Publication of the Official Gazette of June 16, 2015. 

For many years, there has been a Law in our country aimed at generating energy from renewable sources. Such Law had very specific objectives that at the time of its sanction seemed possible, though ambitious (in 10 years, 8% of the electricity generation should be from renewable sources). Today, 2 years before that deadline, it is almost impossible to achieve these goals. In my opinion, not meeting the objective has mainly to do with the fact that this was not a State policy and was never on the public or private agenda — I’m not saying that with a series of incentives it would have surely been fulfilled, but we could be a lot closer.

Although the objectives may not be achieved, the National Legislative Branch doubled the stake, setting new objectives and providing tools and specific measures in order to meet them. Although, again, most of this legal text will depend on the regulation and enforcement of the Executive Branch and its Ministers, nowadays the law has a body that creates the idea of a path to follow in order to achieve these ambitious goals. A significant modification, for example, is that it sets obligations on energy consumers with sanctions for non-compliance, so (if it is effective) the law will have a huge social impact. Below, we provide an analysis of the most important amendments:

The reformulation of Section 4 extends the list of energy sources considered renewable by the previous law. This implies the promotion within its extremes as a result of this reform. It remains to be defined whether the new list established by the law is limited or if any non-polluting source of energy (or less polluting than those listed) can be included to the legal concept of “renewable energy”, thus giving access to the benefits established by the law. This matter is likely to be resolved by the Enforcement Authority following the corresponding regulations and on the basis of specific requests of the private sector.

Among other minor amendments, it provides a deep reformulation of the promotion regime for Investment in Renewable Energy of Section 7. The access to such regime in order to reap the benefits is still unclear, since it will depend on the subsequent regulations provided by the Enforcement Authority, but it has great potential for becoming a suitable tool and, thus, to start changing energy and environmental policies that have been demanded from various sectors for years. 

In order to enter the first stage (with greater benefits), projects and companies applying for the benefits established by the law must have a start-up date (expenditures made) prior to December 31, 2017. Although this period may be extended by a new amendment to the law, there are no guarantees about it. Once the fee set by law is fulfilled, there would be no legal obligation of the State to continue granting these benefits. 

The list of benefits is very extensive and is set forth in the amended Section 9. Among them, we highlight: Accelerated depreciation or early reimbursement of VAT and Income Tax (the details will depend on the type of exploitation or goods involved), exemption of payment of the Tax on Minimum Presumed Income, financial burden deduction of financial liabilities and exemptions to taxes on dividend payments. Moreover, those who certify that a large part of the production process and the value chain are of national origin may request a tax certificate to deduct these tax credits, which may be transferred to third parties. 

A new feature is that it anticipates a second stage of the Renewable Energy Promotion Regime which will cover from the end of the first stage to December 31, 2025. Tax benefits will be maintained in this second stage, but with another type of impact. In order to evaluate the real difference between one and the other, it would be important to see it in a particular project. This new paragraph reflects a legislative effort to continue with the substitution of fossil fuels, although its manifestation will depend on the real political willingness and the regulation and enforcement of the Executive Branch. 

A further new element is the creation of the Trust Fund for the Development of Renewable Energy (FODER). This Trust Fund will not be valid until it is duly regulated by all the agencies that must be part of it, but it is very interesting because, theoretically, it will be a Fund applied specifically to this issue, which has a significant amount of items that will be fully originated from them (if this text is implemented as proposed, they should not depend on the political willingness of their allocation). 

The Fund shall be applied to grant loans, make capital contributions, and finance projects that are “eligible” to acquire, install or manufacture capital goods (or its infrastructure) capable of generating electricity from renewable sources. It will depend on the Ministry of Economy, but its Committee will be composed of the Secretary of Energy (Ministry of Planning), the Secretary of Planning and Development, and the President of the Investment Bank (both from the Ministry of Economy). The Fund will have contributions coming from the National Treasury (in addition to donations and interests collected from the financing granted). The interesting fact about the sums that the Treasury shall disburse is that under no circumstances can they be less than 50% of the energy savings in fossil fuels. It is worth noting that at least half of the economic savings involved in the installation of renewable energies must be restored to this fund in order to continue its expansion. While it would be ideal if it were 100% or a little higher, the fact that this minimum legal contribution to the Executive Branch exists indicates that the real usefulness of the fund has been given a great importance. All these budgetary adjustments should be carried out by the Chief of Staff.

The FODER may provide preferential loans and funds, make capital contributions in companies, discount percentage points from interest rates and grant guarantees for Renewable Energy projects. It is worth noting that this can only be accomplished in projects that can comply with the requirements of this law — if a company have projects that cannot comply with those requirements, the FODER cannot subscribe their shares. All funds and benefits managed (even in dollars) will be paid off in pesos (at the official value of the payment due date). Anything involving lines of credit will be defined by the Enforcement Authority following the Fund regulation. Nevertheless, the priority of providing benefits based on the national percentage of each project is already planned. At this point, I think it is important to highlight that the FODER seems to prioritize the origin of a problem over the technical capacity or the technological adequacy of the solution. 

Although the Enforcement Authority of the FODER will be defined by the Executive Branch — taking into account that the majority of the Committee belongs to the Ministry of Economy (and they must approve the Trust contract that created it), it seems logical for it to be within their ranks. 

Another amendment refers to the obligations of electric energy users in order to contribute to the fulfillment of the objectives (8%, 12%, 16%, 18%, and 20% in 2017, 2019, 2021, 2023 and 2025). Users with a demand greater than 300 kilowatts must produce their own energy or buy these percentages of energy from renewable sources. Cases of non-compliance should lead to sanctions applied by the Enforcement Authority (probably fines that will build up the FODER). In the event that such energy is purchased, the price shall not exceed US$ 113 per MWh (at least until 2019). This gives a certain guarantee to consumers against potential abuses of power companies. The law states that upon failure to pay the fee, users shall pay a fine equivalent to such fee at market value (this means that the non-compliance with this rule could never result in a benefit for the consumer). Probably, the most economical thing to do is to produce the energy themselves, but if that were not the case, it would be cheaper to sign a contract to buy large volumes of renewable energy, rather than pay a fine to the State at the highest market price. 

With regard to the rest of the users, the Enforcement Authority must promote all necessary measures to incorporate the greatest amount of offer in renewable energy to the Wholesale Electric Market (MEM). Furthermore, it must instruct the Wholesale Electric Market Management Company (CAMMESA) to diversify the renewable energy matrix and make the different technologies development viable in order to guarantee its technical and geographical diversity, taking full advantage of the country’s potential in the field. 

For the Regime beneficiaries of Act No. 26,190, the reform also provides benefits to the import of capital goods, special equipment and its components. They are exempt from the payment of import duties and any other duty or rate regarding the entry into the country. They must always be capital goods, parts, components and materials intended for the production of renewable energy equipment which are not part of national production (this must be verified by the beneficiary applying for this benefit). 

As an extra (and somewhat unclear) obligation, the reform makes the Enforcement Authority responsible for the dissemination of all information involving renewable energy sources. Moreover, it invites all provinces to access the current regime (it is worth noting that until this does not happen, the legal text is not mandatory as it is not a matter expressly delegated to the National State) — it is the responsibility of the provinces to invite the districts to join and fulfill the objectives. 

As a conclusion, I would like to point out that I believe it is a step in the right direction — although it would be more important to develop public policies that benefit the use of renewable energy, rather than to oblige private sectors to buy energy from certain suppliers. From my personal viewpoint, I hope that the regulations in this regard are appropriate and come out as soon as possible in order to achieve this significant transformation at a social level. 

 

Diego J. Nunes

Attorney at Law

Estudio Nunes & Asoc.