June 9, 2014

New Bill Amends Promotional Regime for Renewable Energy

On February 22, 2014 Marcelo Guinle, the national senator for the province of Chubut and a member of the president's Frente para la Victoria party, submitted a bill on renewable energy to the National Senate. The bill aims to amend the rules on the promotion regime for renewable energy created by Law 26,190 and to expand policies that encourage investment in renewable energy by promoting credit lines and granting tax benefits.

The national development plan for the use of energy sources destined for electricity production is set forth by Law 26,190 and Decree 562/2009. The promotion regime created by the law encourages the use of alternative energy sources (eg, wind, solar, geothermal, tidal, hydropower, biomass and biogas) through the promotion of credit lines and the granting of tax benefits. For this purpose, a trust fund was created to generate additional payment for those investing in renewable energy, incorporating a system of tax benefits.

The promotion regime aims to:
  • make a substantial contribution to renewable energy;
  • promote investments that are intended for capital goods, civil, electromechanical works and installations and other related services for new generation plants or the integration of existing plants; and
  • introduce tax benefits.

The enforcement authority for such matters is the Federal Ministry of Planning, Public Investment and Services, through the Ministry of Energy, except in matters relating to tax planning and benefits in the annual budget, which are dealt with by the Ministry of Economy and Public Finance.

Tax benefits
Those subjected to the promotion regime must choose either:
  • an advanced refund of the value added tax relating to any depreciable assets of the project; or
  • the accelerated depreciation of assets for the purposes of income tax.

The assets allocated to projects shall not be considered when calculating the taxable base of the minimum presumed income tax.

Additionally, all projects submitted will enjoy extra compensation under Law 25,019. This benefit consists of a payment equivalent to $0.015 per kilowatt-hour (kWh) for generators of energy from renewable sources, except in the case of solar energy, where generators are charged $0.90 per KWh.

Requirements for obtaining benefits

All those applying to the promotion regime must be domiciled or set up in Argentina. Additionally, legal entities must:

  • be responsible for an investment project, under the terms of Article 8 of Law 26,190;
  • hold a licence or authorisation to generate electricity, under the terms of Law 24,065; and
  • produce electric power for the provision of a public electricity service or for the Argentine wholesale electricity market.

Furthermore, projects must be submitted to the Federal Council of the Electric Power and must contain:
the balance sheet and financial statements for the past financial year;

  • confirmation of compliance with any tax and provisional obligations due;
  • legal, technical, environmental and economic documentation;
  • evaluation reports on the technical and economic feasibility of the project, highlighting the integration of domestically produced goods;
  • a definition of the tax benefit on demand;
  • proof that the project will generate genuine work; and
  • a waiver of judicial or administrative proceedings on the basis of Decree 1043/2003.

The enforcement authorities will establish the parameters for selecting, approving and evaluating investment projects in relation to new works. To this end, the authorities will consider:

  • the creation of new jobs;
  • the minimisation of any environmental impact;
  • the integration of the new works with domestically produced goods; and
  • the allocation of power to the Argentine wholesale electricity market or to the provision of a public electricity service.

Based on the aforementioned parameters, the Ministry of Planning will classify the projects in order of merit, taking into consideration only those whose sum does not exceed the annual quota for the promotional benefits established by the Ministry of Economy.

New bill
The published draft amending Law 26,190 expands the policies that encourage investment in renewable energy through the promotion of credit lines and the granting of tax benefits (instead of feed-in tariffs) for those who supply their electricity consumption via renewable energy sources.

The core issues of this bill include the diversification of the energy mix and the broadening of the definition of 'renewable energy sources' to include biodiesel and urban solid waste. The project is also committed to reducing the average cost of energy and reducing temporary dispatch overheads to displace liquid hydrocarbons in the energy mix. The bill also proposes to increase the supply of renewable energy (as a percentage of overall electricity supply) to 8% by 2016 and to 20% by 2025. Moreover, it seeks to strengthen the state's role in financing investments through a funding facility with multiple inputs.

In 2013 Guinle submitted his proposal to amend the current regime. He immediately received support and contributions from sectors interested in the country's energy policy, including environmental organisations and other stakeholders in the energy sector. Guinle also received a communication from environmental organisations Los Verdes and Greenpeace, requesting that he remove the incineration method and other thermochemical treatments from the definition of 'renewable energy', since they detract from the renewable energy concept supported by Law 26,190.

The new project reflects the national need for fast integration of renewable energy in order to solve one of the major problems faced by projects of this nature: financing.

Given the large volume of projects that are technically capable of being rapidly set up in Argentina at present, renewable energy could contribute substantially to meeting this need by offering a significant advantage over conventional thermal generation projects (combined cycle or large gas turbines) or even over hydroelectric projects, in which the building and set-up period is longer.

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