Potential impact of the new law for distributed generation in Argentina based on renewable sources

Law No. 27424, Incentives to distributed generation of renewable energy to be contributed to the
grid (LGD) entails the following step within the transition towards the electricity generation matrix with a
larger percentage of clean energies. Regarding renewable energies, until the last tender of the RenovAr
program, in 2017, the authorities had awarded about 4500 MW of power, which shall be progressively
added to the total installed power over the following years, at an average cost of USD/MWh 55 reached in
the last release. The renewable sources do not currently have a considerable weight in total installed
power for the local generation of electricity (only 2%).
The local boost to distributed generation of energy from renewable sources entails an additional
strategy to the same end. As mentioned, the distributed generation refers to a variety of technologies that
generate electricity at or near where it will be used. However, it should be noted that the most suitable
scenario for the development of DG, based on either renewable or conventional sources, is that enabling
the grid parity, so that the small investor can secure an adequate return on its investment in energy
generation. In the Argentine case, the LGD aims at this goal through the net billing mechanism.
Additionally, the DG can provide other benefits, such as: decentralization of the energy
generation and supply and the potential increase in the local competitiveness-price ratio of electricity;
potential reduction in energy losses in the distribution system (at least until certain point or threshold); and
among others, the development of a new green industry. Considering that RenovAr program has added
some 4500 MW of power for the next years and, as that amount would not be sufficient to meet the goal
proposed by Law No. 27191 (that is, renewable energies shall contribute 20% to the electricity matrix by
2025), there is a window of opportunity for the development of renewable DG in Argentina.
Finally, it is necessary to consider that the use of this opportunity will heavily depend on the
economic scenario. The current context, with a depreciated exchange rate, a tariff structure tied to the US
dollar and high interest and inflation rates cannot be deemed as the desired conditions for the small
producer, who will only invest in DG technologies to the extent that it can make an adequate return on the
investment and recover it in the mid-term. Furthermore and as a reply to the Government’s decision to
progressively reduce the fiscal deficit, a decrease in public sector investment is estimated over 2018,
which may affect in whole or in part the improvements to local infrastructure, mainly, those referring to the
expansion of the grid.

Fuente: KPMG

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