• 16 September, 2020

    Distributed generation: A rising energy market in Chile (DLA Piper)

    16 September 2020 By: Felipe Bahamondez In the last 10 years, Chile has gone through a renewable revolution led mainly by solar, wind and mini-hydro projects. Ten years ago, renewables were almost nonexistent in Chile; today, they make up nearly 20 percent of the country’s energy matrix and the amount is increasing every day.  And if big hydro projects are taken into account, we can say that more than 50 percent of the energy matrix comes from renewable sources. Gone are the times of volatile high spot energy prices that were an obstacle to development.  Around 2013, renewable generators started to look for stable power purchase agreements (PPAs) both in public tenders to service residential customers and with companies with relevant consumption. The public tenders went from prices of US$129/MWh in 2013 to US$32.50 /MWh in 2017, with the energy coming completely from renewable sources. In the last five years, a new market has appeared in Chile, offering a new business opportunity: distributed energy, which is a type of decentralized electrical generation performed by different small grid-connected or distribution system connected generators. In Chile, distributed generation is better known as small generation means, or PMG (from its acronym in Spanish) and small means of distributed generation. or PMGD. In this alert, we will look at this growing market, which has features that make it attractive for investors in uncertain times. Markets to commercialize electricity in Chile and recent trends Energy generating activity in Chile has established two markets, a primary market and a secondary market. The primary market is highly competitive and is based on the existence of bilateral contracts between generators and large customers, including distributors representing small residential clients. This market is the ultimate goal of the energy companies’ economic model, which is the supply of electricity. In contrast, the secondary market derives from dispatching generating units following the principles of economic operation of all generators, regardless of their ownership. This is the so-called spot market. In the primary market, there are competitive and stabilized prices produced by unregulated competition and the unregulated effects of supply and demand principles. In the secondary market prices are highly variable, since they are determined by the economic dispatch and by restrictions due to common contingencies of the electric system. Distributed generation market: PMGs and PMGDs PMGs are projects with installed capacities up to 9,000 kW and are connected to the main transmission, sub-transmission or additional transmission grid. PMGDs are means of generation whose capacity surplus is lower than or equal to 9,000 kW and which are connected to the facilities of a distribution company or to the facilities of a company that owns electrical energy distribution lines that are used public domestic goods. Both are regulated by Decree No. 244 of January 17, 2006, issued by the Ministry of Economy, which approved the Regulation of Non-Conventional and Small Generation Means established in the Energy Law (hereinafter, the Regulation), and also have the same characteristics: they can be “self-dispatched,” receive transmission toll reductions, and access the stabilized price regime. In the case of a PMGD, article 39 of the Regulation states that […]

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  • 9 June, 2020

    Transactional Impact Monitor – Special Report (TTR)

    Deal volume is down 39% in Chile, YTD, while the aggregate value of announced and closed deals has fallen 67%, according to TTR data. Notwithstanding the overall decline in transaction volume, led by a 58% drop in real estate deals, technology M&A is up 120%, Internet and e-commerce deals have increased by 100% and consultancy transactions are up 350%, TTR data show. Inbound acquisitions out of the US are on par with the first five months of 2019. Our partner Paulo Larrain responded some questions about the situation in Chile. Transactional Impact Monitor – Special Report

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  • 20 May, 2020

    Merger control: distressed M&A in the time of Covid-19

    19 May 2020 By: Nicolas Teijeiro / Marcus Vinicius Bitencourt / Bruna B. Rocha / Renata Dalcol de Amorim Ferreira / Carolina Bawlitza / Maria Claudia Martinez Beltran / Isabel Gallástegui / Jorge Benejam / Daniel Flores / Luis Vargas / Rafael Urday Several antitrust issues have taken center stage during the coronavirus disease 2019 (COVID-19) pandemic.  Issues such as price gouging, state aid, and competitor collaborations are top of mind.  But another antitrust issue is likely to share center stage as countries slowly begin to re-open – the failing firm defense.  Most jurisdictions have provisions establishing a failing firm defense in merger control, but the defense often involves a high standard and is rarely triggered.  In the current environment, we are likely to see an increase in the application of the defense. This article provides a brief overview of the main elements of a failing firm defense or exemption focusing on the standards applicable in the United States, Europe, Argentina, Brazil, Chile, Colombia, Mexico and Peru. Failing firms One of the main goals of competition law is to ensure the efficient allocation of resources. In general, struggling companies that cannot keep up with evolving market conditions and consumer trends tend to be replaced by new or better firms. Consumer welfare benefits greatly from companies’ need to be efficient to stay in business and compete, which lowers prices and increases product quality and innovation. However, in certain exceptional cases consumers may benefit more from companies keeping the assets of a failing firm alive than from shutting it down, despite any competition concerns, such as the likelihood of increased consolidation or higher prices. In such cases, the typical antitrust cure (enjoining an anticompetitive merger) may become worse than the disease (allowing a presumably anticompetitive merger go forward), because the assets may exit the market for good. The “failing firm defense” potentially offers some flexibility to companies that wish to merge in the extreme circumstances related to the COVID-19 pandemic.  If the relevant elements are present, financially strained companies (and their buyers) may be able to put forward failing firm arguments to obtain clearance from antitrust agencies around the world. Applicable standards In the United States, the bar set by the failing firm defense is high.  Courts have confirmed that parties face a difficult burden when trying to insulate an otherwise potentially anticompetitive merger based on the failing firm defense.  The failing firm defense not only requires proof that the company is in danger of imminent business failure, but also that it cannot successfully reorganize or be sold to a different buyer.  In practice, each of these factors can be difficult to prove, and establishing all three of them can be close to impossible. Specifically, as stated in Section 11 of the US Horizontal Merger Guidelines of the US Department of Justice and the Federal Trade Comission: “the Agencies do not normally credit claims that the assets of the failing firm would exit the relevant market unless all of the following circumstances are met: the allegedly failing firm would be unable to meet its financial obligations in the near future; it would not […]

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