NICARAGUA: OFFSHORE WIND FARMS: LEGAL CHALLENGES IN THEIR POTENTIAL DEVELOPMENT
In recent decades, wind energy has played a fundamental role in the challenge of diversifying Nicaragua's energy matrix, representing approximately 12.68% of the nominal installed capacity (i.e. 186.20 MW) in our country, as established in the Electricity Generation Expansion Plan, published by the Ministry of Energy and Mines (MEM) for the period 2019-2033. Despite this, to this date no offshore wind projects have been developed yet (i.e., wind-based generation in maritime spaces) and very little has been said about it in our country, so it is worth analyzing the essential legal aspects that could be considered in case any investor is interested in exploring this alternative.
In general, offshore wind projects emerge as an option to enhance the use of renewable energies, considering that, according to our understanding, offshore wind energy operates in the same way as onshore wind energy, that is, through forces produced by the wind; however, with a higher level of complexity due to the technical aspects to be considered (meteorological, oceanographic, environmental aspects, studies of the subsurface, among others) and the associated costs.
Notwithstanding the foregoing, in Nicaragua this type of marine projects could be considered as Electricity Generation Projects with Renewable Sources and therefore, could benefit from the same tax and economic incentives of the wind projects currently built on land, pursuant to Law No. 532 "Law for the Promotion of Electricity Generation with Renewable Sources", in force until January 1, 2028. These incentives include exemptions in the importation of machinery, Income Tax (IR), Value Added Tax (VAT), among others regulated by the aforementioned law that are applicable, and likewise, these projects are included as a priority in the energy contracting processes with the authorized Distribution Agents in the country.
It is important to note that offshore wind projects are classified under Executive Decree No. 20-2017 "Environmental Assessment System for Permits and Authorizations for the Sustainable Use of Natural Resources" as Category II projects, which implies that they may cause high Environmental Impacts, and therefore, in order to obtain the corresponding Environmental Permit, they are subject to the filing of an Environmental Impact Study to the Ministry of Environment and Natural Resources (MARENA).
On the other hand, another relevant aspect to consider is that for the construction and operation of the aquatic facilities required in these offshore wind farms, it will be necessary to obtain the corresponding construction permit from the General Directorate of Aquatic Transportation (DGTA) attached to the Ministry of Transportation and Infrastructure (MTI), among other applicable approvals related to their location and the international transit of ships entering and leaving Nicaraguan territory.
The construction of an offshore wind farm also implies reviewing the logistics of the electrical interconnection to the National Interconnected System (SIN), with the understanding that more than one electricity substation may be required to transform and transmit the energy to land for distribution to end consumers.
Thus, the discussion on the development of potential offshore wind farms in Nicaragua, leads to the analysis of various aspects that are not strictly legal, but represent enormous challenges for the energy industry, especially to ensure the stability of the system. At the legal level, existing regulations would have to be reviewed and probably adapted to ensure the appropriate implementation of these projects, and to ensure the application of existing benefits and incentives for renewable generation projects to promote investment.
If you have any questions related to the subject matter herein, please do not hesitate to contact us.
Authors:
Rodrigo Ibarra. - Partner, Nicaragua
rodrigo.ibarra@ariaslaw.com
Kevin Castro. - Associate, Nicaragua
kevin.castro@ariaslaw.com
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