THE COMPANY: Edegel is the largest power-generation company in Peru. The company supplies the national grid and has a total installed capacity of 1470 MW, of which 548 MW is hydroelectric capacity and 922 MW is thermoelectric capacity. Edegel is controlled by the Spanish electricity company Endesa, which indirectly owns 83.6% of the shares through Generandes Peru and Endesa Chile.

The company produced 8144.3 GWh in 2011, which represents 23.1% of the country’s national energy production and translated into an increase of 7.5% for Edegel from the previous year.

During the same period, 43.3% of the company’s total production was generated by hydroelectric sources and 56.7% by thermoelectric sources. Additionally, Edegel has an 80%-owned subsidiary called Chinango, which has a total capacity of 194 MW, and produced 1161.6 GWh in 2011.

The company’s facilities include seven power stations, of which five are hydroelectric stations established in the basins of the Santa Eulalia and Rimac rivers and two are thermal plants operating in the areas of Cercado de Lima and Ventanilla. The combined cycle thermoelectric power station of Ventanilla is the most efficient power station in Peru. Through Chinango, the company operates the Yanango and Chimay hydroelectric power plants, both of which are located in the region of Junín.

Regulation of energy generation is very stable in the country and policies provide a long-term view for the industry, which is why the sector works efficiently in its entirety. Furthermore, there are two classifications for clients in the electric system: i) regulated clients, which includes residential and other small clients who have low consumption of energy; and ii) non-regulated clients, a group that is composed of large corporate consumers such as mining, industrial and commercial clients.

Total net operating revenues increased 17% during the 2011 fiscal year from PEN1.05bn ($383.6m) to PEN1.22bn ($448.7m) due to higher tariffs and a vast increase in the production of energy. As a result of improving efficiency and greater hydroelectric generation, operating result increased 37% from PEN317m ($116.1m) to PEN434.2m ($159.1m). Finally, net income jumped 41.8% to reach PEN285.9m ($104.8m) at the end of the period against PEN201.6m ($73.9m) in 2010.

The profitability ratios of the company improved during 2011: return on equity (net income/total equity) rose from 9% to 12.9%; return on assets (net income/total assets) increased from 4.7% to 7%; and net profit margin (net income/net sales) rose from 19.3% to 23.27% compared to the same period in the previous year. Leverage and liquidity ratios have also improved, as the debt-to-equity ratio (total liabilities/equity) declined from 45.1% to 37.9% and the current ratio (current assets/current liabilities) went from 0.82 to 0.98 compared to the previous year.

DEVELOPMENT STRATEGY: Edegel intends to continue as the largest power-generation company in Peru, and the company is continuously diversifying its client portfolio and signing new energy contracts with new clients or extending the contracts they already have. In 2011 the firm signed a contract with Chinalco for 166 MW of capacity from 2011 to 2019. Edegel has contracts to supply energy and capacity until 2025 with distribution companies, including Edelnor, Luz del Sur and Edecañete, and companies such as Antamina, Siderperú, Jockey Plaza Shopping Centre and Votorantim Metais-Cajamarquilla.

Edegel is using only 63% of its installed capacity, which could lead us to expect increasing production in the coming years. Nevertheless, the company is planning to expand its installed capacity through a new hydroelectric plant in Curibamba. This is under feasibility study as environmental impact research is still in process. It is expected that the new plant would have an installed capacity of 188 MW and we forecast that the investment could reach $220m.