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Operation of emergency generating sets

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On September 8, 2024, the Electricity Regulation and Control Agency (“ARCONEL”) issued Regulation No. ARCONEL-003/24 titled “Technical-Commercial Operation of Emergency Generating Sets under Conditions of Generation Deficit and Electricity Rationing in the National Interconnected System (S.N.I)” (hereinafter referred to as the “Regulation”).

The Regulation sets out the technical and commercial conditions that regulated and non-regulated consumers who own generating sets must meet if they wish to participate in the supply of electricity during periods of generation deficit or rationing declared by the National Electricity Operator (“CENACE”).

The key aspects of the Regulation are detailed below:

  • Requirements

The emergency generating set (“GEE”) must have a minimum nominal power of 100 kW. The maximum capacity will be determined by the respective electricity distribution and commercialization company (“Distributor”). Additionally, it must be equipped with an hour meter to record operating hours.

The Regulation prohibits the use of subsidized diesel for the operation of the GEE. Therefore, the owner of the GEE must purchase fuel as provided in Resolution No. ARCERNNR-020/2020 or any resolution that replaces it.

  • Qualification Process

To implement this scheme, the owner of the GEE must qualify as an emergency generator (“Emergency Generator”) by following this procedure:

  1. Submit the qualification application to the Distributor in their service area.
  2. The Distributor will conduct a physical inspection of the applicant’s facilities.
  3. If the inspection is favorable, the Distributor will issue a report and grant the Emergency Generator Qualification Certificate (“Qualification Certificate”).

Upon completion of this process, the Emergency Generator may operate the GEE during periods of generation deficit or rationing declared by CENACE.

  • Benefits for Emergency Generators

Emergency Generators will receive financial compensation for the energy generated by the GEE, which will be determined monthly by ARCONEL.

If the Emergency Generator is a regulated consumer, the compensation will be applied to the amount on the invoice issued by the Distributor for the public electricity service. If the GEE produces more energy than consumed from the distribution grid, credit notes will be issued in favor of the Emergency Generator.

If the Emergency Generator is a non-regulated consumer (for self-consumption or large consumers), the energy generated by the GEE will be allocated to the Distributors and credited in favor of the respective self-generator or generator. Subsequently, the self-generator or generator must invoice this energy to the Emergency Generator at the same price as agreed in the private power purchase agreement (“PPA”) between the parties.

Lastly, it is established that electricity distribution companies must conduct quarterly informational campaigns through various media channels for private individuals or entities that own generating sets, encouraging them to qualify as Emergency Generators. Additionally, they must keep the information updated in the Strategic Information Management System (“SISDAT”), for which they are required to maintain a registry of the institutions and GEE.

carlos-torres

Carlos Torres, Senior Associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

 

Mario Fernández, Associate at CorralRosales
mfernandez@corralrosales.com
+593 2 2544144

© CORRALROSALES 2024
NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused by actions taken or not taken based on the information contained in this document. Any specific situation requires the specific opinion and advice of the firm.

CORRALROSALES

Ecuadorian Government Launches Tender for Electrical Interconnection with Peru

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Through Press Bulletin No. 70 dated September 2, 2024, the Ecuadorian government, through the Ministry of Energy and Mines (“MEM”) and the Ecuadorian Electricity Corporation (“CELEC EP”), announced an international public tender for the development of several projects involving the construction of civil works, supply of materials, equipment, electromechanical assembly, testing, and commissioning of the 500-kilovolt (kV) Electric Interconnection System between Peru and Ecuador (the “Project”).

The tender is divided into two blocks:

  • Lot 1: The Pasaje Substation at 500/230 Kv and the expansion of the Chorrillos Substation at 500 Kv, with a reference value of approximately USD 80 million.
  • Lot 2: The Chorrillos – Pasaje Transmission Line at 500 Kv (206.97 km), the Pasaje – Border Transmission Line (500 Kv) spanning 77.88 km, and the sectioning of the Minas San Francisco – San Ildefonso Transmission Line at 230 Kv, with a reference value of USD 184 million.

All civil works, material supply, equipment, electromechanical assembly, testing, and commissioning of the Electric Interconnection System are expected to be completed by April 2026.

According to the schedule established by MEM, all bids must be submitted by Friday, September 22, and will be evaluated by December 2024. Contract signing will take place between January and March 2025. Finally, the Project is expected to begin operations between June and August 2026.

The Project will be financed by international banks and the Ecuadorian state. The Inter-American Development Bank (“IDB”) will finance 43%, and the European Investment Bank (“EIB”) will cover another 43%. The remaining 14% will be financed by CELEC EP. The Project already has the Environmental License, granted by the Ministry of the Environment, Water, and Ecological Transition (“MAATE”), a document necessary for obtaining financing and executing the required works.

This Project is part of the Master Electricity Plan, which considers international interconnection as a mechanism for energy exchange based on commercial agreements and regulatory frameworks for regional integration.

carlos-torres

Carlos Torres, Senior Associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

© CORRALROSALES 2024
NOTE: The above text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused by actions taken or not taken based on the information contained in this document. Any specific situation requires the specific opinion and advice of the firm.

CORRALROSALES

Ministerial Accord No. MEM-MEM-2024-0002-AM

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On March 6th, the Ministry of Energy and Mines issued the Manual for the Operationalization of Free and Informed Prior Consultation (hereinafter “Manual“), recognized in Article 57, paragraph 7 of the Constitution of the Republic of Ecuador (hereinafter “Constitution“). The purpose of the Manual is to develop the constitutional standards for the operationalization of consultation. These standards have been established by the Constitutional Court and international treaties.

The Constitution recognizes the collective right of communes, communities, peoples, and nationalities (hereinafter “consulted subjects“) to free, prior, and informed consultation.  The manual provides that such consultation is mandatory prior to the issuance of administrative measures on plans and programs for prospecting, exploration, exploitation, and commercialization of non-renewable resources that are in the territories of the consulted subjects and may affect them environmentally or culturally.

The results of the prior, free, and informed consultation shall be of a non-binding nature. As a consequence, in cases where the State chooses to implement a project even without the consent of the consulted parties, it must: i) give reasons why it has not been possible to adapt the project in accordance with the observations of the consulted parties; ii) establish the reasons that justify the continuity of the project; and, iii) the measures that minimize the possible impact and maximize the benefits for the consulted parties.

The main aspects of the Manual are detailed below:

I.       Scope of application

Free, prior, and informed consultation shall be carried out prior to the administrative measure issued for prospecting, exploration, exploitation and commercialization plans for mineral resources and mining concessions on indigenous lands. It shall be carried out by the Sector Ministry (hereinafter “consulting subject“).

II.    Principles

Free, prior, and informed consultation shall be governed by the principles of obligatory nature and timeliness; flexibility; good faith; interculturality and plurinationality; systematicity and formality; publicity and information; reasonable time; and ample and necessary information.

III.    Stages of the mining concession

•    Exploration
•    Exploitation

Prior consultation is mandatory before each stage. In small-scale mining, the two stages can be carried out simultaneously and prior consultation is adapted to this reality.

IIII.    Phases of free, prior, and informed consultation

The free, prior, and informed consultation has four phases: i) preparation; ii) public call and registration; iii) registration, information, and execution of the consultation; and iv) analysis of results and closure of the consultation.

a. Preparation phase

The consulting subject will issue an administrative act identifying the consulted subjects of the lands and territories where the mining project will be developed, after requesting information from the Ministry of Agriculture and Livestock.   Once the consulted subjects have been identified, the consulting subject will establish a schedule identifying:

•    The administrative measure on the prospecting, exploration, exploitation, or commercialization program to be consulted.
•    The consultation procedure; and,
•    The phases of the consultation.

b. Public call and registration phase

The consulting subject shall inform via the media of the initiation of the free, prior and informed consultation procedure. And, in turn, shall open information centers for the consultation.

c. Registration, information, and execution of the consultation phase

The information centers will carry out the registration process for the dialogue between the consulting subject and the consulted. The centers will guarantee access to information to make known to the consulted subjects the scope of administrative measures on plans and programs for prospecting, exploration, exploitation, and commercialization of mineral resources.

d. Phase of analysis of results and closure of the consultation.

Within a maximum term of 20 days, the consulting subject shall compile the results of the free, prior, and informed consultation. Lack of attendance or actions that seek to impede or delay the completion of the consultation shall not vitiate it nor shall it be interpreted as motivated opposition.

Once all the information has been compiled, a dialogue table will be set up where the results of the consultation and the observations of the consulted subjects regarding the administrative measure to be issued will be discussed. After the dialogue table is concluded, the consulting subject will prepare a final report containing all the information discussed, especially the consensuses and dissensus reached by the parties. With the results of the consultation, the administrative measure will be issued, and the schedule will be defined with the commitments and benefits agreed with the consulted parties. Once the prior consultation process has been carried out, the consulting party will maintain channels of communication and participation with the consulted parties throughout the project execution process.

 

DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

Regulations to the Organic Law of Energy Competitiveness

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By Presidential Decree No. 176 of February 23, 2024, the President issued the Regulations to the Organic Law of Energy Competitiveness (“RLOCE”), set to take effect upon publication in the Official Registry.

The RLOCE amends the General Regulations to the Organic Law of the Public Electricity Service (“RGLOSPEE”), the General Regulations to the Organic Law of Energy Efficiency (“RGLOEE”), the Regulations to the Organic Environmental Code (“RCOAM”) and the Regulations for the application of the Internal Tax Regime Law (“RLRTI”).

Below, we summarize the most important energy and tax matters:

Electricity sector

1.    Energy storage systems, such as green hydrogen and thermal storage, will be incorporated into the electricity sector’s expansion planning.
2.    Natural or synthetic gases will be considered within the Electricity Master Plan (“PME”).
3.    The Ministry of Energy may delegate to foreign private or state-owned companies the participation in sector activities or generation projects foreseen in the PME through public selection processes (“PPS”). Under this scheme, non-conventional renewable energy generation projects will have preferential dispatch conditions.
4.    The Ministry of Energy may directly delegate the execution of electricity generation projects based on urban waste, with preferential dispatch and price conditions. The Ministry of Energy shall regulate the procedure for this delegation.
5.    The Ministry of Energy may directly delegate the execution of generation projects with non-conventional renewable energies not foreseen in the PME and submitted by private or foreign state-owned companies under the following conditions:
a.    If the project is up to 10MW of nominal capacity, its execution may be delegated if it does not affect the generation projects foreseen in the PME.
b.    If the project has more than 10MW of nominal capacity, the authority must determine if it is of public interest and does not affect the generation projects foreseen in the PME: (i) if it meets both conditions, a PPS will be called for its concession and the proponent may participate with bonuses in the qualification of its economic offer; and (ii) if it is not of public interest and does not affect other projects, the proponent may be enabled to develop the project at its own risk.
6.    The Ministry of Energy will have two months to qualify whether or not the project submitted by private or foreign state-owned companies is of public interest, based on three criteria: (i) whether the initiative is required to satisfy the public interest; (ii) the degree of contribution to the fulfillment of the objectives of the electricity sector; and (iii) the degree of benefit to the State and/or the consumers of the electricity sector.
7.    Until February 23, 2025, distribution tolls will be waived for regulated and non-regulated consumers with distributed generation systems for self-supply. Only regulated consumer systems can inject electric energy into the distribution network.
8.    Distribution companies or authorized entities may provide electric vehicle charging services, with tariffs established by the Agency for Regulation and Control of Energy and Non-Renewable Natural Resources (“ARC”).
9.    The ARC is delegated the authority to exercise the competence of regularization, control, and environmental monitoring of projects, works, or activities in the electric sector, as well as the power to sanction non-compliance. For this purpose, the ARC must obtain the respective environmental accreditation.
10.    All environmental regularization procedures initiated with the Ministry of Energy before the ARC’s environmental accreditation must be finalized by February 23, 2027.
11.    Within 30 days of the RLOCE’s publication in the Official Registry:
a.    The ARC must notify the Ministry of Energy regarding ongoing generation and transmission projects with at least 50% progress. This information will enable the Ministry to assess whether these projects should be deemed of national interest, prompting necessary actions for their completion.
b.    The National Electricity Operator must notify the Ministry of Energy of any generation plants requiring maintenance and their availability percentage over time. This information will enable the Ministry to determine which plants should be declared as national interest to enter into operation or determine their retirement and/or replacement plan.
12.    Until August 21, 2024, the ARC must update or issue new regulations for the electricity sector, with current regulations remaining applicable where not in conflict with the Organic Law of the Electric Energy Public Service and the RLOCE.

Energy Efficiency

1.    Autonomous Decentralized Governments should prioritize generating electric energy using the organic fraction of solid waste (biomass) as raw material without limiting the use of the inorganic fraction for the same purpose.
2.    Large energy consumers in commercial, industrial, and public activities will implement the Ecuadorian Energy Management Standard (NTE-INEN-ISO: 5001) in their operations. As of 2026, this implementation shall be carried out with the support of an energy service provider registered in the Catalog of Energy Service Providers.
3.    The National Energy Efficiency Investment Fund will be financed, in part, with the contribution of private internal combustion engine vehicles. This contribution will be 1% of the total value of the vehicle registration without considering fines and surcharges will be considered.
4.    The ARC shall introduce preferential tariffs in the tariff schedule for public electric energy and general public lighting services, aimed at reducing energy consumption starting in 2025.

Tax

1.    Certification from the competent environmental authority must be obtained to apply an additional 100% depreciation for machinery intended to implement unconventional renewable energy generation systems.
2.    The benefit of generating a net increase in employment for young people and individuals who have served a custodial sentence may only be applied for 12 months.
3.    To deduct expenses for constructing new networks to supply electric energy to consumers isolated from the distribution network, authorization from the competent authority for such construction is required.
4.    For calculating individual income tax, expenses will be considered family burdens when the taxpayer covers practically all their costs. This status will continue even if the taxpayer earns taxable income not exceeding a unified basic salary.
5.    To apply for applicable tax benefits, electric vehicles shall be understood as those solely propelled by electric energy sources, with battery charging exclusively using this source and producing zero direct polluting emissions.
6.    Previously, it had been established that special taxpayers and withholding agents must file their tax returns by the 11th day of each month. The RLOCE clarifies that this obligation applies specifically to special taxpayers.

carlos-torres

Carlos Torres, senior associate at CorralRosales
ctorres@corralrosales.com
+593 2 2544144

 

Mario Fernández, associate at CorralRosales
mfernandez@corralrosales.com
+593 2 2544144

DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.

 

CORRALROSALES

The self-generation regime as an alternative to “regular” electricity consumption

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Articles 261.7, 261.11 and 313 of the Constitution of Ecuador provide that the State has exclusive jurisdiction over natural and energy resources, and is responsible for administering, regulating, controlling and managing strategic sectors, including energy in all its forms.

In line with the above, Article 7 of the Organic Law of the Public Service of Electric Energy (“LOSPEE”) provides that it is the duty of the State to satisfy the need of the public service of electric energy of the country, through electric companies[1] authorized for such purpose.

Within this regulatory framework, private sector companies usually satisfy their demand for electric energy with that supplied by the electric company, under an adhesion contract[2], which establishes the conditions under which the service will be provided.  Under this scheme, the electric company issues a monthly invoice with the amount to be paid for the service, which is calculated based on a tariff[3] set by the competent authority and the consumption of electric energy during the month.

Additionally, the legislation contemplates the self-generation regime. Article 3 of the LOSPEE defines the self-generator as the “Legal entity, producer of electric energy, whose production is intended to supply its own consumption points, being able to produce generation surpluses that can be made available to the demand”; and self-consumption as “…the energy demand of the installation or facilities of a legal entity engaged in a productive or commercial activity, which in turn is the owner, shareholder or has shares in a self-generating company”.

In other words, the self-generation regime consists of a company (self-generator) that is authorized to produce electric energy for its own consumption points (i.e., the consumption of its shareholders or partners), and that can sell surplus energy to large consumers[4] and electric companies[5]. Therefore, the fundamental requirement for a company (regardless of its line of business) to benefit from the self-generation regime is to be a shareholder or partner of a self-generator.

Once this requirement is fulfilled, the self-generator must request from the Agency for Regulation and Control of Energy and Non-Renewable Natural Resources or Regulatory Body (“ARCERNNR”) the authorization of the shareholder company for its own consumption, according to the procedure established in the sixth general provision of Regulation No. ARCERNNR 001/23.

Once the above has been complied with, the self-generator may start supplying electricity to its partners or shareholders under the terms and conditions agreed upon by the parties. According to Regulation No. ARCERNNR 001/23, the company must remain at least one year as its own consumption of the self-generator with which it was qualified, except that, due to its characteristics of operational seasonality, it must periodically make changes of condition.

Once the minimum time of permanence has elapsed, the company may: (i) remain under the self-generation regime with the same self-generator with which it was qualified or with another self-generator; (ii) return to its original status as a regulated consumer[6]; or (iii) switch to a large consumer scheme. 

The main advantage of the self-generation scheme is the possibility of negotiating the conditions of the electricity to be supplied by the self-generator, unlike what happens in the “regular” scheme where the price is subject to the tariff set by the authority. Another advantage is that consumers in this scheme can choose self-generators from renewable sources, with which companies could meet environmental goals through electricity consumption with clean energy.

In summary, the self-generation scheme is attractive for companies seeking to reduce their electricity costs, in addition to using electricity generation in an environmentally friendly way.

[1] Article 3.7 of the LOSPEE defines an electric company as the “…legal entity of public or private law, whose enabling title entitles it to carry out activities of generation, transmission, distribution and commercialization, import or export of electric energy and the general public lighting service”.

[2] The LOSPEE identifies it as a “Supply Contract”. In this regard, paragraph 12 of Regulation No. ARCONEL 001/2020 states: “As a requirement for the energization of the new supply of the public electric power service, the applicant must sign a contract called “Supply Contract” with the distributor. This contract shall contain the rights and obligations of the distributor and the consumer, as well as the conditions under which the service will be provided. For the application of this numeral, the provisions of Regulation No. ARCONEL 002/18 “Electricity supply contract model” or the one that replaces or substitutes it shall be observed.”

[3] Article 54 of the LOSPEE provides that the competent authority “… within the first semester of each year, will determine the costs of generation, transmission, distribution and commercialization, and public lighting – general, to be applied in the electric transactions, which will serve as the basis for the determination of the tariffs to the consumer or end user for the immediately subsequent year.” Additionally, Article 55 of the LOSPEE provides that the authority “…shall approve the tariff schedules, which, for the knowledge of the users of the system, shall be informed through the media in the country and published in the Official Gazette.”

[4] It is the consumer that meets the requirements established in Regulation ARCERNNR – 003/21 and has qualified as a “large consumer” before the competent authority. Once qualified under this regime, the large consumer must purchase all its electricity demand from qualified generators or self-generators.

[5] The regulation also refers to them as distributors. Article 4 of Regulation No. ARCONEL 001/2020 defines it as follows: “Distribution and commercialization electric company or distributor: Legal entity whose Enabling Title entitles it to carry out the activity of distribution and commercialization of electric energy and the service of general public lighting, within its service area.”

[6]  “Regulated consumer” is the denomination given to consumers who satisfy their demand for electric energy than that delivered to them by the electric company under a Supply Contract. Article 4 of Regulation No. ARCONEL 001/2020 defines it as follows: “Regulated consumer: Natural or legal person who maintains a supply contract with the electric distribution company and who benefits from the provision of the public electric energy service.”

Mario Fernández
Associate at CorralRosales
mfernandez@corralrosales.com