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Geothermal Resources Council Transactions, Vol. 2 6, September 22-25, 2002

Recent Geothermal Industry Activity and the Market for Electric Power in Chile

Gonzalo Salgado’ and Gregory Raasch2 Empresa Nacional del Petroleo, Santiago, Chile 2Geotermiadel Pacifico, Santiago, Chile

Keywords Growing awareness of the global ef- fects of COz emissions. Chile, exploration, ENAP, La Torta, APACHETA Apacheta, Calabozos, power market Under the leadership of President EL TAT10 Ricardo Lagos, Chile continues to main- LA TORTA tain its enviable position as the regional ABSTRACT leader in economic reform. With the low- est country risk in Latin America and a The Chilean government enacted a Geo- Standard and Poor’s rating of A-, Chile is thermal Law in January 2000, establishing a poised for continued economic growth. To framework to acquire geothermal exploration avoid energy shortages in the coming de- and development concessions. The state- cade, Chile’s growing energy market will owned oil company, the Empresa Nacional require new sources of electricity and fuel del Petroleo (ENAP), working with both pub- diversity. Geothermal energy is an ideal lic and private partners, has initiated an ag- solution as the country contains over 10% gressive exploration effort, conducting geo- of the world’s active land volcanoes and logic and geophysical surveys in key pros- there are numerous attractiveprospects as- pects directed at different markets in the north sociated with more than 300 thermal and and south. Chile imports more than 75% of mineral springs (Hauser, 1997). In re- all of its energy, and its primary supplier of sponse, ENAP and its partners have re- natural gas, Argentina, is experiencing a se- cently accelerated geothermal exploration vere economic crisis. This has affected both programs directed at the mining market the reliability and the price of gas exports to in northern Chile and the more general Chile. As a result of this crisis geothermal power market in southern Chile. power in Chile has become more attractive for both economic and strategic reaqons. Exploration update Introduction Chile has been a focus of geothermal exploration for more than 80 years. In 1921, an Italian Chile has all of the components for a group began exploring at El Tatio. Since that time, successful, dynamic geothermal industry: exploration drilling has been conducted at El Tatio, Numerous attractive exploration oppor- Puchuldiza and Chillh (Raasch 2001). Chevron, tunities; Freeport, Unocal, ENAP and CFG, have studied Well-defined geothermal legislation; these areas and others including Copahue, Calabozos and San Jos6 de Maipo. ENAP has A growing electric market driven by an recently re-evaluated these and other prospects us- expanding economy; ing state-of-the-art technology to identify the most Figure 1. Map of Chile showing A renewed national interest in fuel di- thermal manifestations and attractive exploration opportunities for drilling in versity and fuel security; and geothermal concessions. the next several years.

55 Salgado and Raasch

Apacheta 1969 and 1971. Seven production wells (ET7 to ET1 3) were then drilled in the vicinity of ET3 to depths of 870 to 1,820m. The Apacheta geothermal prospect, located in the north of Two of these wells (ET7 and ET1 1) were successful producers, Chile approximately 120 km northeast of Calama and 60 km north with a combined production of 15 MW,. The maximum tem- of El Tatio, was only recently identified (Urzua et a], 2002). Ex- perature encountered by the wells was 254OC but geochemis- ploring for fresh water, Codelco discovered a low pressure flow try, shallow geophysics and reservoir studies suggested that the of dry steam after drilling well PAE-1 to a depth of 180m. Two wells were on the margin of an outflow from a >270"C resource fumaroles were identified in a fly-over of Cerro Aguilucho 5 km located to the east or southeast. to the east and subsequent work by ENAP-Unocal in 1999 showed Subsequent to the discovery gas seeps and warm springs at that these vigorous superheated fumaroles had gas La Torta in 1998 and their analysis in 2001, a detailed geophysi- geothermometry temperatures of 250°C to 325°C (Urzua, et. al., cal survey including 53 MT-TDEM stations was conducted in 2002). The prospect is located on an eroded volcanic complex January 2002. In conjunction with an earlier ENAP MT-TDEM that is within a prominent graben structure defined by two high- survey of El Tatio, this survey (Cumming, et. al., (2002) showed angle faults. In December 2001, a geophysical survey, consist- a continuous low resistivity clay cap extending southeast of El ing of 45 MT-TDEM stations, detected a continuous zone of low Tatio, doming over an upflow feature located on the La Torta resistivity hydrothermal clay alteration under the volcanic com- concession. This indicated a substantially larger geothermal re- plex with a dome in the base of the clay cap coinciding with the source that may be related to the relatively small area explored western part of Cerro Aguilucho near the fumaroles (Urzua, et. with deep wells at El Tatio. Earlier studies estimated the poten- al., 2002). An exploration drilling program will target at least tial of the drilled field at 50-100 MW, however, based on the one deep exploration well in GDN's Apacheta Geothermal Con- results at La Torta, the total electric power potential is likely to be cession this year to prove the existence of a commercial geother- much larger. GDN plans to drill two 2500m exploration wells, at mal resource. La Torta within the next 12 months to demonstrate this resource. Both the La Torta and the Apacheta wells will be sited at La Torta - El Tatio approximately 5000m (1 6,000 ft) elevation, making them some of the highest geothermal wells in the world. La Torta prospect is located near the Bolivian border 10 km southeast of El Tatio, the best known geothermal field in north- Calabozos ern Chile. The La Torta Geothermal Concession is owned by Geotermica del Norte S.A. (GDN), a joint venture between Located at 2000 to 3500 m elevation in the central-south zone ENAP and Codelco (Raasch 2001). At El Tatio, under the aus- of Chile about 250 km SE of the capital, Santiago, Calabozos pices of the United Nations Development Program, six slimholes was identified in the 1980's as a very promising geothermal pros- (ET1 to ET6) were drilled to depths of 600 to 750m between pect. Grunder, et. al., (1987) concluded that the Rio Colorado fault zone defined the north and northeast margins of a 8 x 26 km caldera and that the numerous high flow hot springs and fumaroles in the area were related to a >25OoC geothermal system associated with this zone and the strongly faulted resurgent dome that occupied the northern part of the caldera. Thermal manifes- tation chemistry included dilute chloride hot springs, mixed chloride-sulfate waters and sulfate-bicarbonatefeatures that indicated the existence of a benign, low gas, boiling, liquid-dominated hydrothermal system. In 1999, an ENAP team discovered several new thermal manifestations with liquid and gas geothermometry temperatures between 235°C and 300°C in the vicinity of those reported by Grunder. During 2002 follow-up program, another ENAP team discovered and sampled a previously unknown, vigorous acid-sulfate fumarole at higher elevation to the north of the Rio Colorado fault zone. In May 2002, ENAP completed an 88 station MT-TDEM survey that suggested that the fumarole to the north was probably associated with a local permeability apex in a ...... I \ I geothermal system related to the thermal manifestations in the I \ Rio Colorado fault zone. ENAP has prepared an Information Memorandum for potential partners interested in the co-development of this resource area. \

Located in south-central Chile about 80 km SE from the Figure 2. La Torta Geothermal Prospect location map. city of Chillh, this geothermal prospect is related to the Nevados

56 Salgado and Raasch de Chillin volcano and several 10 km long caldera-like struc- tures. In 1995, CFG of France and ENAP drilled a shallow exploratory well to a depth of 274 m and encountered a flow of 198°C wet steam at 240 m depth. The interpreted fluid chemistry indicated that the source was a ~1000ppm mixed chloride- bicarbonate aquifer. The well had an estimated vapor production of 15 to 18 t/h with a single flash capacity of 2.4 MW. Geothermometry suggests a temperature range of a shallow reservoir of around 200"C, ranging up to 270°C in a deeper source zone. The well was abandoned as a safety measure in 1996. ENAP has been developing options and partnerships for further pursuing resource development in this area.

... Geothermal Law in Chile In 2000, the Chilean government created a law to establish Figure 3. Growth of electrical power consumption in Chile. the framework to develop geothermal energy resource projects, establishing a clear distinction between this activity and that of mining or groundwater production. This law provides for the other in the central-south is the SIC. Each system has special development of geothermal resources through a concession characteristics. granted by the Ministry of Mines and gives the owner of the The SING is located in the midst of the driest desert in the concession the exclusive rights over the geothermal energy. world, where 99.56% of the power is generated by thermal power There are two kinds of geothermal concessions: the first is an plants and only 0.44% is generated by hydroelectric plants. The exploration concession valid for two years and extendable for a SING had a gross generation of 9,296 GWh in 2000 and a maxi- further two years; the second type is an exploitation concession mum demand for 1999 of 1,211 MW. The major clients on this that can be held indefinitely. The exploitation concession gives system are the large mines like Codelco-Chuquicamata the exclusive right to own all the geothermal power and brine (240MW), Escondida (200MW), and Dofia Inez de Collahuasi production that exists within the limits of the concession, to use (122MW), which consume more than 90% of the system power. the land for the exploration or exploitation of the concession The average power sales price to these mines is US$O.O44/kWh. and to transfer or sell it without limitation. Additional opportunities for the sale of process heat, water and The Electricity Law has created an open market were any Carbon Tradeable Offsets make geothermal projects very corn- party can build and operate a generation company (genco). Elec- petitive in the SING market. trical energy can be sold through three different mechanisms. In the case of the SIC, the market situation is quite different. The first is by contract, with the price established between the Generation is divided between thermal power plants (60%) and genco and any client that consumes more than 2 MW. The sec- hydro power plants (40%), providing energy to more than 90% ond avenue is by the node price established by the government of the population of the country. With a gross generation of every six mouths, which corresponds to the projected marginal 29,520 GWH in 1999 and a maximum demand for 2000 of 4,576 cost averaged over the next 24 to 48 months. This sets the price MW the rate of growth was 9.3% in 1999 and averaged 6.8% under which the genco may sell energy to a distribution com- between 1983 and 2000. The SIC is a large and rapidly grow- pany (disco). The node price is established with a price band, ing market that is not dependent on the mining industry. The which is determined by the average price of contracts negoti- supply of natural gas for the SIC comes from the Neuquen Ba- ated between generators and large customers. The width of this sin in Argentina. Recently revised estimates indicate that band can not be more than 10% of the total price. The third Neuquen reserves are not sufficient to meet the growing de- method of power sales is the spot market. Those gencos with- mand in the SIC. Therefore, gas prices are expected to begin to out contracts can sell their power into the spot market if their increase in the next 1-3 years, creating new opportunities in the generation costs are lower than the marginal cost. Those gencos SIC that cannot be reliably met by expanding hydroelectric gen- that are not able to produce power at or below the marginal cost eration. are not allowed to run, even though they may have a contract to provide power to a client. They are required to purchase their Energy Security in Chile power needs from lower cost producers on the spot market. The spot price is determined hourly, depending on the variable cost In Chile, energy security is strongly influenced by uncer- of the most expensive generator that is running at that hour. tainties regarding imports of gas from Argentina and hydroelec- tricity shortages related to periodic droughts. Approximately Electricity Markets in Chile 30% of Chile's power is generated from natural gas imported from Argentina. In February of this year, strikes by the national The power market in Chile is divided in two separate sys- oil union of Argentina threatened to cut the supply of natural tems. The one in the north of Chile is known as the SING and gas to Chile. This would have left the gas power plants without

57 Salgado and Raasch supply and the energy market with rolling blackouts. If coupled plant will dispatch energy based on the principle that it will with one of the periodic La Niiia droughts, this would have had replace the most expensive units on line. The environmental led to very serious electricity shortages. In general, Chilean analysis shows that the incremental hydropower generation dis- reservoirs for hydroelectric power plants do not store water for places coal-based generation at all times. Assuming that the more than one year of generation. When the previous La Niiia C02 emissions from coal-fired steam plants are at 860VGWh drought occurred in 1998- 1999, hydroelectric reservoirs ran out based on IPCC default values, emissions avoided by of water, and thermal power production could not provide Chacabuquito would be 137,600t C02per year. enough energy to avoid a series of blackouts. The electricity supply in Santiago was curtailed for three hours a day and the Conclusions voltage was reduced by 7.5%. There was a deficit of 450 GWh for that year. In recognition of the country’s vulnerability to Geothermal exploration is active in Chile. The required laws variable weather conditions, imported gas supply disruptions have been enacted to permit the exploration and development and price instability, the Government of Chile is encouraging of geothermal resources, as well as to open access to the elec- the development of alternative sources of energy (Blanlot 2002a, tricity market. Driven by continuing economic growth and the 2002b). need for energy security and fuel diversity, there has been a renewed interest by the Government of Chile to encourage the development of this indigenous resource. As a result, ENAP, the state-owned oil company, has become a leader in geothermal exploration and is developing relationships with potential development partners and markets to promote a vibrant geothermal energy industry in Chile.

Acknowledgements The authors wish to thank David Sussman and William Cumming for their assistance in preparing this paper. A special thanks is due to Patrick Dobson of Lawrence Berkeley Labora- tory who has helped so many ENAP employees and supported the resurgence of the geothermal industry in Chile.

References

Figure 4. Sources of energy in Chile Blanlot, V., 2002. Integraci6n de 10s Mercados EnergCticos, Desaflos para LatinoamCrica y el Caribe. LACGEC Seminar 111, 2002, Santa Cruz, Bolivia. Co, Emissions - A Geothermal Opportunity Blanlot, V., 2002. Untitled news article. El Mercurio, Feb. 2,2002, Santiago. Chile has approved the Climate Change Convention and has Cumming, W., Vieytes, H., Ramfrez, C.F., Sussman, D., 2002. Exploration of the La Torta Geothermal Prospect, Northern Chile. Geothermal begun to implement several projects to take advantage of the Resources Council Annual Meeting Transactions, vol. 26. benefits of selling C02Carbon Tradeable Offsets, as a Clean Grunder, A.L., Thompson, J. M., and Hildreth, W., 1987. The hydrotermal Development Mechanism (CDM) project under Article I2 of system of the Calabozos caldera, central Chilean Andes. Journal of the Kyoto Protocol. One example is the natural gas company, Volcanology and geothermal Research, vo1.32, p. 7 1-8 I. Metrogas, that is developing a project that converts space heat- Hauser, A., 1997, Catastro y Caracterizacidn de las Fuentes de Aguas ing with fuel oil to natural gas. This project will reduce the Minerales y Termales de Chile, SERNAGEOMlN, Boletin No. 50. C02emissions by 300,000 tons in the next 30 years. The sale Raasch, G. 2001. The New Geothermal Law and Recent Geothermal Ac- of those emission credits are one of the key drivers of the project. tivities in Chile. Geothermal Resources Council Annual Meeting Trans- Another CDM example in the Chilean energy market, is the actions, vol. 25, p.549-551. run-of-river hydroelectric power plant, Chacabuquito, that uti- Urzua, L., Powell, T., Cumming, W., Dobson, P., 2002. Apacheta, A New lizes the waters of the Aconcagua river located in the 5Ih Region Geothermal Prospect in Northern Chile. Geothermal Resources Council near Los Andes, about 100 km northeast from Santiago. This Annual Meeting Transactions, vol. 26.