Chile pioneered rapid adoption of solar, wind and battery energy storage system (Bess) technologies, but ratepayers are complaining of higher-than-expected electricity prices.
In 2025, solar and wind were 38pc of Chile's 87.4TWh of power generation, almost meeting full demand at times.
Development took off in 2016 when Chile awarded 12.4TWh at an average price of $47.60/MWh in an energy supply tender. Almost half the reserve price, households were promised lower electricity bills when these new 20-year contracts started in 2021.
A decade later, Chileans have still not seen the promise of renewables' cheaper power production in their electricity bills. Instead the lifting of price freezing mechanisms on generation in 2024 led to rates soaring by an average of 60pc over the following year.
Consumers will continue to pay off the $6bn debt and interest to generators until 2035, although at a lower rate starting in 2028, obscuring any contribution by renewable power to lower bills.
The price freezes introduced in 2019 to assuage social protests have had long-term costs, said Carlos Barria at Grid and Zero Energy consultants at the Latin American Energy Summit in Santiago this month. "We're suffering the headache now."
Other factors have kept rates higher too.
"The main reason is that regulated customers are largely supplied by old and expensive contracts that are subject to the price of fossil fuels," Rafael Loyola, executive director of renewable generation association AGR, told Argus.
Newer wind and solar contracts — which are gradually replacing pre-2015 deals — are indexed to US inflation and the US dollar, also helping to boost rates. The US dollar has significantly strengthened against the Chilean peso over the last decade, although it has fallen slightly in the last year.
Transmission costs have also risen to bring solar generation in northern Chile over 1,000km south to the main consumer hubs near capital Santiago.
Systemic problems
Swelling systemic costs — such as ancillary services and keep thermal plants at "minimum must-run" levels to remain on line — represent around 30pc of electricity costs, up from 5pc in 2020, according to electricity clients association Acenor.
As from 2027, these costs will be directly passed to households, said Loyala.
The main culprit is the price stabilization mechanism for small distributed generation plants (PMGDs) of under 9MW — mainly self-dispatch solar — that added $300mn to costs in 2025.
The mechanism pays PMGDs the node's average 24-hour contract price to dispatch electricity when the system is usually operating at zero marginal costs because of high solar output. Nor are the plants required to go off line when there is insufficient demand or transmission capacity — known as curtailment — unlike utility-scale plants.
The attractive conditions led to "overinvestment" in the small distributed generation and a growing market concentration, according to national grid coordinator Cen's latest competition monitoring report. More than 40pc of their 4GW operating capacity is managed by investment funds with portfolios of over 50MW, it said.
"It is the biggest distortion to Chile's electricity market in history," said Loyola, adding that the small plants supply up to a third of daytime electricity demand.
Chile's comptroller general is reviewing two decrees to address the distortion. An amendment to supreme decree 88 on PMGDs aligns the mechanism for new plants to the marginal cost. A modification to supreme decree 125 on grid coordination and operation will apply curtailment to new and existing PMGDs on a proportional basis.
But there is no certainty that electricity rates will fall even as generators' debts are paid, new supply contracts replace old ones and adjustments to unfair practices are made.
The system will require continued investment to ensure a resilient and flexible electricity system able to resist power surges and outages, said Barria. "We need to take care of communications and not raise expectations."
