ACERA warns that the proposed electricity subsidy PdL will compromise the stability of the sector and increase energy costs in Chile

This is a machine translation of the original release, issued in Spanish.

PRESS RELEASE from Acera
October 2, 2024

Valparaíso, October 2, 2024. – Within the framework of the general discussion of bill bulletin No. 17,064-8 that expands the coverage of the electricity subsidy, this Wednesday morning, the President of the Chilean Association of Renewable Energies and Storage, Sergio del Campo Fayet, presented to the Mining and Energy Committee of the Chamber of Deputies a detailed analysis of the effects that this proposal would have on the electricity market, outlining the union's position on several points of the project promoted by the Executive.

First, the President stressed that the estimated VAT revenue is underestimated in the Executive's calculations. According to a study commissioned by ACERA, the potential resources derived from the increase in VAT revenue due to the rise in electricity rates, which could be used for the subsidy, would be considerably higher. The Government projects an annual revenue of 80 million dollars, however, the methodology used does not consider the impact that the subsidy would have on the budget of the beneficiary households. According to the calculations of the study commissioned by the Vinken consultancy, associated with the Department of Electrical Engineering of the Pontifical Catholic University of Chile, the actual revenue could reach 133 million dollars annually, that is, 53 million additional, which presents a scenario that would allow an increase in the share of fiscal resources for the financing of the subsidies.

Likewise, Del Campo warned that the implementation of the “Preferential Price for SMEs” measure will generate losses for generators with supply contracts from regulated clients, who will see up to 500 GWh/year of the energy they supply reduced. This would put the functioning of the regulated market tenders at risk, since the proposed expropriation of demand will cause an imbalance that will impact regulatory stability and legal certainty, fundamental pillars for the development of the electricity sector in Chile. Del Campo highlighted that the perception of risk would increase considerably, affecting investor confidence and, consequently, increasing future energy costs.

Additionally, the president of the association referred to the expected impacts of the “FET Charge” measure to be deducted from the PMGD stabilized price compensation. “It is disproportionate to establish a charge of 35% of income for a segment that represents less than 9% of installed capacity and barely 7.7% of energy. In this sense, PMGD companies are playing a key role in the deconcentration of the energy market, acting as an initial platform for investors who then move on to larger-scale projects. The decrease in competition resulting from this greater uncertainty would represent a significant setback in the progress achieved in the last decade.”

Finally, Sergio del Campo raised constitutional objections, arguing that some of the measures included in the project could be seen as expropriatory, violating basic principles of proportionality and equality before the law. This type of intervention, he explained, not only generates uncertainty in the sector, but also puts current and future investments at risk, affecting the development of the electricity industry.

ACERA reaffirms its position that the subsidy must be financed with fiscal resources, and not with contributions from the electricity sector, which has already faced major challenges due to the tariff policies of recent years. The freezing of tariffs between 2019 and 2024 by the State is the origin of the price increase that this subsidy seeks to mitigate, but the proposed solutions generate more problems than benefits in the long term. In this regard, Del Campo advocated for the implementation of more sustainable regulatory tools that allow for an effective reduction of tariffs without compromising the stability of the system, such as promoting distributed generation.

The bill, in its current form, introduces regulatory risks that jeopardize the viability of investments in the energy sector. If these measures are not adjusted, the consequences will be evident: less competition in the market and an inevitable increase in energy costs for all Chileans.