How Argentina is transforming into a viable renewable energy market

Energías Renovables en Argentina

Post available in: English


Argentina is pulling out all the stops in its goal to attract more than US $5 billion in renewable energy investment over the next year. The new administration of President Macri is dismantling currency controls, negotiating deals with bondholders – and
rapidly addressing the new improved renewable law #27191 of late 2015. It is addressing many of the outstanding issues faced
by the sector, including getting rid of energy subsidies.

There was nothing fundamentally wrong with the previous renewable law (#26190) from 2006, which established the original goal of an 8% renewable mix over ten years — except that it wasn’t met and by a long shot: renewable make up only 1.5% of the
energy mix today because the country could not attract investors over the last decade.

The new law extends the deadline to meet the 8% target by one year, and establishes a new goalpost of 20% by 2020, so things are going to get busy.

It also places a ceiling price on all new renewable energy deals of US $113 per megawatt -hour (MWh). How does this compare in
the neighborhood ?

Just a couple weeks ago Peru ’s auctions resulted in wind deals getting 20 – year power purchase agreements (PPAs) at under
US $38/MWh and solar at less than US$49/MWh;

Uruguay has gone from closing wind deals at US $90/MWh in 2009 to US $61/MWh in 2014;

Chile is a notoriously hard place to get a long term PPA, but you can actually aspire to get financing for projects that live off the spot price.

The regulations for the new law are expected to be announced very soon, followed by a first round of tenders to take place mid
year: Argentina needs to attract some 3000 MW of renewables to meet it, and pronto. This first tender will therefore favor those projects that are already developed from the failed 2009 GENREN tenders. These will get the better pricing and reward the developers’ patience; later tenders will undoubtedly have lower prices.

But even the older projects still need equity investors.

The unsuccessful GENREN tenders

To understand future pricing it helps to know recent pricing trends. In the GENREN tenders the government awarded 754 MW of<
wind projects and 20 MW of solar PV (and another 121 MW of other technologies). The winners walked away with the possibility
of 15 – year PPAs in USD —if they could raise equity and financing.

But they couldn’t: the sovereign and counter-party risks were just too high. And it wasn’t because of pricing. Patagonian wind projects with capacity factors of between 40 – 46% were won at an ave rage price of US $127/MWh; solar projects in the country’s north – western deserts were won at an average US $572/MWh.

Today Argentina’s wind sector has a mere 150 MW of installed capacity — and only 77 MW of that came from the GENREN program; the rest comes from government – sponsored projects. There is another 8 MW of installed solar PV capacity, most of it from one GENREN project.

Resolution 108

In recent years the previous government came out with what was known as Resolution 108, allowing private sector projects to sign dollar – denominated 15 – year PPAs on a case – by – case basis with the government. As with the GENREN tenders, the system was so perverse at that time that government officials openly told developers that their projects had to show returns to
investors of no more than 10%. Developers could doctor their numbers all they wanted but had to show low returns in presentations to government.

This allowed the then – government to boast that Argentina was a very competitive and low – risk market. An embarrassing state of affairs.

These deals were signed at US $240/MWh for solar and US $180/MWh for biomass (none for wind). They couldn’t get financing
either. And now the new Macri government just placed all Resolution 108 deals on standby pending further review.

The upcoming tenders: So whats next? Speed – dating to take a look at the large pool of developed wind, solar, mini – hydro, geothermal, biomass and waste – to – energy projects seeking capital, which would allow them to participate in the upcoming tenders —knowing you have a ceiling of US $113/MWh, far less restrictive financial controls, the possibility of long term financing, and far more common sense in how business is done.

The new government is going to go to great lengths to show transparency; successful projects will win based on a weighted matrix
comprised of price, overall technological prowess, access to grid connection nodes, and the caliber of the investor group behind
each project. This last part will clearly favor groups with a track record and a proven ability to obtain financing – almost by
definition, foreigners.

Even after resolving its problems with bondholders Argentina will still remain well below investment grade — but it has already
been given a “positive outlook” by rating agencies. The fact is there will not be another market as large or as attractive as

Argentina in the region for a long time until Venezuela gets re – organized, following its overdue and terribly painful meltdown this year.

There are over 3000 MW of wind deals on paper (over 4500 MW if you include the giant 1350 MW Gastre project) — plus some 300 MW of solar deals — all seeking capital, financing, technology and a way to come to life.
Perhaps the time has come to re – visit Argentina.

(This article was written by Carlos St James and was published in Latin American Energy Review on February 29, 2016)


(Visited 110 times, 1 visits today)

About Gateway to South America

Established in 2006, Gateway to South America began as a single office in Buenos Aires. Since then, it has grown into a vibrant regional network, providing professional real estate marketing services to clients in Argentina, Brazil, Chile, Paraguay, Peru, and Uruguay. If you enjoy reading our news site, please share it on your social media!

Want an edge on investing in Latin America? Get our Investment News first: Join 39,400 subscribers without cost to our English, Spanish or Portuguese posts for the latest real estate news in LATAM useful for new and experienced investors. Please note, this subscription is for Investment News only, not properties for sale.

Post available in: English

Comments are disabled
Real Estate and Investment News from South America
Visit us on LinkedInVisit us on FacebookVisit us on TwitterVisit us on Pinterest