Regulation of Distributed Generation Law No. 27,424

On November 1, 2018, Decree No. 986/2018 (the “Decree”) was published in the Official Gazette. This Decree regulates Law No. 27,424 (the “Law”), published in December of 2017, which approved the Distributed Energy Generation Incentive Scheme (the “Incentive Scheme”).

The Law aims to set forth the policies and establish the legal and contractual conditions to (i) allow “user-generators” to generate renewable energy for  self-consumption, and to ultimately inject into the grid any excess; and (ii) determine the obligations in head of distribution companies to provide open access to the grids operated by them.

The Decree defines the legal and contractual conditions required for the implementation of the Incentive Scheme. Furthermore, it aims to achieve a total installed capacity of one thousand megawatts (1,000 MW) by late 2030.  

These are the main aspects of the Decree:
 

1.         Enforcement Authority

The Argentine Secretariat of Energy is appointed as the enforcement authority of the Law and the Decree (the “Enforcement Authority”), which is entitled to issue future clarifying and ancillary regulations as may appropriate.

Among these clarifying and ancillary regulations, the Enforcement Authority must establish (i) the technical requirements to be fulfilled by the user-generators; (ii) the technical and security requirements for the evaluation to be performed by the distributor; (iii) the procedure to follow for the user-generator to request the credit transfer to which it may be entitled as result of the electricity injected into the grid; (iv) the conditions and procedures to be fulfilled to obtain promotional benefits; and (v) the framework for the implementation of the Distributed Renewable Energy Generation Fund (the “FODIS” after its Spanish acronym).
 

2.         Connection authorization

The Decree establishes the procedure to be followed by the interested user to obtain the connection authorization. This procedure includes: (i) a connection feasibility analysis; (ii) the verification of the facilities; and (iii) the execution of the electric energy generation agreement, the set-up of smart-grid equipment, and the connection to the distribution grid.

Once the electric energy generation agreement is executed and the connection is authorized, the Enforcement Authority must issue the corresponding user-generator certificate.
 

3.         Billing procedure

Each distributor must calculate the compensation amount and must procure payment of the fee for the energy injected into the grid, under the net balance invoicing system established by the Law. For billing purposes, the distributor must measure, together with the electricity consumption, the electricity injected into the grid for the same period.

The Decree provides that the distributor will buy, recognize, and if applicable, pay to the user-generator the energy injected to the grid by it.

If in any determined billing period, after compensating consumed and injected energy there is a credit in favor of the user-generator, this credit will be automatically charged to the following billing period. If a credit in favor of the user persists in time, the user may request the payment in legal tender of said credit.
 

4.         FODIS

The Law created the FODIS (a government-trust fund)  to promote the implementation of distributed renewable energy generation systems.The Decree establishes that the FODIS may allocate funds to:

• Nonfiscal incentives (e.g., the implementation of an additional incentive price for the energy injected in the grid).
   
• Benefits to be granted directly or indirectly to FODIS beneficiaries.
   
• Warranties to be granted to FODIS beneficiaries, or third parties such as equipment or services suppliers.
   
• Capital contributions for the FODIS beneficiaries.
   
• Any loans and financing allowed by the legal framework.

The Enforcement Authority must inform the Argentine Treasury, prior to June 30 of each year of the National Treasury resources to be destined to the FODIS so that they are approved in the Budget Law every year.

Likewise, the amounts collected by the FODIS for interest, penalties, administrative charges, etc. will be part of the trust fund.
 

5.         Promotional benefits

The Decree provides the granting of promotional benefits, which will be available to the user-generators of the jurisdictions that have entirely adhered to framework established by the Law and its amendments, and also the implementation of a Tax Credit Certificate to be applied to payment of national taxes.
 

6.         Promotion of the National Industry Regime ("FANSIGED")

The Ministry of Production and Labor (the "MP&L") will establish the requirements, formalities and technical regulations related to the “Promotion Regime for the National Manufacturing of Systems, Equipment and Supplies for Distributed Generation from Renewable Sources”.

The MP&L must issue, among other things, regulations related to:

- Eligibility criteria for the activities included in the FANSIGED

- The procedure by which the beneficiaries may request the Tax Credit Certificate.

- The application criteria and other conditions to access the benefits of accelerated depreciation of income tax and early repayment of value added tax (together with the Ministry of Finance).

- Access to financing with preferential rates and access to the supplier development program.

- The requirements and procedures for the allocation of the fiscal quota and the benefit of the tax credit certificate corresponding to the FANSIGED.