Argentina is the third largest power market in Latin America. The Argentinian power landscape is still dominated by fossil fuels, which represent 87 per cent of the total energy mix. Until 2010 Argentina was a power exporting country, however, increased consumption combined with a steady decline in developing new power projects and the decline in the extraction of natural gas forced Argentina to import power (and natural gas for thermal power plants) from neighbouring countries. Argentina is facing a significant power deficit which has triggered various ambitious government initiatives to install additional capacity at record speeds.
Law No. 27,191 identifies the development of electricity generation from renewable energy sources as an area of public interest and commits the state to increasing the share of renewable energies (including mini hydro under 30MW capacity) to 8 per cent of the national electricity mix by the end of 2017. With this law Argentina also set out a long term target of 20 per cent of power demand to be covered by renewable energy generation with 10,000MW of renewable power generation to be added to the grid by 2025.
Amongst the various initiatives to increase power generation the Argentinian government has launched the RenovAr Programme to develop Argentina’s renewable energy sector. RenovAr started its first round with an auction to add 1,000MW of renewable energy to the grid (600MW of wind, 300MW of solar, 65MW of biomass, 20MW from small dams and 15MW from biogas). The projects will need to be built in no more than 24 months and investment between US$1.5 and US$2 billion is expected only for the first round.
The round of applicants for the first tender showed an impressive number of proposals, 123 projects in total with over 75 companies bidding for projects. Over 6,000MW in proposals were received with this tender, making the tender six times oversubscribed.
The awarded PPAs will have a duration of 20 years and will be denominated in Argentinian Pesos. The PPA issued with the tender process addresses convertibility issues and the guarantees in case of events that prohibit free currency conversion.
RenovAr’s first round benefits from a World Bank guarantee for PPA termination payment (see diagram 1 below) sitting behind the newly created Renewable Energy Trust Fund (FODER) and the State, more details on the fund below. The fund also provides an PPA energy payment guarantee (see diagram 2 below) backing the payment obligations of CAMMESA (the national utility company) as the offtaker under the power purchase agreements (PPAs) to be awarded in the first tender.