Power sector in argentina

1. Power SECTOR IN ARGENTINA

2. INTRODUCTION • The electricity sector in Argentina constitutes the third largest power market in Latin America. It relies mostly on thermal generation (54% of installed capacity) and hydropower generation (41%). The country still has a large untapped hydroelectric potential. The prevailing natural gas-fired thermal generation is at risk due to the uncertainty about future gas supply. • Faced with rising electricity demand (over 6% annually) and declining reserve margins, the government of Argentina is in the process of commissioning large projects, both in the generation and transmission sectors. To keep up with rising demand, it is estimated that about 1,000 MW of new generation capacity are needed each year. An important number of these projects are being financed by the government through trust funds, while independent private initiative is still limited as it has not fully recovered yet from the effects of the Argentine economic crisis.

3. INTRODUCTION (CONTD.) • The electricity sector was unbundled in generation, transmission and distribution by the reforms carried out in the early 1990s. Generation occurs in a competitive and mostly liberalized market in which 75% of the generation capacity is owned by private utilities. In contrast, the transmission and distribution sectors are highly regulated and much less competitive than generation.

4. Electricity generation • Private and state-owned companies carry out generation in a competitive, mostly liberalized electricity market, with 75% of total installed capacity in private hands. The share in public hands corresponds to nuclear generation and to the two bi-national hydropower plants: Yacyretá (Argentina-Paraguay) and Salto Grande (Argentina-Uruguay). The generation sector is highly fragmented with more than ten large companies, all of them providing less than 15% of the system's total capacity. Power generators sell their electricity in the wholesale market operated by the CAMMESA.

5. TRANSMISSION & DISTRIBUTION • The transmission and distribution sectors are highly regulated and less competitive than generation. In transmission, the Compañía Nacional de Transporte Energético en Alta Tension (Transener) operates the national electricity transmission grid under a long-term agreement with the Argentine government. In the distribution sector, three private companies, Edenor (Empresa Distribuidora y Comercializadora Norte), Edesur (Electricidad Distribuidora Sur) and Edelap (Empresa de Electricidad de la Plata), dominate a market with 75% control by private firms.

6. Other important distribution companies at the provincial level are: • Public provincial: EPEC (Empresa Provincial de Energía de Córdoba), EPESFI (Empresa Provincial de Energía de Santa Fé) • Private provincial: ESJ ( Energía San Juan), EDET (Empresa de Distribución Eléctrica de Tucumán): EDEN (Empresa Distribuidora de Energía Norte), EDEA (Empresa Distribuidora de Energía Atlántica), EDES (Empresa Distribuidora de Energía Sur)

7. PRIVATE PARTNERSHIP IN ELECTRICITY SECTOR • Prior to 1991, the electricity sector in Argentina was vertically integrated. The new legal framework for the electricity sector included: vertical and horizontal unbundling of generation, transmission and distribution; opening up of all segments to the private sector; and separation of the regulatory function from policy setting. • Current scenario of private sector participation is,

8. RENEWABLE ENERGY RESOURCE • Hydro Power • Wind • Solar

9. Hydro power • Argentina's hydroelectric potential is being exploited only partially. While the identified potential is 170,000 GW·h/year, in 2006 hydroelectric production amounted just to 42,360 GW·h.There are also untapped mini-hydropower resources, whose potential is estimated at 1.81% of overall electricity production (in contrast with its current 0.88%).

10. wind Wind power has increased significantly in Argentina during the last decade. Total operating wind power capacity in 2005 was 26.6 MW, shared by 13 plants. This is still only about 0.05% of the theoretical potential of wind energy in Argentina. The distribution of number plants and total capacity is: Of the 13 plants, only three have been commissioned after the year 2000, with the remaining 10 built during the 1990s.

11. wind The Argentine Patagonia region has a very large wind potential. The Chubut Wind Power Regional Center (CREE) estimated the theoretical potential for the region at 500 GW of electricity generation. However, this large potential is still largely unexploited. Reasons • One of the reasons for this underdevelopment is that existing tariffs and incentives do not make wind power development attractive enough yet. • the main deterrent to wind power development in the region has been the lack of transmission lines that connect the Patagonia region with the National Interconnected System.

12. solar • Solar power is only present in remote areas. Just 81 MW·h were generated in 2005, less than 0.1% of total electricity production.In 2012 the first of four 5 MW stages of Cañada Honda was completed, as part of a plan to install 117 MW of renewable energy.

13. POLICY & REGULATIONS • The Energy Secretariat (SENER) is responsible for policy setting, while the National Electricity Regulator (ENRE) is the independent entity within the Energy Secretariat responsible for applying the regulatory framework established by Law 26,046 of 1991. ENRE is in charge of regulation and overall supervision of the sector under federal control. Provincial regulators regulate the rest of the utilities. ENRE and the provincial regulators set tariffs and supervise compliance of regulated transmission and distribution entities with safety, quality, technical and environmental standards. CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico) is the administrator of the wholesale electricity market. Its main functions include the operation and dispatch of generation and price calculation in the spot market, the real-time operation of the electricity system and the administration of the commercial transactions in the electricity market.

14. POLICY & REGULATIONS (contd.) • The Electric Power Federal Council (CFEE), created in 1960, plays a very important role in the sector as well. It is the administrator of funds that specifically target electricity operations (i.e. National Fund for Electric Power, see Recent developments below) and is also an adviser to the National and the Provincial Governments in issues relating to the power industry, public and private energy services, priorities in the execution of new projects and studies, concessions and authorizations, and electricity tariffs and prices. It is also an adviser for legislative modifications in the power industry. • The Argentine power sector is one of the most competitive and deregulated in South America. However, the fact that the Energy Secretariat has veto power over CAMMESA has the potential to alter the functioning of the competitive market. The functions of generation, transmission, and distribution are open to the private sector, but there are restrictions on cross-ownership between these three functions. Argentine law guarantees access to the grid in order to create a competitive environment and to allow generators to serve customers anywhere in the country

15. ELECTRICITY MARKET

16. DEMAND • Electricity demand in Argentina has steadily grown since 1991, with just a temporary decline caused by the economic crisis of 2001-2002 that has been followed by a quick recovery (6%-8% annual increase) in the last five years, partially due to economic recovery. In 2005, the country consumed 94.3 TW·h of electricity, which corresponds to 2,368 kWh per capita. Residential consumption accounted for 29% of the total, while industrial, and commercial and public represented 43% and 26% respectively.

17. Supply: Generation capacity • Thermal plants fueled by natural gas (CCGT) are the leading source of electricity generation in Argentina. Argentina generates electricity using thermal power plants based on fossil fuels (54%), hydroelectric plants (41%), and nuclear plants (4%, two operational, one incomplete). Installed nominal capacity in 2006 was 24,046 MW. However, this scenario of gas dominance is likely to undergo changes due to gas exhaustion derived from the existing "bottlenecks" in exploration and production (E+P) and pipeline capacity. Today, gas reserves are 43% lower than in 2000.This situation is further aggravated by the uncertainty surrounding the gas deals with Bolivia and the plans to build new regional pipeline connections. Total generation in 2005 was 96.65 TW·h. The breakdown by source in 2003 had been: 59% from conventional thermal sources, 35.4% from hydroelectricity, 7% from nuclear power and 1% from geothermal sources. In 2015, the Atucha II Nuclear Power Plant reached 100% power, increasing the percentage of nuclear power in Argentina from 7% to 10%.

18. The generators are divided into eight regions: • Cuyo(CUY) • Comahue(COM) • Northwest (NOA) • Center (CEN) • Buenos Aires/Gran Buenos Aires (GBA-BAS) • Littoral (LIT) • Northeast (NEA) • Patagonia (PAT)

20. DEMAND & SUPPLY PROJECTIONS • Argentina currently faces a tight supply/demand scenario as reserve margins have declined from above 30% in 2001 to less than 10%. This fact, together with the deterioration in distribution companies services (i.e. cables, transformers, etc.), has the potential to endanger supply. To sustain a 6-8% annual increase in demand, it is estimated that the system should incorporate about 1,000 MW of generation capacity each year.

21. TARIFFS • Electricity tariffs in Argentina are well below the LAC average. In 2004, the average residential tariff was US$0.0380 per kWh, very similar to the average industrial tariff, which was US$0.0386 per kWh in 2003. Weighted averages for LAC were US$0.115 per kWh for residential consumers and US$0.107 per kWh for industrial customers.

22. SUBSIDIES, INVESTMENTS & FINANCING • 47.4%: Subsidiary Fund for Regional Tariff Compensation to Final Users (FCT), for homogenization of tariffs across the country (this created a de facto subsidy for those consumers in the areas with higher electricity costs). • 31.6%: Fund for the Electric Development of the Interior (FEDEI), for generation, transmission and rural and urban distribution works. Most funds have been directed to rural electrification • 19.75%: Fiduciary Fund for Federal Electricity Transmission(FFTEF) (created in 2000), for co-financing or projects in electricity transmission. • 1.26%: Wind Energy Fund (created in 2002), for the development of wind energy.

23. cammesa • CAMMESA S.A., a wholesale electricity market administrator offers operation and dispatch of generation; price calculation in the spot market; and the administration of the commercial transactions in the electricity market. The company also purchases and sells electric power from abroad and to other countries. CAMMESA S.A. offers consulting services. The company was founded in 1992 and is based in Buenos Aires, Argentina.

24. IMPORTS & EXPORTS • In 2005, Argentina imported 6.38 TW·h of electricity while it exported 3.49 TW·h. Net energy imports thus were about 3% of consumption. • Argentina also imports electricity from Paraguay, produced by the jointly built Yaciretá Dam. On 18 September 2006 Paraguay agreed to settling its debt of $11,000,000,000 owed to Argentina for the construction of Yaciretá by paying in electricity, at the rate of 8,000 GWh per year for 40 years.

25. ACCESS TO ELECTRICITY • Total electricity coverage in Argentina was as high as 95% in 2003. However, about 30% of the rural population lacks access to electricity. The Renewable Energy in the Rural Market Project (PERMER) is one of several programs being implemented to enlarge electricity coverage in rural areas.

26. SERVICE QUALITY • Interruption frequency and duration Interruption frequency and duration are considerably below the averages for the LAC region. In 2002, the average number of interruptions per subscriber was 5.15, while duration of interruptions per subscriber was 5.25 hours. The weighted averages for LAC were 13 interruptions and 14 hours respectively. • Distribution and transmission losses Distribution losses in 2005 were 13.6%, down from 17% a decade before.

27. Projects & assistance

28. Recent government PROJECTS • There are several projects that are part of the government's response to the predicted electricity shortagesin different sectors:- • THERMAL POWER • NUCLEAR POWER • HYDRO POWER • TRANSMISSION

29. Thermal power projects • Two new Combined Cycle Gas Turbine plants, the José de San Martín Thermoelectric and Manuel Belgrano Thermoelectric, of 830 MW each, are under construction and expected to start full operations at the beginning of 2009.Both plants, which have been financed through the FONINVEMEM (total investment amounts up to US$1,097 million), are expected to start full operations at the beginning of 2009. • the Planning Ministry announced in July 2007 the commissioning of five new thermal plants with a total capacity of 1.6 GW and an overall investment of US$3,250 million. These dual-generation turbine (gas or fuel oil) plants, which are expected to start operations in 2008, will be located in Ensenada (540 MW), Necochea (270 MW), Campana (540 MW), Santa Fe (125 MW) and Córdoba (125 MW) • Enarsa has recently launched bidding for eleven small and transportable generation units (15-30 MW each) and for other three larger generation units (50-100 MW) to be installed on barges. These new units, whose base price is still unknown, will add between 400 and 500 MW of new generation capacity.

30. NUCLEAR PROJECTS • In 2006, the Argentine government launched a plan to boost nuclear energy. The Atucha II nuclear power plant, whose construction started in 1981, will be completed and will add 750 MW of generation capacity by 2010. • In addition, the Embalse nuclear power plant, with 648 MW of generation capacity, will be refurbished to extend its operational life beyond 2011.

31. HYDROPOWER PROJECTS • On the hydropower side, the Yacyretá dam's reservoir was elevated by 7 m to the height of 83 m as contemplated in its original design, which increased its capacity from 1,700 to 3,100 MW. This will lead to a 60% increase in its electricity output (from 11,450 GW·h to 18,500 GW·h).The reservoir rise was complete in February 2011 despite a serious controversy regarding the resettlement of people. • in 2006, bidding for the expansion of Yacyretá with the construction of a new 3-turbine plant in the Añá Cuá arm of the Paraná River was announced by the Government. This expansion, to be finalized in 2010, would add 300 MW of new generation capacity.

32. TRANSMISSION PROJECTS • In regard to transmission, the Federal Plan for Transport of Electric Energy at 500 kV is under implementation under the umbrella of the FFTEF (Fondo Fiduciario para el Transporte Eléctrico Federal).The main lines of the plan (Línea Patagónica, Línea Minera, Yacyretá, Puerto Madryn – Pico Truncado, NEA-NOA, Comahue – Cuyo, Pico Truncado – Río Turbio – Río Gallegos) are already built or currently under construction. The lines built between 2007 and 2009 will add 4,813 new kilometers of high voltage transmission capacity.

33. External assistance • WORLD BANK • INTER-AMERICAN DEVELOPMENT BANK • ANDEAN DEVELOPMENT CORPORATION

34. WORLD BANK • The only active energy project financed by the World Bank in Argentina is the Renewable Energy in the Rural Market Project (PERMER). This project has the objective of guaranteeing access to electricity to 1.8 million people (314,000 households) and to 6,000 public services (schools, hospitals, etc.) located far from electricity distribution centers. Electrification of this dispersed market will be mostly carried out through the installation of solar photovoltaic systems, but also through other technologies such as micro-hydraulic turbines, wind and, eventually, diesel generators. The project, which started in 1999 and is expected to end in December 2008, has received a US$10 million grant from GEF and a US$30 million loan from the World Bank.

35. Inter-American Development Bank • In November 2006, the Inter-American Development Bank approved a $580 million loan for the construction of a new 760-mile transmission line in northern Argentina that will connect separate grids in the northeastern and northwestern parts of the country, the Norte Grande Electricity Transmission Program.

36. Andean Development Corporation (CAF) • In 2006, Argentina received financing from CAF (Andean Development Corporation) for two electricity projects: the Electricity Interconection Comahue-Cuyo (US$200 million) and the Electricity Interconnection Rincón Santa María-Rodríguez (US$300 million), two of the high voltage transmission lines included in the Federal Transportation Plan. In the same year, Argentina also borrowed US$210 million from CAF for a program that aims at repairing the country's hydroelectric infrastructure. • In June 2007, CAF approved a US$45 million loan to the Buenos Aires province for partial financing of the electricity transport capacity in the North of the province.

37. BIBLIOGRAPHY • Cámara Argentina de la Construcción, 2006. La construcción como herramienta del crecimiento continuado. Sector eléctrico. Evaluación de las inversiones necesarias para el sector eléctrico nacional en el mediano plazo. Consultor: Dr. Ing. Alberto del Rosso. • Coordinación de Energías Renovables, 2006.Potencial de los aprovechamientos energéticos en la República Argentina • Oxford Analytica, 2006. Argentina: Energy issues threaten sustained growth • Secretaria de Energía, 2006. Informe del Sector Eléctrico 2005. • Secretaría de Energía, 2007. Balance Energético Nacional. Avance 2006.

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