Argentina: Renewable Energy Projects In Argentina - Legal Issues And Challenges

1. INTRODUCTION

The Argentine Energy Sector

In recent years, the Argentine energy sector has faced several challenges. Due to the lack of incentives to foreign and local investors and the de-dollarization of tariffs, among other measures, a once self-providing market had to turn to foreign imports in order to satisfy the growing local energy needs. A set of measures undertaken by previous Administrations since the year 2002 led to a deepening of the energy crisis, which continued for more than a decade and only now appears to be coming to an end as a result of the new policies designed by the current Administration in order to promote the generation of new energy sources and proper development of existing ones.

The beginning of the energy crisis was not unforeseen, as it was a result of years of public emergency in the country. Indeed, after a widespread economic, social and political crisis burst in late 2001, several emergency laws were enacted in order to reorganize the financial system and reactivate the country's economy. Law 25,561 enacted in January 2002 and Decree 308/ were the first of these emergency regulations aimed at facing the crisis, followed by extensions implemented in the years 2006, 2008, 2009, 2011, 2013 and 2015. The policies adopted by the government in place since 2002 eliminated incentives for foreign and local investment, particularly in the Energy sector. In fact, the end of the convertibility regulations and the so-called "pesification" of the economy deeply affected the tariff regime for measured services in force in Argentina and, consequently, creditors under such regime.

In January 2007, law 26,190 was passed, which set a renewable portfolio standard to regulate emissions and a target energy generation from renewable sources. However, the policies adopted by the law were not successful due to the context in which the law was passed and its ambitious nature. It failed mainly due to investors' lack of confidence in the Administration in place at that time and in the project itself. Although it did not meet its objectives, it entitled the government to launch the Genren program in 2009, the first renewable generation program aimed at promoting electricity generation from renewable sources. Nonetheless, the program's success was also halted a few years later, mainly due to the lack of international funding sources and scarcity of national sources2. The only projects which were successfully built were those that were able to obtain credit in the national market or did not require external financing in order to carry out its operations.3

From the year 2010 on, the lack of local generation of energy led to a strong public fiscal imbalance, as Argentina had to import gasoil from Venezuela4, electricity from Brazil5 and liquefied natural gas ("LNG") from Bolivia6. LNG was widely used during this time and it was transferred to Argentina by rented regasification ships, with all these imports causing a major impact on the country's balance of payments. These imports were all organized and completed by Energía Argentina S.A. ("ENARSA"), a company wholly owned by the government. Energy contributed to approximately 5% of the nation's GDP, 6% of its export revenue and 17% of its imports7. The high subsidies for the energy sector in place were also a source of large government spending that proved unsustainable.

After the 2015 elections, with a new Administration in office led by President Mauricio Macri several reforms were adopted in order to relaunch the energy sector and particularly to promote the use of renewable energy sources. For instance, in order to tackle law 26,190's deficiencies, law 27,191 was passed in October 2015. The Macri Administration went on to develop a regulation for law 27,191, after which Argentina began to accept tenders for new renewable energy projects with a new government program called RenovAr8. At the same time, the new Administration declared the emergency in the electricity sector in order to allow the government to adopt appropriate measures directed to gradually normalize the prices of the wholesale electricity market and the distributors and transporters' tariffs9. The Secretary of Electric Energy ("SEE") also called for proposals of integral projects for the development of the electricity infrastructure which, if accepted, would be subject to a public bidding process for their construction and operation10.

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Footnotes

2. International Centre for Trade and Sustainable Development. "La promoción de energías renovables en Argentina: el caso Genren." N.p., 14 July 2014. Web. 30 May. 2017. (http://www.ictsd.org/bridges-news/puentes/news/la-promoci%C3%B3n-de-energ%-C3%ADas-renovables-en-argentina-el-caso-genren).

3. The program's target was to incorporate 1.000 MW into the wholesale market, and although 895 MW were awarded as a result of the first tender in December 2009, only less than 10% of the awarded projects were duly completed.

4. "Convenio Integral de Cooperación entre la República Argentina y la República Bolivariana de Venezuela" signed in Caracas on April 6, 2004.

5. See the Secretary of Energy Resolution 434/2004, which called for CAMMESA to purchase electrical energy from Brazil

6. "Bolivia." The Observatory of Economic Complexity. MIT Media Lab, n.d. Web. 24 Feb. 2017. (http://atlas.media.mit.edu/en/profile/country/bol/).

7. Argentina's Energy Transition: The Macri Government's Vision. Rep. N.p.: Institute of the Americas, 2016, p. 1. https://iamericas.org/documents/energy/reports/Argentinas_Energy_Transition_2016.pdf.

8. The RenovAr Program, which will be explained in detail in Section 6.1 of this report, is a public tender program that issues a series of fiscal benefits and financial support mechanisms in order to develop renewable energy projects.

9. See Decree No. 134/3015 and Ministry of Energy and Mining Resolutions No. 6 and 7/2016.

10. See Resolution SEE No. 420 E/2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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