Introduction

On March 31st, 2016, Decree 531/2016 (hereinafter, the “Decree”), which the regulation (hereinafter, the “Regulation”) of Law No. 26.190 and Law No. 27.191 about the “National Program for the Promotion of the Use of Renewable Sources of Energy Destined for Electric Power Generation” (hereinafter, the “Program to Promote the Use of Renewable Energy”) was published on the Official Gazette.

The Decree has entered into force on April 1st, 2016.

Law No. 27.191 introduced amendments to Law No. 26.190, in order to promote the use of renewable sources of energy to generate electricity, to diversify the National energy matrix, to expand the installed power and contribute to mitigate the Climatic Change.

The main aspects of the Regulation are set out below.
 
Relevant Aspects of the Regulation

1. ENFORCEMENT AUTHORITY

In accordance with article 5, Annex I, of the Regulation, the Enforcement Authority of Law No. 26.190 is the Ministry of Energy and Mining (in Spanish, “Ministerio de Energía y Minería” and hereinafter, the “Authority”), who can delegate its powers in a dependency of a range not lower than a Sub-secretary.

2. SCOPE

The Regulation determines that Law No. 26.190, amended by Law No. 27.191, is applicable to all the investments destined to generate, cogenerate and self-generate electricity from the use of renewable sources in all Argentinean territory, including new power plants of generation as well as extensions or revamping of existing generation plants.

3. PROMOTIONAL BENEFITS

The Regulation provides that the promotional benefits will be awarded to the owners of the investment projects that incorporate new goods.

Those who are entitled to access to the Program to Promote the Use of Renewable Energy are: individuals, legal entities, domiciled or incorporated respectively, in Argentina, owners of investment projects and concessionaires of new generation projects of electricity from renewable sources if:

  1. They have not executed power purchase agreements under Resolutions No. 220/07; 712/09 and 108/11 from the ex Secretariat of Energy (in Spanish, “ex Secretaría de Energía” and, hereinafter, “ex SE”) for the same project presented to enter into the Program to Promote the Use of Renewable Energy, unless (i) the project has not started yet and (ii) the power purchase agreement executed under those Resolutions is left without effect or, (iii) if construction has begun, changes are introduced to the power purchase agreement in order to adjust it to comply with Laws No. 26.190 and 27.191; and
  2. They have been selected and approved by the Authority to be included in the Program to Promote the Use of Renewable Energy and have obtained the Inclusion Certificate in the Program to Promote the Use of Renewable Energy (hereinafter, the “Inclusion Certificate”).

Furthermore, it is established that those who have to comply with article 9 of Law No. 27.191 (Large Consumers) and develop investment projects of self-generation or cogeneration of electricity from renewable sources, are entitled to access to promotional benefits, in accordance with the guidelines that the Authority will set forth.

The beneficiaries that apply for the promotional benefit, will be selected by the Authority, prior intervention of the Ministry of Treasury and Public Finance (in Spanish, “Ministerio de Hacienda y Finanzas Públicas”, hereinafter, the “MTPF”), and will issue the Inclusion Certificate.

The MTPF is in charge of determining the maximum annual sum to be foreseen in the National Budget that will be available to award promotional benefits, considering the estimation done by the Authority.

The Regulation establishes a suspensive condition to obtain the promotional benefits in the first stage of the Regime: that the project begins to be executed before December 31st, 2017.

It should be emphasized that, in order to be beneficiary of the tax incentives set forth in the Regulation, the benefits given under past regimes, such as those established by Laws No. 25.091 and No. 26.360, should be waived.

The same criteria will be applicable to the benefits given in the second stage.

Finally, Article 10 Annex I states that non-compliance with execution terms, starting-up of the Project and/or any other technical, production and commercial engagements undertaken in the application resulting in the approval of the Project and the granting of promotional benefits shall entail the loss of said benefits and the claim of unpaid taxes plus interests as well as the execution of guarantees provided.

4. TRUST FUND FOR THE DEVELOPMENT OF RENEWABLE ENERGY (hereinafter, “FODER“)

It is provided that the resources from the National Treasury will be assigned yearly in a specific fiduciary account of the FODER. The Regulation provides that for year 2016, twelve billion argentine pesos (approximately USD 800 million) should be assigned.

The Authority will provide the guidelines to give financial aid and will communicate the MTPF the resources of the National Treasury that will be required for the following year, so that it is included in the Budget Law.

The annual amount of resources will never be less than 50% of the effective savings in fossil fuel due to the incorporation of renewable sources obtained in the previous year. The Authority will determine the guidelines and criteria to calculate the savings in fossil fuel consumption.

Besides, the Regulation provides the creation of a specific guarantee charge, which will be applicable to all electricity users, with exception of those large consumers contemplated in article 9 of Law 27.191 who comply with the minimum obligation of consumption set in that article. The guarantee charge will be only destined to a guarantee account.

Moreover, the sums collected on behalf of the guarantee charge will be kept in a separate fiduciary account of the FODER, as it is aimed to serve as an effective guarantee of payment to the power purchase agreements executed by the Wholesale Electric Market Management Company (in Spanish “Compañía Administradora del Mercado Mayorista Eléctrico S.A.”, hereinafter, “CAMMESA”) or the entity designed by the Authority.

The value of the charge will be determined in argentine pesos for megawatt hour ($/MWh) by the Authority and regularly updated. Furthermore, the Regulation provides that a minimum value should be determined in order to be able to raise and have enough available funds to guarantee, for a minimum term of twelve months, the payment obligations arising from the power purchase agreements signed with CAMMESA.

The Regulation provides that the projects, to whose favor an Inclusion Certificate has been issued, can require the financial aid established in Law 27.191.

5. CONTRIBUTION OF ELECTRICITY USERS TO FULFILL THE RENEWABLE ENERGY CONSUMPTION TARGET

The Regulation provides that the obligation of the users individualized in article 9 of Law 27.191 (hereinafter, “Targeted Users”) will include those users whose energy demand reaches or exceeds the 300 kw of power consumption regardless if such consumption is done by separate facilities.

The Targeted Users will be able to fulfill their obligation throughout:

  1. Individual power purchase agreements from renewable sources;
  2. Self-generation or cogeneration from renewable sources; or
  3. Participation in the mechanism of joint purchase executed by CAMMESA or the entity designated by the Authority.

Regarding individual power purchase agreements the Regulation establishes that the Power Purchase Agreements executed between the subjects foreseen on article 9 of Law 27.191 with a generator or throughout a distributor or marketer will be freely negotiated by the parties.

Those who choose for these mechanism of compliance, as well as those who decide to comply with the objective throughout self-generation or cogeneration from renewable sources, should express their will to the Authority in accordance with the terms and conditions that will be provided, so that they are excluded from the mechanism of joint purchase executed by CAMMESA or the entity assigned by the Authority. The subjects who do not express their will, shall be automatically included in the mechanism of joint purchase of electricity with CAMMESA or the entity assigned to fulfill those goals.

The Target Users who fulfill their obligation throughout self-generation or cogeneration of electricity from renewable sources are able to do it in accordance with the Annex 12 of the Procedures for Programming the Operation, the Dispatch and calculation of prices (in Spanish, “Los Procedimientos para la Programación de la Operación, el Despacho de Cargas y Cálculo de Precio” and hereinafter, “the Procedures”), Resolution SE No. 269/08 or throughout behind-the-meter self-generation or cogeneration projects.

Accordingly to the oversight of the fulfillment of the contribution objectives, the Regulation establishes that before December 31st of years 2017, 2019, 2021, 2023 and 2025, the Targeted Users should prove having executed a power purchase agreements through which they ensure the supply from renewable sources.

6. PUBLIC TENDER

The Authority will provide the terms by which CAMMESA, or the assigned entity, will call a public tender in order to celebrate Power Purchase Agreements supplied with renewable sources.

The power purchase agreements will be subject to the following terms:

  1. The contractual procedure will be public, competitive and expedite. General rules, approved by the Authority, will be applied providing certain and short terms of awarding and assuring competition.
  2. There could be a minimum assignment or percentage for technology with the target of diversifying the supply sources between different technologies as well as the geography of the projects.
  3. The award should benefit the offers with the lower price and the shortest start-up term.
  4. The term of the power purchase agreements should be established by the Authority.
  5. The price may be determined in US dollars (U$S).
  6. The price of the agreements with a demand supply not included in the article 9 of Law 27.191 will passed-through to all electricity demand.
  7. Commercial arbitration is admitted for dispute resolution.
  8. Guarantees given by the FODER to the generator can be established.

7. IMPORT SYSTEM

The import duty exemption provided in article 14 of Law 27.191 will be applied for every beneficiary since the Inclusion Certificate is issued and will only be applicable to imported new goods.

8. EXEMPTIONS

The Regulation stipulates that the access and use of the renewable sources will not be charged by any specific tax, canon or royalty, National or Provincial, until December 31st, 2025.

Current special taxes, canon or royalties applicable to projects, which are not included in the Promotion Programme, will remain enforceable, notwithstanding the possibility of its elimination by the authorities.

9. ELECTRICITY FROM INTERMITTENT RENEWABLE SOURCES. RESERVES

The dispatch of electric energy from intermittent renewable sources will be governed by article 18 of Law 27.191. This article states that intermittent sources will have the same treatment as run of the river hydropower plants.