Add Argentina to the list of countries in Latin America that
are courting investors to develop renewable energy
Hoping to reduce the country’s costly reliance
on fossil fuel imports, President Mauricio Macri has embarked
on an ambitious plan to boost Argentina’s
renewable energy output to 20% of its total power supply by
2025, up from under 2% currently. The push comes even as the
country foresees 6% annual increases in its electricity
The renewables strategy is a crucial part of Macri's efforts
to stabilize Argentina’s finances. For years a net
exporter of energy, Argentina has suffered from a lack of
investments that has left the country heavily dependent on
imports, weighing heavily on its bulging fiscal deficit.
Argentina is off to a slow start to develop its renewable
energy potential, trailing Brazil, Chile, Mexico and Uruguay.
Still, analysts say its geography — from wind-swept
Patagonia to large, semi-desert regions in the north —
hold enormous potential.
To meet the clean energy targets, Macri last year launched
the RenovAr renewable energy auction program and held two
renewable power tenders, auctioning 59 projects with 2.4
gigawatts in capacity valued at $4 billion. The program has
attracted heavy interest, with companies in the first auction
offering to build six times more capacity than the 1 GW the
government had targeted. A second auction was also successful.
Agreements call for the projects under contract to be
operational in 2018.
The government plans to hold four more auctions in 2017,
which Macri has declared "Argentina’s year of
Despite the enthusiasm for further auctions, many companies
that won projects in the first two rounds are still looking for
"That’s the one missing link in
Argentina’s program right now — the
financing," says one energy industry source familiar with
RenovAr. "Of all the stakeholders you need to bring to the
table to get the deals done, the bankers are still saying, 'Let
me think about it some more’."
Part of the financing challenge stems from
Argentina’s reputation with investors. While Macri
has taken steps to rebuild market confidence and credibility,
some investors are still waiting to see if his pro-business
policies signal a permanent change.
To make the projects alluring to investors, Argentina is
offering power purchase agreements (PPAs) of up to 20 years.
"That’s longer than in Chile or Mexico," where
PPAs are typically 15 years, the industry source says.
Argentina has also sought to make projects attractive by
offering at least three layers of guarantees, including a
national trust fund and the World Bank.
Earlier this year, the World Bank approved a $480 million
guarantee to support private investments in the RenovAr
program. The 20-year backstop is for Foder, an Argentine trust
fund of around $12 billion pesos ($722 million) earmarked to
help finance renewable energy projects.
"A challenge is to ensure that most projects will receive
adequate long-term funding," says Gabriel Goldschmidt, head of
infrastructure for Latin America and the Caribbean at the
International Finance Corporation (IFC), the World
Bank’s private investment arm.
Some larger companies are turning to their own balance
sheets to finance projects, Goldschmidt says. "For entities
that are established locally and internationally, corporate
financing is always a possibility," he says.
Project finance can be a challenge, though, Goldschmidt
says. "However, one element that is favorable is that the PPAs
are in dollars. Therefore, projects can obtain dollar financing
with longer tenors more easily than in the local markets," he
Argentina’s RenovAr has several features that
set it apart from many traditional renewable energy
Top of the list is Foder. No Argentine government agency
holds an investment-grade credit rating, which poses a
challenge for sponsors and developers that want to finance
their projects through PPAs issued by Cammesa, the
country’s electricity market administrator. Fitch
described Cammesa in February as "a counterparty with a weak
financial profile", and one that is dependent on cash from the
Foder, made up of treasury funds and money from the
Argentine government-administered pension fund Anses, operates
as a payment guarantee and project finance account. The fund
guarantees payments for the PPAs under the RenovAr program in
the event Cammesa misses a payment.
"It’s one of the innovative characteristics of
how the program was structured," Goldschmidt says.
Argentina is also structuring its auctions differently to
those of its neighbors, the industry source says. "In every
other country, bids on solar, geothermal or wind projects are
all bundled together, and often the lowest price wins," he
says. "So you end up with different technologies that have
different price points, all competing against each other."
Argentina, meanwhile, has set it up so that
biomass companies, for example, can compete specifically for
"In Mexico and Chile, where the solar people have to compete
with the wind people, solar increasingly wins out because they
have the cheapest prices," the source says. Argentina's
approach does a better job at encouraging a range of renewable
energy sources, he says.
Many of the opportunities lie in Argentina’s
distant territories. Certain regions of the country are
grappling with a lack of transmission lines, with a large chunk
of Argentina’s transmission capacity nearly full
after last year’s two auctions. Some estimates say
Argentina may need to add around 5,000 kilometers of additional
transmission lines to meet demand in the next three years.
Given the success of the first two auctions, known as
RenovAr 1 and RenovAr 1.5, Argentina’s Energy
Minister Juan José Aranguren has said the government is
planning as many as four more later this year, with the hopes
of attracting up to $7 billion in investments.
Javier Rodríguez de Colmenares, the head of
infrastructure and energy at the Inter-American Investment
Corporation (IIC), says the timetable could be overly ambitious
with some of the financing issues still unresolved.
"There is maybe just enough money to fund the RenovAr 1 and
1.5 auctions on an equity and debt basis," he says. "So it
would be reasonable to wait for these projects to achieve
financial closing before getting RenovAr 2.0 up and
Rodríguez says multilateral institutions remain
committed, with the Inter-American Development Bank (IDB)
considering A/B loans of up to 15 years, similar to the
facilities that it used in Costa Rica and Uruguay.
The development of renewable energy projects in Argentina is
not only limited to the RenovAr auctions. The state-owned
energy company YPF received a $200 million syndicated loan for
the construction, operation and maintenance of the 100 MW
Manantiales Behr wind farm in a project financed in September
by the IIC and the IDB.
"Anyone following the auctions can see that the pricing is
very competitive compared to almost any other source of
energy," Goldschmidt says. LF