South American perspectives15 March 1999
South America is a major player in the world’s electricity industry, and from a hydro perspective it offers vast potential. Suzanne Moxon traces hydro’s fortunes in South America, and considers how privatisation and environmental concerns can affect its progress
Many of the countries which form South America offer a wealth of hydro power opportunities. Although some of this has already been utilised, hundreds more megawatts of hydro power still remain untapped. The reasons for this are varied but, as some of the examples below illustrate, controversial environmental problems can sometimes hinder hydro’s progress.
Leading the development of hydro in South America are Argentina, Brazil and Venezuela. Brazil has over 260,000MW of technically feasible hydro power potential and currently has over 7000MW in projects which are under construction or planned. At the same time the Brazilian energy sector is undergoing deregulation and restructuring, and the government is actively encouraging private company involvement.
In comparison, Argentina has already established one of the most competitive deregulated power sectors in South America. Hydro accounts for 45% of the country’s overall generating capacity but, unlike most other countries in this region, Argentina relies on a wide range of fuels to provide its electricity.
In recent years, Argentina has taken its share of environmental criticism for some of its hydroelectric schemes.One such scheme is the 3100MW Yacyretá project on the Paraná river on the Argentina/Paraguay border. The product of the 1973 Yacyretá Treaty — an agreement which the two countries signed when entering into joint ownership of the project — construction was scheduled for completion within six years at a cost of US$3.7B. The reality is that at the present time the dam is still 7m below its design height and the project can only operate at 60% of its intended capacity. Major factors such as war, hyper inflation and military coups have slowed or stopped the flow of public sector resources required to continue construction of the scheme. Completing the project to the satisfaction of donors has been made more difficult because all the available funds have been used on civil and electro-mechanical work: environmental and resettlement aspects of the scheme have consequently been neglected.
Allegations of corruption and poor project management have also been fired at the project, while the Italian/French/German consortium which built the dam is allegedly demanding US$1.5B in back payments from the Argentine government.
Estimates now suggest that the project is more likely to cost in the region of US$9-10B to complete.
Recent reports from Argentina say that energy officials have decided to put the remaining work required on the project out to international bidders. Although the bidding process has not yet been decided upon, Argentine Energy Secretary Cesar McKarthy is confident there will be many interested parties when bidding opens —which is planned before June 1999.
Environmental organisations claim that Yacyretá may go down as ‘one of the world’s worst dam projects’. Indeed they are certain that environmental problems experienced here will be brought to bear against any plans for new dams on the Paraná river.
This may have already happened: another Argentine/Paraguayan project on the same river has been postponed. The Corpus Christie project was initiated in the early 1970s with a design capacity of 6900MW. However, in 1992 it was decided that the anticipated energy demand in Argentina was such that the project would need to be redesigned at a capacity of 3000MW. Although almost all civil work is completed and the majority of turbines are installed and operational, the plant will not be started up yet. The major problem is that it is not possible to raise the water level of the reservoir to its planned optimal height. Raising it would displace large numbers of local people, and there is currently no financial provision for relocation and compensation.
Looking to other parts of South America, Venezuela has considerable hydro power resources with a gross theoretical hydro potential of just under 290,000GWh each year. Over a third of this is considered to be economically and technically feasible for development and it is mostly located in the southwest of the country around the Caroni river.
Despite the fact that Venezuela has significant hydrocarbon resources the country has favoured hydro power for several decades, mainly because it is considered a cheaper energy resource. Noteworthy projects in operation include Venezuela’s largest hydroelectric plant, the 10,000MW La Guira dam, which is likely to be privatised in the future.
At present the country’s electricity industry is a mixture of state-owned and private companies. Overall, at more than 13GW, hydro power presently accounts for 60% of the country’s total generating capacity, and another 8GW of hydro generation is due to be added over the next five to ten years. New projects planned include the US$2.1B Carachi project on the Caroni river. This 2160MW scheme is scheduled for completion in 2002.
South America is actively embracing power privatisation throughout the region. One example is Peru. Since 1993 most of its electric companies have been privatised and the remaining ones are expected to be in the private sector by the end of the year. Nationwide, hydroelectric plants account for 48% of Peru’s total installed capacity.
Egenor, a subsidiary of Peru’s government-owned utility ElectroPeru, had its first taste of a competitive marketplace in 1996 when US company Dominion Energy acquired a 60% share in the firm (see IWP&DC October 1997, p16). Dominion Energy’s successful bid was based on the proviso that, in order to meet increasing energy demands in Peru, the company would have to provide an extra 100MW of generating capacity by 1999. As it is virtually impossible to build any new power plant within such a tight time frame, Egenor decided to refit and uprate its 150MW Cañón del Pato hydro power plant and its Carhuaquero plant by 90MW and 10MW respectively.
As W Gary Narron, senior manager of international business development for Dominion Energy explains, Cañón del Pato is expected to be completed on schedule by December 1999. ‘Everything is going to plan,’ he said. ‘It has been tight but we do expect to meet the schedule — something which has been achieved through very good co-operation of all involved.’ But why did the Peruvian government stipulate such a strict schedule? Narron explained that at the time Dominion Energy bought into Egenor the Peruvian government had started privatising the electricity industry. A shortage of extra power in the country meant that the government had to somehow ensure extra capacity would be available within a short time, and this was something which could be achieved through privatisation and the involvement of international companies. ‘This is really quite a common practice for utilities which are privatising,’ Narron comments. ‘Indeed privatisation of the electricity industry in South America, as with other countries, can bring better technical standards and more power into the area.’ Presently the work at Cañón del Pato is almost at the final stage. The plant’s six original 25MW units are being replaced with new 40MW units. This has been carried out in pairs and so the project has been divided into three phases. Phase one is finished, phase two will be completed by June this year and phase three by the end of the year.
Egenor decided to replace the units completely as it would prove to be more cost-effective and efficient in the long term. ‘This was mainly due to the differing and increasing ages of the units,’ Narron commented. The oldest unit was constructed in the late 1940s and there was difficulty in obtaining parts for it. The last two units went into service between the late 1960s and early 1970s but it was discovered that there were efficiency problems. ‘We decided it would be much easier to replace the units from scratch,’ Narron added. ‘It would also be a good way to incorporate new and much improved technology into the plant.’ Time also proved to be another motivating force. ‘We had to bear in mind the tight schedule we were following,’ Narron says. ‘We realised it would take longer to work on refurbishing the units and so this would mean that they would be out of service for much longer than if you simply took the units out and replaced them.
‘By replacing the units,’ he went on to explain, ‘you can plan more effectively and schedule work and energy production. Therefore the uprating work has had a less profound effect on the day-to-day operations of the hydro power plant.’ As Egenor had such a tight time frame to work with there was really very little room for errors or for work to take up more time than anticipated. There were some ‘teething’ problems but, as Narron explained, these were not unexpected: ‘The powerhouse at Cañón del Pato is built in a cavern inside the mountain. When replacing the units we had to enlarge the foundations the units were set in, as well as the holes in the wall for the water pipes.
‘We came across difficulties, as the rock was solid granite and this proved to be a learning curve for us. The contractors had to work out what we had to do. We couldn’t allow the use of explosives as there were still some units in operation in the powerhouse.’ Primarily mechanical equipment was used to install the new units. The contractors had initial problems, Narron admits, but these were overcome by trial and error and the use of different tools and individuals who had differing expertise. Some stages did take a great deal of time but Narron admits they ‘had an eye on the clock with the schedule in mind’. This was the critical path throughout the project and so they were not surprised when difficulties arose.
One problem that had to be kept in mind at Cañón del Pato was the high silt content of the water, and the resulting problem of erosion. Narron said that minor improvements have been made on the new units but ‘there was no technological breakthrough’. Quite simply, different coating materials have been tested and the best one will be used to reduce erosion.
The Cañón del Pato project has been progressing well on schedule, and at Carhuaquero, Egenor’s second expansion scheme, it has been a similar story. Completed successfully and on time in October 1998, all three of the plant’s units were refitted and they have been operating at full power for the past six months. Narron explained that this was a simple project which ran on schedule. It was merely a case of expanding the power capacity by 10MW and modifying the generators and transformers accordingly. However Egenor was pleased with the work as slightly more power than was hoped for, or had been guaranteed by the uprating, was obtained.
The Cañón del Pato and Carhuaquero expansion projects are succeeding in placing Egenor favourably in the newly competitive market place. ‘This extra power will increase our ability to market power in Peru. It will increase our market strength and competitiveness,’ Narron said — something which already appears to be happening.
With additional power likely to come on stream soon Egenor has already signed four new contracts to provide gold and zinc mining companies with more power. The company is also bidding for new power contracts.
Another hydro project which has been a privatisation success story is the Duqueco project in Chile. Situated on the Rio Duqueco the project comprises two new plants, Peuchén and Mampil, which will have installed capacities of 75MW and 49MW, respectively. Spanish company Elecnor is one of the partners of the Chilean–Spanish company Ibener currently building the two plants. Peuchén is expected to be completed on schedule this July and Mampil will be finished a few months earlier than planned, perhaps by December. At Peuchén over 71% of the civil works are completed, 96% of electromechanical equipment has been supplied and 85% of it erected. At Mampil over 56% of civil works are completed, while 96% of electromechanical equipment has been supplied and 72% of it has been erected.
The Duqueco project will supply Chile’s electrical network (SIC) with nearly 150MVA, equal to almost 650GWh a year, and will meet 2.3% of Chile’s total energy demand. ‘This,’ says Juan Landecho Sarabia from Elecnor, ‘is quite significant for a private supplier.’ Sarabia agreed that Chile offers interesting projects for private hydro power investors. However, he also had some advice. ‘Only well experienced contractors, with appropriate back-ground, good human resources, appropriate tools, leadership and the capability to develop turnkey contracts will survive the new way for off-shore contracting in South America,’ he said. ‘Competitive prices, fast construction schedules, good quality and high safety standards are called for.’
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