I. The Pivotal Role of Foreign Investment in Energy Transition
For over four decades, Chile has stood as the undisputed reference for institutional stability in Latin America. Following the pioneering privatization of its electricity sector in 1982, the State established a robust and predictable regulatory framework. Lacking deep liquidity within its domestic banking sector, Chile relied on Foreign Direct Investment (FDI) as the primary engine to construct its modern energy infrastructure. This is why one of the main purposes of this institutional design was to promote foreign investment by assuring investors of regulatory certainty and the protection of their capital.
This strategy was wildly successful. In recent years, Chilean installed capacity has successfully pivoted toward non-conventional renewable energy (NCRE), transforming Chile into a global benchmark in the energy transition to carbon neutrality and investments in this sector.
Special Laws for Non-Conventional Renewable Energy No. 20,257 (2008) and No. 20,698 (2013) established concrete measures to increase NCRE: they defined renewable energies and mandated power generation companies to supply at least a minimum percentage of their energy injections through NCRE, either directly or indirectly, with severe fines for non-compliance. The purpose was to increase the participation of this kind of generation within the energy matrix by achieving an injection of 20% of NCRE by the year 2025. This goal was wildly surpassed.
Today, over 60% of the country’s installed capacity comes from clean sources (solar, wind, and hydro), and for the year 2050, the Decarbonization Plan has set the goal of 100% of the energy produced to be from clean sources. BloombergNEF has consistently ranked Chile among the top ten emerging markets for renewable investment.
And this was achieved thanks to political will. The bill through which Law No. 20,698 (which increased the injection of NCRE into the energy matrix up to 20%, as described above) was introduced to Congress explicitly recognized that:
“Reaching 20% of NCRE in the electric systems implies strong investments and the development of a series of new technologies that need legal certainty to achieve it. Only with a clear legal framework is it possible to achieve it.”
However, regulatory stability is not always consistent. In recent years, we have witnessed important regulatory changes affecting the dynamics of international project financing. For market participants, the question is obvious: How to introduce regulatory changes and at the same time maintain legal certainty?
II. NCRE and the Structural Friction on the Chilean Electrical System
The rapid boom of renewable energy brought structural friction to the Chilean electrical grid. While clean generation soared, residential electricity tariffs failed to decrease. Concurrently, the national transmission system became severely congested. The massive solar portfolios built in the northern Atacama Desert found themselves structurally isolated, unable to transport power to major consumption centers in the south, triggering energy curtailment.
Another relevant point of friction has been the rapid development of Pequeños Medios de Generación Distribuida (PMGD)—small-scale distributed generation projects under 9 MW, which connect directly into the distribution system and benefit from priority dispatch rules and a “stabilized price” regime that protects PMGDs from spot market volatility. This regulatory framework was designed to promote the development of small-scale projects near consumption centers by giving certainty about future income. The result was an explosion of foreign investment in this kind of project.
Today, PMGDs represent a formidable 10% of Chile’s net installed capacity, of which 77% is solar.
However, their rapid expansion stressed the system’s operational and economic functioning. Large-scale centralized generators began fiercely alleging price discrimination and unfair dispatch priority, targeting the specific “stabilized price” regime. Also, the National Electrical Coordinator started to detect negative impacts on the market’s competition.
Under the objective of correcting these “systemic distortions,” a regulatory change was set in motion. What began as a technical debate rapidly mutated into a legitimate expectations dilemma for international financiers.
III. The Chronology of Legal Uncertainty
The first structural blow landed in 2024 with the debate surrounding the Electricity Tariff Stabilization Law. Seeking to subsidize vulnerable households, the government proposed draining future revenues directly from PMGD projects to fund the state subsidy. Although this specific mechanism was ultimately rejected in Congress after intense pushback, the mere threat of revenue skimming paralyzed the sector. Millions of dollars in planned investment vanished during the legislative debate.
The regulatory discussion resurfaced in 2025. The Ministry of Energy and the National Energy Commission (CNE) initiated modifications to Supreme Decrees 88 and 125, fundamentally altering the stabilized price formulas and tightening operational coordination rules for distributed assets (which limits their energy injections, thereby affecting their revenue streams). Once again, international banks and infrastructure funds simply pulled out of the Chilean market, freezing credit lines until the administrative uncertainty settled.
These shifts recently materialized into binding regulations under the current administration in 2026.
The financial fallout has been evident. Since the discussion of the Electricity Tariff Stabilization Law until the recent publication of normative amendments to the PMGD regulatory framework, investments in the sector have been paralyzed. Recently, the Association of Independent Power Producers of Chile (GIE A.G.) estimated that the regulatory changes may put over US$ 6 billion in committed investments at immediate risk.
About the Author:
Leonardo Benadretti, Legal and Risk Control Manager for Chile and Peru at Sungrow Renewables Development Co., Ltd
Leonardo Benadretti is a legal specialist and strategic manager with over 10 years of experience in corporate law, economic regulation, and risk management. As Legal & Risk Control Manager at Sungrow Renewables Chile, he supports renewable energy investments through regulatory compliance, contract negotiation, and strategic legal oversight. His expertise spans the full lifecycle of utility-scale and PMGD energy projects, including project financing, stakeholder negotiations, and dispute resolution. A graduate of Universidad Adolfo Ibáñez with a Master’s in Economic Regulation, Leonardo is recognised for combining legal expertise with business strategy to drive sustainable growth and informed decision-making in the renewable energy sector.
