May 26, 2023
Chile Government Resists Renewable Rescue as Boom Turns to Bust for Some Plants
(Bloomberg) -- Chile’s government is resisting calls for an immediate lifeline for renewable energy producers suffering losses after an investment boom turned sour — although it will offer a longer term solution.
Authorities will submit a bill by end-June that would address the difference between prices in congested areas and the cost of generating and transmitting, paving the way for the next phase of Chile’s shift away from fossil fuels, officials said. But it won’t contain specific measures for troubled renewable firms in the short term, said the officials, who asked not to be named as work on the proposal continues.
That may disappoint units of Ireland’s Mainstream and Spain’s Acciona SA hit by distortions in a 41-year-old regulated market as Chile cleans up its grid ahead of a 2050 carbon neutrality pledge.
The disruptions are playing out in a nation blessed with an abundance of solar and wind resources that have seen Chile top BloombergNEF’s rankings of most attractive emerging markets for renewable investments.
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A complicated system of determining payments conceived decades before the renewable boom mean solar and wind generators in Chile’s northern desert sometimes receive nothing for their production. That’s compounded by transmission deficiencies and a flow of direct payments to keep pricey coal and diesel-fired generators ticking over in case they have to fire up quickly.
The government is hoping investments in transmission and storage will eventually ease the crunch. But the renewable sector, which has invested about $5 billion in the past seven years, warns that may take too long and that the failure of projects would be a blow to Chile’s credibility.
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Two firms — Maria Elena Solar SA and Ibereolica Cabo Los Leones II SA — have already declared their insolvency. This month, Moody’s became the latest credit agency to downgrade ILAP, a wind generator backed by BTG Pactual.
“It’s urgent to implement short-term measures that allow the financial sustainability of renewable companies that today are paid zero for the energy they produce,” said Ana Lia Rojas, head of renewable energy association Acera. “No company can survive by selling its product at a price of zero.”
Generators of Chile, a group representing the nation’s main power producers, not just renewable plants, is pushing for a broad modernization of the market rather than specific short-term measures.
--With assistance from Eduardo Thomson.
©2023 Bloomberg L.P.