Is it time for renewable energy to take off in Argentina?

The government plans its second RenovAr renewables auctions in May.

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Almost two hundred specialists gathered in Buenos Aires on March 9/10 to discuss the local challenges and opportunities for renewables at an event organised by Energyear, the Latin American renewables conference company.
Sebastián Kind, Argentina’s under secretary for renewables, told the audience that the Ministry is working to develop a friendly legal framework for a sector that expects to attract international investment to reach ambitious targets of 20% green energy by 2025 set by the administration of President Mauricio Macri. The government will this year launch – most likely in May – the second round of RenovAr, a program initiated in 2016 that seeks to transform Argentina´s energy mix to protect the environment and reduce carbon dioxide emissions by two million tons per annum.
Last year’s first successful first round of RenovAr, an auction to add 1,000MW of renewable energy, was six times oversubscribed and benefited from a World Bank guarantee for PPA termination payment. In addition, a specific “Trust Fund for Renewable Energy” or “FODER” for short, mainly funded by the Argentinian Treasury, provided payment guarantees and project financing.
Although the government aims to work under the same scheme in future rounds, financing was one of the main challenges discussed during different panels at the conference. Since the default of the Argentinean government in 2001 in relation to sovereign bonds, the country has found it difficult to attract international investment.The country has not seen long-term project finance structures funded without recourse since those days. A change in that situation will depend on the development of government plans and political stability, always an issue in a country known for the contrary in recent decades. That said, after twelve years of Kirchnerism, the election of Macri in late 2015 brought with it support from the Argentinean business community and moderate optimism from the international markets, which crystalised a few months later with the issuance of $16.5 billion in bonds, the country’s effective return to the international capital markets after several defaults during the Kirchner era. The successful bond placement was possible due to the reforms initiated by the Macri administration: settling with existing creditors, removal of currency controls and measures to tackle rampant inflation, among others, which were perceived by investors as a move into the right direction.
Macri promised a new Argentina to its people, a population frustrated after decades missing the boat to modernity. However, after just over a year in power, a significant number of Argentineans believe the new President has failed in delivering the majority of his campaign’s promises and that little change, if any, has been perceived in their lives as inflation and unemployment continue to be high. At the same time, poverty levels have risen since Macri assumed office and the political opposition is mobilising the discontent with an agenda of strikes and street protests that threaten to weaken the President’s popularity ahead of the important next legislative elections to be held in October.
The optimistic push for new business opportunities in renewables in Argentina takes place against a familiar context for investors of high political risk.