RENEWABLE ENERGY, MINING AND SYNERGIES IN ARGENTINA

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment (April 2017)
CHAPTER 6C
RENEWABLE ENERGY, MINING AND SYNERGIES IN ARGENTINA
Alejandro M. Massot
Partner
Estudio Randle
Buenos Aires

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ALEJANDRO MARÍA MASSOT is a Partner with Estudio Randle in Buenos Aires. Mr. Massot obtained his law degree from the Universidad Torcuato Di Tella. In 2008 he graduated as an LL.M. from the University of Chicago Law School. In 2011 he obtained a Masters Degree in Law and Economics from the Universidad Torcuato Di Tella, being awarded the Best Thesis Award. Mr. Massot advises clients on corporate matters (companies, mergers & acquisitions), energy and natural resources matters, agribusiness, and antitrust law. Mr. Massot has experience in data protection and IP matters. He has been Professor of Natural Resources Law at the Universidad Torcuato Di Tella Law School; he also collaborates with the Universidad Notarial Argentina. He has published extensively on several legal and business matters. He is a member of the Bar of the City of Buenos Aires and of the New York State Bar. He chairs the Argentine Chapter of the International Section of the New York State Bar Association. Mr. Massot is admitted to practice in the City of Buenos Aires and in the State of New York. He is an advisor to the President of the Mining Commission of the Federal Congress of Argentina.

I. Introduction.

The intention of this paper is to provide a complete description and analysis of the renewable energy sector in the Republic of Argentina (hereinafter "Argentina"). The idea is to describe where Argentina comes from regarding energy provision, the new mentality towards renewable energy and how through new and modern legislation the key players within the industry are committed to exploit Argentina's full potential in renewable energy.

Apart from the introduction and the conclusion, the paper is divided in four sections. The first one will summarize how the Argentinean energy market works and which regular sources of energy are mostly used; the idea being to provide the reader an idea of the Argentinean energetic situation.

The next section will refer to the legislation that has been passed and enacted to provide incentives for the development of renewable sources of energy. Even though such legislation goes back to 1998, little was made until very recently. The third section will refer to the RenovAR Program (hereinafter "RenovAR") and new renewable energy projects within Argentina. Finally, the last section will analyze how renewable energy and mining projects have synergies that should be exploited and will also refer to the New Federal Mining Agreement that the Federal and Provincial Governments within Argentina are looking forward to sign and have approved by the Federal Congress during 2017.

II. Energy in Argentina. Regulation and Market.¹

The argentine electric system is divided between a number of players: energy generators, carriers, distributors, large users, and small or residential users. Any entity performing activities within any of these stages is not allowed to perform activities in another stage.

Argentina's current energy legal framework was established through Law 24.065 and Decrees 634/91 and 1398/92. The idea behind the legal framework was to establish market and efficiency rules prior to privatize the energy companies operating in Argentina. Between 1992 and 1995 the different business units in charge of the generation, transport and distribution of the former state owned companies SEGBA, AYEE and HIDRONOR were privatized.

The new model's main objective was to replace the old centralized and vertically integrated state monopoly with a competitive system based in market rules. In order to achieve this objective the following premises were incentivized: (a) promotion of competition and of market rules in all the activities where possible; (b) transparent and efficient rules; (c) free access by third parties to the grids; and (d) freely agreed contracts.

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Law 24.065 established as the objectives of the national policy regarding the supply, transport and distribution of electricity the following ones: (a) protect the consumer's rights; (b) promote competitively wherever possible, incentivizing private investment in order to guarantee long term supply; (c) guarantee free access to transport and distribution facilities; (d) regulate transport and distribution activities in order to guarantee reasonable and just fess; and (e) incentivize the supply, transport and distribution, and efficient use of electricity, establishing proper fees.

In its new role, the government stops intervening in the management and planning of the energy companies to limit its involvement to establish the energy policies that the country was going to follow.

As mentioned before, the main idea was to allow the greatest level of competition wherever that was possible. Consequently, the energy industry was vertically disintegrated and divided in three segments: generation, transport and distribution, and commercialization.

While the regulations established that the electric generation was to be considered a general interest activity affected to a public services, transport and distribution activities are considered as public services regulated by a Electric Regulatory Body (ENRE) as to fees and the quality of the services, due to its nature as monopolies. Both, transport and distribution activities require a concession granted by the government.

The Interconnection Argentine System (SADI) allows for the commercialization of energy within the Electric Wholesale Market (MEM) which is composed by a market to term, with contracts where amounts, prices and conditions are freely agreed between sellers and purchasers, and a spot market, where prices are established depending on the production's cost represented by the short term marginal cost.

(i) Energy Generation

Energy generation activity was conceived as a free activity where generators would have to compete among themselves under market conditions. Unlike transport and distribution activities, energy generation does not require a concession (except for energy generation from hydroelectric centrals) and new player can access the generation market without restrains.

The price at which energy is sold by generators will depend if a contract has been entered into with a distributor or large user; in such case the specific contract will determine the price to be paid. If no specific contract exists, the generator will have to sell its production in the spot market at the applicable prices. As mentioned if there is a contract in place the price shall be ruled by such terms, but when the generation level is above or below the amounts contained in the contract, the differences shall be commercialized in the spot market as contract excess or lack at the applicable prices.

Generators also receive consideration for the amount of power made available at the grid, either for operation purposes or reserve. Such consideration has a variable component depending on the need of energy within the grid.

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For generators the cost of producing energy is composed of the cost of operation plus the cost of transport from the connection note to the market. The farthest and lest reliable the transport, more expensive the energy becomes.

As of today, the energy in Argentina is generated, mainly, from fossil and hydroelectric sources.² The idea, as it will be explained in point III(i) below is to increase the percentage of renewable energy generation in order to reach a 20% of energy generated from renewable sources by 2025.

(ii) Energy Transport

Energy transport is in charge of carriers which are the players responsible from carrying the energy from the generation facilities to the consumers. Due to its nature and scale energy transport activity is structured as a monopoly and subject to regulation and controls. In order to transport energy a concession granted by the government is required; the concessionary must operate and maintain the grid.

The main aspects of the applicable regulation are the following ones: (a) fees and quality of service regulated by the ENRE; (b) concessionary is obliged to provide access to the grid; (c) concessionary is not allowed to buy or sell energy, it is only allowed to charge for the service of transporting energy; and (d) concessionary is forbidden from owning a majority stake in the generation and distribution segments.

When the Argentina Interconnection System was privatized it was divided into seven carrier companies. The first company to be privatized was Transener S. A. (Compañía de...