Regulation of the New Renewable Energy Promotion Law

On March 30, 2015, the President of Argentina passed Decree No. 531/2016 (the “Decree”) which implements some of the amendments introduced by Law No. 27,191 to the Federal Promotional Scheme for the Use of Renewable Energy for Power Generation, approved by Law No. 26,190 (the “New Promotional Scheme”).

Although many aspects of the final implementation of the New Promotional Scheme are still pending and will require further regulation, the Decree grants CAMMESA[i] an essential role in this sector. In principle, it is likely that CAMMESA will be appointed to manage an important quota of the purchases of electricity sourced from renewable energies.

In this context, chances are that those issues that the Decree left unregulated will be determined soon and that a public bid to be administered by CAMMESA will be launched within the next few days. The terms and conditions of this public bid would have to be determined by the Ministry of Energy and Mining.

The different players of the New Promotional Scheme should take into consideration the following aspects of the Decree:

1. Renewable Portfolio Standards

a. Large Consumers

Pursuant to the New Promotional Scheme, large consumers (i.e. consumers with a demand equal to or larger than 300 kW) are directly obliged to source a minimum level of their electricity consumption from renewable sources, pursuant to the parameters provided for by Law No. 27,191 (8% by December 31, 2017 and 20% by December 31, 2025, in a sequential manner).

We outline below the different options that large consumers have available to meet their Renewable Portfolio Standards, which were partially implemented by the Decree.

1. Purchase power sourced from renewable energy either directly from generators, marketers or distributors
   Parties may freely negotiate the terms and conditions of their power purchase agreements (“PPAs”) which will be subject to a USD 113 per MW/h average price-cap.
    
2. Self-generate or co-generate
   If large consumers decide to self-generate or co-generate they are not be required to comply with CAMMESA’s rules with respect to dedicated backup capacity.
    
3. CAMMESA’s joint purchasing system
   Large consumers that fail to inform CAMMESA that they want to opt out of the joint purchasing system managed by CAMMESA (the “Purchasing System”) are automatically included therein. Over the next few days the Ministry of Energy and Mining will likely inform the deadline before which large consumers will be allowed to opt out of the Purchasing System and the conditions upon which this option may be instrumented.

CAMMESA will transfer pro rata the price per MWh that large consumers included within the Purchasing System will have to pay; however, pursuant to the Decree this price will be subject to the USD 113 per MW/h average price-cap. In addition to the price, CAMMESA will charge large consumers a fee for administrative expenses.

The Decree established that the maximum term of supply agreements and preference clauses (pacto de preferencia) provided for by sections 1,177 and 1,182 of the Civil and Commercial Code will not be applicable to PPAs sourced from renewable energies. However, to reduce potential claims against the validity of this provision, it could useful for the Federal Congress to ratify these exceptions.

b. Small Consumers

Pursuant to the Decree, the prices of the PPAs implemented in order to meet the Renewable Portfolio Standards applicable to consumers with a demand smaller than 300 kW will be transferred to them.

As mentioned above, CAMMESA will likely launch a public bid to meet the Renewable Portfolio Standards of both small consumers and large consumers included within the Purchasing System. 

2. Tax Incentives and Exemptions

As explained in Marval News No. 155 published on October 30, 2015, the New Promotional Scheme builds on the tax incentives established by Law No. 26,190 including anticipated VAT refunds, accelerated depreciation for income tax purposes, extension to 10 years of the set-off term for tax credits and debits, tax credits and exemption of the minimum presumed income tax and income tax on payments of dividends, among other tax benefits that vary according to different stages of the long and short term objectives. Some of the conditions for these incentives have been regulated by the Decree.

The Decree also outlined the proceeding before the Ministry of Energy and Mining that interested parties would have to follow in order to request the available tax incentives and exemptions.

To begin with, developers would have to request a Certificate of Inclusion (Certificado de Inclusión en el Régimen de Fomento de Energías Renovables). The Ministry of Energy and Mining, jointly with the corresponding authorities, will analyze the projects and set up an order of merit.

Pursuant to the Decree, the Ministry of Public Finance will determine the global maximum amount of tax incentives and exemptions that would be then assigned to projects according to the order of merit provided in each Certificate of Inclusion.

Most of the requirements with respect to the Certificate of Inclusion are still pending and demand further regulation.

3. Public Benefit Fund (FODER)

The New Promotional Scheme introduces a federal trust fund (“FODER”, after its Spanish acronym) to act as a public benefit fund for purposes of granting loans, issuing securities, investing in renewable energy companies and providing guarantees to renewable energy producers (“FODER’s Instruments”). Holders of a Certificate of Inclusion may request the FODER’s Instruments.

The Decree established that the FODER will have two differentiated accounts:

1. Guarantee Account
   The Guarantee Account is going to collect a renewable energy charge to be paid by small consumers and it will be used to secure CAMMESA’s payments under the PPAs subject to the New Promotional Scheme.
    
2. Finance Account
   The Finance Account will receive specific appropriations —to be transferred by the Federal Treasury— with sums to the equivalent of no less than 50% of the annual cash savings resulting from a reduction in fossil fuel imports as a consequence of the increase in renewable energy generation. Pursuant to the Decree, the amount to be transferred in 2016 will be AR$ 12,000,000,000. Amounts destined to Finance Accounts will be used to fund FODER’s Instruments.

 

[i] Cammesa is the company to which the administration of the wholesale electricity market (WEM) is entrusted.