Sub Research Question #4
Government Subsidies:
The government also supported a rental housing subsidy in 2014 in order to allow lower to middle income families, that could be young and just starting out or single parent homes, in order to make it more affordable to have a place to live. In the past the Chilean government mainly supported homeownership for families and individuals despite the fact that over 50% of these families in the main cities cannot afford to buy a house (Ross, 2014). The government eventually realized the market potential for providing rental homes for the lower and middle class as well as the increase in quality of life for society as now it is much easier for a family to acquire a home. Chile was the first south American country to have the government subsidize the project, build a structure and policy and begin production of the rental houses. The platform for their project was so appealing with the flat-rate, time limited subsidy and a degree of administrative simplicity and payment flexibility, that the US considered mixing these elements into their rental housing program (Ross, 2014).
The Chilean government tends to only provide subsidies and funding to projects that are socially profitable rather than privately profitable. Furthermore, the government funding is capped at a maximum amount less than the full investment of the project or the negative net present value of the project (Serra, 2014). The Chilean government is ensuring that the government funding is being provided to improve the overall quality of life of society by offering more affordable living expenses, cleaner facilities and clean drinking water. These communities are being aided by the government to increase equality and make it possible for low income families to live a happier and healthier life. Not only are these subsidized projects helping the communities, they are also naturally further developing the country as a whole. If an emerging market like Chile continues to offer subsidies for socially profitable projects, this will innovate society as well as increase quality of life. As quality of life improves around the country, there will be many more motivated members of the workforce and business in Chile and the consumer market could really begin to flourish. However, since resources are limited, a criterion is used to prioritize projects according to the social NPV per peso of subsidy required. This is put in place to ensure that the government is using its money it the most effective way to increase social well being.
The governments are generally subsidizing utility projects in low density, low income rural areas where there is a lack of clean drinking water, poor sewage systems and minimal access to sustainable power. The Chilean government has been subsidizing projects for housing, clean drinking water, sewage systems, more food access to low density rural areas for many years in order to prevent the spread of infections and disease around the community and even around the country. It has almost become standard issue that developing and developed countries subsidize housing, clean drinking water, and proper sewage systems for their citizens that are struggling to stay alive and well. If these have all become expected of developed markets and emerging markets, then it should be possible that the governments can subsidize cheap sustainable energy for these small isolated towns as energy is an essential for life in this day and age. If there is a societal need for cheaper sustainable energy or for off-grid sustainable energy and it works in the best interest of all society and the country as a whole, then it is very likely the government will realize its potential and may offer some funding.
Electricity coverage in Chile is almost 100% in urban areas, thus the Chilean government focuses more on rural areas for subsidizing energy. The General Regional Development Fund (GRDF) in Chile is a group that is in charge of allocating money from the national budget to regional governments in order to finance investment projects in health, education, housing, electrification and so on. As the funds provided to each region are not sufficient to cover all investment needs, the regional government must prioritize the projects with the most important taking precedence. As electrification is regarded as important to society, a government agency called the Chilean National Energy Commission created an organization called Rural Electrification Program (REP) to ensure that sufficient funds were reserved for the electrification projects (Barnes, 2015). This indicates that there could be an opportunity to capitalize on the rural electrification program as that is essentially best suited for KitePower kites.
Over the past 3 years, the portion of the overall GRDF budget that is allocated to electrification projects is 15% (Serra, 2015). In order for rural areas to get increased allowance for electrification projects is if they continue to invest a larger portion of their GRDF budget year after year. If a rural town wants to invest in more electrification projects they will need to find a way to improve their power system and put together a feasible business strategy to ensure the project is sustainable. This could be an opportunity for KitePower to contact these regional government and rural communities and speak with them about a good opportunity to invest in the cheapest sustainable energy around with off-grid capabilities. KitePower could provide a full business plan and strategy and aim at gaining investment from the regional governments using their GRDF funds to support it.
Chile has a start-up launch program that deals with entrepreneurs and small businesses that are looking to grow and expand into new markets (Fonseca, 2017). If KitePower is looking to bring their business to Chile they may be able to acquire equity free financing for a certain amount of investment which could aid their expansion into Chile by completing a few smaller projects in the beginning in order to test the market and create awareness for their superior production of sustainable energy. There are many different angel network websites with thousands of different investors in Chile which gives KitePower an opportunity to acquire equity through many small investors (Angel Investors, 2017).
If KitePower is able to break the barrier of entry into the Chilean market and acquire a sufficient investment or subsidy in order to complete a few small projects, they will be able to gain a plethora of awareness. Once KitePower is better recognized in Chile and build a reputation for themselves, it will be much easier to obtain angel investors, private investors, subsidies and potentially even a contract with the government for the Rural Electrification Program.
Potential Investors:
– Angel investors
– Rural Governments for local sustainable energy
– Local energy companies
– Local oil companies
– Take company public and sell shares for equity
– Start-up program offering zero interest loans up to $100,000
Potential Subsidies:
– General Regional Development Fund (GRDF)
– Chilean National Energy Commission (CNE)
– Rural Electrification Program (REP)
Bibliography:
Angel Investors. (February, 2017). South American Angel Investors. Retrieved from https://angel.co/south-america/investors
Barnes, D. (April, 2015). Meeting the Challenge of Rural Electrification in Developing Nations. Retrieved from http://siteresources.worldbank.org/EXTRENENERGYTK/Resources/5138246-1238175210723/Chile0Rural0El10the0Private0Sector0.pdf
Fonseca, R. (March, 2017). Start-Up Chile: Offers, Programs and Related Stories. Retrieved from http://www.startupchile.org/programs/
Ross, L. (May, 2014). Chile���s New Rental Housing Subsidies. Retrieved from https://www.huduser.gov/portal/periodicals/cityscpe/vol16num2/ch15.pdf
Serra, P. (April, 2015). Subsidies in Chilean Public Utilities. Retrieved from https://pdfs.semanticscholar.org/314a/c14d2ad4a86f6ed0c43d8a29d25b6a57b47f.pdf