Chile's electricity subsidy draft bill may impact renewable generation, I-REC issuance: market

Participants in the Chilean International Renewable Energy Certificate market cited concerns over a new electricity subsidy draft bill presented to the country's congress in late August, with some worried that the bill could disincentivize investments in renewable energy projects, hamper I-REC issuances and raise I-REC prices.

The Ministry of Energy presented to congress on Aug. 26 a draft bill aiming to triple the electricity subsidy in response to recent price increases in the Chilean power market since the Electricity Rate Stabilization Law came into force. The draft bill also includes measures to double fines against electricity distributors that violate their supply obligations and increase compensation to customers for power outages.

“While the bill could effectively benefit the segments affected by the power price increases, as an economic measure it is detrimental,” Eduardo Perez, co-founder and CEO of Scientiis, a consultancy specializing in electricity market risk and analysis, told S&P Global Commodity Insights Sept. 4. “Electricity bills rising between 30% and 40% is impacting various population segments and by virtue of the upcoming electoral process in November, this proposal is a convenient political strategy and could derive in a fast-track approval request.”

The draft bill has generated concern across several power industry stakeholders amid potential financial impacts, which include investment disincentives, loss of projected revenues, impacts on the projects’ financial viability, and potentially pausing new energy developments while awaiting legal certainty.

“The proposal is seriously flawed and substantially undermines the legal predictability on which we have collaborated with the government towards energy transition and decarbonization,” the Chilean Solar Energy Association, the Renewable Energy and Storage Chilean Association, the Chilean Generators Union, and the Small and Medium Generators Union said Sept. 2 in a joint declaration.

“It also impairs the legitimate trust in the political authority ... and the proportional distribution of public burdens without considering any financing from an efficient and focused financial administration exercise,” the joint statement said.

As the bill could hinder development of new renewable projects and undermine revenues from the ones already in place, a decrease in renewable generation could lead to fallbacks in I-REC issuance, which has been increasing consistently since 2020, according to the I-TRACK Foundation.

“The environment of uncertainty as well as asymmetric financial burdens in the sector is further reinforced by the draft bill and could discourage new investments and jeopardize the progress of renewable projects crucial to the country's energy transition," Valentina de Vidts, co-founder of Cero Trade, a Chilean environmental commodities marketplace, told Commodity Insights Sept. 4. "However, it is a logical response to unprecedented energy prices that are affecting the Chilean population.”

Vidts said the bill could very well affect the I-RECs market but was not sure if it would be negative or positive.

"… In theory, the supply would decrease, which could even push up prices, especially if the demand for climate commodities increases,” she added.

Platts, part of S&P Global Commodity Insights, last assessed Chile I-REC prices at 67 cents/MWh for 2024 certificates and at 60 cents/MWh for vintage 2023, regardless of technology.

I-REC issuances in Chile have totaled 23.5 million MWh through August, surpassing the total 17.9 million issued certificates across all of 2023. Moreover, I-TRACK Foundation statistics show the number of redeemed certificates has also increased since 2020 and has totaled 15.9 million MWh in 2024.