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This institution reserves the right to refuse to accept a copying order if, in its judgment, fulfillment of the order would involve violation of copyright law. GRC Transactions, Vol. 34, 2010 Doing Geothermal Exploration Business in Chile, Energía Andina Experience Jose Soffia and Jorge Clavero Energia Andina S.A. www.energiandina.cl Keywords were considered “Fuentes Probables” (Probable Sources: Hauser, Chile, Geothermal Law, Energia Andina, El Tatio, Apacheta, 1997) on which the granting process must be made through a Pampa Lirima, Tinguiririca, Puchuldiza bidding process. Since then, several preliminary exploration surveys in areas where the thermal manifestations were reported or are likely to Abstract occur, have been analyzed by few companies that were formed for this purpose, following the promulgation of the Geothermal The exploration activities for locating geothermal resources in Law in the same year 2000. This national inventory of geothermal Chile have expanded significantly in the past five years, in light resources has contributed to identify more than 20 prospect areas of the electricity shortage supply due to lack of natural gas and (Figure 2) with encouraging geothermal characteristics. Some rising producing cost. Recent efforts by the National Electricity of them are in an advanced exploration stage and others are still Commission (CNE) and State policies encouraging renewable waiting to be explored. energy development, will likely install geothermal development on our lands in the future, helping to diversify the electricity sources. Under the Geothermal concession Law and Non Conven- tional Renewable Energy (ERNC) Law, plus the fact that 10% of electricity generation should come from ERNC by 2024 and the possibility of recovering part of drilling costs in case of failure in exploration projects, with no doubt will ensure the geothermal development in Chile. In this scenario, Energia Andina, a private Chilean company established in Chile in 2008, is developing its business in several exploration concessions, most of them located in central and Energia Andina northern Chile. Through this paper we will comment technical Figure 1. Tectonic setting of Chilean Volcanic Activity. and non-technical issues to have in mind in order to be successful in managing and completing the exploration activities, at least in the formal process required by the Chilean legislation of getting Chile’s political framework is stable, with government and licenses and the approval of local people and authorities. non government people interested in expanding the renewable energy sources as a way to diversify the electric energy grid and Introduction reduce dependence on fossil and foreign fuels like LNG, Coal and Diesel. Chile holds a large amount of untapped geothermal energy Hydropower is currently the predominant mode (50% to 70%) resources, as a consequence of having a long active volcanic of electricity production in the central and south part of the country, chain related to plate subduction between the Pacific Plate and the and thermal generation (mainly coal and LNG, and some diesel South American Plate (Figure 1). Before the year 2000, several generation) is almost the only way of generation in the north of studies were carried out mainly by government related institu- Chile. Volatile prices and the dependence of high import costs of tions and private companies. The Chilean Geological Survey fossil fuels are making base load power production very costly. published a list of geothermal seeps and thermal zones in Chile Using today’s geothermal technology, Chile has an interesting (Sernageomin, 2000), counting in total 120 manifestations that potential to generate electricity by using geothermal resources. 637 Soffia and Clavero Tacora ticularly because the new Ministry of Energy is pushing in the Colpitas XV Polloquere 1, 2 right direction. Licancura 1,2,3 I Puchuldiza Sur 1-‐Sur 2 The law establishes the existence of exploration and exploi- Pampa Lirima 1, 2, 3 y 4 Irruputuncu tation concessions, which are granted by the new Ministry of Olca Aucan 1,2 San Pablo Energy. Exploration concessions are valid for two years and may Apacheta Paniri y Sta. Caterina 2 Ml TaNo-‐La Torta be extended for an additional two years. This condition applies if the concessionary proves to have completed at least 25% of the II Alitar Tuyajto 1,2,3,4 work and budget committed for the concession. Six month prior to the end of the first exploration period the concessionary has to Juncalito 1 y 2 submit the application for the extension. Laguna Verde After these two or four years of exploration, the concessionary III has a maximum of two years to conclude the evaluation of the technical information collected and produce the feasibility report, justifying the intent to develop the geothermal field through a IV power plant; this means it has in total six years to evaluate an area. To do so, the concessionary must apply for an Exploitation Concession during that period of time. Exploration and Exploita- tion concessions give the exclusive right to own all the geothermal -an.ag/ Colimapu Galo Calerías power and brines, to use the land and to transfer or sell its geo- VI Tinguiririca A y B Necul thermal rights without any limitation, given that processes have Calabozo Pellado been followed and the work has been accomplished. L. Maule Sta. Sonia During the first years of the Geothermal Law, concessionaries Chillán Sta. Antonia Concessions proposed only surface exploration work that included geology, Huiscapi Granted geochemistry and geophysics, with budget ranging US$ 200,000 IX San Gregorio Sollipulli In process to US$ 500,000 leaving for the second period of concession the In bidding contes drilling of gradient holes or larger size geothermal wells. The competition for land rights registered in the last three years has June 2010 forced the concessionaries to increase their work commitment proposals in the first concession period, reaching values from Figure 2. Main prospect areas.(April,2010). US$ 1 million to the challenge amounts of about US$22 millions, adding more geoscientist activities and incorporating gradient Preliminary assessment of the geothermal potential of the holes and even bigger size geothermal wells in the first two years country based on calculations made by U. de Chile’s , Dr. Alfredo of exploration permit. (Lahsen, 1986; Lahsen et al, 2005) have indicated that Chile’s This condition is accelerating the evaluation of some prospec- geothermal electricity potential generation is about 16.000 MW, tive areas, but also is pushing the management staff to high risk for 50 years, contained in fluids with a temperature over 150°C, limits, considering that it is necessary to get several permits for and at a depth less than 3,000m, but more conservative figures access and environmental assessment studies, especially if an area managed by the industry put that number in the order of 3.350 of interest is located in indigenous lands, in the high Andes with MW, considering the possible development of the more known no roads and heavy winter snow fall, or inside restricted envi- actual prospects, in a time frame of 20 years based on actual ronmental areas. Also, it is important to consider that geothermal technology. business in Chile is brand new and experienced drilling services are not always available when needed. Work Setting for Exploration The fact that some concessionaries are taking this risk ap- proach of drilling during the first period, should force them to Since January 2000, Chile has a Geothermal Law (Nº 19.657) obtain permits prior to obtaining concession permits, as a way that is the legal background to support geothermal business in to avoid operational risk, but without guaranties. But this situa- exploration and exploitation concessions. It is a new Law that is tion is not happening. in revision to improve certain aspects that should make it more attractive to private investors and also, to give more confidence avoiding speculation. But this is not enough since other regula- tions that apply to geothermal business need a better definition and better implementation. When we wrote this paper in April of this year, there was a bottle neck in the Ministry of Energy in regards to the number of concessions requested by several companies that are in line, waiting for a resolution to handle the resources that the Ministry currently manages. To this date this has not been possible. We hope this will be solved by the time we present this paper, par- Figure 3. Period of Geothermal Concession in Chile. 638 Soffia and Clavero Practically, a concessionary has only 1 ½ years to perform the (2) Re-discovering one that has already been explored— even minimum work commitment (≥25%) to obtain the rights to have drilled—in the past, but that was dropped in the fiscal cli- in total four years to evaluate technically a geothermal conces- mate of time. In Chile there are only 3 of these prospects: sion (Figure 3).