Energy, News

Renewable Energy Promotion Law

Business Opportunities

Argentina’s demand for power has increased substantially in recent years and is expected to rise.

In order to continue to cope with ever-increasing levels of demand, Argentina’s power infrastructure must keep up with its expansion plans. This means that at least 1200 MW of installed capacity will be needed each year to meet the growing electricity demand.

However, Argentina’s energy matrix is highly dependent on fossil fuels and diversification through the promotion of energy generation from renewable sources has been presented by the new administration as a goal of its energy and environmental policies.

The country is currently facing the challenge of expanding its power generation capacity and achieving this by meeting renewable standards. This means that both conventional (large hydro power, natural gas combined cycles and nuclear) and renewable power projects will be welcomed in the coming years.

Argentina’s natural resources place the country in an excellent position to face this challenge. Patagonia has strong wind power potential, north and western deserts are well suited for developing solar facilities and Argentina’s agricultural and forestry resources position the country in ideal conditions for undertaking a vast array of biomass co-generation projects.

Previous administrations adopted several measures in recent years to tackle the issue as they called for several public bids for the construction of both conventional and renewable power facilities.

In 2016 the Argentine Congress enacted a law that amended the promotional regime for power generation from renewable sources. This law establishes a target for 2025, whereby 20% of electricity consumed in Argentina must be generated by renewable sources (wind, solar thermal, solar photovoltaic, geothermal, tidal, wave, marine currents, hydro —up to 50 MW installed capacity— biomass, exhaust gases, biogas and biofuels). By 2017, 8% of electricity consumption must be generated by renewable sources.

RENEWABLE ENERGY NATIONAL GOALS 2018-2025

 

RENEWABLE ENERGY NATIONAL GOALS 2018-2025

RENEWABLE ENERGY NATIONAL GOALS 2018-2025

 

The private sector is also a key player in this new energy push. Companies have consulted our firm regarding the enforcement of the immediate targets set forth in the renewable energy promotional scheme and many of our clients are negotiating power purchase agreements.

Meeting this challenge provides significant opportunities for investment, financing and partnership. At Marval, O’Farrell & Mairal we feel uniquely positioned to advise and support investors, developers, providers and financers eager to seize the opportunities that lie ahead. 

The new law

On October 21, 2015, Law No. 27,191 was published in the Official Gazette. The law introduced substantial amendments to the Federal Promotional Scheme for the Use of Renewable Energy for Power Generation, approved by Law No. 26,190.

The short and long term objectives of the New Promotional Scheme are for renewable energy sources to become 8% of the total power consumption in Argentina by December 31, 2017 and 20% by December 31, 2025, respectively.

The renewable energy sources included in the New Promotional Scheme are wind; solar thermal; solar photovoltaic; geothermal; tidal; wave; marine currents; hydro (up to 50 MW installed capacity); biomass; exhaust gases; biogas and biofuels.

The promotional scheme provided for a feed-in tariff with a “premium tariff design” complemented with tax benefits for generation plants employing renewable energy sources, electromechanical assembly, the manufacture or import of components for integration into equipment manufactured locally, and commercial exploitation. In addition, it set a target for renewable energy sources to reach 8% of the total power consumption in Argentina by 2017. However, this target was not binding upon consumers.

As this promotional scheme was deemed insufficient to allow for the development of renewable energy projects, since 2009, the Federal Government has promoted the execution of long term PPAs between state-owned companies —acting as off-takers— and private developers —acting as suppliers. These contracts provide higher prices for the electricity supplied and additional benefits for the suppliers. Notwithstanding these additional benefits, lack of available financing for renewable energy projects in Argentina has contributed to the fact that the current installed generation capacity from renewable sources is lower than 1% of the country’s total capacity.

Key Opportunities

  • The new legal framework allows planning market development by providing long-term predictability for investments.
  • Adapts and improves the regulatory framework to increase the participation of Renewable Energies, diversify the national energy matrix and reduce dependence on fossil fuels.
  • It sets mandatory national targets for 100% of demand.
  • Instructs the Ministry of Energy and Mining to establish mechanisms to meet acquisition goals and to promote technological and geographical diversification in the development of the sector.
  • Enables Large Users (> 300 kW) to contract directly with generators.

Francisco A. Macias

Partner

C.V.

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