Chile renewables firms call govt’s energy transition measures ‘insufficient’

The second stage of the Chilean energy ministry's energy transition plan was deemed "insufficient" by a local renewables trade group.

According to Acera, which groups 150 companies involved in the renewables sector, the measures proposed to alleviate transmission-starved companies in the north and south will not solve the situation.

"The measures go in the right direction in the long term," said Acera executive director Ana Lía Rojas in a release. "But to get to the long term, we need to go through the short term first and it’s there we see that for firms being 100% renewable and facing major urgencies, the measures will sadly not provide relief.”

Some generators are feeling the squeeze from a system that sets prices based on the highest marginal cost in a particular system node, and where transmission congestion isolates the different nodes from each other, leading to wildly varying prices across the system.

If a company injects at zero cost (where renewables are dominant) and must fulfill a regulated contract at the spot price, it can face large and consistent losses that can jeopardize the project's finances. Last year, two such generators, belonging to Solarpack and Ibereólica, declared insolvency due to this issue, raising alarms in the industry.

"In that sense, we consider the proposal insufficient, because the measures do not offer a solution with immediate or sort-term effects for the high exposure to a price of zero for renewable injections," Rojas said.

Among the measures unveiled by the ministry as part of the second stage are adjusting the rules overseeing grid coordination, assigning public land for the development of storage solutions, publishing a technical guide for the environmental assessment of storage projects, modernizing supply tenders to incentivize projects that can supply power 24/7, and setting up an "open season" to encourage development of urgent works in the transmission system.

Two of the measures, namely adjusting Chile's unorthodox carbon tax to avoid burdening renewables generators and adjusting the requirements for thermal generators to provide the system with more flexibility, are aimed squarely at addressing the industry's concerns regarding decoupling and curtailment.

Energy regulator CNE published updated carbon tax rules on Tuesday to end the so-called type B compensation, which generators at or above the system's marginal cost were entitled to in relation to their fixed costs.

The compensation returned part of the carbon tax payments and was paid by all companies that withdrew power, leading to situations where renewables generators could have to pay to compensate high emitters, a mechanism that has been widely criticized as counterproductive to the carbon tax's objectives, and which was considered a design mistake.

The change will be reflected next year, when grid coordinator CEN calculates the compensation for the whole of 2023, the regulator said.

Some in the generation segment believe the issue of decoupling calls for major changes to the system's design, potentially including changes to new regulated contracts, retroactive changes to existing contracts, and adjustments to the model of marginal costs. The government has said it is working on a wholesale market reform and a transmission reform to solve the issue in the long term.