UPDATE 2-Chile court lifts suspension on HidroAysen dam work

Thu Oct 6, 2011 3:37pm EDT

* Chile looking to boost power generation

* Chile grid fragile after years of under investment

(Updates with analyst comments, share price at close)

By Erik Lopez

SANTIAGO, Oct 6 (Reuters) - A Chilean appeals court lifted a suspension order on Thursday that will allow work to proceed on the $3.5 billion HidroAysen hydropower project, which aims to prevent energy shortages.

The project has been the target of massive protests due to alleged environmental concerns.

The appeals court in the southern city of Puerto Montt had issued the suspension order in June after legal injunctions filed by opponents of the project. The court revoked the suspension order in a ruling published on Thursday and seen by Reuters.

"This appeal sort of maintained Hidroaysen in standby, as environmental authorities had already given the green light to the construction of the power stations," said Carlos Ferruz, an energy analyst with Corpbanca. But approval of the transmission line is still pending-- and may be even trickier to obtain, according to Ferruz.

HidroAysen is a joint venture between leading generator Endesa Chile END.SN and partner Colbun COL.SN, which will comprise five power stations and plans to generate 2,750 megawatts by damming two major rivers.

Chile, the world's top copper producer, is seeking to boost and diversify its power grid to confront rising energy needs and drought-induced energy shortages, which this year prompted the government to reduce voltage to help avoid blackouts.

Only late last month, a massive power blackout disrupted crucial copper mines in Chile and darkened vast swaths of the country. [ID:nS1E78N0CX]

Environmentalists say the hydroelectric dams will wreck pristine valleys and rivers in Patagonia, while industry players argue the project is crucial to the power-starved country, which is also grappling with a creaking grid in the wake of a devastating earthquake early last year. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ TAKE-A-LOOK-Chile struggles with creaking grid[ID:nS1E78P1CA] FACTBOX on the project: [ID:nN09253626] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Shares in Endesa closed 3.26 percent firmer on Thursday, while Colbun rose 5.3 percent, both surging in tandem with a 5 percent rally by the wider IPSA blue chip index .IPSA on the heels of global stock market gains.

The project still requires a permit for a more than 1,250-mile (2,000-km) transmission line to carry the 2,750 megawatts generated from deep in southern Patagonia to the capital Santiago.

HidroAysen could be holding off to see if the Chilean government proposes a revamp of the south's fragile transmission line, that the project could eventually connect to as opposed to constructing its own line. A HidroAysen transmission line is seen costing up to $4 billion.

Corpbanca's Ferruz estimates investment in the power station reaching up to $5.5 billion, significantly above HidroAysen's forecast.

Approval of the HidroAysen project by Chile's regional environmental commission earlier this year was seen helping deeply unpopular President Sebastian Pinera regain the trust of energy investors after he struck down a thermal project over environmental concerns last year.

Some see the approval of HidroAysen paving the way for other controversial energy projects.

In February, regulators approved the environmental study for the $4.4 billion coal-fired Castilla thermal power plant planned by Brazilian billionaire Eike Batista.

Quake-hit Japan's nuclear crisis doused nuclear power ambitions in Chile, one of the world's most seismically active countries, which was devastated last year by a massive earthquake and ensuing tsunamis. (With reporting by Alexandra Ulmer, Writing by Simon Gardner; Editing by Marguerita Choy)

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