Law

Renewable Energy: Regulation of Distributed Generation Law No. 27,424

On November 1, 2018, Decree No. 986/2018 (the “Decree”) was published in the Official Gazette of the Republic of Argentina.

The Decree contains the applicable regulation of Law No. 27,424, which approved the Distributed Renewable Energy Generation Incentive Scheme (the “Law”), passed by the National Congress on November 2017.

The Law sets forth policies and contractual conditions applicable to the distributed renewable energy generation by distribution network users (which in turn are enabled to connect their small-scale renewable energy projects to the electricity grid for purposes of supplying power remainders) and declared this activity as of national interest. Moreover, the Law is also based on open access rules, whereby the distribution companies regulated as public utilities must provide open access to the systems operated by them in this regard.

The Decree establishes that measures implemented under the Law shall be oriented towards achieving a total installed capacity of one thousand megawatts (1,000 MW) on the twelfth- year anniversary as from the date on which the Decree becomes effective (year 2030).

The most relevant aspects of the Decree are summarized below:

1) Enforcement Authority

• The Secretary of Government of Energy, under the Ministry of Treasury, is designated as the enforcement authority of the Law and the Decree (the “Enforcement Authority”), with faculties to issue clarifying and complementary regulations.
• The Enforcement Authority shall: (a) provide technical requirements which users-generators must fulfill in order to generate electric energy for self-consumption and to inject surpluses to the distribution network, and (b) define the categories of users-generators according to technical parameters.
• Further regulation containing safety and technical requirements, to be carried out by the distribution companies in order to enable connection to their grid, is differed to a later stage.
• The Enforcement Authority will approve the terms and conditions of the renewable energy contract to be entered by and between the user-generators and distribution companies. Pursuant to the Decree, the Enforcement Authority shall define the Distributed Renewable Energy Generation Contract main terms and conditions.

2) Scope

• Categories of user-generators shall be defined by the Enforcement Authority, based on power of contracted load and capacity of generation to be installed.
• The way upon the user-generators will connect to the grid, as well as procedural steps including a special authorization, are deferred to further complementary regulation.

3) Connection authorization

• In order to obtain a connection authorization, users willing to install a distributed generation equipment connected to the distribution network shall comply with the procedure to be approved by the Enforcement Authority.
• Such procedure shall include -inter alia- the following steps:
  
  • Analysis of connection feasibility based on the distribution network and the characteristics of distributed generation equipment to be installed.
  • Verification of the installations.
  • Execution of a distributed electric energy generation agreement.
  • Set-up of smart-grid equipment.
  • Connection to the distribution network.
• When the technical and security evaluation is approved, the user-generator and the distributing companies shall execute a distributed electric energy generation agreement.
• Once such agreement is executed and the connection is allowed, the Enforcement Authority shall issue a certificate of compliance with applicable requirements and the date of connection to the bidirectional measuring equipment.

4) Invoicing system

The Decree sets forth a net balance invoicing system, whereby costs of consumed energy and produced energy are compensated between each other.

Each distribution company shall comply with the following:

• Distributing companies shall buy and pay to user-generators all energy that may be injected to the distribution network generated by renewable sources.
• The “Injection Rate” shall be the purchase price of electric energy, including the transmission rate of the Wholesale Electricity Market (the “WEM”).
• This compensation shall be valued in Argentine pesos and included in the pertaining invoice.
• If there are any surpluses in favor of user-generators, a credit for future invoices will be generated. If such credit remains, user-generators may request the distribution companies to compensate the remaining amounts. Distribution companies shall pay the remaining amounts in no less than two fixed annual payments.
• Credits may be assigned by users connected to the same grid and may be allocated for tax benefit purposes.

5) FODIS

• The Law creates a government-trust fund known as the Distributed Renewable Energy Generation Fund (the “FODIS”, for its Spanish acronym), which is regulated by the Law, the Decree, rules dictated by the Enforcement Authority, the trust agreement and further regulation. FODIS’ most relevant aspect are summarized below:
• FODIS’ parties: the Enforcement Authority shall act as FODIS’ trustor. A public financial entity shall act as trustee.
• FODIS’ beneficiaries: final beneficiaries shall be the owners of renewable energy generation projects as approved by the FODIS (the “Beneficiaries”).
• Purpose:
  
  • The FODIS is entitled to grant non-fiscal incentives.
  • The FODIS may also grant other benefits–e.g., through bonuses in the capital cost for the acquisition of distributed generation equipment–.
  • Beneficiaries’ may also benefit from benefits granted by the FODIS, in their capacity of equipment supplier’s or services providers.
  • Equity contributions are enabled, as well as financing facilities.
• Funding: the FODIS will be funded by means of:
  
  • Resources from the national budget, determined from time to time by the Enforcement Authority. In this matter, the Law has allocated the sum of Argentine Pesos five hundred million (AR$ 500,000,000) for 2018.
  • Capital reimbursements; interests, fines, charges, expenditures, administrative costs and any amounts which the FODIS is entitled to receive; rights, guarantees or insurance which the FODIS receives from the Beneficiaries or third parties.
• Other issues: financing facilities shall be in accordance with requirements that will be determined by the FODIS. Interest rate for repayment may also be subject to a reduced rate.

6) Promotional regime

• The granting of incentives shall be available to user-generators of jurisdictions which adhere to the Law and only if general, technical and security requirements are fulfilled.
• The Enforcement Authority shall set forth the conditions and procedures which shall be fulfilled for the granting of incentives.
• The Enforcement Authority shall set forth the procedure by which the Beneficiaries may request the fiscal credit certificate.
• The Enforcement Authority and the Federal Bureau of Public Income (the “AFIP”, for its Spanish acronym) shall regulate further conditions in this regard.
• The fiscal credit certificate shall not be designated to set off obligations arising from liability caused by third parties’ debts or from the acting of taxpayers as withholding agents.
• Credits and other incentives of the Law may be granted during the twelve (12) year period as of the entry into force of the Decree.

7) FANSIGED:

• The Ministry of Production and Work (the “MPyT”, for its Spanish acronym) shall set forth the requirements and technical regulations related to the Systems, Equipment and Inputs National Manufacturing Incentives Scheme (the “FANSIGED”, for its Spanish acronym).
• Activities of technical assistance for the investigation and development of new prototypes of the addition of improvements in products design shall be considered activities of investigation, design and development and, consequently, shall be benefited by the FANSIGED.
• The MPyT shall set forth requirements and procedures which interested parties shall comply with in order to receive incentives.
• Micro, Small and Medium enterprises which comply with requirements set forth in the Law and which wish to adhere to the FANSIGED shall obtain a PyME Certificate and shall submit documentation which shows proof of turnover and shareholding structure of the corresponding company.

8) Tax incentives

The following incentives are included in the FANSIGED:

• Fiscal certificate for the investment on investigation and development, design, capital assets and certificates for manufacturing companies. The procedure to obtain such certificate shall be jointly determined by the MPyT and the AFIP.
• Accelerated depreciation in Income Tax, for the acquisition of capital assets for the manufacturing of equipment and supplies destined for the distributed renewable energy generation, except for automobiles, in the conditions which shall be set forth by the MPyT and the Ministry of Treasury.
• VAT early reimbursement for the acquisition of assets mentioned in the immediately preceding section, pursuant to a procedure to be determined by the MPyT and the Ministry of Finance.
• Access to financing with preferential rates, in accordance with regulation which the MPyT shall set forth.
• Access to the Suppliers Developers Program, in accordance with regulation which the MPyT shall set forth.

9) Penalties

The Decree also sets forth that failure to comply with terms related to information and authorization requests, as well as to measuring systems installation and connection by user-generations, shall be penalized and shall result in a compensation in favor of the user-generator based on the penalties set forth by each regulatory authority.
 
Further steps regarding implementation of applicable procedures as well as other requirements mentioned above are due and expected to occur briefly.

At TRSyM we are available to provide clarifications or further information of any matter addressed above.

by trsym