TBY talks to Eduardo Barredo, General Manager of CELEC EP, on the company’s main aims, the construction of new hydroelectric plants, and collaboration with private and foreign companies.
TBY What is CELEC EP’s role in the country’s mission to change the energy matrix?
EDUARDO BARREDO Over the past few years, we have changed the country’s energy matrix by introducing green policies in the field of generation. Previously, fossil fuels were commonly used to generate electricity. To reverse this trend, CELEC EP began operating several hydroelectric plants, and we are currently building eight new facilities. In addition, the company is developing a wind farm. CELEC EP has also started operating a very efficient thermal power plant. Our main target is to reduce biodiesel consumption as much as possible in the generation process, due to its high cost. We also aim to exploit gas-generated electricity, because it is a cheap and more eco-friendly resource. Finally, CELEC EP has guaranteed the supply of electricity in Ecuador and created vast energy reserves, as well as reduced the cost of energy generation. We are also developing and strengthening our distribution network.
CELEC EP generates and supplies 85% of the country’s electricity. Are there any plans to encourage additional competition in the sector?
There is always room for private energy generation. In fact, Ecuador currently has five private electricity generators, and the country’s development has formed the situation today. Over the last few years, we have consolidated state-owned infrastructure and the electricity generation segment. In the process, we acquired a private company that was not performing or operating adequately.
What is behind CELEC EP’s strategy to build eight new hydroelectric plants?
These projects fit perfectly under CELEC EP’s green policies, and will make the electricity generation process in our country cleaner. Most of these hydroelectric plants are being developed jointly with Chinese state-owned enterprises and financed through loans granted by Chinese banks. Russian and Brazilian banks are also involved with the financing of a number of our projects. At the same time, CELEC EP is seeking a partner to finance and develop a gas-combined generation cycle project that has an approximate cost of $200 million. Any potential partner is expected to assume 70% of the investments in the 10-year project, whereas CELEC EP would cover the remaining 30%.
How extensive is CELEC EP’s distribution network? What strategy is the company implementing to expand and strengthen it?
CELEC EP’s distribution network currently covers 94% of Ecuador’s territory; 98% in urban areas and 89% in rural areas. When compared to other Latin American countries, CELEC EP is one of the top five companies in terms of coverage and services. Our distribution system is constantly being reinforced, and currently our most important project is the development of a corridor between Quito and Guayaquil that will have the capacity to deliver 500,000 MW. In the future, this corridor will be part of a larger trans-national corridor along the Andes, from Chile to Colombia. Such regional projects will enable us to export our electricity surplus, as well as reduce generation costs at a regional level and strengthen the energy network.
How will the company develop this trans-national energy distribution network?
This project is key for the future of the region, because it will create a common energy market in South America. The designs for the project are already complete, and we are about to enter the tendering stage of the project. In fact, we are already participating in talks with large energy enterprises from Brazil and Colombia regarding contracts for the project, which will require the companies to construct and operate the network, as well as distribute the electricity over the first 25 years. After that, the project is handed over to us. We estimate the cost of infrastructure for Ecuador to be $400 million, and we expect it to be ready in about two years. Then, we will begin to work on interconnection infrastructure between the countries. Overall, I personally expect to have the whole network operating in four years’ time, because the neighboring countries are also developing their border infrastructure right now.
What is the level of investment CELEC EP expects for 2012?
CELEC EP’s budget has been set for several years, and the projects we are involved in require comprehensive plans. However, the investment budget for 2012 is $1.2 billion, which is covered largely by the government of Ecuador. I would like to note that this figure is just an estimate, because after the first six months of the year, the government checks on our performance and investment plan and may introduce changes.
In the last year, the country’s energy demand has increased by 6%, and power demand has grown by 5.5%. Ecuador experienced blackouts between 2009 and 2010 due to the inability to cope with demand and the weaknesses of the distribution network. However, CELEC EP has accomplished a lot in the past few years to address the situation, and today we can say that both energy and power demand are steadily growing without problems. Today, the Ecuadorean energy authorities are aiming to boost the presence of electric cars in the national automobile fleet, which could even boost both demand and consumption. In this regard, we expect a steep rise in consumption levels in the future, something we are capable of dealing with.
What role do joint projects with foreign companies play in the future plans of CELEC EP?
When it comes to large projects, CELEC EP is open to the market. We believe that our role is to identify relevant projects, and choose an international tender to be in charge of the construction and operation of the project. This model is very convenient for us, because we do not need to make large investments and we can pay the tendered company back in 20 or 25 years. This positively contributes to the development of Ecuador and the economic development of foreign companies, which seek to implement long-term strategies for their business activities in the country. Therefore, we can offer CELEC EP’s economic reliability to our foreign partners, because our annual turnover reaches $1 billion.
What’s your general outlook for the sector over the medium term?
In my work in the sector and for the past 37 years, I have never been as motivated and excited as I am now, because we are actually transforming the country. Distribution was one of our main weaknesses, with losses of up to 23%. Fortunately, we have addressed that; today’s losses are around 13%, and we can observe qualitative changes in terms of management. We still need to strengthen the distribution process, but I believe that the future is bright because the sector is very healthy and we do not see the risk of new blackouts. Most importantly, we have significantly reduced generation costs and the cost of electricity for the population.
© The Business Year