John Kennedy, Contributor
December 21, 2009 | 8 Comments
Patagonia, Argentina [RenewableEnergyWorld.com] The bleak windswept region of Patagonia in Argentina has some of the best conditions in the world for wind power generation. Not only are the winds strong in Patagonia, but they are also fierce in the south of Buenos Aires province and interior provinces such as Córdoba. Blessed with such potential, Argentina should be a world leader in wind energy.
And yet, despite periodic energy shortfalls, as of yet wind only contributes a minuscule 0.21% to the energy mix, with a total of 30 MW installed. Hampered by a lack of incentives, government intervention in the energy markets and access to finance; wind power failed to take off up to now. However, at last there are very encouraging signs of momentum.
According to a recent study by the Argentine Renewable Energy Chamber (CADER), nearly 70% of Argentina’s territory is covered with winds whose annual average speed, measured at 50 meters above ground level, surpasses 6 m/s. In Central and Southern Patagonia the speeds can reach on average 9 m/s and up to 12 m/s. Most areas in the vast Patagonia region experience annual average capacity factors above 45%. The provinces of Córdoba, part of San Luis, La Pampa, San Juan, La Rioja and the central and southwestern regions of the province of Buenos Aires yield capacity factors between 35% and 40%.
But despite such massive potential, the 30 MW of wind generation that has been installed to date comes mainly from projects completed between the mid-1990s and early 2000s that were developed by small cooperatives in the Patagonian region. Since then there has been a hiatus. Given the recurring natural gas shortages Argentina has experienced for the last 8 years, it is surprising that the sector has not developed at a faster face.
Barriers To The Development Of Wind Power
Following the Argentinean economic collapse in 2001, the government began to intervene heavily in the energy market, to protect consumers from hikes in energy prices. Since then, the wholesale pool has not been allowed to use the marginal cost of generation to set the wholesale price and customer bills have been subsidised by the state. With a significant differential between the spot prices and the marginal costs, there has been little incentive to invest in the energy sector, as operators cannot recoup their investments and operating costs.
"But things are already starting to change as subsidies are becoming too costly and compromises government expenditure in other areas. This is good news for the development of wind energy," said Mauro Soares, president of the Wind Committee at CADER.
Legal Framework in Place
Argentina’s regulatory framework for renewable energy, based on the National Law 26,190/2006, sets a target that renewable energy should meet 8% of the total energy demand by 2016. The law defined a FIT (feed-in tariff) with a bonus tariff to wind generators that will be provided by a Renewable Energy Trust Fund, to be created specifically for this purpose. It also provided certain tax incentives such as accelerated depreciation and exemption from Value Added Tax (VAT).
But some feel that these incentives are insufficient. “This incentive falls far short of covering the actual cost of energy given the big difference between spot prices and marginal costs," said Sébastian Kind, Board Member of CADER.
Momentum in the Industry
At last there appears to be some momentum in the industry, which manifests itself in a number of new projects. The first of these key projects is Vientos de Patagonia I, funded by ENARSA and the Province of Chubut. Phase one of the project is already underway, with completion planned for early 2010, encompassing the installation of two prototype turbines and approval of a national production standard. Phase 2 will include the installation of a 60-MW wind farm in Chubut using the turbines approved in Phase 1.
Another encouraging sign is that there are already three locally based manufacturers active in the market. IMPSA Wind, which has the capability to manufacture 1.5/2.1-MW turbines, recently won a tender for the operation and maintenance of the expanded Arauco wind farm in La Rioja province. The wind farm has plans to expand from its current 2.1 MW to 25.2 MW using IMPSA wind turbines. “We foresee a third phase that will end up with 90 MW, which is enough to supply 45% of the current energy demand of the province,” said Santiago Miles, Director of Communications at IMPSA.
Another company, NRG Patagonia has secured the rights to use foreign patent for a 1.5-MW asynchronous wind turbine. And a third player, INVAP, is at the design stage of a MW-size Class 1 turbine, designed especially for the strong winds of Patagonia and Comahue region.
In May 2009, President Cristina Fernández de Kirchner presented a programme for tender for electricity called GENREN, which set a policy of contracting for 1,000 MW of renewable energy through PPAs with the government entity ENARSA. The program sets a limit of 500 MW for wind. The tender process has already been completed and the results are expected shortly.
Wind as a Complementary Power
Further evidence of the growing push towards wind power in Argentina is the level of research being conducted on wind as a complementary power. Two innovative solutions for the use of wind energy in conjunction with traditional energy generation are already being investigated.
Most of the hydro generation capacity with storage capabilities is located in the region of Comahue, one of the areas with the greatest wind power potential. Considerable economic benefits could be gained by using wind power to save water in the summer months that can then be used in the winter when natural gas is in short supply (due to the higher residential demand for heating) and minimise the need for expensive thermal power generation with diesel fuel.
According to Nicolás Brown of Techpetrol, “hydro reservoirs in the area could store up to the energy equivalent of 1500 MW of wind power. This would save almost 700 thousand cubic meters of diesel, which would amount to 75% of all the diesel used for thermal generation in 2008.”
Another use would be for pumped storage.
"An ideal way to maximize the use of wind power is to use it as a complementary power in hydro generation. Wind generators can be used to to drive up water at a dam to a reservoir, converting mechanical energy (wind) to electrical, to mechanical again (pumping), and finally into hydro electricity," explained Enrique Covas an independent consultant and inventor.
While the outlook is positive, challenges remain for the sector to reach its potential. First among these is access to financing. Argentina has been blocked from international credit markets since defaulting on US $93 billion of its debt in December 2001. Little progress has been made to date to enable Argentina to return to the international financial markets. "Without access to credit, the development of Argentina’s wind sector will be dependent on private equity, which makes it difficult to advance large projects in wind generation," said Carlos St James, President of CADER.
“However, the Government can play its part to address the problem. Projects like GENREN show that state funds (capital), either as credit or collateral, can give a big boost to wind power,” said Fernando Tilca of the Institute of Non-Conventional Energy at the University of Salta.
Outlook for the Medium Term
The medium term prospects in the sector are positive, according to CADER President Soares. "The whole power sector will need to normalize regarding price regulation, enabling companies to operate profitably. This will bring more investment into the sector and wind will be a big beneficiary from this. We would definitely expect to see the target of 2,000 MW reached in five years," he said.
CADER Board member Kind agrees, "all the technical conditions are ripe for this to happen, we can only hope that the market reacts to the country's energy needs by taking advantage of these investment opportunities."
John Kennedy is a London-based economic consultant and business writer who focuses on energy, agriculture and economic themes. His articles have appeared in Montel Power News (Norway); Corn & Soybean Digest (USA), Conexión Rural and The Southern Cross (Argentina) as well as other international media.