give the country's geothermal sector a boost.
The legislation would reduce the amount of time it takes to obtain a concession by around 40% and set aside funds through state development agency Corfo to share exploration risks with participating companies searching for geothermal potential.
The proposed bill also would allow exploration blocks to be defined in a more flexible manner, Tokman said at the conference. The mining ministry is starting tender processes for areas that would allow companies to compete for areas already defined by the government.
The real question then will be if the new geothermal legislation goes far enough to help create a geothermal market.
THE NEW ZEALAND EXPERIENCE
The most applicable model Chile could consider in the development of its geothermal industry is the one used by New Zealand, geothermal expert and consultant Dr Chris Bromley said at the conference.
Geothermal power is now one of the cheapest power sources in New Zealand and the country has similar concerns to those of Chile in terms of tourism, nature preservation and indigenous communities.
The New Zealand government has played an extremely active role in the development of the industry and largely paid for initial exploration wells, often the most expensive to drill. After initial wells are drilled, interested parties can develop a better understanding of an area's resources that makes additional drilling much cheaper. New Zealand now sees an 87% drilling success rate.
The country also has made gains in terms of using geothermal power plants to promote tourism and has allowed indigenous communities to participate in the management of geothermal resources or obtain power subsidies.
Some companies allocate 1% of power sales to local development and other communities are allowed to raise funds from managing hot springs which can actually be improved from geothermal development.
Mining firms in Latin America though have tried similar strategies of involving local communities and allocating revenue to neighboring towns and still faced resistance.
Some power plants allow tourists to visit facilities and learn about the power source, although there is no guarantee the the model would be effective in Chile.
Countries including New Zealand and Iceland have some of the strictest environmental regulations in the world that developers argue can easily coexist with geothermal power. The source, however, is not without its pitfalls. Any drilling process has environmental costs and popular hot springs can be affected if geothermal reservoirs are over-drilled.
Bromley encouraged Chile to join the IEA-GIA international group that promotes geothermal development.
An official from Australian firm Hot Rock, which is looking at opportunities in Chile, said companies could look to help from the Australian government and noted a wide range of programs are available to interested geothermal developers.
THE PATH AHEAD
As Chile progresses with the development of its geothermal resources, it may simply not be enough for Corfo partially to reimburse companies in the event of an exploration failure. Countries that have advanced geothermal industries have depended on strong and direct state support.
And while Chile's government would clearly like to give the industry a boost as it has embarked on a policy of diversifying power sources and increasing energy independence, lawmakers will first have to decide if it's worth the cost for the state to play a more direct role.
Evidence already suggests private industry may not be willing to pay the high initial exploration costs, especially with the low current cost of oil, and some critics will surly wonder why Chile would want to pay for more expensive sources of power when new coal capacity is also set to come online at a rapid pace.
But geothermal power could be Chile's most prospective form of renewable power in terms of sheer capacity potential. Unlike wind and small scale hydro power, it can be depended upon for base load capacity.
The power source also could play a key role in the effort to reduce CO2 emissions as Chilean officials are already beginning to study how the country could be affected by any post-Kyoto agreement that could tax export products based on CO2 emissions or directly require Chile to reduce emissions.
Regardless of any state support that could be received, companies that want to begin work could benefit from forming consortiums with service providers in addition to other exploration companies. California's Thermasource, for instance, said it had rigs available and was ready to start looking for opportunities in Chile.
By working together, companies not only share startup costs but reduce the risk of damaging a resource which can occur if there is too much drilling on any one system.
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