With the outbreak of the COVID-19, Chilean distribution utilities are supplying electricity to the customers despite non-payments from them and hence, the utilities are finding it difficult to pay back to the generators as per the power purchase agreements (PPAs). Consequently, the utilities have warned to claim force majeure to protect themselves from the short-term financial stress of adhering to the PPA obligations, says GlobalData, a leading data and analytics company.

As a relief measure, the Chilean Renewable Energies Association (ACERA) has appealed to the government to create a pool of funds, comprising of about US$80m per month, that would likely be of help to distribution utilities to cover the collection losses, which shall be repaid after normalcy gets restored.

Chile has a substantial industrial sector, especially the mining sector, which accounts for a large portion of the demand. As parts of the country went into lockdown, a decline in the consumption of power was experienced. The drop in power demand is likely to affect the market’s chain of events, with the generators eventually experiencing a reduction in revenues.

Somik Das, Senior Power Analyst at GlobalData, comments: “The shortfall in payments to the established generators will likely get mitigated by payments from the stabilization fund, created in 2019 to address retail price hikes. In the crisis, if the fund is not enough to serve all the generators, the small-time generators would get affected.”

Currently, the ongoing pandemic is creating financing constraints in the market, that is hurting development activities. Several projects are being developed through asset finance, with significant debts procured from Development Finance Institutions (DFI) and commercial banks. However, with future cash flows being uncertain, merchant projects are at risk of payment defaults.

Das concludes: “Due to the low demand for power and the devaluation of the local currency, foreign market players are expected to experience a decline in their revenues. New projects seeking financing will most likely be impacted by the uncertainties in the capital market, making efforts to source capital more difficult in the short-term.”