Chile Sidesteps Renewables Profit Grab in Advancing Subsidy Bill

(Bloomberg) — Chile’s lower house approved a bill to expand electricity subsidies for lower-income families after stripping out a measure that would have raised part of the funds required by curbing profits in a segment of the renewable energy industry. 

The measure, which sought to alter a pricing mechanism for small electricity generators known as pequeños medios de generación distribuida, or PMGDs, was rejected Monday by a vote of 60 against versus 59 in favor. The remainder of the bill was approved 97 to 25.

To be sure, the government can still restore the measure when the legislation moves up to the Senate.

President Gabriel Boric’s government expects to collect $200 million per year through the measure in a bid to help lower-income households cope with rising electricity prices. Power tariffs, which had been held down since a wave of social unrest in 2019, have now begun increasing gradually. 

“This bill allows for immediate aid with measures that have an effect,” Energy Minister Diego Pardow said during the debate in congress. “There will be no significant changes in the way the industry works.”

The controversial legislation has riled PMGD investors, who argue it contravenes Chilean law by weakening incentives meant to diversify the energy sector that were supposed to last for another decade. While some say these small, mainly solar plants have saturated the market and increased costs for the overall system, the proposed change to the rules has put a chill on investment in a country known as business-friendly. 

Boric’s bill contains two other funding sources. One is an additional transitory tax on carbon emissions and the other takes advantage of extra revenue from a value-added tax due to higher electricity prices. 

The legislation still needs to be reviewed by the Senate, where opposition to garnishing the profits of small renewable generators is expected to be stiffer should it decide to push forward. Pardo told Bloomberg news in November that he would be willing to withdraw the PMGD measure to guarantee approval of the other two funding pillars, should it fail to win sufficient support. Were that to happen, the government pledged to review the rules for small electricity generators at a later date.

The PMGD system, which offer generators stable prices and therefore protection from bottlenecks and cost distortions from transmission congestion and storage shortfalls, has attracted billions of dollars in investment from companies backed by BlackRock Inc. and JPMorgan Chase & Co.

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