A scarcity of capital, price-distorting subsidies, and political risk combined to make Argentina a relatively unappealing destination for clean energy investment through much of the first half of this decade. That began to change in December 2015 with the arrival of new President Mauricio Macri. Since then, the Macri government has, among other things, sought to cut subsidies and liberalize energy markets to spur conventional and renewable project build underwritten with foreign capital. The country has also set an unconditional long-term target to limit its emissions to 405 MtCO2e by 2030, excluding land use change and forestry (LULUCF).
Most notably, Argentina has set an 8% target for renewable electricity consumption by 2018 and 20% by 2025 under Law 27.191, enacted March 31, 2016. The law represents a landmark for clean energy in the country. In addition to revising and strengthening existing national clean energy consumption targets, it created the Trust Fund for the Development of Renewable Energies (FODER) and provided two tax incentives to boost investments in renewables – a VAT tax rebate and accelerated depreciation.
Like other nations in Latin America, Argentina has turned to reverse auctions for power contracts to spur the development of clean energy projects. In the second half of 2016, the country hosted RenovAr Round 1 and RenovAr Round 1.5 tenders which between them contracted 2.4GW of new renewable capacity. Winning projects are expected on line 2017-2019.
These recent clean energy reverse auctions are by no means the first ever held in Argentina. The GENREN tender launched in 2009 received 1.4GW in offers, produced 895MW in contracts signed, but resulted only in 128MW actually getting commissioned. The GENREN experiment went awry when investors balked at backing projects due to concerns over the credit-worthiness of offtaker CAMMESA, and the overall risk perceived to be present in Argentina.
The RenovAr mechanism has sought to address some of the issues that arose out of GENREN. The main move was securing better financial conditions for the auction’s winning bidders through World Bank and FODER guarantees. It aimed to back the offtaker payments and mitigate any systematic risk that may arise throughout the 20-year contract length. Bidders could apply for the guarantees before the two tenders. Additionally, in order to mitigate future transmission constraints, nodes’ capacities and availability were made explicit in the auction rules.
Argentina’s power matrix remains largely reliant on ample local large hydro and natural gas resources. Between them, these two sources account for 75% of capacity and 78% of generation. Oil, coal, and nuclear combined to account for 24% of capacity and 20% of generation.
Renewables are starting to elbow their way onto the grid, however. In 2016, the country generated 2.8TWh from renewables, or 2% of the 137TWh total. Most of this came from small hydro, which accounted for 70% of clean energy generated. Wind, solar, and biomass accounted for the balance.
On biofuels, Argentina enforces 12% biodiesel and 12% ethanol blending mandates for conventional diesel and gasoline, respectively. However, the majority of biodiesel the country produces it exports, to Europe or the U.S. In 2016, Argentina exported 1.6 million tons out of 2.7 million tons produced, up 50% from the prior year. This was largely due to higher demand from the U.S. specifically and greater use of biodiesel generally in public transportation, the local biofuels trade association has said.
Argentine biodiesel exports have been subject to duties imposed by the EU since May 2013. To support local production, Argentina has boosted its domestic biodiesel blending mandate, raised mandated prices and cut the export tax.
In November 2016, Argentina presented its “Paris” commitment. This included an absolute emissions reduction and pledge to limit emissions to 405 MtCO2e by 2030, excluding land use change and forestry (LULUCF). This unconditional target is equivalent to 22% above the country’s 2010 emissions levels and 74% above 1990 levels.
Despite Macri government initiatives to boost clean energy and cut emissions, Argentina has a long road ahead to achieve all its targets. Efforts to rebuild international investor confidence are a work in progress. Local transmission and distribution networks stand to inhibit wind and solar build. In short, Argentina has taken important steps to foster its clean energy economy, but plenty of work remains.