Argentina is a developing country with 100% of electricity security. However, the country faces major challenges due to electricity losses (15%) and the dependence on fossil fuels. Regarding the latter, the deficit in the commercial balance has been influenced in the past years by energy imports. Moreover, as the energy sector is responsible for more than half of the country´s GHG emissions. In this scenario, distributed generation (DG) with renewable sources becomes a strategic opportunity. This article outlines the main policies for renewable energy generation, focusing on incentives and challenges for prosumers .
The total installed capacity of the Argentinean electricity system is 39 GW, 63% thermal, 28% large hydro, 4% nuclear and 5% renewables. Breaking down the share of renewables, wind accounts for 55%, solar PV 16%, small hydro (>50 MW) 26% and biogas less than 2%. Even though the renewables are marginal, Argentina was able to almost triple its participation in the past 3 years. Regarding electricity consumption (11,200 GWh), 43% of it is consumed by the residential sector, 28% by large consumers and 29% by the commercial sector.
The energy sector is responsible for 53% of Green House Gas (GHG) emissions, being transport the most intensive subsector responsible for 15% of the total emissions – the remaining is mainly due to land use changes. This is because the overall energy system is highly dependent on fossil fuels – mainly natural gas and oil -, which represent 86% of the primary consumption matrix.
Brief overview of the promotion policies
In 2015 and 2017. two milestone legislations were adopted for the renewable energy sector in the country. Firstly, the Law N° 27.191 on the promotion of large-scale renewable electricity generation: This law sets renewable energy integration targets: 8% in 2019, 12% in 2021, 16% in 2023 and 20% in 2025. For achieving them, it allows different instruments, being the most relevant ones
- public tenders, enacted through the Plan RenovAr – which serve to supply utilities and large consumers who opt for it;
- private agreements between large consumers and generators; and
- self-generation for large consumers.
This policy creates several fiscal incentives such as reductions in VAT, Income and Import taxes as well as a guarantee and promotion fund. The implementation of this policy triggered the installation of 1,221 MW, raising the generation share of renewables from less than 2% in 2016 to 5% in June 2019. Currently, there are 98 projects under construction (3,567 MW) and two more ongoing tenders which will incorporate more renewable.
Secondly, in 2017 the Congress adopted Law N° 27.424 on the promotion of distributed electricity generation (DG) with renewable sources. Considering that Argentina has approximately 16 million electricity consumers, this law has a wide scope: every consumer connected to the distribution grid can become a prosumer. Through its enactment the country will have at least 1,000 MW of DG installations – each installation must not be bigger than 2 MW – by 2030. Thereby, this Law allows installations from 0 kW to 2 MW for consumers connected to the distribution grid. Another fundamental determination is that when the installed capacity is equal to the contracted capacity with the utility – i.e. if a potential prosumer has a contracted capacity with the utility of 30 kW for consuming energy, then the installed capacity for the DG equipment is 30 kW as well -, the procedures for the installation are faster than those for larger capacities. In the latter case specific analysis must be conducted monitoring grid security, among other technical aspects.
This Law encompasses several promotional benefits such as soft credits and loans for purchasing equipment, a tax credit certificate for paying national duties, VAT and income tax exemptions for the electricity injected to the grid as well as a feed-in-tariff for the surplus electricity that is injected to the grid. In this last regard, the tariff scheme is “net billing”: the electricity fed into the grid has the same value as the one that the utilities purchase at the wholesale market – including the transport costs. Moreover, the policy mix includes a promotion scheme for the development of the associated national industry: companies that produce parts, components and equipment in Argentina have access to development programs, tax reductions as well as benefits for their commercialization.
Further steps and barriers
Currently, the national state is launching the norms needed to implement Law 27.424. Some administrative infrastructure to become a prosumer is already in place, e.g. online procedure to request the permission to connect to the grid and register as a prosumer. However, the promotional benefits are yet to be regimented. In particular, the tax credit certificate and the tax exemptions are already in place, while the loans, soft credits and the FiT remain undefined. Lastly, there is a huge political challenge to be overcome for the full implementation of the policy:being a federal state, the provinces must adopt the – national – law and comply with it as electricity distribution is under their prerogatives. 11 out of 23 jurisdictions have already adopted the law.
Another relevant issue is that some provinces already have their own provisions to allow and/or promote DG. Anyhow, the DG development in Argentina is still lean as the provinces have several limits to efficiently promote the DG – the most common barrier is that they do not have enough funds to incentivize DG .
In terms of macroeconomic barriers, Argentina is suffering a recession characterized in a nutshell by high inflation and depreciation of the currency. Thereby, the purchase of –imported – equipment, even though the technology prices are decreasing, becomes a barrier for the deployment of DG. Moreover, the electricity tariffs are highly subsidized, thereby the payback period is longer, making less attractive the investment. Even though these issues are tackled by the incentives the Law, they remain high barriers for a massive development of DG.