As I got off the plane in Santiago, the first thing to hit me was a blast of cold air. Not that I was complaining. After a monster 48-hour journey – thanks to Delta Airlines missing its own connections – the bracing Andean winter was just what I needed to wake me up for the busy day ahead.
From the airport, I went straight to the Latin Markets Chilean Investment Forum, where I spent the next two days listening to central bankers, fund managers and CEOs debate the local economy.
And tired though I was, it was the perfect introduction to my own stay in Chile, as I plan to spend the rest of the month looking for local investment opportunities.
In fact, as I explain below, I think I may have already found one.
Meet Michelle Bachelet
So far, my brief time here has confirmed some of the ideas I already had about Chile. At every opportunity, Santiago reminds you that you are in Latin America’s most developed economy. Tall skyscrapers, clean roads and a very efficient metro system make it the most ‘European-like’ Latin American capital that I’ve been to.
Of course, not everything is perfect. Chile’s impressive economic performance masks some serious problems. It is one of the most unequal countries in Latin America, with recent protests showing that many feel that they’ve missed out on the fruits of growth. Moreover, as the country has grown richer, new challenges have arisen.
That’s why I was glad to see left-wing president Michelle Bachelet come to power in March this year. Bachelet already had a successful stint as president between 2006 to 2010, but this time she’s promised to be far more radical.
Since coming to office, she has announced sweeping reforms that look set to shake up the economy – one of which plays a big part in the opportunity I want to share with you today.
How to fix Chile’s energy problem
In the last few decades, Chile has been on an incredible economic run, but there’s still room for improvement. For the country to achieve true developed economy status, it would need to boost productivity.
One of the simplest ways to do this is to tackle any obvious infrastructure bottlenecks. In Chile’s case, most of its transport systems are very good, but the energy supply is another matter.
For example, the apartment I’m renting here doesn’t have the usual ‘bills included’ package that you tend to get with short-term rentals. Instead, I was told to verify all meter readings when I arrived, so that there would be no arguments when the bill came at the end of my stay.
When I asked why, the owner told me that “heating here is just too expensive and foreign visitors are always shocked by the cost at the end”. She even pulled out a little plug-in heater that she said would save me money.
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Chile’s energy problems are nothing new. Not blessed with much coal, oil or gas, Chile has traditionally relied on hydropower and fossil fuel imports. Unfortunately, historical problems with neighbours such as Bolivia means that getting those supplies is not always straightforward. The Chileans have got around this by building liquefied natural gas (LNG) import terminals. These are facilities where liquefied natural gas is turned back into a gaseous state after being transported by sea from where it was originally produced.
As you can imagine, that means paying a higher price for energy.
The other problem is that Chile doesn’t seem to be able to get any power projects off the ground. In recent years, huge coal, gas and hydro projects have been stalled by protestors.
Like many countries, Chileans need to make some hard choices about their energy. Trade-offs need to be made between environmental and financial concerns. But so far, those choices haven’t been made. Meanwhile, energy costs for locals, businesses, and even your humble correspondent, continue to rise.
One obvious solution would be wind, solar or run-of-the-river hydro projects. These would avoid the protests caused by mega dams or coal plants.
No doubt that’s part of the reason why President Bachelet has promised that almost half of the new energy commissioned between now and 2025 would be made up of these types of renewable sources.
So how best to play it?
Rame could prosper from these reforms
My first Latin America renewable energy tip was Spanish wind turbine maker Gamesa. Since I tipped it back in March 2013 the stock has rocketed by more than 350% – so if you bought in then, congratulations.
I wouldn’t buy into Gamesa now, though.
Instead, today I’d like to highlight another stock. Rame Energy (LSE: RAME) is an Aim-listed solar and wind farm developer active in Chile. It has a host of sites with potential in the northern and southern extremes of the country, while it also competes for maintenance and installation contracts for wind farms that are owned by large miners in the country.
For example, it recently won a contract to supply a monitoring station to Barrick Gold’s 20MW Punta Colorada wind farm. Buying into to small Aim minnows can always feel a bit more risky than going for a household name on the FTSE100, but nevertheless, I feel Rame is on the right side of a trend that is only going to grow.
That’s it for this week. I’ll be bringing you more news about opportunities in Chile throughout the month.
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