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Ecuador

Published on Wednesday 16th August 2017

    • Ecuador

      The main power sources in Ecuador are thermal (50 per cent) and hydroelectric (49 per cent). Other sources such as wind, solar, etc, account for the rest (1 per cent).   

      Last verified on Thursday 10th August 2017

    • Ecuador

      The main trend is to increase hydroelectric energy sources. The goal set by the government is to reach 70 per cent. The government of President Rafael Correa, who came to office in 2006, put into place a massive programme of power plant construction intended to make the country self-sufficient and ultimately lead to lower energy costs. Out of the eight hydroelectric energy plants that the government offered, three started to operate during the last quarter of 2016. These three plants amount to 72 per cent of the expected megawatts production (2,832.4 megawatts). Thermoelectric plants and some wind power plants are also included, but hydroelectric power will retain its position as the principal source of power in the country.

      Last verified on Thursday 10th August 2017

    • Ecuador

      On 16 January 2015 Ecuador adopted a new Electricity Law (the Organic Law on the Public Service of Electricity, Electricity Law). The new law makes the state the key, and in some aspects, the most important actor in the electricity industry. The generation, transmission, distribution and commercialisation of electrical power are defined as public service, to be provided by the public sector only. However, under exceptional circumstances private companies are allowed to operate in the various segments of the industry. Private entities may build and operate power plants and transmission and distribution lines. Power plants may be operated by private companies as long as their generated power does not exceed 50MW. However, it is worth noting that, due to financial liquidity hardships, the government has explored the idea of licensing the operation of “Sopladora”, one of the three plants that started to operate in 2016, to a consortium made up by public and private entities. This agreement is available under the Organic Law of Incentives for Public Private Partnerships and Foreign Investment.  

      Last verified on Thursday 10th August 2017

    • Ecuador

      The regulatory agencies have, basically, the following roles, aside from their general supervisory and control powers:

      • set out a 10-year Electricity Master Plan to direct investment and development;
      • issue authorisations and concessions to any party interested in participating in the electricity sector;
      • set rates; and
      • administer and liquidate all transactions through a national electricity operator.

      The chief entity governing the electricity sector is the Ministry of Electricity and Renewable Energies, which answers directly to the President of the Republic. The regulator is therefore not independent from the executive branch.

      Last verified on Thursday 10th August 2017

    • Ecuador

      Power purchase agreements (PPAs) are allowed, but their economics made them uncompetitive owing to state subsidy policies. As mentioned before, there is no open market for private off-takers, which can only participate in the electricity market on a case-by-case basis and only “exceptionally” according to the new Electricity Law. The largest utilities are located in Quito and Guayaquil.

      Last verified on Thursday 10th August 2017

    • Ecuador

      The current scheme is to sell energy, not power, or mixture of both, to the state at a fixed price (defined by regulation or contract) for 15 years or more (new power plants). There is no guarantee by the government, but there is a payment precedence where private power is fourth, making it very reliable, at least to date.

      Last verified on Thursday 10th August 2017

    • Ecuador

      No, the ISO is not independent. It is government-controlled, and there is a single one for the country. It is called the National Operator of Electricity, CENACE, which is run for competent technicians. CENACE’s duties include establishing short-, mid- and long-term operative programmes to ensure the lowest possible operating cost and administering and liquidating all transactions in the electricity market. This means that CENACE determines the amounts payable and receivable by the participants in the market. 

      Last verified on Thursday 10th August 2017

    • Ecuador

      Rates are set by the regulator based on the previous year’s costs for generation, transmission, distribution, commercialisation and public lighting. Generation costs are defined in the Electric Law as the amount the final consumer must pay to cover generation costs at “optimum” operation. In the case of private entities, this includes administrative, operative and maintenance costs, personnel and other costs for active assets, and costs associated with environmental compliance. Distribution, commercialisation and public lighting costs must cover  administrative, operative and maintenance requirements as well as quality and reliability standards. The rate is uniform for the entire country according to the amount of consumption and tension levels. 

      Last verified on Thursday 10th August 2017

    • Ecuador

      Private entities must bid for a concession contract with the Ministry of Electricity and Renewable Energy, and must obtain an environmental permit from the environmental authority. Permits are not easy to obtain since they require a series of studies and approvals by various agencies. Before a concession is granted, guarantees must be acquired to ensure both construction deadlines and quality of service.

      Revocation is seldom exercised. It may occur if:

      • the operation does not begin according to the agreement or is interrupted without cause for more than 60 days;
      • deliberate falsehoods are included in reports to the authorities;
      • there is a failure to make required investments;
      • there is fraud in the bidding process;
      • there is an assignment of concession or any rights pertaining to it without authorisation;
      • there is a change of control of licensee without authorisation;
      • there is any action which exceeds the scope of the concession;
      • sanctions by the environmental authority;
      • the project is abandoned;
      • fines are imposed exceeding the amount of the guarantee given by the licensee; or
      • generally, there is any attempt against the stability of the electricity network.

      Fines may be imposed, ranging from approximately US$7,000 to US$14,000. In the case of generation, fines are commonly established in the contracts. They usually amount to 0.2 per cent of the project cost per month. 

      Last verified on Thursday 10th August 2017

    • Ecuador

      PPAs are direct between private parties. The purchase of energy by the state is regulated by CENACE and distributed proportionally to each authorised distributor.

      The sale of excess energy is permitted for self-generators (ie, entities not dedicated to power generation but which produce it for their own needs). The specific terms of these transactions are subject to specific regulations issued by the competent authority.

      Last verified on Thursday 10th August 2017

    • Ecuador

      About half of the power generated in Ecuador comes from hydroelectric plants, with a very small percentage going to solar and other renewable sources. Our current regulations provide incentives for more investment in renewable power sources.

      Last verified on Thursday 10th August 2017

    • Ecuador

      Previously there were different rates for power source (solar, eolic, hydro, etc). This changed and they are now subject to the same regulatory regime, but enjoy certain incentives, which need to be further specified in future regulations. It is expected that new regulations will be issued in the near future to reinstate different rates according to source.

      Last verified on Thursday 10th August 2017

    • Ecuador

      Yes, subsurface rights are separate from land rights. Subsurface deposits are state owned. If owners of land set obstacles to a project, they risk expropriation of the land by the state. 

      Last verified on Thursday 10th August 2017

    • Ecuador

      Yes. External debt with multilateral institutions (project finance) and local tender for loans. The high demand for energy is one of the factors that have made the projects financeable.

      Last verified on Thursday 10th August 2017

    • Ecuador

      Multilaterals find the current growth (before oil prices situation) very attractive owing to the economic growth experienced by the country, hence there is more interest in financing, but they retain their tight controls and requirements. In addition, the new Ecuadorian government has a different political approach towards multilaterals (ie, World Bank, etc) than its predecessor; therefore, there is a possibility of new investments and financing in projects that the government considers important, for example, electricity production.

      Last verified on Thursday 10th August 2017

    • Ecuador

      The M&A market is very limited. There have been some offers from overseas but at a high discount rate. Nevertheless, our answer to question 4 ought to be taken into account, as the government has expressed its interest in licensing one of the major hydro plants to a private-public consortium.

      Last verified on Thursday 10th August 2017

    • Ecuador

      As a matter of policy the government prefers to have the PPAs subjected to local law and ordinary jurisdiction. In the case of import–export agreements one may find some flexibility in the use of international arbitration. Ecuador is no longer a member of ICSID.

      Last verified on Thursday 10th August 2017

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