Chile's mining industry jolted by electricity rate hikes

Alarm bells are ringing in Chile's mining sector as the government this month began the process of gradually normalizing electricity rates after four years of frozen prices.

A bill is currently being discussed to triple the coverage of the state electricity subsidy for vulnerable households, which would be financed through a temporary hike in the carbon tax, additional VAT revenue and a surcharge on industrial sectors whose power consumption exceeds 5,000kWh. 

However, local mining associations consider that the surcharge is unfair.

"Once again, the rules of the game are being changed, especially when we consider all the investment that the mining sector has made in using clean energy for production and bearing in mind that it has always been subject to high energy costs, which represent approximately 11% of operating costs in copper mining," the president of the Chilean mining chamber, Manuel Viera, said in a statement.

The rising electricity prices end a period of rate freezes established in law 21,185 in 2019 and law 21,472 in 2022, aimed at protecting citizens and companies from hikes during the country's social upheaval and the subsequent COVID-19 pandemic.

Law 21,472 established limits on rate increases and created a US$1.8 billion fund to alleviate the 44% increase in bills that must be paid in full before the end of 2032.

The debts accumulated to date exceed US$6bn, including other significant interest payments.

Jorge Riesco, president of mining association Sonami, raised concerns about the burden of electricity costs for an industry that is dealing with a tax hike generated by the implementation of the mining royalty.

"Every time there's a need to finance an additional cost, mining is seen as if it were an inexhaustible source of funds," Riesco said in a broadcast on Radio Duna.

Furthermore, a study by consultancy PwC warns that the cost of production in the mining industry has increased by 30% over the past five years. 

Added to this are greater industry commitments to sustainability, the decline in ore grades in most of the country's copper deposits and the shortage of talent with technological skills.

This means that mining companies need to focus on improving their productivity more than ever, says PwC. 

The mining council has also expressed concern about the government actions, noting that electricity costs in Chilean mining exceed the average of its main competitors by 19%, which could hinder investments in the sector.

While the local mining industry has invested in securing renewable energy supplies as part of its decarbonization plans, rising from 66.6% of the total supply last year to 78.1% in 2026, according to state copper commission Cochilco, energy remains as one of the most significant operational challenges and costs.

Expansions and replacements of copper projects, and new developments will increase their share of total national energy consumption to 44.1% in 2034 from 4.9% in 2023. In this context, new copper projects alone will account for 25.3% of electricity demand by 2034, according to a Cochilco study.

On this issue, Gerson Salas, automation and energy manager at lithium producer SQM, said that since last year the company has been implementing significant energy efficiency measures. 

"However, the rate increases will still impact us, as our industry's consumption is significant. One of our biggest challenges is working with technologies that allow us to consume less electricity," he told BNamericas 

In the latest consumer price index (IPC) report published on Monday by the national statistics bureau (INE), electricity supply in June registered a monthly increase of 7.2%, with a year-to-date variation of 9.2%.