The latest quirk in Chile’s renewable energy boom is coming from the proliferation of small solar plants that the industry says is squeezing larger producers and inflating power bills.

Companies backed by giant financial firms including BlackRock Inc. and TPG Inc. have latched on to a model offering stable prices for small — mainly solar — projects. What began as a niche system is now entering the mainstream, with small generators known as PMGDs for their Spanish initials forecast to account for about 40% of daylight-hour demand by 2025, almost double today’s levels.