Effervescence surrounding the reallocation of tariff income

PRESS RELEASE from Acen
August 10, 2023

(Machine translation of the original release, issued in Spanish)

Tariff income (IT) has been taken part of the sector's conversations agenda due to the reassignment proposed by the energy transition bill (PdL) of the so-called 2nd time agenda of the Ministry of Energy. Some argue that IT is owned by customers (demand) and that the proposed redistribution will only increase electricity bills. Some actors have estimated that it is a backpack for the end customer and others that it is a salvage. The truth is that it is an effervescent topic that was exposed this Tuesday, August 8 in the webinar organized by ACEN called "Tariff income and its new relationship with end users."

In the presentation made by Rodrigo Quinteros, Founding Partner of Moray Energy, he pointed out that "the current modality of IT allocation can lead to a decline in competitive intensity in the PPAs market and end up inhibiting the offer of PPAs based on the development of projects of new entrants and/or tend towards a consolidation of the offer. This can lead to a suboptimal balance of supply and prices. This would justify a modification in the line proposed by the PdL that tends to mitigate the risk of extraordinary IT”.

According to Quinteros, the IT reallocation mechanism should be limited to providers that use the transmission network to deliver more competitive prices to end users, absorbing the risk of extraordinary IT. This is because the redistribution of IT would only be justified if the suppliers are assuming the risk of decoupling without transferring premiums to the users for this concept.

In addition, he added that the PdL seeks to align the allocation of IT with whoever assumes the risks of trading using the transmission system and away from the VATT payment concept (Risk Coverage vs. Discount). However, “the reallocation of IT does not resolve the reduction in injection resulting from the discharge regime due to system saturation, or the risk of valorization of that part of the energy produced but not contracted. An efficient and timely expansion of the transmission system is still very relevant, which could eliminate the extraordinary IT risk”.

With the latter, the entire industry seems to agree. In this regard, Daniela González, Founding Partner of Domo Legal , commented that "what has to be put on the table are all the costs that are ultimately falling on the consumer's backpack, so that both the development of the transmission, the form of operation, the market for complementary services, etc., all the components that ultimately impact the client's final account have an efficiency perspective that allows as a whole to offer the final clients prices that are really competitive”.

Meanwhile, Paola Hartung, Director of Regulatory Affairs at AES Andes, introduces the variable of accelerated decarbonization “in parallel to how slow transmission is, the process of technological replacement is accelerated and that in itself is a challenge independent of the level of contracting. that the companies that exist in the Chilean market have”.

LIFEGUARDS AND UNCOUPLES

Some actors maintain that there is a group of companies whose forecasts were not what they anticipated and even more, they wonder if it is correct to correct something that could be transitory through this bill. For Quinteros, “the focus we have is that there were indeed mistakes here. It seems to be more efficient not to ask generators to incorporate this risk premium into the price in order to maximize competition in the market”.

According to the speaker, "the idea of trying to define some formula seems reasonable, it could be the Government's or another, in which congestion fee revenues are more associated with those who run the risks of trading through the transmission system, rather than those who pay and we see it more as a definition of the fund, not as a problem to solve the situation of a particular company”.

The founder of Domo Legal emphasized that “there is a tendency to make a permanent change motivated by a conjunctural situation. If there is a short-term measure that wants to resolve the financial stress of some companies that bid under certain conditions and that may not have had the conditions to evaluate all the nodal risks that existed, then let's be honest that this is it, it may have value and it may be It is necessary to adopt it as a measure, at least from now until Kimal-Lo Aguirre enters ”.

On the other hand, some wonder if it is reasonable to have zero decoupling. For Hartung, transmission planning has to be done to minimize the cost of operation and system failure, “this does not imply that one has to reduce discharges to zero. I think it is important to attack the root problem, beyond the oversupply, manage it with storage systems or a better location of the new renewable supply to be installed, give more intensity to night wind, for example. But also protect the acceleration of the current transmission works because the proposal of the bill for the reallocation of tariff revenues may be covering the sun with one finger for a while”.

In this regard, Quinteros commented that "if the PdL manages to reduce the risk of decoupling for suppliers (PPA), it could improve competitive intensity and contribute to a reduction in Premium that exceeds the current IT discount, in favor of users."

If the bill is well implemented, according to the founder of Moray Energy, it could improve trading conditions for agents who have less capacity to manage the risk of congestion (or extraordinary IT) and reduce the cost of supplying users. "It is therefore expected that the changes proposed by the PdL associated with the reassignment of IT and others (storage), should be clarified before the presentation of offers in the next tender for regulated users that is estimated for December of this year."

We will have to wait for the regulation to emerge to effectively measure the scope of this reassignment, meanwhile, you can watch the presentation here