Wind power success lifts Argentine industry

ARGENTINA: The wind industry is the main beneficiary of a tender for 895MW of renewable energy projects that has been awarded to 22 companies across Argentina.

Argentina's President Cristina Fernandez de Kirchner announced the Genren deals in Buenos Aires
Argentina's President Cristina Fernandez de Kirchner announced the Genren deals in Buenos Aires

The completion of the Genren tender - the first of its kind in the South American country's history - marks a crucial step forward for the wind industry in Argentina. Its meagre 30MW of installed wind power now stands to increase by 754MW.

State energy company ENARSA awarded contracts for a total of 32 projects as part of the tender programme. Under Argentine law, a target has been set for 8% of the energy mix to be comprised of renewables by 2016. Currently, that figure stands at just 0.2%.

Carlos St James, president of the Argentine Renewable Energies Chamber, says: "This first tender is actually launching the industry and shows that the government is finally committed to making it happen."

What could make the Genren programme attractive to operators seeking to invest in renewable energy projects is that it works in the same way as a feed-in tariff. Furthermore, the contracts - each of which take the form of a 15-year power purchase agreement - are paid for in US dollars rather than local currency.

Announcing the results of the Genren tender in Buenos Aires in July, Argentine President Cristina Fernandez de Kirchner said that moving into renewables and focusing on wind would create more than 7,000 jobs. She also said the move would attract billions of US dollars in investment, stimulate regional economies and diversify the energy mix of a country that has huge potential for economic growth.

The main beneficiaries of the tender programme - Isolux, Emgasud, Pescarmona and Lesca - are all either local energy companies or conglomerates with a local presence. The second-largest contract, for the Loma Blanca wind farm in the southern province of Chubut, was awarded to Spanish company Isolux. This project alone will provide a massive 200MW of wind power to the national grid in Argentina at an investment value of nearly US$500 million.

"Isolux is very satisfied with the results of the tender of the Genren plan in Argentina, as the award procedure followed clear criteria," says Juan Carlos de Goycoechea, Isolux Corsan country manager for Argentina. These criteria include the tariff value of each proposal (a maximum of $136/MWh), the execution period for the works, the capacity of the plants, and the local sourcing of equipment and labour.

Most of the new wind power projects will be concentrated in the Chubut province in the southern region of Patagonia (see map). According to St James: "Chubut is at an excellent crossroads where wind meets ample access to electricity grid to transfer it to where the demand is concentrated in the Greater Buenos Aires area."

Challenges ahead

Almost 70% of Argentina's land is swept by winds with an annual average speed of more than 6m/s. Many of its provinces yield capacity factors of between 35% and 40%. Furthermore, winning bidders will have relatively easy access to technology and an abundance of labour. Blessed with such potential, Argentina should be a world leader in wind power, but it faces notable challenges. The national energy grid still has a relatively basic radial structure. A more complex, mesh-style network and more substations would arguably be more reliable.

"One important opportunity for wind power in Argentina is to develop the country's transmission lines, if possible with a mesh structure," says Erico Spinadel, president of the Argentine Wind Energy Association.

Finance represents another potential stumbling block in a country whose risk profile, according to IHS Global Insight, is ranked between Uganda and Guatemala.

"The tender is really good news, but there are uncertainties because the Argentine financial situation makes it difficult to get finances behind projects," explains Vincent Gautier, emerging markets analyst at renewables specialist IHS Emerging Energy Research.

Gautier says Argentina poses a risk for potential investors in all sectors. As evidence for this, he points to the fact that the country has yet to resolve legal issues that arose when it defaulted on its 2002 national debt payments. Additionally, Gautier claims Argentina uses unreliable inflation measures to remunerate nationalised pension funds.

"It is interesting that the global leaders in project development are not in Argentina, because it is arguably too risky," says Gautier.

Spinadel, however, is more positive about Argentina's ability to attract investment, citing the decision to award the 15-year power purchase agreements in dollars, rather than local currency. "Because of the multiple modifications in the Argentine peso exchange rate in recent history, it is important for attracting investor's confidence," he says.

But Spinadel admits that obstacles still remain. "The challenge for wind power in Argentina, after the Genren tender, is to adopt a feed-in-tariff law," he says. "Not only for a specific programme like Genren, but for any company interested at any moment in investing in wind energy."

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