Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

In exceptional circumstances, the Ministry can delegate electricity sector activities (ie, generation, transmission and distribution) to the private sector, when (i) it is necessary to satisfy public interests; (ii) demand for the service cannot be met by state-owned entities; or, (iii) projects based on non-conventional renewable energy are not included in the PME.

Delegation in the case of either (i) or (ii) is restricted to projects included in the PME under conditions that benefit national interests. The delegation is made as a result of a public bidding process conducted by the Ministry. The awardee is entitled to receive an enabling title (the concession) and is required to execute a regulated contract that is priced according to the bidder’s tender.

In the case of non-conventional renewal energy projects, the Ministry can delegate project development to the private initiative, subject to compliance with the specific requirements regulated by ARCONEL.

The process for securing authorisation starts with a public bidding process under which the company offering the best conditions for national interests is selected to execute the project.

The bidding process takes energy requirements, unregulated demand, terms and conditions, as well as price, into account. The bidder selected through this public process is entitled to a certificate of authorisation and is required to sign a contract that is priced in accordance with its tender. Once obtained, the authorisation and any information concerning operating permits and concession contracts for the electricity sector must be recorded in the Ministry’s National Authorisation Register. It is the responsibility of the electricity company to record the certificate of authorisation at its own expense, pursuant to the law and applicable regulations.

An international bidding process is not required for projects delegated to foreign state-owned entities or their subsidiaries under an international agreement.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

A concessionaire with an enabling title gains legal access to the transmission grid once it has completed the technical studies required by the Ministry. Such studies are necessary for avoiding conflict with the system’s operations and for ensuring the best possible return on investment.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The LOSPEE defines renewable energies or non-conventional energies as those from sources that do not deplete because of their use. These types of energies include, but are not limited to, hydraulic, wind, solar, geothermal, biomass, tidal, nuclear and other energies.

The Ministry promotes the use of clean technologies and alternative energies to achieve the development of a sustainable electricity system based on the use of renewable energy sources. The law guarantees that electricity produced with this type of energy will have the preferential conditions established in a regulation issued by ARCONEL.

Most likely, the primary incentive for alternative energy source projects is the feed-in tariff (FIT). By the year 2012, companies could apply for the original Ecuadorian FIT (granting power generation tariffs for this type of project up to 2027). It introduced significantly high rates (ie, photovoltaic plants received the highest tariffs: US$400 per MWh) that mostly benefited photovoltaic power generation projects. For 2015, Ecuador had a total of 6.2GW of installed generation capacity: 56 per cent from thermal power and nearly 30 per cent from large hydropower generation projects. Virtually clean renewable energies, including small hydropower plants, as well as biomass, wind and solar farms, accounted for only 11 per cent of the total national installed generation capacity.

The first FIT programme benefited approximately 500MW of capacity from 111 power projects (biomass, small-scale hydro, solar and wind sources), in the form of concessions and tariffs. Although the incentives were very attractive, the projects faced many official processing obstacles for achieving success. Therefore, only a few projects have been commissioned thus far.

Renewable energy developers can apply for import tax exemption on clean energy equipment and a five-year income tax waiver. In addition, if these developers apply for an investment contract with the government, they may be granted an income tax exemption of up to 20 years.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

Ecuador submitted its unconditional ‘Intended Nationally Determined Contribution’ to the United Nations about three years ago, committing to curtail greenhouse gas emissions (increasing the reduction from 20.4 per cent to 25 per cent) by 2025. The LOSPEE stipulates the obligation to enact policies to achieve energy efficiency and environmental responsibility. Despite these national commitments, the Ecuadorian government has not issued a regulation since 2015 to accomplish these proposals.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

The LOSPEE states that energy storage, among other aspects beyond regulatory aspects, should be considered for modernising electricity networks to actively manage the demand and opportunities for offering new products and services.

The Ministry directs a smart network programme called REDIE. The modernisation of electrical networks should consider the following, among other aspects:

  • regulatory matters;
  • transportation networks;
  • energy distribution;
  • communication networks;
  • generation distribution;
  • smart meters;
  • active demand management;
  • opportunities for offering new products and services; and
  • energy storage.
Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Ecuador has not developed any nuclear capacity. The only approach to nuclear interest stems from international treaties, but without significant results. There is one treaty with Chile and another with Russia. Therefore, there is no specific policy encouraging or discouraging the development of new nuclear power plants.