May 26, 2008 / 8:35 PM / 12 years ago

Chile rains provide cost relief to energy sector

SANTIAGO, May 26 (Reuters) - Chile’s energy minister said on Monday a week of rainfall has lowered energy costs and made supplies more secure, but that it is still too early to make definitive projections.

Chile, which imports nearly all the fuel it consumes, last year saw spot electricity prices more than quadruple on short supplies amid drastic cuts in natural gas from Argentina and lower hydroelectric reservoir levels due to scant rainfall.

But rains at the beginning of this year’s Southern Hemisphere winter gave cost relief to generators and have fueled a week-long stock rally led by electric utilities.

“In marginal terms, costs were already down last week,” said Mercelo Tokman, Chile’s energy minister.

After repeated government warnings that another dry year could aggravate short energy supplies enough to make rationing necessary, Tokman said recent rains have made that possibility less likely.

“It’s had an effect on the spot market. It also affects prices to non-contract customers and will, without a doubt, affect wholesale prices,” Tokman said.

Wholesale energy prices, set by the government, regulate the prices generators may charge distributors who provide electricity to end users.

Wholesale costs account for about 60 percent of the price charged to consumers by the distributors.

Tokman said Chile’s central power grid, which supplies the populous central region, and the northern power grid that feeds the mineral-rich north, were “much more secure,” but said it was still too early to make projections.

“The truth is that one week is a very short time to make inferences about the effect it will have,” he said. (Reporting by Monica Vargas; Writing by Lisa Yulkowski; Editing by James Dalgleish)

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