The Argentine Electricity Sector

Electricity was first made available in Argentina in 1887 with the first public street lighting in Buenos Aires. The Argentine Government’s involvement in the electricity sector began in 1946 with the creation of the Dirección General de Centrales Eléctricas del Estado (General Directorate of Electric Power Plants of the State) to construct and operate electricity generation plants. In 1947, the Argentine Government created Agua y Energía Eléctrica S.A. (Water and Electricity, or ‘AyEE’) to develop a system of hydroelectric generation, transmission and distribution for Argentina.

In 1961, the Argentine Government granted a concession to the Compañía Italo Argentina de Electricidad (Italian Argentinean Electricity Company, or ‘CIADE’) for electrical distribution in a part of the City of Buenos Aires. In 1962, the Argentine Government granted a concession formerly held by the Compañía Argentina de Electricidad (Argentine Electricity Company, or ‘CADE’) to Servicios Eléctricos del Gran Buenos Aires (Electricity Services of Greater Buenos Aires, or ‘SEGBA’) for the generation and distribution of electricity to parts of Buenos Aires. In 1967, the Argentine Government granted a concession to Hidroeléctrica Norpatagónica S.A. (‘Hidronor’) to build and operate a series of hydroelectric generation facilities. In 1978, CIADE transferred all of its assets to the Argentine Government, following which CIADE’s business became state owned and operated.

By 1990, virtually all of the electricity supply in Argentina was controlled by the public sector (97% of total generation). The Argentine Government had assumed responsibility for the regulation of the industry at the national level and controlled all of the national electricity companies, AyEE, SEGBA and Hidronor. The Argentine Government also represented Argentine interests in generation facilities developed or operated jointly with Uruguay, Paraguay and Brazil. In addition, several provinces operated their own electricity companies. Inefficient management and inadequate capital spending, which prevailed under national and provincial government control, were in large measure responsible for the deterioration of physical equipment, decline in quality of service and proliferation of financial losses that occurred during this period.

In 1991, as part of the economic plan adopted by then President Carlos Menem, the Argentine Government undertook an extensive privatization program of all major state owned industries, including within the electricity generation, transmission and distribution sectors. In 1992, the Argentine Congress adopted Law No. 24,065, the Electricity Regulation Framework (a supplement to Law No. 15,336, Federal Electricity Law, and its Administrative Order No. 1,398/92), which was the keystone for the reform and privatization of the sector. The goal of the law was to modernize the electricity sector by promoting efficiency, competition, improved service and private investment.
It restructured and reorganized the sector, and provided for the privatization of virtually all business activities that had been carried out by Argentine state-owned enterprises. The law established the basis for the ENRE (Ente Nacional Regulador de la Electricidad or the ‘National Electricity Regulatory Entity’) and other institutional authorities in the sector, the administration of the Wholesale Electricity Market(‘WEM’), pricing at the spot, tariff-setting in regulated areas and for evaluating assets to be privatized. This law also had a profound, albeit indirect, impact at the provincial level, as virtually all of the provinces followed the regulatory and institutional guidelines of this law. Finally, this law, which continues to provide the framework for regulation of the electricity sector since the privatization of this sector, divided generation, transmission and distribution of electricity into separate businesses, each subject to segment-specific regulation.

Under Law No. 24,065, distribution and transmission activities are considered public services and defined as natural monopolies. These activities are completely regulated by the Government and require a concession. Although the concessions granted to distributors do not impose specific investment parameters, distributors are obligated to connect new customers and meet any increased demand. The expansion of existing transmission facilities by the respective concessionaires is not restricted. In contrast, generation, although regulated by the Government, is not deemed a monopoly activity and is subject to free competition by new market entrants. Operation of hydroelectric power plants requires a concession from the Government. New generation projects do not require concessions but must be registered with the Former Secretariat of Energy (‘SE’).

Many of the provincial governments, following the privatization path in the sector, have established their own politically and financially independent regulatory bodies at the provincial level. Local distribution in the provinces (except the City of Buenos Aires and certain areas of the Province of Buenos Aires that were served by SEGBA and today are served by Edenor and Edesur) is regulated by each province. Previously, the utilities themselves had played a major role in making sector policies and setting tariffs for the provinces.

At the end of 2001 and beginning of 2002, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in Government policies. The crisis and the Government’s policies during this period severely affected the electricity sector. Pursuant to the Emergency Law, the Argentine Government, among other measures:

• Converted electricity prices and transmission and distribution tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per US$1.00;
• Froze all regulated transmission and distribution tariffs, revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including electricity transmission and distribution concessions), and empowered the Executive Branch to conduct a renegotiation of these concessions, including the tariffs for electricity transmission and distribution services; and
• Required that spot prices on the WEM be calculated based on the price of natural gas (which is also regulated by the Argentine Government), regardless of the fuel actually used in generation activities, even if gas is unavailable.

These measures created a huge structural deficit in the operation of the WEM and, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on the electricity sector in Argentina, as electricity companies experienced a decline in revenues in real terms and a deterioration of their operating performance. Most electricity companies had also incurred large amounts of foreign currency indebtedness under the Convertibility regime. Following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these companies increased sharply, leading many of these companies to suspend payments on their foreign currency debt in 2002. This situation caused many Argentine electricity generators, transmission companies and distributors to defer further investments in their networks. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand. In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.

In December 2004 the Argentine Government adopted new rules to meet demand growth, including the construction by the Argentine Government of two new 800 MW combined cycle generators. These generators commenced operations at full capacity in the first half of 2010. The costs of construction were primarily financed with net revenues of generators derived from energy sales in the spot market, deposited into a fund called the Fondo de Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (’FONINVEMEM’).

The construction of these new generators reflects a recent trend by the Argentine Government to take a more active role in promoting energy investments in Argentina. An example of this is the creation of Energía Argentina S.A. (‘ENARSA’) (Law No. 25,943), currently Integración Energética Argentina S.A. (‘IEASA’) with the purpose of developing almost every activity in the energy sector, from the exploration and exploitation of hydrocarbons, the transport and distribution of natural gas, to the generation, transmission and distribution of energy. In addition to these projects, in April 2006 the Argentine Congress enacted a law that authorized the Executive Branch to create a special fund to finance infrastructure improvements in the Argentine energy sector through the expansion of generation, distribution and transmission infrastructure relating to natural gas, propane and electricity. The special fund would obtain funds through cargos específicos (specific charges) passed on to customers as an itemization on their energy bills.

Finally, in September 2006 the Argentine Government, in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis, adopted new measures that seek to ensure that energy available in the market is used primarily to service residential users and industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. In addition, these measures seek to create incentives for generation plants to meet increasing energy needs by allowing them to sell new energy generation into the Energía Plus (Resolution No. 1281/06 of the SE (former Secretariat of Energy) system at unregulated market prices.

Continuing with the trend to encourage the installation of new generation, the SE by means of its Resolution No. 220/2007 and modifications thereto, allowed CAMMESA to execute WEM Supply Agreements with a generator agent of the WEM. The values to be paid by CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or the ‘Argentine Wholesale Electricity Market Clearing Company’) in consideration for the capacity and the energy supplied by the generator must be approved by the SE. The generator shall guarantee certain availability of the generation units (established as a percentage), and if it fails to do so, penalties apply.

In 2008, the SE allowed CAMMESA to execute WEM Supply Agreements with generators the intention of which is to execute plans to repair and/or repower their generating equipment, and for the cost which would exceed 50% of the revenues that they expect to receive on the sales to the spot market.

Since 2013, the SE introduced material changes to the structure and operation of the WEM through Resolution No. 95/2013, as amended, establishing a different remuneration scheme in Pesos (payable in cash and receivables) for the whole generation sector, except certain power plants and electricity sold under contracts with differential remuneration, regulated by SE.

For generation not covered by contracts, through Resolutions No. 19E/2017 of the SEE (Subsecretariat of Electric Energy) and 1/2019 of the SRRYME (Secretariat of Renewable Resources and Electricity Market), from February 1, 2017 to January 31, 2020, a US$-denominated remuneration scheme was stablished, which provided for a remuneration for power capacity and non-fuel energy, as well as the elimination of remunerations in the form of receivables. It is worth mentioning that as from March 1, 2019, reductions were applied to remuneration, and a reduction coefficient was incorporated to the power capacity remuneration, according to the unit’s utilization factor of the unit.

Later, Resolution No. 31/2020 of the SE (Secretariat of Energy), converted the entire remuneration scheme to the local currency at a FX (Foreign Exchange) of AR$60/US$ with lower power capacity remuneration, effective as from February 1, 2020. An additional remuneration was incorporated in the hours of high thermal dispatch and an update factor was established as from the second month of its application, which follows a formula consisting of 60% CPI (Consumer Price Index) and 40% IPIM (Wholesale Domestic Price Index). However, the SE, through the Note NO-2020-24910606-APN-SE#MDP, instructed CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) to postpone until further decision the application of said update factor.

Regarding the fuel supply for power plants, the purchase and dispatch of fuels remained centralized in CAMMESA until October 2018, excluding generators with Energía Plus (SE Resolution No. 1281/06) contracts. In November 2018, Resolution No. 70/2018 of the SGE (former Government Secretariat of Energy) amended SE Resolution No. 95/2013, authorizing power generators, co-generators and self-generators within the WEM (Wholesale Electricity Market) to acquire fuels of any kind required for own power generation, originally for units with remuneration scheme under SEE Res. No. 19E/2017, and later being extended to units with differential remuneration. The cost of generation with own fuels would be valued according to the mechanism for the recognition of CVP (Variable Production Cost) standardized by CAMMESA. It should be noted that for agents which ‘did not or couldn’t’ make use of such capacity, CAMMESA continued being in charge of the commercial management and the dispatch of fuels. However, through Resolution No. 12/19 of the MDP (Ministry of Productive Development), as from December 30, 2019, SGE Resolution No. 70/18 was abrogated and the centralization of fuel procurement and supply in CAMMESA was restored, a measure that does not cover generators with Energía Plus contracts.

On the other hand, as a result of the state emergency in the national electricity sector, on March 22, 2016 the SEE through Resolution No. 21/16 launched a call for tenders for new thermal power generation capacity with the commitment to making it available through the WEM for the 2016/2017 summer, 2017 winter and 2017/2018 summer periods. Moreover, in line with the measures seeking to increase the electric power generation offer, on May 10, 2017 the SEE issued Resolution No. 287/17 launching a call for tenders for co-generation projects and the closing to combined cycles over existing equipment.

Regarding renewable energies, in October 2015, Law No. 27,191 (regulated by Executive Order No. 531/16) was passed, which amends Law No. 26,190 on the promotion of renewable sources of energy. Among other measures, it provided that by December 31, 2025, 20% of the total demand of energy in Argentina should be covered with renewable sources of energy.

• MEyM (former Ministry of Energy and Mining) Resolution No. 71/16, launched the RenovAr 1 open call for tenders, continuing with RenovAr 1.5 (MEyM Resolution No. 252-E/16), RenovAr 2.0 (MEyM Resolution No. 275-E17) and MiniRen Round 3 (SGE Resolution No. 100/18)
• MEyM Resolution No. 281-E/2017 issued in August 2017, regulated the MAT ER (Term Market from Renewable Energy Sources) regime, which aims to set the conditions for large users within the WEM and GUDI (Large Distribution Company Users) to meet their demand supply obligation from renewable sources through the individual purchase within the MAT ER or through self-generation from renewable sources

Transactions among different participants in the electricity industry take place through the Wholesale Electricity Market, or WEM, which was organized concurrently with the privatization process as a competitive market in which generators, distributors and certain large users of electricity could buy and sell electricity at prices determined by supply and demand, and were allowed to enter into long-term electricity supply contracts. The WEM consists of:

• a term market where quantities, prices and contractual conditions are agreed upon directly between sellers and buyers (after the enactment of former Secretariat of Energy (‘SE’) Resolution No. 95/2013, this was limited to the Energy Plus market, and later being added the Term Market from Renewable Energy Sources, also known as MAT ER, according to Resolution No. 281/2017 of former Ministry of Energy and Mining);
• a spot market where prices are established on an hourly basis as a function of economic production cost; and
• a stabilized pricing system of spot prices, which we refer to as the seasonal price, set on a semi-annual basis and designed to mitigate the volatility of spot prices for purchases of electricity by distributors.

The following chart shows the relationships among the various actors in the WEM:

CAMMESA

The creation of the WEM (‘Wholesale Electricity Market’) made it necessary to create an entity in charge of the management of the WEM and the dispatch of electricity into the SADI (Sistema Argentino de Interconexión or ‘Argentine Electricity Grid’). The duties were entrusted to CAMMESA (Compañía Administradora del Mercado Eléctrico Mayorista or ‘Argentine Wholesale Electricity Market Clearing Company’), a private company created for this purpose.

CAMMESA is in charge of:

• the dispatch of electricity into the SADI, maximizing the SADI’s safety and the quality of electricity supplied and minimizing wholesale prices in the spot market;
• planning energy capacity needs and optimizing energy use in accordance with the rules set forth from time to time by the Former Secretariat of Energy (‘SE’);
• monitoring the operation of the term market and administering the technical dispatch of electricity under agreements entered into in that market;
• acting as agent of the various WEM agents and carrying out the duties entrusted to it in connection with the electricity industry, including billing and collecting payments for transactions between WEM agents (upon enactment of SE Resolution No. 95/2013, this was limited to the contracts then in force and, thereafter, to those contracts executed under Energy Plus Program, and later being added those contracts executed under Term Market from Renewable Energy Sources (‘MAT ER’) according to Resolution No. 281/2017 of former Ministry of Energy and Mining);
• purchasing and/or selling electric power from abroad or to other countries by performing the relevant import/export transactions;
• purchasing and administrating of fuels for the applicable WEM generators; and
• providing consulting and other related services.

Five groups of entities each hold 20% of the capital stock of CAMMESA. The five groups are the Argentine Government, the associations that represent the generation companies, transmission companies, distribution companies and large users.

CAMMESA is managed by a board formed by representatives of its shareholders. The board of CAMMESA is composed of ten regular and ten alternate directors. Each of the associations that represent generation companies, transmission companies, distribution companies and large users are entitled to appoint two regular and two alternate directors of CAMMESA. The other directors of CAMMESA are the Under Subsecretariat of Electric Energy, who is the board chairman in virtue of the delegation of the Federal Government, and an independent member, who acts as vice chairman. The decisions adopted by the board of directors require the affirmative vote of the board chairman. CAMMESA’s operating costs are financed through mandatory contributions by the WEM agents.

Generators

Generators are companies with electricity generating plants that sell output either partially or wholly through the SADI. Generators are subjected to the scheduling and dispatch rules set out in the regulations and managed by CAMMESA. Privately owned generators may also enter into direct contracts with distributors or large users. However this possibility was suspended by SE Resolution No. 95/2013, limited to the contracts executed under Energy Plus Program, and later being added those contracts executed under MAT ER according to Resolution No. 281/2017 of former Ministry of Energy and Mining.

As of December 31, 2022, Argentina had a nominal installed capacity as reported by CAMMESA of approximately 42,927 MW (-62.2 MW compared to 2021), composed by 58.9% of thermal, 25.2% of hydroelectric, 11.8% of renewable and 4.1% of nuclear. This decrease is mainly due to the recategorization of La Plata Cogeneración (GT) from agent to self-generator (-128.0 MW) and the termination of diesel engine PPA (Power Purchase Agreements) (-14.4 MW), partially offset by the commercial commissioning of renewable units under RenovAr and MAT ER programs (+70.8 MW), including 18 MW from PEPE IV, and power capacity adjustments (+9.4 MW⁽¹⁾).

Moreover, power generation experienced a 2% decrease in 2022, with 137,932 GWh and 141,261 GWh volumes for 2022 and 2021, respectively, mainly due to the lower thermal and nuclear dispatch on account of the decreased power grid availability. Unlike 2021, where net electricity exports were recorded, in 2022 the SADI was a net power importer.

• Thermal power generation remained as the main source to meet the demand, fired with natural gas or liquid fuels (gas oil (GO) and fuel oil (FO)) and mineral coal. It supplied an electricity volume of 81,746 GWh (59%), followed by hydroelectric power generation, which contributed 29,377 GWh net of pumping (21%), renewable power generation with 19,340 GWh (14%), and nuclear power generation with 7,469 GWh (5%). Additionally, there were imports for 6,310 GWh (vs. 819GWh in 2021), exports for 31 GWh (vs. 3,850 GWh in 2021), and losses for 5,455 GWh (+25% vs. 2021).
• Lower thermal (-8,329 GWh) and nuclear (-2,701 GWh) generation vs. 2021 was offset by higher hydroelectric power generation net of pumping (+5,797 GWh, mainly due to higher flows at Yacyretá and Salto Grande) and a higher contribution from renewable energy (+1,904 GWh).

The following chart shows the evolution of power generation by source (thermal, hydroelectric, nuclear, and renewable) in GWh:

Note: ⁽¹⁾ Composed by renewable hydraulic power (+12.0 MW), diesel engines (+0.7 MW) and CT (-3.3 MW).

Transmission companies

Transmission companies hold a concession to transmit electric energy from the bulk supply point to electricity distributors. The transmission activity in Argentina is subdivided into two systems: the High Voltage Transmission System (‘STEEAT’), which operates at 500 kV and transports electricity between regions, and the regional distribution system (‘STEEDT’) which operates at 132/220 kV and connects generators, distributors and large users within the same region. Transener is the only company in charge of the STEEAT, and six regional companies are located within the STEEDT (Litsa, Transnoa, Transnea, Transpa, Transba and Distrocuyo). In addition to these companies, there are also independent transmission companies that operate under a technical license provided by the STEEAT or STEEDT companies.

Transmission and distribution services are carried out through concessions. These concessions are re-distributed periodically based on a re-bidding process. Transmission companies are responsible for the operation and maintenance of their networks, but not for the expansion of the system. The transmission concessions operate under the technical, safety and reliability standards established by the ENRE (Ente Nacional Regulador de la Electricidad or ‘National Electricity Regulatory Entity’). Penalties are applied whenever a transmission concessionaire fails to meet these criteria, particularly those regarding outages and grid downtime. Generators can only build lines to connect to the grid, or directly to customers. Users pay for new transmission capacity undertaken by them or on their behalf. A public hearing process for these projects is conducted by the ENRE, which issues a ‘Certificate of Public Convenience and Necessity’. Transmission or distribution networks connected to an integrated system must provide open access to third parties under a regulated toll system unless there is a capacity constraint.

Distribution companies

Distributors are companies holding a concession to distribute electricity to consumers. Distributors are required to supply any and all demand of electricity in their exclusive areas of concession, at prices (tariffs) and conditions set in regulation. Penalties for non-supply are included in the concessions agreements. The three distribution companies divested from SEGBA (Edenor, Edesur and Edelap) represent more than 40% of the electricity market in Argentina. Only a few distribution companies (i.e., Empresa Provincial de Energía de Córdoba, Empresa de Energía de Santa Fé, and Energía de Misiones) remain in the hands of the provincial governments and cooperatives. Edelap has been transferred to the jurisdiction of the Province of Buenos Aires.

Each distributor supplies electricity and operates the electricity distribution network in a specific geographical area under a concession. Each concession determines, among others, the concession area, the quality of service required, the tariffs to be paid by consumers, and the extent of the obligation to meet the demand.

The ENRE monitors the compliance of the distributors at the federal level, and provides a mechanism for public hearings in which complaints against distributors can be heard and resolved. In addition, the provincial regulatory bodies control the compliance of the local distributors with their respective concessions and local regulatory frameworks.

The provincial authorities and the ENRE control the fulfillment of the concession agreements of these public services in the provinces. Many provincial governments that have launched reforms in the electricity sector have followed the terms and conditions of the concessions used for the distribution of public services at the national level.

Large users

The wholesale electricity market classifies large users of energy into three categories: (1) Grandes Usuarios Mayores (Major Large Users or ‘GUMAs’), (2) Grandes Usuarios Menores (Minor Large Users or ‘GUMEs’) and (3) Grandes Usuarios Particulares (Particular Large Users or ‘GUPAs’).

Each of these categories of users has different requirements with respect to purchases of their energy demand. For example, GUMAs are required to purchase 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.

Large users participate in CAMMESA by appointing two acting and two alternate directors through the Asociación de Grandes Usuarios de Energía Eléctrica de la República Argentina (‘Argentine Association of Electric Power Large Users’ or AGUEERA).

Price of electricity

The energy authority has continued with the policy launched in 2003, under which the WEM (Wholesale Electricity Market) spot price is determined according to the available generating units’ CVP (Costo Variable de Producción or Variable Production Cost) with natural gas, even if they are not generating electricity with such fuel (Resolution No. 240/03 of the SE (former Secretariat of Energy)). The additional cost for consuming liquid fuels is recognized outside the specified market price as a temporary dispatch surcharge. Moreover, the WEM bears the costs of natural gas and its regulated transportation, in addition to the associated costs in the case of import (Resolution No. 25/18 of the SGE (former Government Secretariat of Energy) and SE Resolution No. 354/20).

As from August 2021, the approved maximum spot price for energy was AR$930/MWh (Resolution No. 748/21 of the SE), later updated to AR$1,682/MWh from November 2022 (Resolution No. 719/22 of the SE). However, the following chart shows the average monthly price that all electricity system users should pay so that the power grid would not run into a deficit. In addition to the energy price, this cost includes the power capacity fee, the generation cost, fuels such as natural gas, fuel oil, gas oil and mineral coal, and other minor items.

Note: Average monthly monomic price in US$/MWh. Source: CAMMESA, converted into dollars at the official exchange rate.

Fuel supply and consumption

Regarding fuel supply for power generation, under Resolution No. 12/19 of the MDP (Ministry of Productive Development) fuel commercial management and procurement was centralized again in CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) as from December 30, 2019, except for generators with PPA (Power Purchase Agreements) under Energía Plus and SEE Resolution No. 287/17. Moreover, for exempted generators, an optional scheme was established for the operating assignment of natural gas supply and transportation to CAMMESA, effective as from January 2021, due to the implementation of Plan Gas.Ar (SE Resolution No. 354/20). Pampa adhered to this scheme. Additionally, this new scheme set a new thermal dispatch order centralized in CAMMESA, prioritizing units supplied with gas imported from Bolivia under a take or pay condition, followed by those under Plan Gas.Ar and, lastly, units with gas assigned to CAMMESA.

Fuel consumption reached 50.7 million m³/day of gas equivalent in 2022, a figure 7% lower than in 2021. The use of natural gas for power plants reached 38.9 million m³/day in 2022 (-13% vs. 2021), 88% of which was local gas and 12% imported gas. However, alternative fuels (fuel oil, gas oil and mineral coal) were used in volumes significantly higher than in 2021, especially during winter, to meet thermal energy demands. Fuel oil and gas oil grew by 49% and 20%, to 3.6 million and 6.8 million m³/day of gas equivalent, respectively, whereas mineral coal decreased by 10%, to 1.4 million m³/day of gas equivalent.

Note: ⁽¹⁾ In 2021, the LNG (liquified natural gas) regasification ship, which had left in 2018, returned to Bahía Blanca to reduce fuel oil and gas oil consumption.

The main changes in legacy energy remuneration during 2022 are summarized below:

• The February 2021 prices (Resolution No. 440/21 of the SE (Secretariat of Energy)) and the transitionary additional remuneration (Resolution No. 1037/21 of the SE) created in September 2021 were effective until January 31. In April 2022, prices increased by 30%, retroactive to February, and by 10% in June 2022, and the transitionary additional remuneration was canceled from February (Resolution No. 238/22 of the SE).
• In December 2022, Resolution No. 826/22 of the SE provided a 20% increase, retroactive to September, a 10% increase in December 2022, and the following updates for 2023: 25% in February and 28% in August. Besides, effective from November, the remuneration for power in HMRT (hours of maximum thermal demand) is replaced by the energy generated at peak hours.

As from February 1, 2020, under Resolution No. 31/20 of the SE (Secretariat of Energy), the entire remuneration scheme was converted from US$ to AR$ at an FX of AR$60/US$, and an update factor was established as from the second month of its application, with a formula consisting of 60% CPI (Consumer Price Index) and 40% IPIM (Wholesale Domestic Price Index). However, this factor was not implemented.

On May 21, 2021, SE Resolution No. 440/21 was published in the Public Gazette, increasing 29% on average the remuneration scheme under SE Resolution No. 31/20, retroactive as of February 2021, and rendered ineffective the update factor. Generators could apply this increase provided they waived and/or dismissed all administrative and/or judicial claims filed due to the non-application of the automatic adjustment formula set by SE Resolution No. 31/20. Pampa adhered to this scheme.

Thermal power generators

It comprised a fixed remuneration for the monthly available power capacity, with or without offering DIGO (Guaranteed Availability Commitments), a variable remuneration for the generated and operated energy, and a monthly remuneration for the average capacity actually delivered during each month’s HMRT.

The prices for power capacity, in AR$/MW-month, for generators not offering DIGO, are as follows:

The prices for power capacity, in AR$/MW-month, for generators offering DIGO, are as follows:

If actual availability exceeded DIGO price, the surplus was remunerated at a non-DIGO; otherwise, the total was remunerated at the maximum between the non-DIGO and the DIGO price multiplied by the ratio between actual availability and DIGO.

Until February, irrespective of whether the agent offers DIGO or not, the following calculations applied to power capacity prices based on the load factor⁽¹⁾(dispatch during the rolling year prior to the calculation month):

Prices for generated energy according to the fuel, in AR$/MWh, are as follows:

The price for operated energy was set at AR$108/MWh until January 2022, increasing to AR$140/MWh in February and to AR$154/MWh in June, irrespective of the fuel type.

The monthly remuneration for the average capacity actually delivered in the first and second 25 HMRT of each month was set at AR$48,375/MW-HMRT until January 2022, increasing to AR$62,888/MW-HMRT in February and to AR$69,176/MW-HMRT in June, applying the following factors:

Note: ⁽¹⁾However, under SE Res. No. 1037/21, CAMMESA paid 100% of the power capacity remuneration. For further information, see section 5.1: ‘Transitionary Additional Remuneration’ of this Annual Report.

Hydro power generators

The remuneration comprised a fixed remuneration for the monthly available power capacity, a variable remuneration for generated and operated energy, and a monthly remuneration for the average operated capacity available during each month’s HMRT. In addition, a 1.05 factor was set on the power capacity to compensate for programmed maintenance’s impacts, and a 1.20 factor for units in charge of maintenance of control structures on river courses and not having an associated power plant.

The following chart shows power capacity prices in AR$/MW-month:

The price for generated energy was set at AR$271/MWh until January 2022, increasing to AR$352/MWh in February and AR$388/MWh in June. In turn, the price for operated energy was set at AR$108/MWh until January, increasing to AR$140/MWh in February and AR$154/MWh in June.

For the additional remuneration, the following priced were set for the average operated energy available in each month’s HMRT, in AR$/MW-HMRT:

Moreover, the following factors were applied to this remuneration, based on the period:

Unconventional source power generators

The remuneration for energy generated from any unconventional source was set at AR$2,167/MWh until January 2022, increasing to AR$2,817/MWh in February and AR$3,099/MWh in June. This was reduced by 50% for energy generated before commissioning.

Transitionary additional remuneration

The transitionary additional remuneration established by SE Res. No. 1037/21 was effective until January 31, 2022. This Res. created an exports account in the WEM’s stabilization fund to accumulate net income from CAMMESA’s electricity exports to finance energy infrastructure works.

Moreover, an additional transitionary recognition had been established for legacy power generators (except for binational hydros, Note NO-2021-108163338-APN-SE#ME). CAMMESA had to pay 100% of the power capacity remuneration, plus an additional amount equivalent to AR$1,000/MWh for the energy exported by CAMMESA, distributable among applicable generators proportionally to their monthly generation.

Thermal power generators

It comprises a fixed remuneration for the monthly available power capacity, with or without offering DIGO (Guaranteed Availability Commitments), and a variable remuneration for the generated and operated energy, and that generated during each month’s peak hours.

The prices for power capacity, in AR$/MW-month, for generators not offering DIGO, are as follows:

Unconventional source power generators

A single remuneration for energy generated from any unconventional source was set at AR$3,719/MWh (Sep-22), AR$4,090/MWh (Dec-22), AR$5,113/MWh (Feb-23) and AR$6,545/MWh (Aug-23). This is reduced by 50% for energy generated before commissioning.

Hydro power generators

The remuneration comprises a fixed remuneration for the monthly available power capacity and a variable remuneration for generated and operated energy, and that generated at peak hours. In addition, a 1.05 factor is maintained on the power capacity to compensate for programmed maintenance’s impacts, and a 1.20 factor for units in charge of maintenance of control structures on river courses and not having an associated power plant.

The following chart shows power capacity prices in AR$/MW-month:

The price for generated energy was set at: AR$465/MWh (Sep-22), AR$512/MWh (Dec-22), AR$639/MWh (Feb-23) and AR$818/MWh (Aug-23). In turn, the price for operated energy was set at: AR$185/MWh (Sep-22), AR$204/MWh (Dec-22), AR$255/MWh (Feb-23) and AR$326/MWh (Aug-23).

The price for generated energy at each month’s peak hours equals the prices for energy generated in the 5 peak hours (18:00 – 23:00), applying the following factors:

Classification of Pampa’s legacy energy units

Notes: 1 Only the unit’s 26 MW apply. 2 From April 27, 2022. 3 A 1.20 coefficient applies to the remuneration.

In the case of CTG’s GUEMTG01, EcoEnergía and CTGEBA’s GEBATG03 units, both energy and available power capacity delivered to the spot market and not committed under Energía Plus and Resolution from the SEE (Sub-secretariat of Electric Energy (former Secretariat of Electric Energy)) No. 287/17 will be remunerated as legacy energy, and the cost of fuel provided by CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico S.A. or Argentine Wholesale Electricity Market Clearing Company) will not be included in the transaction.

In September 2006, the SE (former Secretariat of Energy) approved Resolution No. 1281/06, implementing the Energía Plus scheme to encourage the development of new power generation supply. Power generators, co-generators and self-generators that are neither WEM (Wholesale Electricity Market) agents nor have facilities or interconnection with the WEM as of the date of this Resolution may sell to GU300 (Large users with demands in excess of 300 kW) the energy used over the Base Demand (the electricity consumption for the year 2005) at a price negotiated between the parties. These power plants should procure fuel and transportation. In the case of new GU300 entering the grid, their Base Demand is zero.

Agents not meeting their Energía Plus demand should purchase that power in the spot market. Moreover, SE Note No. 567/07, as amended, provided that GU300 not purchasing their Surplus Demand within the MAT should pay the Surplus Demand Incremental Average Charge (Cargo Medio Incremental de la Demanda Excedente, CMIEE). The difference between the actual cost and the CMIEE would be monthly accumulated in an individual account for each GU300 within CAMMESA’s (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) scope. From June 2018, through SE Note No. 28663845/18, the CMIEE became the greater between AR$1,200/MWh and the temporary dispatch surcharge. Additionally, it was provided that, until further instruction, movements in each GU300’s individual account would temporarily not be recorded.

Energía Plus PPA (Power Purchase Agreements) prices are adjusted by CAMMESA’s price variation or US$-link. Moreover, in 2022 the energy demand continued recovering to pre-pandemic volumes, with a high degree hired under Energía Plus.

Under this regulation, CTG (Güemes Thermal Power Plant), EcoEnergía (EcoEnergía Co-Generation Power Plant) and CTGEBA (Genelba Thermal Power Plant) provide the Energía Plus to different WEM customers, with a 283 MW total gross capacity.

Finally, with the implementation of Plan Gas.Ar, from January 2021 generators under Energía Plus have the option to assign the operation of gas supply and transportation to CAMMESA. Pampa opted into this scheme.

To encourage new investments to increase the generation supply, the SE (former Secretariat of Energy) passed Resolution No. 220/07, which empowers CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) to enter into ‘WEM (Wholesale Electricity Market) Supply Commitment Agreements’ with WEM generating agents for the energy produced with new generation equipment. These are long-term PPA (Power Purchase Agreements) denominated in US$, and the price payable by CAMMESA should compensate the investment made by the plant at a rate of return accepted by the SE.

Under this regulation, on April 27, 2022 CTEB (Ensenada Barragán Thermal Power Plant)’s PPA (567 MW) completed its 10-year term and, consequently, started to be remunerated as legacy energy. As of the closing of 2022, 79 MW from CTLL (Loma de la Lata Thermal Power Plant)’s TG04 continue under this scheme, until July 2026. Moreover, from February 22, 2023, CTEB’s 280 MW expansion also started to bill under this scheme.

In March 2016, the SEE (Subsecretariat of Electric Energy) issued Resolution No. 21/16, launching a call for tenders for new thermal power generation capacity with the commitment to making it available in the WEM (Wholesale Electricity Market) by 2016/2017 summer, 2017 winter and 2017/2018 summer periods. Successful tenderers entered into a PPA (Power Purchase Agreement) for a fixed price (US$/MW-month) and a variable price excluding fuels (US$/MWh) with CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company), which acted as counterparty on behalf of distributors and WEM’s large users.

The following units are remunerated under this regulation: CTLL (Loma de la Lata Thermal Power Plant)’s gas turbine GT05 (105 MW) and CTPP (100 MW since August 2017) and CTIW (Ingeniero White Thermal Power Plant) (100 MW since December 2017).

On May 10, 2017, the SEE (Subsecretariat of Electric Energy) issued Resolution No. 287/17 launching a call for tenders for projects of co-generation and the closing to CC (combined cycle) over existing equipment. Projects should have low specific consumption (lower than 1,680 kCal/kWh with natural gas and 1,820 kCal/kWh with alternative liquid fuels). Besides, the new capacity should not increase electricity transmission needs beyond the existing capacity; otherwise, the tenderer would bear the cost of necessary expansions.

Awarded projects are remunerated under a 15-year PPA (Power Purchase Agreement) for an available power capacity price plus the non-fuel CVP (Costo Variable de Producción or Variable Production Cost) for the delivered energy and the fuel cost (if tendered), minus the penalties and fuel surpluses. Power capacity surpluses are remunerated as legacy energy.

Under this regulation, CTGEBA (Genelba Thermal Power Plant) has had a gross 400 MW capacity since July 2, 2020 when the cycle was closed with the installation of TV02. With the implementation of Plan Gas.Ar, as from January 2021, CTGEBA has the option to assign the operation of gas supply and transportation to CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company), and a centralized dispatch order was established, considering the fuel designated for generation. Pampa opted into this scheme.

To promote the maintenance and efficient use of CC (combined cycle) under the legacy energy scheme, on February 7, 2023, the SE (Secretariat of Energy) published Resolution No. 59/23 calling generators to execute a Power Capacity Availability and Efficiency Improvement Agreement with CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) for a maximum term of 5 years. Adhering units undertake to keep an 85% net power capacity availability. The PPA (Power Purchase Agreement) offers a US$2,000/MW-month power capacity price, adjusted on availability, adding a partial payment of the power capacity price in AR$ under SE Resolution 826/22.

The price for generated energy was set at US$3.5/MWh for natural gas, US$6.1/MWh for fuel oil or gas oil, and US$8.7/MWh for biofuel. The price for energy operated and generated at peak hours in AR$ according to SE No. Resolution 826/22.

Pampa has two CC under the legacy energy scheme at CTLL (Loma de la Lata Thermal Power Plant) and CTGEBA (Genelba Thermal Power Plant) (1,239 MW total gross power capacity) and is analyzing the possibility of opting into this scheme.

In October 2015, Law No. 27,191 (regulated by Necessity and Urgency Decree or Decreto de Necesidad y Urgencia No. 531/16) was passed, which amends Law No. 26,190 promoting renewable energy sources. Among other measures, it provided that by December 31, 2025, 20% of Argentina’s total demand for energy should be covered with renewable energy sources⁽¹⁾. To meet such objective, WEM (Wholesale Electricity Market)’s GU (Large Users) and CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company) should cover 20% of their demand with such sources by December 31, 2025. The average price under agreements entered with GU and GUDI (Large Distribution Company Users) may not exceed US$113/MWh.

Additionally, this law stipulates several incentives, including tax benefits (advance VAT return, accelerated amortization on the income tax, import duty exemptions, etc.) and the creation of the FODER (Fondo para el Desarrollo de Energía Renovables or Fund for the Development of Renewable Energies). This fund is destined, among other objectives, to grant loans, capital contributions, etc. to finance these projects.

Note: (1) As from December 2016, CHs (hydroelectric power plants) with a power capacity lower than 50 MW are classified as renewable sources of energy.

In 2016, RenovAr Program’s rounds 1 and 1.5 were launched under Resolutions No. 71/16 and 252/16 of the MEyM (former Ministry of Energy and Mining), respectively. In round 1, 29 projects were awarded for a total of 1,142 MW (97% of which were wind and solar energy projects. In round 1.5, 30 projects were awarded for 1,281.5 MW (100% wind and solar energy projects). In 2017, round 2 was launched under MEyM Resolution No. 275/17, with the award of 88 projects for a total of 2,043 MW (89% wind and solar energy projects). Finally, in 2018, round 3 (MiniRen) was launched for smaller-scale renewable projects (up to 10 MW), and projects for 246 MW were awarded.

The following are remunerated under this provision: PEMC (Engineer Mario Cebreiro Wind Farm) (100 MW) from June 2018 and PEA⁽¹⁾ (Arauco Wind Farm) (100 MW) from March 2020, both under round 1. PEA also has a World Bank guarantee in case of termination of the PPA (Power Purchase Agreement).

It is worth highlighting that all GHG reductions under RenovAr projects —including any other project to meet the WEM (Wholesale Electricity Market)’s renewable goal set by Law No. 27,191— should be considered as the Federal Government’s contribution to the United Nations Framework Convention on Climate Change and the Paris Agreement.

In January 2022, due to significant delays in the completion of certain awarded projects and to recover the transmission capacity, the SE (Secretariat of Energy) set, upon compliance with certain conditions, the following options: (i) terminating the PPA with the payment of US$17,500/MW (wind or solar projects) or US$12,500/MW (others) for the contracted power capacity; (ii) extending the term for commissioning, reducing the PPA’s term and price; or (iii) commissioning the project for a lower capacity.

Note: ⁽¹⁾ Asset acquired on December 16, 2022. For further information, see section 7.1 of this Annual Report.

Under the Resolution No. 36/23 of the SE (Secretariat of Energy) dated February 2, 2023, the RenMDI round was launched to incorporate 120 MW of new renewable capacity to substitute forced generation for 500 MW, thus diversifying the energy matrix. The deadline for tender submissions is March 15, 2023, and the award date is scheduled for May 24, 2023. Successful tenderers will enter into a 15-year PPA (Power Purchase Agreement) with CAMMESA (Compañía Administradora del Mercado Mayorista Eléctrico or the Argentine Wholesale Electricity Market Clearing Company). Pampa is currently analyzing its participation.

The MAT ER was regulated through Resolution No. 281 of the MEyM (former Ministry of Energy and Mining) dated August 17, 2017. Under this system, the WEM (Wholesale Electricity Market)’s GU (Large Users) and GUDI (Large Distribution Company Users) may individually purchase or self-generate clean energy to meet their supply obligation from renewable sources. Moreover, generation projects should be registered with the RENPER (Registry of Renewable Electric Power Generation Projects), a registry regulating the conditions they must meet.

MAT ER projects may not be committed under other remuneration mechanisms (e.g., the RenovAr Program). Power generation exceeding commitments with MAT ER are remunerated for up to 10% of the power generation at the minimum price for the applicable technology under the RenovAr Program. The balance will be sold in the spot market.

Moreover, the contractual terms —life, allocation priorities, prices and others, except for the maximum price set forth by Law No. 27,191— may be freely agreed between the parties under the WEM Procedures. However, the committed volumes are limited to generators or suppliers with MAT ER agreements in place.

On May 16, 2022, Resolution No. 370/22 of the SE (Secretariat of Energy) regulated purchases in the MAT ER for distributors acting on behalf of GUDI, which had not been included in MEyM Resolution No. 281/17. This purchase will not imply the exclusion from the joint sales mechanism for GUDI qualified as authorized large users. Additionally, volumes under contracts may not exceed the demand declared for the GUDI segment.

The following are remunerated under this provision: PEPE II and III (53.2 MW each) from May 2019, and PEPE IV 18 MW from December 29, 2022, and an additional 18 MW from February, 25, 2023. The energy produced is sold under PPA (Power Purchase Agreement) in US$-link with private parties for an average term of approximately 5 years. Besides, the following are still pending: 45 MW about to be commissioned in PEPE IV, and 94.5 MW from the construction of PEPE VI; commissioning is expected for Q2 2023 and Q3 2024, respectively.

On top of our own generation, since 2019 the Company has sold renewable energy generated by third parties —for an average volume of 26 GWh in 2022— contributing to increasing the MAT ER segment’s margin.

The Solidarity Law and its supplementary provisions, which entered into force on December 23, 2019, provided that gas transportation tariffs under federal jurisdiction would remain unchanged for up to 450 days or until new transitionary tariff schemes are in effect. It also empowered the PEN (Poder Ejecutivo Nacional or National Executive Branch) to begin an extraordinary review of the RTI (Integral Tariff Review) in force. Moreover, on December 17, 2020, DNU (Decreto de Necesidad y Urgencia or Emergency Executive Order) No. 1020/20 was published, beginning the RTI renegotiation for a term not to exceed two years from its publication. This term was extended for a year under PEN Executive Order No. 815/22 issued on December 6, 2022.

On February 25, 2022, Resolution No. 68/22 and 69/22 of the ENRE (Ente Nacional Regulador de la Electricidad or the ‘National Electricity Regulatory Entity’) were issued, granting a transitionary tariff adjustment of 25% and 23% vs. August, 2019 tariff schemes to Transener and Transba, respectively, retroactively to February 2022. Given the differences between these companies’ tariff proposals and the final tariff schemes, Transener and Transba appealed both resolutions.

On May 9, 2022, ENRE Resolution No. 147/22 and No. 148/22 partially upheld the motions for reconsideration filed by Transener and Transba. Therefore, Transener and Transba’s August 2019 tariff schemes were adjusted by 67% and 69%, respectively, retroactive to February 2022 (superseding 25% and 23% increases set by ENRE Res. No. 68/22 and 69/22).

Finally, on December 29, 2022, ENRE Resolution No. 698/22 and 702/22 were issued, granting 155% and 154% transitionary tariff updates vs. February2022 tariff schemes to Transener and Transba, respectively, from January 2023.