Renewable energy sources are increasingly important in tackling climate change^[1]. They are also essential to achieve safe and environmentally friendly energy development^[2]. As a result, companies have a growing tendency to assume environmental commitments in the international private sphere, including electricity consumption with clean energy^[3].

Regarding this, Ecuadorian legislation, as an alternative to power purchase and sale schemes^[4], contemplates the possibility of installing and operating non-conventional renewable energy systems for the self-sufficiency of electrical energy^[5]. 

This article (i) contains the main characteristics of distributed generation systems and (ii) summarizes the procedure that must be followed before the respective electricity distribution company (hereinafter, the “Distributor”) for their installation and operation.

1. Distributed Generation System

Through Regulation No. ARCERNNR-013/2021 of April 05, 2021 (hereinafter, the “Regulation”), the Agency for the Regulation and Control of Energy and Non-Renewable Natural Resources (hereinafter, “ARCERNNR”) regulated article 24 of the Regulation to the Law of the Public Electric Power Service (hereinafter, the “RGLOSPEE”), which empowers any natural or legal person to install and operate electric power generation systems for self-sufficiency, provided they maintain a supply contract with the Distributor and benefit from the provision of the public energy service (hereinafter, "regulated consumer").

The systems must have the following main characteristics:

i. Its nominal power must be less than 1 MW^[6].

ii. Its annual production must be equal to or less than the annual energy demand of the regulated consumer.

iii. It must be a distributed generation system^[7]. That is, the energy has to be produced from small generation plants, close to consumption (within the same service area^[8]where the regulated consumer is located), and connected to the power distribution network.

iv. It should be based on non-conventional renewable energy sources (e.g., wind, solar, etc.).

Distributed generation systems for self-sufficiency (hereinafter, “SGDA”) do not limit electrical energy consumption from the traditional distribution network. Therefore, if the SGDA does not cover the demand of the regulated consumer, they can additionally consume electricity from the grid. On the other hand, as provided in article 18 of the Regulation, if due to operating conditions of the SGDA or variation in consumption, there are surpluses of energy produced by the SGDA, these will be injected into the power distribution network. As a result, a credit will be generated in favor of the regulated consumer, who will be compensated with the consumptions made from said network.

Therefore, any company can install and operate, for example, solar panels connected to the distribution network, with a nominal power of less than 1MW, to generate clean energy and cover all or part of its demand.

2. Procedure

The following procedure must be followed to install and operate an SGDA:

i. The regulated consumer must request the Distributor to determine whether or not it is feasible to connect the SGDA to the power distribution network. In said request, the general data of the regulated consumer and the SGDA must be included (e.g., nominal power, an estimate of the annual energy to be generated, primary energy resource, connection point to the distribution network, among others).

ii. If the Distributor determines that the connection is feasible, it will accept the request and establish the connection scheme and operating conditions of the SGDA.

iii. Once the “feasibility of connection” is granted as defined by the standard, the regulated consumer must demonstrate to the Distributor that it complies with the requirements established in the Regulation to install and operate the SGDA. For which you must present the following fundamental information:

• Location of the property or property where the SGDA will be installed; 
• SGDA technical report;
• Design of the works and/or necessary adjustments to the distribution network for the connection of the SGDA; and,
• Project execution schedule.

iv. If the Distributor determines that the requirements are met, it will issue the Qualification Certificate, that is, the document that enables the regulated consumer to install and operate the SGDA under the conditions approved and established by the Distributor.

Those who want to benefit from this scheme should take the following into account:

• The SGDA must be installed according to the execution schedule approved by the Distributor.

• The regulated consumer must cover the costs of the works and/or adjustments necessary to connect the SGDA to the distribution network.

• The necessary assistance must be provided to the Distributor to carry out the tests it deems pertinent to the equipment that will allow the connection of the SGDA to the distribution network.

• The regulated consumer will be responsible for the SGDA's quality and safe operation to the Distributor and competent authorities. Also, will be liable for any damages to third parties derived from such operation. 

• The Qualification Certificate will be valid for the useful life of the SGDA:

Technology	Useful Life(years)
Photovoltaic	25
Wind	25
Biomass	20
Biogas	20
Hydraulic	30

• The Qualification Certificate may be terminated for various reasons^[9], among them, due to: (i) increasing the nominal power of the SGDA without prior authorization from the Distributor, (ii) the expiration of its period of validity, or (iii) the decision of the regulated consumer. Upon the termination of the Qualification Certificated, the SGDA will be disconnected of the distribution network.    

In conclusion, the SGDA is an interesting option for regulated consumers who want to make environmental commitments, such as meeting their demand for electricity with clean energy. Furthermore, if the SGDA is appropriately structured, its installation and operation could be cheaper than the regular consumption cost of the power distribution network. In this case, the investment is profitable, and the consumer could install the SGDA in order to: (i) eliminate its consumption from the distribution network; or (ii) reduce it and, eventually, compensate it if the SGDA produces energy above its own needs. 

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^[1] Hugo Altomonte, ed., “Non-conventional renewable energies in the electricity generation matrix: three case studies”, ECLAC, accessed October 31, 2021, https://repositorio.cepal.org/bitstream/handle/11362 /40975/S1601254_es.pdf?sequence=1&isAllowed=y

^[2] Susa Jiménez, "Non-Conventional Renewable Energy: Promotion Policies in Chile and the World", Libertad y Desarrollo, ISSN: 0717 - 1536, accessed on November 21, 2021, https://archivos.lyd.org/other/files_mf /sie218energiarenovablenoconventcionalpoliticasdepromocionenchileyelmundosjimenezsetember2011.pdf

 Santiago Hoyos, Carlos Franco and Isaac Dyner, “Integration of non-conventional renewable energy sources to the electricity market and its impact on the price.”, Ingenieria y Ciencia, doi: 10.17230 / ingciencia.13.26.5, http: // www. scielo.org.co/pdf/ince/v13n26/1794-9165-ince-13-26-00115.pdf

^[3] Veronika Henze, “Corporate Clean Energy Buying Grew 18% in 2020, Despite Mountain of Adversity” BloomberNEF, January 26, 2021, https://about.bnef.com/blog/corporate-clean-energy-buying-grew-18-in-2020-despite-mountain-of-adversity/ 

^[4] The sale of electricity between private parties is possible under two schemes: (i) the buyer must qualify as a large consumer and buy all their demand for electricity from a generator or self-generator authorized as such before the competent authority; or (ii) the buyer must be a shareholder in a self-generator to buy electricity from the latter. 

^[5] Paragraph 10 of article 3 of the LOSPEE states that “… Non-conventional renewable energies are considered to be sources: solar, wind, geothermal, biomass, tidal, hydroelectric of smaller capacities, under the terms and conditions established in the regulations, and others that will be defined in the respective regulation. "

^[6] According to the ARCERNNR, the average consumption of regulated customers at the residential, commercial and industrial level is 141.42 kWh, 575.68kWh and 9,739.14 kWh, respectively. Available at: https://www.controlrecursosyenergia.gob.ec/wp-content/uploads/downloads/2021/09/Estadistica-2020-baja.pdf

^[7] Article 3 of the RGLOSPEE defines distributed generation as: “(…) Small generation plants installed close to consumption and connected to the distribution company's network.”.

^[8] Article 3 of the RGLOSPEE defines the service area as “… the geographic area established by the Ministry of Energy and Non-Renewable Natural Resources in which an electricity company provides the public service of distribution and commercialization of electric power and the public lighting service…."

^[9] Ecuador, Regulation No. ARCERNNR-013/2021, Official Registry 448, May 10, 2021, Art. 11.      

Mario Fernández García
Associate at CorralRosales
mfernandez@corralrosales.com

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