Título: The Impact of Fossil Fuel Subsidies on Renewable Energy Deployment under a
Regulated Market Structure: Evidence from Chile’s Isolated Electricity System
Ponente: Shahriyar Nasirov (Universidad Adolfo Ibáñez)
Fecha y hora: 24/11/2026, 13:00
Inscripción online (cierre 30 minutos antes del inicio): https://forms.gle/buU6iWQh3DwijFpRA
Lugar: Sala de Seminarios del Edificio Torretamarit y online
Organizador: Carlos Gutiérrez Hita
Abstract:
The transition from fossil fuel–based power generation to renewable energy is rapidly progressing worldwide but remains highly uneven across and within countries under different regulatory frameworks. Although fossil fuel subsidies have been extensively studied as barriers to energy transition, relatively little attention has been paid to how their impacts vary across different electricity market structures. This gap is particularly important for isolated electricity systems operating under regulated market frameworks, where centralized planning determines both generation expansion and electricity tariffs. The Magallanes Electric System (SEM), located in southern Chile, exemplifies this challenge. Despite possessing exceptional wind resources, the region continues to rely predominantly on subsidized natural gas for electricity generation, in contrast to mainland Chile, where renewable energy technologies now dominate the electricity generation mix under a deregulated market framework. This paper evaluates the impact of natural gas subsidies on the electricity generation mix by simulating the system optimization under multiple scenarios in a regulated market structure. The simulations are based on the same methodology used by the regulator to set tariffs. The results show that subsidized natural gas significantly distorts long-term investment signals by artificially lowering thermal generation costs, thereby reducing the competitiveness of renewable energy technologies. Removing the subsidy makes wind power economically competitive and substantially changes the optimal generation mix, while reallocating public resources from fossil fuel subsidies to renewable energy investments improves long-term system efficiency.
Spanish