Electricity Projects & Regulation

Last verified on Friday 14th July 2017

Venezuela

Fulvio Italiani and Carlos Omaña
D’Empaire
  1. 1.

    What are the principal power sources in your jurisdiction?

  2. The main sources are hydroelectric and thermal. 

  3. 2.

    What are the current trends affecting the energy mix in your jurisdiction?

  4. There has been increasing investment in conventional fossil fuel generation capacity to reduce reliance on hydropower and use domestic hydrocarbon resources.

  5. 3.

    What are the current forecasts for electricity demand in your jurisdiction?

  6. It has increased in the past few years at annual average rate of 4.5 per cent. However, the increase in generation has not kept up with the increase in demand, thus the country is currently experiencing electricity shortages. 

  7. 4.

    Is there an open electricity market in your jurisdiction? Are any activities in the electricity market reserved for the government only? Are private entities allowed to build and operate power plants and transmission and distribution lines?

  8. The generation, transmission, distribution and commercialisation of electricity are reserved for the government; however, with a limited concession granted by the government private entities can generate, transmit and distribute electricity.

    The electric sector was largely unregulated until the enactment of the Electricity Service Law in 1999 (reformed in 2001) that theoretically establishes an open market for electricity in the country; however, in 2007 there was a change of direction in the sector and it is now completely controlled by the state, which acquired the largest privately owned power company in the country (Electricidad de Caracas) in 2007 through a public tender offer and merged it with and into the existing regional publicly owned companies to form a single national government-owned company called Corpoelec. 

  9. 5.

    What is the role and function of the regulator? Would you describe the regulator as being independent?

  10. The regulator is the Ministry for Electrical Energy, created in 2009. In addition to regulating the sector its main functions are the formulation of all policies related to the electric sector, development of generation and setting of rates. The regulator is not considered to be independent but closely controlled by the executive branch, its head can be removed at the discretion of the President. 

  11. 6.

    Is there an open market for off-takers in your jurisdiction or are there restrictions on the sale of electricity?

  12. No, although pursuant to the Electric Service Law the regulator can grant limited concessions for the sale of electricity; in practice the sale of electricity is only done by government-owned entities, mainly Corpoelec.

  13. 7.

    If the sale of power is to a public utility as offtaker, are such entity's payment obligations backed-up or guaranteed by the government? 

  14. The sale of power by generators or by Corpoelec is not backed by the Republic.

  15. 8.

    Does the market have an independent system operator? If so, what are the ISO’s tasks and duties?

  16. No, there are no ISOs in Venezuela, the operation of the market is centralised by government-owned entities that undertake power-search activities directly or through government-owned entities, namely Corpoelec.

  17. 9.

    How are electricity rates set and what cost components affect such rates?

  18. The rates are set by the Ministry of Electrical Power. The components that affect the rates are the intended use (commercial or residential), the zoning of the consumer and the level of consumption (the rate is lower for consumers who use less). The rates have been frozen since 2002.

  19. 10.

    What approvals are required to build and operate a power project? Are these easy to obtain? Please describe the salient features of the relevant licence conditions and the grounds for revocation. What levels of fines can be imposed for failure to comply?

  20. The Ministry of Electrical Power is responsible for issuing authorisations for power generating projects for generation, transmission and distribution. Additionally, depending on the type of project, environmental licences may also be needed.

  21. 11.

    Is the government or the ISO conducting public auctions to award long-term power purchase agreements to public and private offtakers? Are the auctions open to any source of power, or are they focused on specific sources and technologies?

  22. The government is not currently conducting auctions to award long-term power purchase agreements to public and private off-takers.

  23. 12.

    What percentage of the country's power output comes from renewable power sources and does your jurisdiction have any specific targets or milestones for renewable energy projects?

  24. There are two wind farms operated by the government that generate between 25 and 30MW annually and 2MW from solar thermal collectors. The annual consumption is about 18,000MW, which means that only less than 0.1 per cent of the output comes from renewable power sources. Although renewable energy projects are part of the country’s development plan, there are no specific targets or milestones.

  25. 13.

    Is there a different regulatory regime for renewable energy projects? Are there any government programmes that foster the development of these projects?

  26. Currently not.

  27. 14.

    Are there any tax incentives for power projects and, in particular, for renewable power projects?

  28. Currently not.

  29. 15.

    Are there any investment vehicles or structures that permit the maximisation of investment in a power company, such as tax equity, master limited partnerships, real estate investment trusts (REITs) or yield cos?

  30. Currently not.

  31. 16.

    Are there any governmental subsidies, benefits (other than tax-related) or incentives for investment in power projects and, in particular, renewable power projects?

  32. Currently not.

  33. 17.

    Are there any capital controls or other regulations in your jurisdiction that prevent investors from repatriating investments in a power project?

  34. Yes. There is a currency exchange control regime that heavily restricts foreign exchange including the repatriation of dividends. Additionally, electricity can only be paid for in local currency. All of this makes acquiring equipment abroad and repatriating dividends difficult. 

  35. 18.

    Is there a market for emission reduction certificates or clean energy certificates in your jurisdiction?

  36. No, there is currently no market as all of the electricity is generated by government-owned providers using the same mechanism.

  37. 19.

    Which renewable power sources have been most successful in your jurisdiction and what is the medium to long-term outlook for them?

  38. The government has set up small wind farms, however, they represent a very small percentage of the overall output of electricity and there are no tangible plans for its growth. 

  39. 20.

    Are there any non-regulatory factors that affect the development and financing of power projects in your jurisdiction, such as social, environmental, political or security concerns or rights of third parties?

  40. Yes. There are several factors, there is a foreign currency exchange control that severely restricts the capacity of corporations to acquire foreign goods and repatriate dividends, very limited protection of foreign investment, very strict labour and regulatory provisions and a rate-setting policy. 

  41. 21.

    Are subsurface rights separate from land rights? If so, what factors must a project take into consideration in determining whether an owner of subsurface rights could create issues for a project?

  42. Subsurface rights are not separate from land rights, with the exception of minerals and hydrocarbons in the subsurface that belong to the republic pursuant to the Venezuelan Constitution. The Electricity Service Law provides a regime for easement rights in power projects. 

  43. 22.

    How are wheeling tariffs set and are there any differences based on the power source and technology used? Is there a postage-stamp wheeling tariff in your jurisdiction?

  44. Wheeling tariffs are set by the regulator and there are no differences based on power source or technology.  

  45. 23.

    Are there any open access rules for transmission? If so, how is access determined? Are there private transmission lines to which open-access rules don't apply?

  46. Although there are generic open rules set forth in the Electricity Service Law, in practice there is only one power transmission system controlled by Corpoelec.

  47. 24.

    Are cross-border power exchanges regulated?

  48. Pursuant to the Electricity Service Law a favourable opinion by the Ministry of Energy is needed for cross-border power exchanges. 

  49. 25.

    Are merchant power projects financeable in your jurisdiction?

  50. There are no merchant power plants in Venezuela that sell power to third parties as a non-utility, some private companies and individuals operate power plants for self-supply which are not financeable. 

  51. 26.

    What are the biggest obstacles in obtaining debt financing for renewable power projects?

  52. The bigger difficulties for financing power projects in Venezuela are rate regulation, foreign exchange control and difficulty of enforcing collateral over power infrastructure. 

  53. 27.

    What are currently the most significant obstacles to the growth of the electricity market in your jurisdiction?

  54. The most significant obstacles are the heavy restrictions and regulations for the private sector, the existence of a foreign currency exchange control that restricts the capacity to acquire equipment for electricity generation and the cap set on electricity rates that make the service unprofitable. 

  55. 28.

    What are the biggest growth areas in the electricity market in your jurisdiction?

  56. The sector requires massive investments in generation and transmission. An opening-up of the sector to private companies in the medium term should be expected. 

  57. 29.

    Please describe any recent trends observed in your jurisdiction affecting the structuring of investments and financings in power projects.

  58. There has been no recent financing in the Venezuelan power sector.

  59. 30.

    Are debt offerings on the capital markets becoming a more common tool in your jurisdiction to refinance construction financing?

  60. There has been no recent financing in the Venezuelan power sector.

  61. 31.

    Are power purchase agreements in your jurisdiction denominated in local currency or US dollars?

  62. Owing to currency regulations most contracts signed by the government-owned entities that generate, distribute and sale electricity in Venezuela are denominated in local currency.

  63. 32.

    Are there regulatory limitations on foreign investment in, or control of, electric generation, transmission or distribution assets?

  64. The Law on Foreign Investments establishes the regulatory regimes for foreign investment and no particular percentage of limitation for electricity projects. The Electricity Service Law establishes only limited concessions for a determined amount of time (up to 30 years, renewable for an additional 20 years). In practice there is a limitation on foreign capital in key sectors of the economy.

  65. 33.

    How active in your jurisdiction is the M&A market for power assets?

  66. In 2007 the government acquired via a public tender offer the majority of the shares in Electricidad de Caracas, the integrated electricity company that provides services for Venezuela’s capital region, from AES Corporation, which had acquired its participation in 2000. In the same year the government merged Electricidad de Caracas with the existent regional government-owned power companies into a single government-owned company named Corpoelec. Since then, the M&A market has not been active in the sector.

  67. 34.

    What are the most common dispute resolution mechanisms under local law-governed power purchase agreements in your jurisdiction?

  68. Most contracts signed by government-owned entities that generate, distribute and sell electricity in Venezuela provide for the exclusive jurisdiction of Venezuelan courts. 

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Questions

  1. 1.

    What are the principal power sources in your jurisdiction?


  2. 2.

    What are the current trends affecting the energy mix in your jurisdiction?


  3. 3.

    What are the current forecasts for electricity demand in your jurisdiction?


  4. 4.

    Is there an open electricity market in your jurisdiction? Are any activities in the electricity market reserved for the government only? Are private entities allowed to build and operate power plants and transmission and distribution lines?


  5. 5.

    What is the role and function of the regulator? Would you describe the regulator as being independent?


  6. 6.

    Is there an open market for off-takers in your jurisdiction or are there restrictions on the sale of electricity?


  7. 7.

    If the sale of power is to a public utility as offtaker, are such entity's payment obligations backed-up or guaranteed by the government? 


  8. 8.

    Does the market have an independent system operator? If so, what are the ISO’s tasks and duties?


  9. 9.

    How are electricity rates set and what cost components affect such rates?


  10. 10.

    What approvals are required to build and operate a power project? Are these easy to obtain? Please describe the salient features of the relevant licence conditions and the grounds for revocation. What levels of fines can be imposed for failure to comply?


  11. 11.

    Is the government or the ISO conducting public auctions to award long-term power purchase agreements to public and private offtakers? Are the auctions open to any source of power, or are they focused on specific sources and technologies?


  12. 12.

    What percentage of the country's power output comes from renewable power sources and does your jurisdiction have any specific targets or milestones for renewable energy projects?


  13. 13.

    Is there a different regulatory regime for renewable energy projects? Are there any government programmes that foster the development of these projects?


  14. 14.

    Are there any tax incentives for power projects and, in particular, for renewable power projects?


  15. 15.

    Are there any investment vehicles or structures that permit the maximisation of investment in a power company, such as tax equity, master limited partnerships, real estate investment trusts (REITs) or yield cos?


  16. 16.

    Are there any governmental subsidies, benefits (other than tax-related) or incentives for investment in power projects and, in particular, renewable power projects?


  17. 17.

    Are there any capital controls or other regulations in your jurisdiction that prevent investors from repatriating investments in a power project?


  18. 18.

    Is there a market for emission reduction certificates or clean energy certificates in your jurisdiction?


  19. 19.

    Which renewable power sources have been most successful in your jurisdiction and what is the medium to long-term outlook for them?


  20. 20.

    Are there any non-regulatory factors that affect the development and financing of power projects in your jurisdiction, such as social, environmental, political or security concerns or rights of third parties?


  21. 21.

    Are subsurface rights separate from land rights? If so, what factors must a project take into consideration in determining whether an owner of subsurface rights could create issues for a project?


  22. 22.

    How are wheeling tariffs set and are there any differences based on the power source and technology used? Is there a postage-stamp wheeling tariff in your jurisdiction?


  23. 23.

    Are there any open access rules for transmission? If so, how is access determined? Are there private transmission lines to which open-access rules don't apply?


  24. 24.

    Are cross-border power exchanges regulated?


  25. 25.

    Are merchant power projects financeable in your jurisdiction?


  26. 26.

    What are the biggest obstacles in obtaining debt financing for renewable power projects?


  27. 27.

    What are currently the most significant obstacles to the growth of the electricity market in your jurisdiction?


  28. 28.

    What are the biggest growth areas in the electricity market in your jurisdiction?


  29. 29.

    Please describe any recent trends observed in your jurisdiction affecting the structuring of investments and financings in power projects.


  30. 30.

    Are debt offerings on the capital markets becoming a more common tool in your jurisdiction to refinance construction financing?


  31. 31.

    Are power purchase agreements in your jurisdiction denominated in local currency or US dollars?


  32. 32.

    Are there regulatory limitations on foreign investment in, or control of, electric generation, transmission or distribution assets?


  33. 33.

    How active in your jurisdiction is the M&A market for power assets?


  34. 34.

    What are the most common dispute resolution mechanisms under local law-governed power purchase agreements in your jurisdiction?


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