Chile sidesteps renewable energy profit grab by pushing forward subsidy bill

(Bloomberg) — Chile’s lower house approved a bill to expand electricity subsidies for low-income households, after scrapping a measure aimed at raising some of the funds to limit profits in the renewable energy industry.

The measure, which aimed to change the pricing mechanism for small power generators known as PMGDs, was defeated on Monday by a vote of 60 to 59. The remainder of the bill was approved 97-25.

To be sure, the government could still reinstate the measure when the legislation comes to the Senate.

President Gabriel Boric’s government expects to raise $200 million a year through the measure to help low-income households cope with rising electricity prices. Electricity prices, which have been depressed since the social unrest in 2019, have begun to gradually increase.

“The bill allows for immediate aid through effective measures,” Energy Minister Diego Pardo said during a debate in Congress. “There will be no significant changes in the way the industry operates.”

The controversial legislation has angered PMGD investors, who say it violates Chilean law by weakening incentives aimed at diversifying the energy sector, which is supposed to last another decade. While some say these small solar plants have saturated the market and increased overall system costs, the proposed rule changes take a toll on investment in a country known as business-friendly.

Borrick’s bill includes two additional funding sources. One is to impose an additional temporary tax on carbon emissions, and the other is to take advantage of the additional VAT revenue generated by rising electricity prices.

The legislation still needs to be reviewed by the Senate, where opposition to withholding profits from small renewable energy generators is expected to intensify if the decision goes forward. Pardo told Bloomberg News in November that he was willing to withdraw the PMGD measure if it failed to win enough support to ensure approval of the other two financing pillars. If this happens, the government has promised to review the rules for small generators at a later date.

PMGD systems provide generators with stable prices that avoid bottlenecks and cost distortions caused by transmission congestion and insufficient storage, attracting billions of dollars in investment from companies backed by BlackRock Inc and JPMorgan Chase & Co.

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