Working to give more Chile SMEs electricity supplier freedom

Bnamericas Published: Monday, January 16, 2023
Working to give more Chile SMEs electricity supplier freedom

Chile’s association of electricity traders, known as Acen, was formed to provide a common voice not only for this type of firm, but also for their clients, typically small and medium-sized enterprises. 

The chief objectives of Acen include spurring competition and freedom of choice by getting the authorities to lower the entry bar to the non-regulated electricity market. 

Non-regulated clients are currently deemed companies that are connected to more than 500kW of installed capacity and have opted for that classification, or those connected to more than 5MW of capacity. Those below the 500kW threshold have no choice regarding their power provider.

Even if the barrier was lowered to 400kW from 500kW, the potential market would be around 47,000 SMEs, which, according to estimates, could enjoy electricity bills that are up to 30% smaller. 

To find out more and touch briefly on how traders can also tap the project financing market, BNamericas talks to Acen executive secretary Eduardo Andrade.

BNamericas: Could you tell us a little about Acen’s history and overall goals?

Andrade: During discussion of the short distribution bill [which amended rate-setting mechanisms and became law in 2019], trading companies that were following the debate noticed that there was no common voice that could present interests in the various forums, not only of the trading companies, a new area in the industry, but also that of the clients of these companies, basically small and medium-sized firms, which don't participate in the debate because the electricity sector is highly complex.

In this context, it was decided to move to form the Chilean association of electricity traders – Acen – whose declared objective is to promote the development of the commercialization of electric energy in Chile, promoting public policies and good practices that increase and favor competition in the electricity supply market, energy efficiency and the use of new technologies.

BNamericas: Today, only users who have more than 500kW of contracted capacity can access the free electricity market. Acen wants to lower this threshold, but why? What mechanisms/routes exist to make this change, and what is the current situation?

Andrade: In 1982, the law that established a three-part electrical industry – generation, transmission and distribution – was enacted. Likewise, the law separated end-users into two categories: free customers, which are those whose connection to the electrical grid is greater than 5,000kW, and regulated customers, those with contracted capacity of 500kW or less, allowing those with between 501kW and 5,000kW to choose between being free or regulated.

The question then arises as to why this limit of 500kW? And the answer is that those with less than 500kW wouldn't have the capacity to negotiate. This lack of capacity was true 40 years ago when the only alternative to contract supply was the local distribution company, which held a monopoly on the operation and maintenance of the distribution networks and also on the sale of electricity to regulated customers.

With the advent of renewable energy, the electricity market recorded a significant drop in electricity prices, which were not being passed on to end users, regardless of whether they were free or regulated. That gave rise to the appearance of multiple companies that began to offer electricity to free customers and implied bill reductions of up to 30%, also allowing them to negotiate the financial aspects of supply, choose their source of supply, and access better conditions of commercial customer care and services associated with electricity supply.

Consequently, today we're faced with the paradox that, having developed a highly competitive market in the supply of electricity, the 500kW free customer threshold remains in place, preventing thousands of SMEs from accessing that competitive market despite what is indicated on the website of the national energy commission (CNE): that there must be freedom of prices in those segments where competitive conditions are observed.

It is striking that the energy ministry doesn't advance on lowering the 500kW limit, since the same law allows this via the application of what is stated in article No. 147, which says that “the energy ministry may lower the limit of 500 kilowatts indicated in this letter, following a report from the Tribunal de Defensa de la Libre Competencia [competition court].” In other words, no legal or regulatory change is needed, just the willingness of the current administration to move forward so that SMEs can access better services and lower costs.

BNamericas: Does Acen want to see other regulatory and/or legislative changes?

Andrade: The electricity law dates from 1982 and since then it has undergone important amendments to adapt it to the evolution of technology, the maturity of the markets, the behavior of the agents, etc., changes that have focused on the generation and transmission segments. 

In the distribution segment, despite requiring significant adjustments – addressed by the previous administration, which submitted to congress a bill known as the portability project – it has only undergone amendments with a very limited impact, such as the so-called short distribution law. Apparently, the current administration doesn't consider it important to give priority to an extensive update.

This implies that multiple aspects of daily life will find themselves trapped in obsolete legislation sooner or later. The legal update that is required isn't only one that allows the recognition of the concept of an energy trader – as it exists today in many nations that deregulated the electricity industry long after our country – but also one that focuses on issues such as electromobility and its impact on the networks, such as elements that withdraw electricity from the network but can also inject it [such as electric vehicles], quality of service and distributed generation, to mention the most important.

BNamericas: There are cases where a trader has financed a client generation project. Could you give us some more details? How much potential is there for more of these projects in the future, and what would have to happen to unlock this potential?

Andrade: Traders currently have close to 3,500GWh/y of contracted electricity, which implies that there are many generation companies which understand that trading is one of the vehicles they have to place their electricity and, therefore, help to finance the projects.

An important advance in the consolidation of the industry will take place when the financial institutions understand that the risk of the traders is becoming more and more similar to that of the distribution companies, because although the duration of the sales contracts, with an average between four to five years, is less than what may be required to finance a project – power-purchase agreements of 12 to 15 years – these sales contracts to end users have a very high probability of being renewed within the same trading industry, thanks to good customer service and the lowest cost that is possible to achieve.

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