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Argentina kicks off its 1GW Renewable Tender Process

Harris-GomezOn March 30, 2016, the Executive Branch of Argentina issued Decree No. 531/16, which regulates laws 26,190 and 27,191, and initially establishes the Regulatory Framework for the Promotion of Use of Renewable Energy in Electric Power Generation (the “Regulatory Framework”).

The Regulatory Framework sets forth the following milestones for the satisfaction of electric power from renewable sources:

Percentage of electric power demand to be satisfied from renewable sources

Deadline

8%

12/31/2017

12%

12/31/2019

16%

12/31/2021

18%

12/31/2023

20%

12/31/2025

2. Fees

Large Consumers of the Electrical Wholesale Market and High Demands that are Customers of the Providers of the Distribution Public Service or of the Distributors Agents, with a power demand equal or higher than 300 KW, shall individually comply with the milestones mentioned in section 1 above through

(i) individual power purchase agreements,

(ii) auto-generation or cogeneration, or

(iii) the joint purchase mechanism to be implemented by Wholesale Electricity Market Administration Company (“CAMMESA” for its Spanish acronym).

The obligated persons that chose to comply with the milestones by means of individual purchase agreements, auto-generation or cogeneration, shall notify so to the Ministry of Energy and Mining. Otherwise, they shall be automatically included in the joint purchase mechanism to be implemented by CAMMESA.

The agreements executed between said parties under individual power purchase agreements and the agreements executed by CAMMESA under the joint purchase mechanism may not set forth an average price greater than US$ $ 113 per megawatt-hour. On the other hand, in order to meet the demand of users with a power demand lower than 300 KW, CAMMESA shall call a public tender for energy contracts whose price shall not be subject to maximum price mentioned above and for which payment may be guaranteed by the Fund for the Development of Renewable Energies (“FODER” for its Spanish acronym) (see below for brief description of the FODER).

3. Promotion of Development of Renewable Energy

The Regulatory Framework sets forth a Promotion Framework for all investments in generation, auto-generation and cogeneration of electricity from renewable energy sources that imply the construction of new generation plants or expansions and/or re-powering of existing plants, made on new or used equipment, as long as they involve the incorporation of new assets.

The owners of investments in renewable energy approved by the Ministry of Energy and Mining shall enjoy the following benefits, among others:

  1. accelerated depreciation of income tax and anticipated return of value added tax in relation to the execution of infrastructure works;
  2. exemption on the application of the tax on minimum presumed income in connection with the assets involved in the project;
  3. net operating losses carry forward for 10 years;
  4. deduction of losses resulting from interest and currency exchange rate differences arising from the financing of the project;
  5. exemption on the application of dividends or profits distribution tax in case they are reinvested in infrastructure projects in Argentina;
  6. issuance of a tax certificate for a value equivalent to 20% of the national component of the electromechanical equipment, which can be applied to payment of national taxes, provided that the national component of the project is greater than 30%;
  7. exemption from the application of import duties to (a) new capital goods and special equipment or parts or components of said goods, spare parts and new accessories, and supplies, until December 31, 2017;
  8. non-application of specific taxes, fees or royalties, whether national, provincial, municipal or from the City of Buenos Aires regarding the access and use of renewable energy sources until December 31, 2025.
  9. pass-through of any tax increases to contract prices;
  10. dispatch priority treatment;

and priority access to public funding by the FODER for projects with greater local components.

4. Renewable Energy Trust Fund

The Regulatory Framework creates the FODER, a trust fund which purpose is to finance, make capital contributions and acquire any other financial instrument destined for the execution, grant of surety bonds, guarantees and financing, of projects of electric power generation from renewable sources approved by the Ministry of Energy and Mining.

5. Call for tender

Argentina President Mauricio Macri on Wednesday unveiled RenovAr, a national program to help the country reach its mandated goal of a 20% renewable-powered grid by 2025.

System operator Cammesa will oversee the tender, which aims to award 600MW of wind, 300MW solar, 65MW biomass, 20MW small hydropower and 15MW biogas capacity, and attract US$2bn in investment.

Power purchase agreements (PPAs) will have a term of no more than 20 years. Cammesa, representing electric utilities and large consumers, will be the official offtake.

During an initial public consultation phase, project developers who register with Cammesa will have until June 12 to submit comments and suggestions about the preliminary tender rules, according to a timeline published by Cammesa.

Cammesa is then scheduled to publish the final rules on July 1, with offers due on August 22 2016.

More details on the tender, in Spanish, can be found here.

Harris Gomez Group has assisted hundred of companies with their entry into Latin America. With a team of Common Law and Latin American Lawyers, we understand both jurisdictions and we help create a seamless bridge between the two regions.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

www.gatewaytosouthamerica.com

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