We continue our conversation with Mr. Pablo Castagnino, Secretary Embassy of Argentina in Brussels, Head of the Economic Section. In this part we are publishing information on more detailed steps which country’s new Government has undertaken to make Argentina energy’s sector attractive for foreign investors, specific prospects of the energy sector progress in Argentina.
Q.: WHAT POLICIES AND REGULATIONS HAVE BEEN PUT IN PLACE TO MAKE ARGENTINA INVESTOR FRIENDLY (IN THE ENERGY SECTOR)?
A.: Decree 531, issued in March 2016, regulates and puts in to effect Law 27.191, which was adopted in October 2015 by the Argentinian Parliament. Together they create a trust fund for renewables, define the incentives for renewable independent power producers and determine the framework for renewable energy auctions. This Fund for the Development of Renewable Energies (Fondo para el Desarrollo de las Energias Renovables – FODER) aims to provide payment guarantees and project financing. The decree states that 12,000 million pesos (US$819 million) will be added to FODER in 2016, and that the annual amount within the fund will never be less than 50% of the savings achieved on fossil fuels through renewable energies from the year before.
This new legislation also introduces fiscal incentives to independent power producers, including:
- Exception of Import Duties for all project starting construction prior to 12/31/2017
- Accelerated fiscal depreciation of applicable assets
- Anticipated Refund of VAT paid on pre-COD purchases
- Exception of Minimum Deemed Income Tax and Dividend Tax (subject to reinvestment)
- Extension of Income Tax Loss Credits to 10 years (standard is 5)
- Tax deduction of all financial expenses
Under this new legislation, Power Purchase Agreements (PPAs) under renewable energy auctions are as follows:
- PPA costs will be transferred to all consumers
- Pre-qualified projects awarded at tender will have automatic access to tax benefits and FODER project financing and guarantees.
- Selection rules will be set based on price and non-price criteria including local content integration, time to delivery and amount of FODER financing requested.
- PPA will be awarded for 15+ years.
- Large unbundled power users (> 300 kW) may opt-out of roll out of tendered
PPAs and source RE directly from IPPs, utilities, traders or self-consumption projects. There are also important market and financial incentives for local supply chain building, including:
- Sector specific development credit lines will be provided through FODER for local suppliers and manufacturers
- Import duty exemption for equipment, parts and supplies for local suppliers and manufacturers
- 20% Tax Credit on locally supplied CAPEX for independent power producers that integrate 30% of local component in electromechanical installations (excluding civil works, cost of transport and assembly of equipment).
- Priority Access to FODER project financing for independent power producers with significant integration of local content.
Q.: DOES ARGENTINA HAVE A LARGE LONG-TERM POTENTIAL FOR ENERGY DEVELOPMENT?
A.: Argentina is ripe for exploitation of wind, solar and biomass, with exceptional resources in relation to wind energy. An added advantage, especially for a country like Argentina that produces primary goods, is that wind energy farms have extra economic benefits compared to solar parks, which occupy all the area where they are installed and render it unusable, while windmills can coexist with animals for livestock production.
Also, Argentina is a huge country, so there is a lot of space to take advantage of that potential by installing relatively low cost wind farms because they are continental facilities that do not have to go, as in Europe, offshore, to obtain best results. Global experience indicates that with average winds of 5m/s or higher it is feasible to deliver good returns in wind power generation. About 70 per cent of Argentina’s territory enjoys winds with an average speed of 6m/s or more, while in areas of Patagonia they can exceed 9m/s. Argentina has what it takes to become a regional leader in the use of this technology. By September 2016, Argentina had 22 operational wind farms spread across the country. The total wind generation capacity installed is only 279MW. However, out of the 6,000MW in proposals received during the first RenovAr tender, wind projects totaled an impressive amount of 3,468MW. Argentina also has strong solar resources, especially in the north western region. This region was the proposed location for over 1,800MW of proposals during the first RenovAr tender.
Biomass and waste-to-energy in Argentina have long been overlooked. Argentina’s varied environmental ecosystems fuel the growth of diverse crops (including soy), which creates potential for biomass energy. Studies have shown that much of the six million tons of annual forestry waste could be used to generate electricity. In 2013, the government created the ‘PROBIOMASA’ program, which aims to boost production, management and sustainable use of biomass for energy purposes. The PROBIOMASA program has targeted the generation of 400 thermal MW by 2016 and seeks to eventually convert 12 million metric tons of agriculture-related biomass annually. The PROBIOMASA program will need approximately US$750 million in funding. (To be continued in part 3).