South American Real Estate News

Argentina Heads for Solar Surge With Incentives

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Argentina, which along with Venezuela has the least renewable energy in Latin America, is set to expand solar capacity as much as 35-fold as the government plans its first incentives for individual projects.

International developers are planning plants in Argentina’s western regions, which get about twice the solar radiation of the largest solar market, Germany. In the past year, they’ve applied to build 11 projects of about 20 megawatts each, said Marcelo Alvarez, head of solar for trade group Camara Argentina de Energia Renovable, or CADER.

“There’s a lot of interest in solar energy in Argentina and very good potential,” said Hector Nordio, head of clean- power projects at Energia Argentina SA, the state energy company known as Enarsa.

The work would help President Cristina Fernandez de Kirchner’s administration meet an ambition to get 8 percent of Argentina’s power from renewables by 2016, up from 2 percent now. The nation that defaulted on debts in 2001 and seized energy company YPF SA last year is struggling to lure overseas capital and is relying on domestic measures to pay for solar.

Argentina plans to build 3,000 megawatts in clean-energy capacity, of which about 10 percent may come from solar, according to CADER. About 625 megawatts, mainly small hydropower projects, are in operation. Solar accounts for only 6.2 megawatts of that capacity.

Funding Constraints

“Financing is a huge challenge in Argentina, as there are very limited financing lines available,” said Eduardo Tabbush, an analyst at Bloomberg New Energy Finance in London. “Small and medium-sized projects need to rely on the local bond market and local trusts.”

Regulation passed in 2011 allows developers to negotiate premium tariffs directly with the government and grid operator Cammesa, without relying on clean-energy tenders arranged by Enarsa. Officials are working on long-term contracts for power from the plants, negotiated on a case-by-case basis, gaining the interest of companies from Spain to China, Nordio said.

The country has organized only one tender so far, granting long-term contracts for 895 megawatts in 2010. That included 20 megawatts awarded to Genneia SA for Argentina’s first large solar parks, enough to power about 30,000 homes. Enarsa is backing five companies to start work on projects before the government signs off on tariffs that will support the industry.

Sky Solar

The policy changes have attracted companies such as China’s Sky Solar Holdings Co., which has teamed up with Enarsa to build a 20-megawatt solar complex in San Juan province for about $70 million. Spain’s Solaria Energia & Medio Ambiente SA and local developer Aldar SA also have similar agreements.

Four of the 11 solar-project proposals being assessed have already been approved, have funds and are waiting for a tariff to be granted before starting, according to CADER’s Alvarez. These include the Sky Solar and Solaria ventures, as well as a U.S.-sponsored project in Catamarca and another in Mendoza by a local developer. Most will be split into 5-megawatt solar parks receiving tariffs of $200 to $400 a megawatt-hour, he said.

Following the state tender, Genneia built a $26 million, 5- megawatt solar park that opened last April and was Latin America’s largest until bigger projects were completed in Peru. Argentina’s other large solar plant, a $10 million, 1.2-megawatt project, was completed by Spain’s Comsa SA a year earlier for the San Juan government.

Brazil, Venezuela

Neighboring Brazil leads Latin America in installed renewables capacity, according to a report by the Inter-American Development Bank and New Energy Finance. Venezuela has the least at 0.1 percent of total electricity generation.

Latin America and the Caribbean have more than 6,000 megawatts of solar sites under development, according to a Maxim Group LLC report. That includes about 2,800 megawatts in Chile and 1,400 megawatts in Brazil.

The region operates only a handful of utility-scale solar parks, those of 1 megawatt or more. Boosted by three parks of more than 20 megawatts each in Peru, such projects across the region can now generate about 105 megawatts and will produce more than 800 megawatts in a year’s time, according to BNEF.

Solar energy in Argentina can also substitute diesel-fueled capacity in remote areas off the grid. A World Bank-backed program has already installed 4 megawatts of small plants, and about 1,500 megawatts of diesel capacity could be swapped for solar, according to Enarsa’s Nordio.

Support Measures

Developers in the country are mainly dependent on above- market tariffs because photovoltaic energy is far from competing with grid-connected power, which benefits from some of the lowest prices in the region as it’s subsidized by the state.

The funding constraints and high cost of debt, in part a legacy of Argentina’s 2001 bond default, are unlikely to ease anytime soon, the IADB report showed, citing last year’s nationalization of YPF as evidence of the investment risk.

With few overseas investors, regional development banks offer one of the scant other options to fund projects, according to Santiago Lagos, head of local solar developer Genneia.

“The most challenging aspect is country risk,” Lagos said by phone. “Private banks, either local or foreign, are not interested in funding renewable-energy projects here so we are talking to multilaterals such as the Corp. Andina de Fomento.”

Borrowing Costs

Average borrowing costs for Argentine companies are almost 11 percent, more than double the 4.84 percent average for emerging markets, according to JPMorgan Chase & Co.

Genneia financed its first solar park with an $18.8 million loan from state-owned Banco de Inversion & Comercio Exterior SA and is now seeking funds for its other projects, all of which qualify for a $550-a-megawatt-hour tariff.

Even with financing constraints, Argentine solar is luring European developers suffering from reduced subsidies at home, as well as solar-panel makers willing to provide more attractive terms amid a global supply glut. The country will continue to promote the industry as it pursues its emission-reduction commitments, expands power capacity and seeks to curb reliance on diesel imports for off-grid generators, CADER’s Alvarez said.

“Two or three years ago, solar developers had no interest in Argentina,” he said. “Now we get calls from interested parties every day.”

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