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Argentina Power Market Overview

Fitch Solutions Sector Intelligence  


    THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

    Argentina Power Market Overview

    • 20 May 2022
    • Argentina
    • Power
    Regulation And Competition

    In January 1992, the Argentine federal congress adopted the Regulatory Framework Law (Law No. 24.065), which established guidelines for the restructuring and privatising of the electricity sector. The law (which continues to provide the framework for the regulation of the power sector since its privatisation), divides generation, transmission and distribution of electricity into separate businesses, and subjects each to appropriate regulation. Following the federal regulation, provinces adopted their own regulatory frameworks, which are applicable in their own jurisdictions.

    • The Secretariat of Energy (Secretaría de Energía) of the Ministry of Federal Planning, Public Investment & Services (Ministerio de Planificación Federal, Inversión Pública y Servicios). This institutional body is tasked with the application of general policy concerning the Argentine electricity industry at the federal level.
    • The National Electricity Regulator (Ente Nacional Regulador de la Electricidad, ENRE) is an independent agency created by the Regulatory Framework Law. Its responsibilities include the enforcement of the above-mentioned law, compliance with the terms of concessions, adoption of rules regulating the market and ensuring its competitiveness, including through the imposition of penalties and the arbitration of conflicts.
    • The Compañía Administradora del Mercado Mayorista Eléctrico (CAMMESA) is responsible for managing Argentina's wholesale power market and the national interconnection system, planning energy capacity needs, monitoring the operation of the market, administering the dispatch of electricity, managing power trade with other countries and acting as public off-taker in certain power purchase agreements. The Argentine government owns 20% of CAMMESA's capital stock, while 80% is owned by associations representing the wholesale electricity market players, including generators, transmitters, distributors and large users.

    Argentina has one of the most competitive and deregulated power sectors in Latin America. The areas of generation, transmission and distribution are open to the private sector, though there are restrictions on cross-ownership between these three segments. 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.

    As part of this system, large power consumers (with annual demand of 300kW or more) can enter into bilateral power purchase agreements with power generators. This system is intended to allow such consumers to comply with their legal mandate for renewable energy consumption. Large consumers are required to rely on renewables for at least 8% of their electricity needs by the end of 2017, gradually increasing to 20% by the end of 2025.

    Private and state-owned companies carry out generation in a competitive market. Power generators sell their electricity in a wholesale power market operated by CAMMESA. The distribution sector is more heavily regulated and less competitive, with three primary distribution companies (Edenor, Edesur and Edelap) controlling the market.

    In the transmission sector, Compañía Nacional de Transporte Energetica en Alta Tension operates the national electricity transmission grid under a long-term agreement with the government. Transmitters do not engage in the purchases or sales of power, and the services provided are governed by the Regulatory Framework Law and related regulations outlined by the Secretariat of Energy.

    Each distributor supplies electricity to consumers and operates the related distribution network in a specified geographic area pursuant to a concession. Each concession establishes the concession area, the quality of service required, the rates paid by consumers for service and an obligation to satisfy demand. ENRE monitors compliance by federal distributors, including Edenor, Edesur and Edelap, and provides a mechanism for public hearings at which complaints against distributors can be heard and resolved. In turn, provincial regulatory agencies monitor compliance by local distributors with their respective concessions and with local regulatory frameworks.

    The wholesale electricity market classifies large users of energy into three categories: Major Large Users (Grandes Usuarios Mayores, GUMAs), Minor Large Users (Grandes Usuarios Menores, GUMEs) and Particular Large Users (Grandes Usuarios Particulares, GUPAs).

    Each of these user categories has different requirements with respect to the purchases of their energy demand. GUMAs are required to buy 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts.

    Sustainable Energy Policies

    In September 2015, the Argentine parliament's lower chamber passed a law (Federal Act 27.191) aimed at radically increasing the role of non-hydropower renewable energy technologies in the country's power mix over the next decade. In March 2016, the government adopted a regulatory document (Decree 531) that establishes the mechanisms needed to implement the new renewable energy law - whose main provisions are summarised in the table below.

    Among other measures, the decree provided for the creation of a public investment fund for renewable energy (Fondo para el Desarrollo de las Energias Renovables, FODER), which was established by the government and the Argentine bank for investment and foreign trade (Banco de Inversión y Comercio Exterior) in August 2016. FODER provides guarantees that mitigate the country risk for project developers and their financiers, such as missed payments and change in policy. As a result, this mechanism is intended to reduce financing cost for power producers.

    Argentina - Renewable Energy Law, Main Provisions
    Non-hydro renewables to account for 8% of total power generation in 2017, and more than 20% in 2025.
    Establishment of a fund for developing renewables projects, to be funded with at least 50% of the savings resulting from shifting from liquid fuels to renewables (estimated at around USD31bn by 2026).
    Obligation for large energy users (equal to or more than 300kWh) to have a share of their power needs satisfied with renewables. Share will be 1% when law is enacted, to increase by 1% every six months until it reaches 8%.
    Definition of renewables extended to biodiesel and urban solid waste.
    A number of tax incentives, including on VAT, national components and dividends.
    Limit for contract prices at USD113 per MWh. Price can be modified two years after the law takes effect but only for new contracts.
    Source: Camara Argentina de Energías Renovables (CADER), PV Magazine, Fitch Solutions

    Argentina has taken important steps to stimulate growth in distributed power generation. In November 2018, the government gazetted the implementing Decree of Law No. 27,424, which establishes the 'regime for the promotion of the distributed generation of renewable energy integrated to the public electricity network'. The decree stipulates that all users of the electricity network can install distributed generation sources such as rooftop solar arrays and sell the surplus power generated into the grid. Among other provisions, the decree also states that all construction projects of public buildings are required to use distributed generation power resources from renewables.

    Argentina Announces Stronger Greenhouse Gas Emissions Reduction Targets Under Paris Agreement

    In December 2020, the Argentine government submitted its second nationally determined contribution (NDC) under the Paris Agreement on climate change. The second NDC commits Argentina to limiting emissions to 313MtCO2e by 2030 - or 35% above 1990 levels and 2% below 2010 levels (excluding Land Use, Land Use Change and Forestry). This target represented a strengthening from the market's previous target for limiting emissions to 422MtCO2e.

    In April 2021 at the Leaders Summit On Climate Change, President Alberto Fernández announced that the country intends to further strengthen its NDC aligning with other actions including deploying additional renewables capacity and reducing methane emissions. As of May 2021, Argentina has not yet submitted a revised NDC to the UN Framework Convention on Climate Change (UFCCC).


    In December 2019, within the first month of the Fernández administration, the Argentine Senate passed an economic emergency law, which froze utility prices for six months through June 30 2020. The price freeze was extended for for an additional six months as a result of the pandemic, and remained in effect through December 31 2020. As of February 2021, it was reported that the electricity price freeze would expire on March 15 2021. While it was announced in May 2021 that power distribution firms Edenor and Edesur would raise electricity prices by 9% the same month - the first time following the price freeze - there remains significant uncertainty about future electricity tariff increases moving forward. In late 2021, the government has once again enacted a price freeze on wholesale energy prices for the period of November 2021 to April 2022.

    Prior to 2019, electricity prices had been increasing under the administration of then president Mauricio Macri. In December 2015, under the Macri administration, the energy minister declared a state of emergency for the Argentine electricity sector, saying that the very high demand during the summer heat and the weak power distribution network were putting the system at risk of collapse. The emergency protocol, which was authorised by an executive decree from Macri and expired on December 31 2017, gave extraordinary powers to the energy minister.

    Such powers included removing power consumption subsidies and raising electricity tariffs in a bid to ensure adequate returns for transmission and distribution companies, after tariffs were frozen for more than a decade. Accordingly, in late January 2016, the government increased wholesale electricity prices, although the government announced that subsidies will be maintained for social groups that need them most. Moreover, power distributors were banned from distributing dividends while the state of emergency remains effective, according to media reports.

    In May 2016, it was reported that reforms have increased the price of electricity, water and gas from 200% to 700%, causing discontent among the Argentine population. Before the tariff hikes, prices were kept artificially low, with significant costs on public finances. The energy minister said in January 2016 that Argentina spent USD51bn on power subsidies since 2003.

    In July 2016, federal courts declared the removal of subsidies on electricity and natural gas illegal, while citizens staged large-scale protests against the tariff hikes across the country. Energy companies have warned that the tariff freeze would prevent them from implementing their investment plans.

    The case was brought before Argentina's Supreme Court, which in August 2016 partially ruled against the administration's sharp increases in natural gas tariffs. Nevertheless, the government remains committed to a gradual adjustment in utilities tariffs and took steps to address the reasons for the Supreme Court's adverse ruling (the government did not follow appropriate procedure by failing to organise public consultations before enacting the rate hikes). As a result, the Macri administration had been increasing energy tariffs gradually, with the goal of ensuring almost all power and natural gas subsidies are removed by 2019 via rate hikes enacted twice per year.

    This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.


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