Enrique Grotz and Pablo Decundo, Ernst and Young
January 02, 2012 | 0 Comments
Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.
Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of Argentina.
Argentina is the third-largest power market in Latin America, and one of the most deregulated, with around three-quarters of the country’s generation capacity owned by private companies.
Argentina’s power mix primarily comprises natural gas (over 50%) and hydropower (circa 40%). Argentina’s dependence on gas is of concern given the country’s own natural gas reserves have reduced considerably over the last five years.
Electricity demand continues to grow steadily in the country and forecasts suggest an ongoing annual increase of 6%. Estimates indicate that an additional 1 GW of new generation capacity per annum will be necessary to satisfy this growing demand.
Law 26.190, passed in December 2006, established that 8% of electricity demand should be generated by renewable sources by 2016. The Law also introduced FITs for wind, biomass, small-scale hydro, tidal, geothermal (all of which receive circa €2.6/MWh) and solar (circa €150/MWh). Tariffs are valid for a period of 15 years.
In addition, the GENREN program, initiated in 2009, called for state utility Energía Argentina Sociedad Anónima (ENARSA) to contract at least 1GW of renewable energy capacity, to be sold into the grid at fixed rates for a period of 15 years. In July 2010, the Government awarded PPAs to 17 wind farms with a combined capacity of 754 MW, 4 biodiesel power plants with an aggregate capacity of 110 MW, 5 small hydro plants amounting to 11 MW and 6 solar PV projects totaling 20 MW.
According to government data, in September 2010, Argentina was due to pay US$127/MWh (€93/MWh) to wind developers successful in the GENREN tender, which could be up to two-thirds more than in neighboring countries such as Brazil. Small hydro producers will receive around US$162/MWh (€119/MWh).
Access to finance
Argentina defaulted on its bonds in 2001 and has since had difficulty accessing the international credit market. A lack of support for project development from financial institutions continues to be a barrier to renewable energy development in the country.
That said, Argentina attracted US$743m (€546m) in clean energy investment in 2010, ranking it 16th among G 20 members. Its five-year growth rate for clean energy investment is 115% which places it second among the G 20.
Argentina has two interconnected grid systems. The Argentine Interconnection System (SADI) covers the upper three-quarters of the country, while the wind-rich Patagonia region is covered by the Interconnected Patagonian System (SIP).
At the end of 2001, as a result of the economic crisis, many electricity generators and distributors deferred making further investments in their networks. It is believed that the current transmission infrastructure is sufficient to support the build-out of the successful GENREN tenders; however, project development beyond this level will require significant investment in the transmission infrastructure.
Argentina has abundant unexploited wind resources, especially in the southern Patagonia region where capacity factors are well in excess of 45%. Current installed capacity stands at 32 MW, though the Government is targeting 1.2 GW by 2016.
Despite ongoing difficulties with project financing and low electricity prices, certain provinces have introduced local tax incentives. For example, Chubut, in north Patagonia, has approved legislation removing 100% of taxes on gross income from wind power in the first 5 years of operation, reducing to 50% in years 6 to 10. The province hopes such incentives will spur the build-out of an estimated 2.2-GW pipeline.
Argentina’s eastern plains and north western regions are ideal for solar PV development. However, only 10 MW of solar has been installed in Argentina to date, making it a huge untapped resource. The Government has set a target of generating 3.3 GW of solar power by 2020.
Argentina has historically focused on biofuel development rather than biomass, resulting in minimal installed capacity to date. However, it is estimated 80% of the country’s annual 6 metric tonnes of forestry biomass could be used to generate electricity, and Argentina’s planning ministry has received bids to build out 104 MW worth of biomass capacity.
Argentina has introduced the Small Hydroelectric Program, which will conduct studies to identify potential sites and promote the development of small HPPs. The majority of the 30 MW of current installed capacity is located in the southern Andes region, which the Government expects to increase to 60MW by 2012.
To date, geothermal resource has mainly been used for heat recovery as opposed to power generation. Research into the country’s geothermal potential is still at an early stage, but the Government has set a target of 30 MW of electricity generation by 2012.