In the December 2024 edition of Energía e Hidrocarburos Plus (EH+) magazine, our partner Mirna J. Amiama Nielsen shares her views on the institutional reform of the electricity sector. Below is the original interview:
- “The institutional reform of the electricity sector must be concluded and consolidated.”
The identification of challenges in the country’s electricity sector is multifaceted. These challenges represent opportunities for private sector business and investment, as well as areas for improvement in public market policies. EH+ spoke with attorney Mirna J. Amiama Nielsen, a partner at the Ulises Cabrera law firm. The firm specializes in providing comprehensive legal advice to both domestic and multinational companies, as well as to the Dominican State, in the electricity and hydrocarbons market.
- What are the main current challenges in the electricity sector?
First, addressing the financial deficit in the distribution subsector and making the necessary investments in the networks and systems to optimize the operations of electricity distribution companies. This challenge presents an opportunity to invest in advanced know-how and cutting-edge technology for managing technical and non-technical losses, such as commercial systems or smart grids.
Additionally, there are challenges related to the regulations of the Superintendency of Electricity, particularly regarding tariffs. The Superintendency has been issuing transition tariffs, but the goal should be to implement technical tariffs that reflect energy procurement costs and other factors to finally align the sector’s prices with actual costs and support the resolution of the financial deficit.
The transmission network also faces challenges, as it needs to adapt to the new characteristics and energy source mix, as well as the geographic locations of generation hubs.
At present, we are analyzing new regulations regarding renewable energy and ancillary services for the National Interconnected Electrical System. These regulations open the market to new investment opportunities, particularly in energy storage batteries.
Another critical point is the electricity sector harmonization bill currently under review in the National Congress. This bill includes the elimination of tax incentives provided under Law 57-07 on renewable energy and proposes an institutional reorganization by merging the National Energy Commission with the Ministry of Energy and Mines.
- What are the opportunities and challenges for sustaining the growth of investments in renewable energy (wind and solar) and energy storage batteries (BESS) in the country?
It is important to highlight that, according to Dominican government statistics, the sector with the highest foreign direct investment flow is renewable energy, primarily wind and solar.
However, the outlook is uncertain. On one hand, there is the potential elimination of tax incentives on the horizon. On the other hand, there is a possible shift in procurement methods from direct power purchase agreements (PPAs) to PPA bidding processes, as proposed in the electricity harmonization bill. Consequently, the only remaining incentive for renewables would be dispatch priority, regardless of the cost of the energy produced.
These public policy measures signify a substantial shift in the business model that has so far fostered investment growth in the renewable energy sector. It is foreseeable that the pace of investment may decline due to reduced profitability.
Similarly, the financing models that have worked until now, largely based on the guaranteed revenue stream of a direct PPA, may need to be adjusted to account for the scenario where projects are awarded through competitive bidding processes.
It is worth noting that the Dominican Republic has committed, through its Nationally Determined Contribution (NDC), to reducing greenhouse gas emissions by 27% by 2030 compared to 2010 levels. This includes an international commitment to reduce short-lived climate pollutants such as black carbon, methane, ozone, and hydrofluorocarbons (HFCs).
In this context, it is strategically important for the country to consider whether this is the right time to eliminate fiscal incentives for renewables or to adopt mandatory bidding for renewable PPAs.
It is also worth exploring the issuance of regulations to remunerate BESS capacity independently of renewable energy projects. Currently, investments are feasible, but due to market dispatch rules and the high costs of the technology, such projects would not be dispatched in a way that ensures their inclusion in the merit order or appropriate remuneration to make their financing viable at a reasonable cost.
- What are the key steps to consider when investing in renewable energy in the Dominican Republic?
The requirements are clearly set forth in Law 57-07 and its regulations, which outline the application process. Therefore, I would like to focus on aspects not explicitly covered in any legislation.
The first and most important step is to seek early advice from a multidisciplinary local team of attorneys and electrical engineers with extensive knowledge not only of the concession application process but also of the market, government authorities’ procedures, and realistic management of investor expectations. Key considerations include:
- a) Beyond the availability of renewable resources, it is critical to have clear information on the availability of transmission network interconnection for the project’s location.
b) Once interconnection availability is determined, which is purely technical, it is important to ensure legal security regarding the property where the project will be installed by conducting thorough due diligence with legal counsel.
c) The business plan must define whether the project aims for a direct PPA with an electricity distribution company, a non-regulated user, or sales in the spot market, as the viability and financing costs are directly tied to this factor.
d) It is essential to consider the timing of the investment, as significant legislative changes regarding fiscal incentives and direct PPAs are foreseeable.
- In your opinion, what should be the model for the electricity market in the Dominican Republic?
I have reflected deeply on this topic and believe we are heading in the right direction.
Despite significant challenges, the Dominican Republic offers substantial business opportunities in the electricity sector, as evidenced by renewable energy’s position as the fastest-growing sector for foreign direct investment.
As a lawyer, I advocate for strict compliance with the General Electricity Law, the Renewable Energy Incentives Law, their respective regulations, the Superintendency of Electricity’s regulatory norms, and the National Energy Commission’s rules and guidelines. When a regulation becomes obsolete in the context of market realities, it should be updated to meet current needs.
In this vein, the institutional reform of the sector must be finalized and consolidated, redefining the structure of government entities involved in the sector.
It is worth noting that an important phase of the reform has been completed with the dissolution of the Dominican Corporation of State Electric Companies, which should never have existed under the General Electricity Law and only served to distort the market’s structures and the State’s role in it. However, the overlapping roles of the Ministry of Energy and Mines and the National Energy Commission remain unresolved.
Lastly, I support the government’s current plan to address the sector’s financial deficit by significantly reducing technical and non-technical losses in distribution. This plan should have a clear timeline of objectives, strategies, and measurable actions.
The Dominican Republic has the maturity and transparency required to attract solid national and foreign investors capable of adhering to the sector’s governance and ensuring the integral sustainability of their projects while guaranteeing service security and universality.
Written by:
Mirna J. Amiama Nielsen
Partner
