Argentina Expects to Award Gigawatt of Renewables in Auction

  • Auction planned for May, after energy law approved last week
  • Argentina gets 60% of its electricity from fossil fuels

Argentina plans to hold in May its first power auction since the country passed a law designed to promote wider use of renewable energy.

The government expects to award long-term contracts for as much as 1,000 megawatts of power plants, according to Sebastian Kind, Argentina’s undersecretary for renewable energy. The auction will include quotas for different sources of power under rules that are still being drafted.

The auction comes as President Mauricio Macri steps up efforts to fight climate change and diversify the nation’s power mix. More than 60 percent of Argentina’s energy comes from fossil fuels, according to Bloomberg New Energy Finance. It has 215 megawatts of installed wind capacity -- neighboring Brazil has the most in the region with almost 7.7 gigawatts -- and almost no solar.

“We are promoting a shock of confidence in Argentina,” Kind said in an interview at the Bloomberg New Energy Finance Summit in New York Tuesday. “We expect an interesting number of players in the auction and a lot of competition.”

New Law

Argentina approved a law in September requiring industrial consumers to get 8 percent of their power from renewable sources in 2017, and 20 percent by 2025. The final details of the law were signed by Macri last week. Renewable sources currently supply 1.8 percent of the energy used in the country.

“There are new signals of improvement in the management of Argentina’s lack of generation capacity,” Energy Minister Juan Jose Aranguren said during a presentation at the conference. “To increase energy security in Argentina, we have to reduce gas use and improve non-conventional power sources.”

Wind will play a significant role in the auction, said Kind. 

“More than half of the country’s territory has good wind potential,” he said.

Argentina’s biggest challenge is improving access to capital markets. The country defaulted in 2014 after refusing to obey a New York court ruling ordering it to pay holdouts from a 2001 default in full, and was described by the U.S. Court of Appeals in 2013 as “a uniquely recalcitrant debtor.”

Sovereign Risk

“People are worried about the sovereign risk in Argentina,” said Ted Brandt, chief executive officer of Marathon Capital LLC, a Bannockburn, Illinois-based energy and infrastructure adviser. “But you have so much money around trying to find a way in Latin America, looking for good returns, that we think Argentina can be a destination.”

To make it easier for developers to get loans, the government will provide a 12-month guarantee for payments under power-purchase agreements, Kind said. Argentina is also forming a fund of 12 billion pesos ($818 million) to finance or buy stakes in renewable energy projects.

“We are also negotiating with the World Bank to structure warranties to secure financing,” he said. “We have everything set to grow, including good infrastructure. We believe that while the country is not totally back to the capital markets, we have to create tools to foster confidence.”

Pampa Energia SA would be interested in investing as much as $400 million in renewable energy in the country, Chief Executive Officer Marcelo Mindlin said Tuesday during a panel discussion about Argentina’s energy industry at the Bloomberg Argentina Summit in Buenos Aires. “We are interested in bidding and we will submit offers.”

Before it's here, it's on the Bloomberg Terminal.