Less-Risky Argentina a Renewables Hotbed With $2 Billion Auction

  • Enel, ABO Wind, GE among companies betting on the nation
  • Argentina has 2 gigawatts of projects ready for auction

Argentina’s burgeoning clean-power market is attracting some of the world’s biggest energy companies.

The nation that’s been locked out of capital markets since defaulting on $95 billion in 2001 and spooked investors two years ago by halting payments on foreign-law bonds, is now seen as a key destination for companies including Enel SpA, ABO Wind AG, General Electric Co. and Engie SA.

The shift is driven by a new law designed to boost renewable energy, and an auction planned for October that the government expects to draw $2 billion in investments. With an improving economy and natural conditions conducive to clean power, companies are rushing to line up approvals and arrange financing and supply deals for proposed power plants.

“Investors are looking at it as a risk-return trade-off case,” said Antonio Cammisecra, head of business development at Enel Green Power, the renewable-energy unit of Italy’s largest utility. “The nation is showing signs of economic stability and it’s the right moment to invest in renewable resources.”

The final rules for the auction were released this week. The deadline for bids is Sept. 5 and the winners will be announced Oct. 12.

More than 60 percent of Argentina’s energy capacity comes from fossil fuels. President Mauricio Macri, who took office in December, is stepping up efforts to diversify the energy mix and fight climate change. One of his first measures was a law that requires industrial consumers to get 8 percent of their power from renewable sources in 2017 and 20 percent by 2025.

In the auction, companies will bid to supply 600 megawatts of wind power, almost triple the 215 megawatts in operation in Argentina now, 300 megawatts of solar power, up from almost nothing, and 100 megawatts of biomass, hydropower and biogas plants. 

Companies already have more than 2 gigawatts of projects ready to participate in the event, according to the Argentine energy trading company SAESA. Developers will vie for contracts to sell power for 20 to 30 years, and the winning projects are expected to go into service within two years after the auction. The government expects companies to offer rates of $40 to $100 a megawatt-hour, lower than current prices that exceed $100.

“We are seeing big interest from both national and international companies,” Renewable Energy Undersecretary Sebastian Kind said by e-mail.

‘Time Has Come’

“Argentina’s time has come,” said Renato Santos, GE’s head of wind energy. “GE has decided it is the right moment to increase its business in the country.” GE is partnering with wind developers to bid in the auction.

ABO Wind is seeking to sell power plants it’s developing to local companies that want to participate in the auction. The Wiesbaden, Germany-based company has sold four 50-megawatt wind projects to Argentine power companies since October, and has another 800 megawatts in various stages of development it may sell.

“The environment is much better than a year ago,” said Vanesa Revelli, ABO Wind’s CEO for Argentina and Uruguay. “There are signs of transparency from the government.”

Energy Subsidies

Argentina is also working to reduce energy subsidies, considered a key contributor to a fiscal deficit in 2015 that was the largest in almost two decades. Regulators in January raised electricity rates as much as 500 percent in a move they said would save the treasury $6 billion a year.

Argentines previously paid as little as 25 pesos ($1.67) a month, with the government footing most of the rest of the bill. Those subsidies drained $51 billion from the treasury over 13 years, almost double the country’s current foreign reserves.

Subidized energy prices have held back companies from investing in new generating capacity, forcing Argentina to meet increasing demand for power with imported natural gas.

“Due to the low tariffs, demand has risen and we haven’t been able to meet that with local generation,” Energy Minister Juan Jose Aranguren said in an interview on Radio Mitre.

Financing is still the biggest hurdle for renewable energy projects, according to Gabriel Goldschmidt, International Finance Corp.’s head for infrastructure in Latin America.

“Particularly at the beginning, it can be a challenge,” said Goldschmidt. “But the government is offering risk mitigation. We are eager to finance projects and optimistic about the auction.”

Project Finance

Projects are expected to be financed by bonds and corporate finance. Argentina’s government will offer a sovereign warrant and the World Bank Group will provide a $500 million special warrant.

IFC, a member of the World Bank Group, has financed about $1.5 billion in industrial projects in Argentina in the past year, and expects to provide funding to some of the auction winners, Goldschmidt said.

IFC’s involvement, along with other multilateral banks, is another endorsement of Argentina and “can mitigate risks,” said Cammisecra, of Enel, which expects to bid in the auction for contracts to sell power from wind and solar projects.
“Investors are looking at Argentina in a different, more positive way,” said Cammisecra. “But that doesn’t mean all its problems are solved. There are still uncertainties.”

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