Chile plans power market reforms to protect struggling renewables sector

Speaking to industry leaders and ambassadors on 13 June, Diego Pardow, Chile’s energy minister, said the government’s new energy transition bill will include a reform of how revenues from power sales are allocated. He has not yet confirmed how this will happen.

Companies selling electricity on the spot market currently receive a tariff equal to the cost of the most expensive unit online at any one time. 

But the buildout of transmission capacity is not keeping pace with the rapid installation of 12GW of wind and solar facilities and last year’s surge in fuel prices has left many renewables companies facing financial ruin.

According to the minister’s presentation, the legislation would “redefine the reallocation of tariff revenues in line with the delays in transmission lines and the accumulation of windfall incomes.”

Once approved by Chile’s legislators, the change would come into effect immediately.

The minister said that the bill would “provide certainty to current and future investments for the process of decarbonisation, promoting urgent actions to drive the second half of our energy transition.”

Storage project 

In addition to tariff reform, President Gabriel Boric recently announced a tender to install a $2 billion energy storage project in the Atacama Desert which could help to overcome constraints.

Renewable energy association ACERA praised the proposal for addressing the serious difficulties faced by the sector over the last 18 months but said that it would not be sufficient to improve the situation of most companies.

“Although this measure is a positive step, it will only deal with 10% of the total financial imbalance,” the association noted.

EU lobbying

Pardow’s announcement came just two days before European Commission president Ursula van der Leyden is due to visit Santiago and meet with President Boric and other authorities.

EU governments have been lobbying Chile about the difficulties faced in the renewables sector. So far, three European power companies – France’s EDF, Ireland’s Mainstream Renewable Power, and Spain’s Solarpack – have withdrawn renewable units from Chile’s energy market due to an inability to pay. Aker Horizons has also written down the value of Mainstream’s Chile business citing the problems in the energy market.