(Bloomberg) -- Alto Maipo SpA wants to turn snow from high in the Andes Mountains into electricity for Chileans. Climate change is getting in the way.
The AES Corp. subsidiary, which has been developing power plants that will use Andean snowmelt to produce electricity, filed for Chapter 11 bankruptcy in Delaware on Wednesday. Declining power prices and increasingly scarce snow have made the project unsustainable in its current form, Alto Maipo said in court papers.
“Unfortunately, in recent years, climate change has had a devastating impact on precipitation in the Andes Mountains, with the result that the rivers that will supply the project have experienced a steep decline in overall water flow,” Javier Dib, Alto Maipo's board president, said in a court declaration. “The combination of lower prices and less precipitation mean that when the project goes online, it will be operating in a dramatically different economic and environmental reality than Alto Maipo originally forecasted.”
Using the water flow levels of the last 59 years, the Alto Maipo project would've generated an average of 2,218 gigawatt-hours of energy per year, according to a report commissioned by the company. It would yield less than half of that in 2021 -- an estimated 1,100 GWh.
Cost Overruns
Construction cost overruns have been a big problem, too. In order to get water from the mountains to the project -- located near Santiago -- the company needs to build about 42 miles of underground tunnels and two subterranean “caverns” that will house the plants. Delays by contractors and “unexpectedly difficult geological conditions” have boosted the cost of the project by 70% compared to initial estimates, according to Dib.
The result: Alto Maipo has enlisted the help of a U.S. bankruptcy court to fix its finances. AES Corp. is “no longer considered to have control” over Alto Maipo and will recognize a loss of as much as $1 billion, the company said in a regulatory filing. Alto Maipo has reached a tentative restructuring deal with six of its most significant creditors, including Itaú Corpbanca SA and Banco de Crédito e Inversiones.
The company owes about $1.5 billion to lenders including Deutsche Bank AG, Finepoint Capital and the U.S. International Development Finance Corp., according to court papers. It also owes as much as $392 million under a construction agreement to Strabag SpA, which has signed on to the restructuring deal.
Alto Maipo expects the power plants to reach commercial operation in the first half of 2022.
The case is Alto Maipo Delaware LLC, 21-11507, U.S. Bankruptcy Court for the District of Delaware.
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