Chile moves to suspend solar subsidies

Chile is probably better known for its copper, but the country has also recently emerged as a leader in the energy transition, with a veritable boom in solar installations. Now the government is threatening them. It plans to temporarily eliminate a subsidy mechanism, and solar developers are not happy.

As in other markets such as Europe and parts of the US, solar generators in Chile depend on government guarantees for certain prices at which utilities must buy their electricity. However, it appears that these guarantees – effectively subsidies – along with other factors have driven the price of electricity for Chileans too high for the comfort of the current government. So it wants to suspend the guaranteed minimum price payments for three years to continue subsidizing electricity.

The industry, understandably, was less than thrilled. Chile has seen an increase in solar generation capacity over the past few years, reaching 13.77 GW this year, up nearly 50% from 2023. So once the subsidy suspension plan was announced for first earlier this month, three solar developer associations “expressed concern” about the government’s intentions, saying the plan “significantly alters the PMGD remuneration scheme by taking, through an arbitrary mechanism, revenues from projects with investments already made”.

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Foreign investors drawn to Chile by its generous payment scheme for solar developers have also criticized the move. “Invest in Chile thinking it’s the Switzerland of Latin America,” David Crouch, managing partner of Aediles Capital, told Bloomberg. “This action sets a dangerous precedent.” Aediles Capital is one of the companies to be affected by the move and an entity set up to manage BlackRock’s energy assets in Chile.

“The proposed changes would cause us to immediately meet our covenants with our debt holders,” another executive of the solar developer was quoted as saying by Bloomberg, commenting on the Chilean government’s move.

What these comments suggest is that the solar industry remains highly dependent on government subsidies for its profitability and even its status as a going concern: Bloomberg noted in a report on the legislative changes that some wind and solar developers have gone bankrupt because of them. free market exposure and no net government subsidies.

Supporters of the move say it has oversaturated the market with solar developers and pushed electricity prices higher – something that has also happened in the European Union and Britain as governments pay extra electricity taxes to fund the expansion of wind power. and solar.

“We identified a gap between the effective cost of development and the revenue that a group of generators receives,” Energy Minister Diego Pardow told Bloomberg in response to questions about the planned change. “There is room to help expand the grant.”

The subsidy Pardow is referring to is a household electricity subsidy in a move almost any government would take when its constituents are faced with rising bills: keep them down. In this case, the move pitted the government against investors who had previously come to Chile because of the guaranteed income.

“The artificial intervention in the prices of electricity supply contracts awarded in public auctions has generated uncertainty and mistrust among those financing the development of energy projects in Chile, as it significantly affects the great distinguishing feature that differentiates Chile, legal and regulatory stability. ” a coalition of three solar associations said earlier this month.

It’s kind of ironic, though. Developers complain because the government wants to take away their subsidies—the suggestion that subsidies are negative, but only when they’re given to someone else, in this case, low-income households. When subsidies guarantee their own revenue, they are a big positive.

By Irina Slav for Oilprice.com

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