Glacier retreat in Andes has bankrupted a multi-billion-dollar company

Glacier retreat in Andes has bankrupted a multi-billion-dollar company

Companies can go bankrupt because of poor business models, more successful competitors, or fewer targeted consumers. But as glaciers retreat and droughts reduce river flows, hydroelectric companies such as Alto Maipo SpA (“Alto Maipo”) have cited climate change as the culprit.

On November 11, 2021, Alto Maipo, the Chilean subsidiary of the US Fortune 500 company AES Corporation, filed for Chapter 11 Bankruptcy It was held in Delaware for its highly controversial hydroelectric project on the Maipo River, southeast of the capital, San Diego. The company claimed in its bankruptcy filing that falling electricity prices in Chile and the impact of climate change on its water supply made its current financial structure unsustainable. The filing comes after years of backlash from environmentalists and residents in the Maipo Valley and San Diego against the company’s diversion of the Maipo River, the city’s main water system. Much of the scrutiny comes from concerns that the Maipo Valley has been overdeveloped by developers who have built mines, the El Jesso dam and several hydroelectric plants designed to subsidize the mining industry – four of which are owned by Alto Maipo’s U.S. parent company , AES Andes.

Construction on the Alto Maipo hydroelectric project began in 2008, despite strong opposition from residents of the surrounding valley and Santiago.The energy produced is intended to power mining operations such as perambresa copper mine north of San Diego.

The cost of the project has ballooned from $700 million to more than $3 billion. The planning and construction setbacks pushed back the expected completion date by more than nine years. It is now expected to be completed this summer. The project is expected to generate an average of 2,213 GWh of energy per year — enough to power the city of Dallas, Texas three times over — but only half (1,100 GWh) by 2021, due in large part to drought and Andean glaciers Shrinking. The loss of revenue due to reduced water flows was a key factor in the face of some of the project’s declining energy output, which last November saw Alto Maipo declared bankruptcy.

Carl Bauer, a professor of water policy at the University of Arizona, said that while the project’s proponents touted it as a “river within a river,” the label isn’t accurate. river crossing project are hydroelectric projects that place turbines and power plants directly in rivers so that water can flow through without being removed or retained in reservoirs. Bauer said the Alto Maipo hydroelectric plant “drains water and transports it through tunnels, eventually returning it quite a bit downstream,” unlike a true river project.

this project Diversion 43 miles The river and its tributaries travel through tunnels to turbines, which generate electricity and return the water to the river upstream of San Diego. Ball noted that this would have a major impact on the environment and would completely dry out the basin area. This drew backlash from environmentalists, the local Maipo Valley community and San Diego residents. The city of San Diego has not opposed the project, but Ball said it is likely due to the upstream location of the backwater, which leaves the city’s water supply unaffected.

Glaciers on the Maipo volcano in the Andes provide water for the Maipo River. Source: Carlos A. Bau/Frick

Although Alto Maipo said in its bankruptcy statement that the drought and low water flows were unexpected, critics such as NGOs not alto mipo and ecosystem It was pointed out that the Environmental and Social Impact Assessment (ESIA) conducted by Alto Maipo in 2008 was flawed and incomplete. The groups claimed that ESIA’s use of historical water flow data as the basis for the project, rather than current data at the time, led to wrong predictions of energy production. Both movements are led by community coalitions and environmentalists who have opposed the Alto Maipo project for more than a decade.

In 2017, not Alto Maipo and Ecosystems file a complaint and International Finance Commission (IFC), a global development agency and a large investor in Alto Maipo. Unlike the fully private banking group, the IFC is the financial arm of the World Bank Group, a United Nations bank focused on helping developing countries. As a result, it is more willing than private banks to deal with complaints and allegations against recipients of its funds if they are shown to violate UN policy.

No Alto Maipo and Ecosistemas said Alto Maipo violated IFC’s social and environmental governance policy, saying ESIA failed to acknowledge the potential for water scarcity caused by climate change. They added that ESIA did not consider how the hydropower project would affect recreation, tourism and drinking water in the valley. The IFC agreed with the allegations, adding in their report that Alto Maipo did not properly consult affected communities.Therefore, the International Finance Corporation May 2018.

Protesters in 2011 calling for the protection of drinking water at the Alto Maipo hydroelectric project in Chile. Source: Radio Tierra/Frick

In the years before and after the petition to IFC, the groups organized massive demonstrations that drew people from dozens of organizations and professions. 2010 demo These included 300 mule drivers from the mountains surrounding the Maipo Valley, a crowd praying for the water of the Maipo River, and several Chilean senators and public figures.Other major demonstrations took place in 2013, 2015and 2017 and demonstrations organized by women 2019 The other is led by local residents 2020. Recently, a 2021 Protest The outdoor community gathered under the “Save the Maipo” campaign, organized by Patagoniaan American outdoor clothing brand.

Magdalena Gil, an environmental sociologist at the Catholic University of Chile and a homeowner in the Maipo Valley, said developers often fail to consider the full impact of overdeveloped Maipo Basin projects. Hydroelectric plants, the El Yeso dam and mining operations have put pressure on the valley’s water resources, and she noted that the valley, which has endured 15 years of drought, is “the number one tourist destination in the metropolitan area.”Jill told Glacier Hub The Alto Maipo hydropower station should not be discussed as a stand-alone project. “We need to discuss the sustainability of the Maipo Valley, which is the sustainability of San Diego and its metropolitan area,” she said.

The bankruptcy claim is currently being reviewed by the U.S. Bankruptcy Court for the Delaware District. Alto Maipo is planning to restructure itself in a way that would hand over most of the company’s control to its parent company, AES Corporation, with no recourse to junior creditors — a decision unpopular with those unsecured creditors. It argued on March 29 this year that the court should not allow the company to seek creditor votes for its restructuring plan.

Bauer is almost certain that the Alto Maipo hydropower project will be completed in one way or another at this time. Whether it will be profitable in the face of drought and shrinking glaciers is uncertain. But does this mean that in the face of worsening climate change, all hydropower projects on rivers like the Maipo are doomed to fail from the start?

Not necessarily, according to Ball. “Altered flows due to climate change will affect the economics and engineering of all water projects,” he said. However, over the next few decades, groups could harness the extra water flowing from the retreating glaciers for hydroelectric power generation or freshwater storage, he added. By targeting areas that generate more meltwater as glaciers recede, groups can take advantage of short-term projects that are less invasive and exploitative of the rivers they depend on, Bauer said.

The bankruptcy of Alto Maipo shows that developers need a holistic, future-thinking approach to renewable energy. Additionally, it demonstrates the importance of prioritizing community voices in the face of climate change to protect important economic, recreational and municipal water sources such as the Maipo River.