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Argentina Electricity Outlook 2010
Frost & Sullivan, June 2011, Pages: 66
This study covers the state of the Argentina Electricity Industry, examining drivers and restraints for growth, pricing, distribution, technology, legislation, demand and geographical trends. Following from these, market growth for regional and market segments are forecasted. In addition, an in-depth analysis of the competitive situation including vendors' market shares is performed, along with detailed profiles of the key vendors in the industry. The base year is 2010 with forecasts running through 2019. The market is further divided into three sub segments including generation, transport, and distribution.
During the last two decades the Argentine electricity industry went through a restructuring process. It started with some reforms in 1989, which intensified in 1992-1993. As a result, this process dissolved the vertical organization of the electricity industry and privatized most companies in this sector (which included generation, transformation, transportation and distribution activities). This transformation introduced a competitive aspect in the market. Up to 1992, the market was strictly dominated by public companies - with the exception of some cooperatives at the distribution level.
Due to some critical economic and social critical conditions during the ’80s (economic crisis combined with political struggles), public companies rapidly became insolvent. These companies accumulated debts that were to be paid by the government. With the restructuring process, private companies introduced initiatives to improve efficiency. This privatization process took place in other countries and in other energy industries (example, oil and gas) in Argentina as well. The reform brought about drastic transformation on the institutional and organizational structure and resulted in a modification of the role of the State in this sector.
The 2001 Argentinean’s crisis - which implied a severe economic recession and the end of the exchange rate parity between the Argentine peso and the US dollar - caused a severe disinvestment trend in the generation segment. Costs for electricity production was calculated in US dollars. When the peso decreased considerably after 2002 the government had to fix the electricity price for consumers in order to protect the economy. By doing this, prices per MWh paid to generators were frozen, and the State had to take care of a marginal costs of the generation process in order to give a benefit to consumers’ demand. Since then, consumers bills have been subsidized by the state.
The MEM is divided into contract market and spot market. In the contract market, generators and distribution companies or large users engage in power purchase agreements. In this type of market, energy prices are negotiated by the parties involved. In the spot market, short-term electricity transactions take place. Electricity is supplied on an hourly basis with uniform prices established by CAMMESA (the wholesale electricity market administrator). There are two types of spot prices, namely, hourly spot prices and seasonal prices. Hourly spot prices can be further segmented into energy and capacity prices. The seasonal price (the price for the distribution tariffs) includes not only the price paid on the MME (SPOT price), but also an additional indicator (VAD- Valor Agregado de Distribución) including investment, operational and maintenance costs of the grids. When the Argentine peso devaluated in 2002, prices of fuels, operational costs and investments strongly fluctuated, obliging the state to go back on its regulator’s role.
From the Energy Secretariat some norms were put into action in order to maintain prices to help distributors and protect end users from paying higher prices for electricity. All these norms (that is fixing the spot prices, lending money to generators to pay for fuel purchases, and subsidizing the difference between SPOT prices and seasonal prices through a stabilization fund (Fondo de Estabilización)) were intended to be transitory, but remain (with some changes) functional.
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