Chile's copper miners are worried about power costs.
The concern came to a head last week. After a Chilean appeals court rescinded a construction permit for a new, 740 megawatt thermoelectric plant in northern Chile. The court cited concerns about air and water quality.
Local miners were quick to voice their concern. With Alberto Salas, head of the country's Sonami mining association, saying that "the ruling will negatively impact the future of the country, especially mining... If we want to reach the threshold of development in the next 10 years, Chile needs to double its power generation."
Power prices have been a touchy subject lately for miners. And might be for copper investors too, given that Chile produces a third of the world's metal supply.
Related article: Argentina Tries its Hardest to Attract Foreign Oil and Gas Companies
Recent problems with power have affected some miners because natural gas-fired production in northern Chile has slipped. Gas power generation is down over 40% over the past year. Due to maintenance and upgrades being performed at the Mejillones LNG facility.
The resulting shortfall has forced some users to turn to expensive diesel for power generation. All told, diesel generation is up 158% over the past 12 months.
But concerns that this might be a long-standing problem for miners appear to be overblown. At least for now.
Notwithstanding diesel usage, spot power prices in the northern Chilean SING grid are actually down 44% over the past year. Standing at US$74.9 per megawatt hour.
And problems with expensive diesel power should be temporary. Once LNG facilities get back up and running, diesel use should be greatly reduced.
At the same time, coal-fired generation capacity in Chile's north has actually grown 14% over the past year.
There's one development to keep an eye on here though. A movement to connect Chile's northern SING grid to the SIC grid in the central part of the country.
Power prices on the central grid are well above those in the north. Having hit US$243 per megawatt hour in June.
If the two grids were to be connected, power might be channelled toward higher-priced markets in the south. Leaving copper miners in the north paying higher prices.
The connection plan has had several stops and starts. But it's a development that worth keeping an eye on for copper investors.
Until then, expect power rates to become more manageable for miners in the near future.
Here's to electrifying the north,
By. Dave Forest