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Spain and Japan helping out -- Ecuador plans 100 MW

Severe drought in the Loja region of Ecuador, coupled with widespread energy shortages, is opening up a significant potential market for wind power. Loja department council says it has identified sites for 100 MW of wind plant to meet spiralling demand for irrigation. It is now seeking financing for some $17 million to launch the first phase of development, according to project manager Jose Aguirre.

The project came about due to severe droughts in the Loja region, which forced the local government to seek alternative water sources. It secured a $10 million loan from Japan to install 150 electric powered pumps to deliver clean water to 400,000 people, but then needed a reliable electricity source to make the project sustainable, says Aguirre.

Ecuador is facing energy shortages from next year. Installed capacity must grow at 350 MW a year to meet the increase in demand, but there are very few feasible large scale projects around, he says. On the other hand, a favourable regulatory environment for renewable power, established under a law published in 2002, provides guaranteed payments from the wholesale market of $0.1005/kWh -- and obligatory preferential dispatch within the interconnected system.

Ancient traditions

The council identified the test sites based on ancient traditions of the local Andean populations, which referred to the hillside locations as "guairapungos," or "wind doorways," in the local quechua language. An 18 month feasibility study is being wrapped up, with the backing of the Catalan Energy Institute and consulting firm Normawind, both from Spain, continues Aguirre. The study cost about $400,000. The five sites identified have average wind speeds of 12 m/s and potential for capacity factors of 48-50%, according to Aguirre.

Because this is the first wind plant in Ecuador, the council has chosen to start with a smaller 14.3 MW pilot project at Villonaco, 12 kilometres from the city of Loja in southern Ecuador. Despite the support of the president and the energy and mines ministry, there are a number of cultural and practical hurdles to overcome, which is why the municipality has opted for a smaller project to first demonstrate the technology before moving ahead.

A number of financing alternatives are being examined, of which three stand out. Spanish bank Santander and the Israeli government have both offered loans, although these come with commitments to specific technologies, says Aguirre, without revealing details. The council is also considering a placement of bonds on the Ecuadorian financial market and loans from the Inter-American Development Bank and the Andean Development Corporation (known by its Spanish initials, CAF), although CAF wants the council to opt for a larger project.

site work started

The council would like to complete the financing arrangements by mid-February and is simultaneously working on buying the equipment, although the outcome of financing very much influences purchases. Preliminary work such as access roads and turbine foundations will start in January and the project is tentatively scheduled to be up and running by December 2004.

Phase one will be entirely owned by the local council through a non-profit organisation, as private sector partners will not be included in the equity structure. Some 0.8 MW will be used for the electric water pumps and the remainder is to be sold to the interconnected system. Based on the project's internal rate of return of more than 24%, the council is aiming for revenues of $13 million a year that would be invested in local infrastructure projects. The next wind plant project in line, for some 45 MW on the nearby Membrillo hill, will be opened up for private sector participation.

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