Chile’s Energy Chief Willing to Delay Contentious Pricing Change

(Bloomberg) -- Chile’s government is willing to withdraw a measure that would have eaten into profits for a segment of the renewable energy industry, but is pledging to review the rules for small electricity generators at a later date.

President Gabriel Boric’s energy minister said the government could shelve its proposal to temporarily lower the compensation those producers receive from a pricing mechanism while it focuses on other ways to raise funds to expand electricity subsidies for lower-income families. 

The model, brought in by a previous administration, is used by a group of mainly solar power producers know as PMGDs. They cried foul over Boric’s move, accusing his government of changing the rules of the game as the pricing commitment was meant to last for another decade. 

“The government is open to postponing the debate related to the PMGDs and separate it from this motion, in order for the bill to progress faster in congress,” Energy Minister Diego Pardow said in written response to questions. 

The bill, currently being reviewed by lawmakers, also contains two other funding sources. One is an additional tax on carbon emissions to be charged through 2026, which was approved by a lower house committee last week. The other taps extra revenue from a value-added tax due to higher electricity prices.

Funds raised through those measures are set to help households cope as power tariffs that had been held down since a wave of social unrest in 2019 gradually increase.

“From day one, our priority has been to offer as soon as possible a substantial relief to people and small companies affected by the increases in electricity bills,” Pardow said. “We will always be willing to talk, and even concede, to reach agreements.”

Some investors had warned that the proposed change to the PMGD price mechanism would threaten their financial standing. Others signaled they had put investment decisions in Chile on hold until they got further regulatory clarity.

Pardow said he offered opposition lawmakers the option of postponing the PMGD section of the bill last week in order to guarantee a cross-party agreement, but was rebuffed. The minister said the government hopes to revisit the pricing mechanism as part of a more in-depth review of the program in future.

The bill, currently being reviewed by a lower-house committee, must also be approved by the full chamber and the Senate before it can become law. 

Through access to stable prices, the model affords a measure of protection from bottlenecks and cost distortions caused by energy transmission congestion and storage shortfalls. Some renewable players in other segments of the market were sent into insolvency as a result of those challenges, while the PMGD mechanism attracted billions of dollars of investment from the likes of BlackRock Inc. and JPMorgan Chase & Co.

But critics of the program argued that is was been such a boon for investors that it over-saturated the market and increased costs for the overall system. 

“If this pillar of the bill is not approved there will be less resources for the subsidy,” Pardow said. The government had forecast that the PMGD portion of the legislation would raise about $150 million annually for three years.

©2024 Bloomberg L.P.