Argentina: Renewable Energy In Latin America - Argentina

Last Updated: 26 May 2016
Article by Simon Currie

The opportunity

The opportunity

Argentina is ripe for exploitation of wind, solar and biomass with exceptional capacity in relation to wind energy. Global experience indicates that with average winds of 5 m/s or higher it is feasible to deliver good returns in wind power generation. About 70 per cent of Argentina's territory enjoys winds with an average speed of 6 m/s or more, while in areas of Patagonia they can exceed 9 m/s. Argentina thus has the foundation to become a regional leader in the use of this technology.

Argentina also has strong solar resources, especially in the north western regions. The western regions are reported to receive twice the amount of solar radiation as Germany, one of the world's largest solar markets. Despite this, solar power has been largely untapped, with reports showing that there is only 10MW of installed capacity compared to the target of 3.3GW by 2020.

Biomass and waste-to-energy in Argentina have long been overlooked. Argentina's varied environmental ecosystems fuel the growth of diverse crops (including soy), which creates potential for biomass energy. Studies have shown much of the 6 million tonnes annual forestry waste in Argentina could be used to generate electricity. In 2013, the government created the 'PROBIOMASA' program, which aims to boost production, management and sustainable use of biomass for energy purposes. The PROBIOMASA program has targeted the generation of 200 electric MW and 200 thermal MW by 2016 and seeks to eventually convert 12 million metric tons of agriculture-related biomass annually. The PROBIOMASA program needs approximately US$750 million in funding, however government support for those projects was just over US$5 million.

Potential

Argentina is ripe for exploitation of wind, solar and biomass with exceptional capacity in relation to wind energy. Global experience indicates that with average winds of 5m/s or higher it is feasible to deliver good returns in wind power generation. About 70 per cent of Argentina's territory enjoys winds with an average speed of 6m/s or more, while in areas of Patagonia they can exceed 9m/s. Argentina has the foundation to become a regional leader in the use of this technology.

Argentina also has strong solar resources, especially in the north western regions. The western regions are reported to receive twice the amount of solar radiation as Germany, one of the world's largest solar markets. Despite this, solar power has been largely untapped, with reports showing that there is only 10MW of installed capacity compared to the target of 3.3GW by 2020, which leaves significant development potential for the next following years.

Biomass and waste-to-energy in Argentina have long been overlooked. Argentina's varied environmental ecosystems fuel the growth of diverse crops (including soy), which creates potential for biomass energy. Studies have shown much of the six million tonnes annual forestry waste in Argentina could be used to generate electricity. In 2013, the government created the 'PROBIOMASA' program, which aims to boost production, management and sustainable use of biomass for energy purposes. The PROBIOMASA program has targeted the generation of 400 thermal MW by 2016 and seeks to eventually convert 12 million metric tons of agriculture-related biomass annually. The PROBIOMASA program needs approximately US$750 million in funding, however government support for those projects was just over US$5 million.

Support regimes

In October 2015, Argentina issued Law No. 27,191, an amendment to Law No. 26,190 that establishes the national regime for the promotion of renewable sources of energy for power production. New projects or repowered existing plants benefit from an anticipated VAT return for capital goods purchased, accelerated amortization of the income tax, tax certificates for projects with national components and extension to ten years of the period for tax carry-forwards. In addition, the government will fix an energy purchase price, calculated on a project-to-project basis, to guarantee a fair return on investment.

Law No. 26,191 also provides for the creation of the Trust for the Development of Renewable Energies, mainly financed by the National Treasure. This fund will provide a subsidy of US$0.11/kWh to photovoltaic (PV) producers and US$0.005/ kWh for facilities up to 30MW generating electricity from wind, geothermal, biomass, biogas and hydro sources. However, to date, this fund has not been set up and the FiT is unavailable.

In addition, the new renewables law recently approved by the parliament's lower chamber establishes that the government will channel at least 50 per cent of savings from offset fossil fuel to the Fund For Renewable Energy, along with charges on power consumption, interests and profits from financed projects.

In 2009, the government created the 'GENREN' program, through which ENARSA (a largely state-owned company) could buy electricity from private enterprises generating renewable energy. Contracts are for a period of 15 years with a fixed price in US$ which is payable in ARS pesos at current exchange rates. In June 2010, the first tender was held which received offers for a total of 1,437MW which exceeded the government expectation by more than 40 per cent. A total of 895MW was awarded to 13 different companies. However, today less than ten per cent of these projects are actually operational. The second tender round is closed for those who presented at the first round and has been put on hold because the GENREN 1 projects have not been completed.

Obstacles/challenges

Since the default of the government in 2001, Argentina has found it difficult to attract investment. However, China has emerged as a willing financer with the China Development Bank as an active player in renewable energy projects in Argentina. Whilst Chinese banks offer competitive interest rates and willingness to finance projects in Argentina, the money also comes with conditions, such as the use of Chinese equipment and contractors.

According to the Argentine Chamber of Renewable Energy, one of the principle obstacles for profitable exploitation of renewable energy sources remains assured power prices over a suitable duration of the project and effective enforcement of tariffs awarded under the GENREN PPAs. The reliability of contracts remains doubtful and creates uncertainty for wind farms which have high upfront costs. This might be resolved if the bankability of PPAs is improved, for example through a government fund that would be used to guarantee payments (due from the Offtaker) under the contract.

The lack of full implementation of Law No. 26,190 and delays in the GENREN program are also a challenge – as envisaged the law has the potential to jump start project development through a stable FiT regime under the aegis of the Trust for the Development of Renewable Energies and PPAs under the GENREN scheme. However, the amendments made under Law No. 26,191 bring additional incentives to the sector and may trigger much needed jump start to accomplish the goals set by these laws.

The future

In spite of attractive renewable resources and year-on-year growth in all primary renewable generation technologies, Argentina faces strong headwinds in making progress on renewable energy investments due to the national policy risk perceived by international investors and macroeconomic turmoil. The country's relatively high cost of debt, and low availability of local and foreign capital, make it difficult for project developers to secure financing. Further, future tenders under the GENREN program will receive active participation only if the first round of projects progress satisfactorily. It remains to be seen if active steps are taken by President Macri's new government to ameliorate these perceptions sufficiently.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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