We have heard much of the great impulse being given to renewable energies on the legislative side and its new inclusion in the political agenda. On October 21, 2015, the National Congress signed into law the amendment to the Renewable Energies Promotion Regime (Law No. 27.191, link at the end of the article) regulated by Decree No. 531/2016 (see text below), bringing great developments and certain benefits for the sector in order to alleviate the energy crisis in the most sustainable way possible and attract investments towards an energy sector of lower environmental and economic impact (given the high impact on the balance of trade that the need for imported gas has for electric production).
So far, this seems good news for everyone: greater electricity production, reduction of environmental impact, improvement in air quality, entrepreneurs willing to invest in the sector (Round 1 of RenovAr Program attracted bids for more than five times the Megawatts per Hour offered). However, there is a counterpart of this law that is very controversial and nobody speaks (and very few know) about it: The new obligations for users.
This is perhaps the most novel (and unexpected) point of the amendment to the regime of Law No. 26.190, since it is aimed squarely at users. Firstly, there is a new category that all users shall pay to contribute to FODER (trust fund specifically designed to encourage investment in the generation of energy through renewable sources). Being an amount that will be lower anyway, it does not seem relevant to focus on this aspect. On the other hand, it determines in a generic way that everyone must contribute to meet the percentages of consumption of renewable sources set in the law (which is logical); the preceding table has been eliminated and it is only established as an overall objective for the population to reach 8% of the consumption of renewable sources by the end of 2017, but it goes beyond. It requires certain individuals as a LEGAL OBLIGATION to incorporate at least certain percentages of their electricity consumption of renewable sources at fixed dates (which are more demanding than for the State itself).
It should also be noted that, according to the legal text, for the State reaching the 8% is an “objective” (nothing happens if it is not fulfilled), while an individual, as the measure is coercive, shall be sanctioned for non-compliance.
The “good news” is that for now only large consumers would be affected (300 kW of installed power), which implies a success, since individuals in their houses and small enterprises would have no alternative to achieve these highly demanding objectives. This means that those who have electricity bills with a category equivalent to “T3” of Edenor and Edesur are likely to be affected by these obligations.
The mentioned law requires that, by the end of 2017, large consumers have a consumption of 8% of renewable sources (on a gradually expanding scale of a biannual 2% up to 20% at the end of 2025). That is to say that it expects that the private sector achieves with its own resources and within that period what the State itself did not achieve since Law No. 26.190 was enacted. It is worth clarifying that it is not that “it did not reach the number by little”; the State is below the 10% of the expected number, but surely the individuals will suffer a worse fate. The schedule for large consumers is the following: 2017: 8%, 2019: 12%, 2021: 16%, 2023: 18% and 2025: 20%.
The alternatives granted by the law to adapt to the system are the generation, the individual contracting or the purchase of energy from different renewable sources through the regulated market of CAMMESA (Wholesale Electric Market Management Company). Direct purchase can be freely and directly negotiated with the generator, only by informing the content of the contract to CAMMESA; toll charges (transport and distribution) will be added to that price, and they should be cheaper for larger users than the alternatives.
Auto-generation or co-generation projects have to meet a series of technical requirements set by the Secretariat of Energy (unless they do not use the Interconnected System), and they have to be registered as a Wholesale Electric Market Agent. If this option is chosen, it must be stated in time and form before the Ministry of Energy and Mining (which has to establish the acceptable technical parameters) in order to be excluded from the Joint Purchasing System managed by CAMMESA.
Users with more than 300 MW of installed power who do not opt in time (the final deadline to inform the decision has to be defined by the Ministry according to the official communication of the obliged users, but it shall be at the end of 2017) for one of the options mentioned will be automatically included in the Joint Purchasing Market of CAMMESA that still does not exist.
The mechanism implies that CAMMESA purchases from the renewable energies generators and then resells to the obliged users; the principle that will allow the system to work is precisely the bidding rounds that this entity is carrying out. The price at which CAMMESA resells will be affected by the established legal limit (US$ 113 per MW/h plus administrative costs). The remaining details of the system will be held by the Ministry or CAMMESA in what is delegated to it.
In the event that the obliged users fail to comply with their payment, they must pay a fine equivalent to the Power Generation Variable Cost corresponding to the generation whose fuel source is imported diesel oil. This would probably mean that it would be cheaper to try and meet the obligation rather than pay the fine.
In the light of this overall picture and the complete lack of information in the private sector for the development of a plan, the real effect that could be triggered in the future is uncertain. The fact is that it is planned and legally approved to include these costs in large consumers’ bills without them being aware that they have the option to choose other alternatives to comply with the law, and when it might be too late to do so. If it is considered that large companies make forecasts and annual budgets and that the final deadline of compliance is in less than one year, it is logical to infer that companies do not have enough time to allocate a budget item to that effect and comply with the legal obligation in due time and proper form.
Based on our market research and the studies from the renewable energy sector, we consider there is a moderate to high probability that on the first of January of 2018, the necessary infrastructure will not be available in order to comply with the provisions of the law and, as a consequence, different appeals, extension requests and other administrative and legal measures will start to arise. If it is not possible to achieve at least 6% of the installed energy matrix of renewable sources, it will be very difficult for obliged users to obtain such energy to the extent that they need it (through any of the 3 means). With regard to generators, it is most likely that they do not want to sell those Megawatts per Hour privately because they have better conditions with the State or because they are at full capacity (especially if they have unused MW/h for bidding less than the total generated).
While it is a measure aimed at encouraging a change in consumer behavior, I understand it will face serious obstacles of real application for being too ambitious. In my opinion, if the State does not make modifications and decides to enforce the legal mandate, the users will resort to the courts to oppose precautionary measures that hamper the progress of the noble objective of the State and the Ministry of Energy which is to increase the use of energy of renewable sources, threatening the stability of the strategic plan.
In our Law Firm, we provide consultancy and assistance for clients of different sectors, both technicians and directors of companies, in order to evaluate the best options for appropriate consumption. In some cases, it can even be possible to avoid entering the category of “large consumer” with some adjustments to the energy efficiency of the facilities. Should you require further information on this matter, please do not hesitate to contact us.