RenovAr signals the country’s embracing of renewable energy after having lagged behind its regional neighbours Chile and Uruguay, which have forged ahead in recent years, the former with solar generation to power its mining industry, and the latter country with wind.
The initiative aims to make renewables supply 8% of the country’s generation by 2018, and 20% by 2025, with the country aiming to add 10 GW of renewable capacity to achieve that goal, energy minister Juan José Aranguren said at the time.
Wholesale power market regulator Cammesa outlined the 1 GW goal of the first tender as being broken down into 600 MW of wind, 300 of solar, 65 of biomass, 20 of small hydropower and 15 MW of biogas, with $2b expected in investment.
Investor interest in Argentina was evidenced by Solarplaza ’s solar PV trade mission in June to Buenos Aires and Montevideo, with 65% of participants saying they expect to close deals as a result of their participation in the event.
The first round of RenovAr, which took place on October 7, 2016 and resulted in prices averaging US$69.50 per MWh for wind and US$76.20 for solar, lower than those anticipated by market analysts. Developers submitted offers for a total 6.3 GW of projects, more than six times the capacity on offer, with wind and solar accounting for the vast majority.
The projects awarded comprise 12 wind farms totalling 708 MW, four solar projects totalling 400 MW and a 1 MW biogas project.
The wind projects are planned for the provinces of Buenos Aires, Chubut, Río Negro, Santa Cruz and La Rioja, while the four solar projects will be developed in Salta and Jujuy provinces.
Once power-purchase agreements (PPAs) are awarded, developers will have two years to bring projects online. Cammesa will purchase the energy and sell it to utilities.
The current obstacles can be overcome, particularly as RenovAr 1, the first tender, received offers totalling six times the capacity solicited, and the prices achieved were lower than the market expected.
Despite the long strides taken in recent months, and with around 2.5 GW of renewables projects ready to build, there are still obstacles to Argentina’s renewables growth.
But Marcelo Lando, managing director at Eternum Energy in Buenos Aires, is optimistic that such obstacles are surmountable.
“The current obstacles can be overcome, particularly as RenovAr 1, the first tender, received offers totalling six times the capacity solicited, and the prices achieved were lower than the market expected,” he told Solarplaza from Buenos Aires.
“Argentina has excellent solar irradiation levels and wind potential, and the cost of the technologies has dropped dramatically, even with financing that is more expensive than in developed countries, and solar and wind can be very competitive in Argentina,” he added.
Financing is likely to be one of the biggest obstacles to projects getting off the ground, despite President Mauricio Macri’s business-friendly government, which has made efforts to rebrand the country as a destination for investment and in which capital markets can place their trust in the wake of the battering the country’s image suffered during the economic crises of the Kirchner years.
Argentina has excellent solar irradiation levels and wind potential, and the cost of the technologies has dropped dramatically.
Argentina made a return to the international capital markets this year, but while the economy is perceived as strong, it remains undermined by its history of unsustainable economic policies and limited funding options, Moody's Investors Service said in its annual report on the country in September.
And while Moody’s predicts 3% economic growth for Argentina next year as inflation falls and both public and foreign direct investment increase, it will take time for Macri’s economic policy changes to take effect, the firm said.
“People need to be patient with Argentina,” Kevin S. Levey, a partner at law firm Squire Patton Boggs in Washington DC who has advised on financing for Latin American energy projects, told Solarplaza.
“The one thing Macri’s government has done very well is negotiated a fund with the World Bank that will provide securities on PPAs. Developers can bring in export development financing, but at the end of the day it will remain more expensive than Chile and Mexico.”
He described Argentina as a very young market, and not just in the renewables sector, and which needs to rebuild confidence in the financial markets.
The big obstacles have been cleared but now the challenge is to remove the obstacles to generating a strong, private PPA market.
An additional obstacle is that the contracts awarded from the first RenovAr tender are for 20-year PPAs, a long-term commitment that some companies may not be willing to make, Eternum Energy’s Lando added.
“The big obstacles have been cleared but now the challenge is to remove the obstacles to generating a strong, private PPA market. I think the main obstacle is finding the way to make a long-term PPA compatible with the PPAs that private firms are seeking, of four to five years,” he said.
“In this case Argentina is not Chile or the US, where companies are willing to assume long-term commitments. But I think we will find the way.”
Argentina is expected to launch Round 2 of RenovAr in March or April 2017, according to the country’s under secretary for renewable energy Sebastián Kind.