Chile’s electricity subsidy project worries ENR players

Chile’s Ministry of Energy recently presented Congress with a bill to triple the electricity subsidy in response to rising energy prices.
Since the implementation of the Electricity Tariff Stabilization Act, tariffs have risen significantly.
The bill also proposes tougher penalties for electricity distributors who fail to meet their obligations, doubling fines and increasing compensation for service interruptions.
Although the measure seeks to protect consumers from these increases, several industry players are expressing concern about its economic effects.
Eduardo Perez of Scientiis, who specializes in risk analysis of electricity markets, warns that the 30% to 40% increase in tariffs will weigh heavily on different segments of the population.
He believes that this initiative could have political consequences in the middle of an election period, favoring rapid adoption.

Uncertainty for energy investments

Industry professionals consider that the bill introduces a climate of uncertainty.
Representatives of the Asociación Chilena de Energía Solar, the Asociación Chilena de Energías Renovables y Almacenamiento, the Unión de Generadoras de Chile and the Unión de Pequeños y Medianos Generadores claim that the legislation could hinder the development of new projects and jeopardize projected revenues from existing infrastructure.
They also point to a loss of confidence in the political authorities, which could put the brakes on the current development momentum in the sector.
This bill could reduce renewable energy production and limit the issuance of I-REC certificates, a market that has been growing steadily since 2020.
According to data from the I-TRACK Foundation, total I-REC emissions in Chile reached 23.5 million MWh up to August 2024, compared with 17.9 million MWh for the whole of 2023.
The slowdown in projects could have an impact on the future volume of these certificates.

Developments in the I-REC certificate market

Valentina de Vidts of Cero Trade notes that the potential reduction in I-REC supply, in the event of a drop in renewable production, could cause prices to rise, particularly if demand for climate certificates remains buoyant.
Platts’ latest valuations indicate prices of 67 cents/MWh for 2024 certificates and 60 cents/MWh for the 2023 vintage.
Market players are closely monitoring the evolution of this legislation and its repercussions on the investment framework.
An uncertain legal environment and an unbalanced distribution of financial burdens in the sector could deter new energy initiatives and negatively influence the growth trajectory of renewable energies.
The future direction of the regulatory framework and forthcoming legislative decisions will be crucial to the competitiveness and attractiveness of Chile’s renewable energy sector, while also determining the dynamics of the I-REC market.