Significant Reforms to the Regulatory Framework applicable to the Ecuadorian Electric Sector
On June 15, 2025, the President of the Republic of Ecuador issued Executive Decree No. 32, published in the Eighth Supplement of the Official Gazette No. 62 on June 18, 2025, which amended the General Regulation to the Organic Law of the Public Electric Energy Service (RLOSPEE) and the Natural Gas Operations Regulation (ROGN).
Below, we provide a brief summary of the most relevant reforms introduced to the aforementioned legal frameworks:
General Regulation to the Organic Law of the Public Electric Energy Service:
- The definitions of "Energy Storage" and "Regulated Demand" have been replaced, and new definitions for “Preferential Price”, “Public Selection Process – PSP”, and “Applicant” have been incorporated.
- Energy Assessment: CENACE, based on the relevant analyses established in the amended RLOSPEE, must promptly alert authorities regarding potential conditions of shortage or deficit, enabling the Ministry of Energy and Mines to implement appropriate mitigation strategies.
- ARCONEL's Powers During Deficits or Rationing: During such periods, ARCONEL may issue exceptional resolutions to enable emergency generation.
- Disconnection of High-Voltage Clients: During generation deficits or rationing periods, CENACE is the competent authority to disconnect high-voltage tariff clients from the National Interconnected System (SNI). These clients must have self-generation systems to meet their own demand and, exceptionally, supply surplus energy to the SNI.
- Deadline for Self-Generation Systems: The reforms establish an 18-month period, starting from the publication of Executive Decree No. 32 in the Official Gazette (June 18, 2025), for high-voltage tariff clients to implement self-generation systems capable of covering their own demand.
- Participation in Non-Renewable and Transitional Energy Generation Projects Not Included in the PME: Guidelines have been established for delegating such projects through concession contracts with private sector entities, popular and solidarity economy actors, or foreign state-owned companies in the following cases:
- Direct Delegation:
a.1) Projects up to 10 MW: Upon review of the information submitted by the applicant, the Ministry of Energy and Mines may authorize the applicant to benefit from preferential price and dispatch conditions as per applicable regulations, under regulated contracts. If the applicant opts not to accept these preferential conditions, they may develop the project at their own risk, subject to RLOSPEE transactions and applicable ARCONEL resolutions.
a.2) Projects from 10 MW to 100 MW: Upon review, the Ministry of Energy and Mines may authorize the applicant to benefit from preferential price and dispatch conditions as per forthcoming regulations. If the applicant declines these conditions, they may develop the project at their own risk, subject to RLOSPEE transactions and ARCONEL resolutions.
Priority will be given to obtaining enabling titles for clean technology and non-conventional renewable energy (NCRE) projects with storage capacity, including interconnection networks, as well as transitional generation projects (low-emission non-renewable technologies such as natural gas, nuclear, and green hydrogen), as established by ARCONEL regulations.
- Public Selection Processes: For generation projects exceeding 100 MW, upon submission of an application, the Ministry of Energy and Mines will determine if the project is of public interest and may call for a public selection process when deemed appropriate. The applicant may participate, provided they meet the requirements outlined in the tender documents.
- Participation in Complementary Services and Energy Storage Projects: For projects not included in the PME, private initiatives may submit proposals, and the Ministry of Energy and Mines, after review, may directly delegate their development through concession contracts.
ARCONEL will define activities classified as complementary services and energy storage.
- No Requirement for Public Finance Approval: Private self-generation projects not included in the PME, upon Ministry of Energy and Mines authorization, may be developed at the proponent’s risk without requiring approval from the public finance authority, as no budgetary or fiscal commitments are involved.
- Payment Guarantees for Contractual Obligations: The State and distribution companies may guarantee payment of contractual obligations in electric sector concession or regulated contracts using one of the following mechanisms, chosen based on project specifics: a) Contingency funds; b) Trusts; c) Payment, credit, or liquidity guarantees; or d) Other payment instruments.
- Delegation of Transmission Projects to Private Initiative: Projects not included in the PME, identified by private entities, may be concessioned following a Public Selection Process called by the Ministry of Energy and Mines when applicable.
- Construction of Transmission Projects by Users or Interested Legal Entities: In cases of non-compliance with national transmission system expansion works as per the PME, new networks and transmission infrastructure may be constructed by transmission users or other interested legal entities, with prior authorization from the transmission company. A construction and financial recognition agreement will be signed between the transmission company and the user or legal entity. ARCONEL will issue applicable guidelines.
- Construction of Distribution Projects by Clients, Applicants, or Interested Legal Entities: When a distribution company cannot timely meet electric expansion demands, new distribution networks or infrastructure may be built by clients, applicants, or other interested legal entities, with prior approval from the distribution company and after a public selection process.
- Transactions for energy purchased by private generators and self-generators to cover hourly generation deficits for self-supply or to meet bilateral contract obligations will be settled by CENACE, valued at the same rates as their regulated contracts for surplus sales.
- Payment Prioritization and Trust Establishment: ARCONEL will regulate the order of priority for collecting and paying obligations from regulated demand transactions, prioritizing payments to private participants in generation and transmission projects. Preferential treatment will be given to popular and solidarity economy entities and public companies forming strategic alliances or consortia with private capital.
Distribution companies must establish trusts with the total contributions from end-users for electricity and lighting services to ensure compliance with the established payment priority within 180 days from the entry into force of Executive Decree No. 32 (June 18, 2025).
- Contribution of Economic Resources for Territorial Development: Resources for territorial development projects will be transferred annually to the designated account of the Public Finance Ministry by the last working day of May each year, with immediate reporting to ARCONEL. For generation plants in the Amazon Special Territorial Constituency, resources will be transferred to the Common Fund for the Amazon Special Territorial Constituency.
- Swiss Challenge: For generation and transmission projects not included in the PME, initiated by private entities and subject to public selection processes, the original proponent may exercise the right to match or improve competing offers submitted by other participants, in accordance with tender conditions.
- Simplified Procedure for Granting Enabling Titles for NCRE and Transitional Energy Projects: A simplified procedure is introduced for NCRE generation projects with storage capacity, including interconnection networks, with nominal power between 10 MW and 100 MW, and transitional generation projects up to 100 MW.
- Assignment of Concession Contracts to Financiers: Concession contracts may be assigned to project financiers in cases of serious payment or obligation breaches by the concessionaire under financing contracts or concession agreements. Upon the financier’s request, they or a qualified third party (by the Ecuadorian delegating entity) may assume the concessionaire’s position in the enabling title. Financiers must be promptly notified by the delegating entity of the concessionaire’s breaches, as per the concession contract.
This assignment will be formalized through amendatory contracts between the delegating entity and the financier or qualified third party.
- Non-Reversion of Assets: In line with Article 33 of the LOSPEE, as amended by the Organic Law to Promote Private Initiative in Energy Generation (classified as urgent in economic matters) on October 28, 2024, assets used for self-generation are exempt from reversion obligations for self-generators, co-generators, non-conventional renewable energy generators up to 10 MW, and public or mixed companies (with majority state participation) whose generation plants have multiple consumptive uses where energy generation is not the priority.
- Natural Gas Import Licenses: For generation plants operating on natural gas, the State must provide the necessary facilities to grant import licenses for this fuel throughout the validity of the enabling title.
NATURAL GAS OPERATIONS REGULATION (ROGN):
- The definition of “companies authorized to import LNG and/or CNG for self-consumption for productive processes, generation, and/or self-generation projects” is added.
- Article 10 of the ROGN is amended to allow any natural or legal person interested in conducting natural gas transport, storage, and distribution activities to obtain the corresponding operation permit and registration, subject to ARCH regulations (previously limited to authorized Natural Gas companies).
Vessels or barges conducting floating storage operations for maritime terminals must obtain prior ARCH operation permits and registration.
- Requirements for LNG/CNG Imports: Requirements are established for legal entities seeking authorization to import LNG and/or CNG for self-consumption in productive processes, generation, or self-generation projects. Authorized companies must submit documentation to ARCH proving they have the required transport infrastructure (owned or third-party registered) and a registry of natural gas consumption facilities.
- Registry of Natural Gas Consumption Facilities: Authorized companies importing LNG and/or CNG for self-consumption in productive processes, generation, or self-generation projects may register all LNG/CNG-consuming facilities with ARCH, as per the established process.
- No Joint Authorization Requirement: Legal entities domiciled or established in Ecuador requiring authorization to import LNG and/or CNG for self-consumption in productive processes, generation, or self-generation projects are exempt from joint natural gas activity authorization, in line with the Article 10 ROGN reform.
- Provisions for Electric Generators and Self-Generators: Such companies, in addition to obtaining natural gas import authorization, must comply with applicable electric sector regulations.
- Creation of Tariff Subheading: The Ministry of Energy and Mines and the Ministry of Production, Foreign Trade, Investments, and Fisheries, within 120 days from the entry into force of Executive Decree No. 32 (June 18, 2025), will coordinate actions to incorporate natural gas and hydrocarbon derivatives as a tariff subheading. Until then, interested companies may import with prior authorization from the Ministry of Energy and Mines.
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ARCH: Hydrocarbons Regulation and Control Agency
ARCONEL: Electricity Regulation and Control Agency
CENACE: National Electricity Operator – CENACE
NCRE: Non-Conventional Renewable Energies
CNG: Compressed Natural Gas
GNL: Gas Natural Licuado
LOSPEE: Organic Law of the Public Electricity Service
PME: Electricity Master Plan
SNI: National Interconnected System