Argentina delays tender as interest grows

ARGENTINA: Competition in the first tender under Argentina's new renewables programme Renovar is likely to be even tougher after the government put back the deadline for offers and removed a series of restrictions on which companies can participate.

Argentina is looking to add 1GW of renewable energy to its electricity mix
Argentina is looking to add 1GW of renewable energy to its electricity mix

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Under the final tender rules published this week in Argentina's Official Gazette, companies now have until 5 September to present offers to sell electricity to regulated clients via state market operator Cammesa.

This is the first of several tenders in the pipeline to lift the participation of renewable power in Argentina's energy mix to 25% by 2025. The government is seeking 1GW of installed capacity, divided between 600MW of wind energy, 300MW of solar, and 100MW of biomass, biogas and mini hydroelectric plants.

The winning projects will be selected according to technology, price and location. Once available capacity at a connection hub is exhausted, additional projects in the area will be ruled out.

Minimum energy commitments must be assessed by an independent consultant with sufficient experience in energy production reports. "Projects are preparing their energy assessment, defining the WTG model and layout to maximise energy and reduce losses and uncertainties," said Diego Werner, technical director of renewables consultancy AIRES.

In a change from the preliminary version of the rules published last May, the government has reduced the size of guarantees and assets that companies need to provide to prove their financial strength, and has dropped the need for a technically competent partner, moves which are expected to further boost interest from investors.

In addition, the same project may be presented more than once by different bidders.

"It is an ingenious form of encouraging the widest possible competition," said Juan Bosch, president of energy trading firm SAESA.

The coming weeks are therefore likely to see Argentinean utilities and international players, including many of those that participated in recent tenders in Mexico and Peru, signing deals to develop the handful of wind projects that are far enough advanced to start generating electricity by the 31 December 2017 deadline.

"This is the start of a long term process and everyone wants to get in early," Werner said, estimating that offers could double or triple the demand on offer.

As a result, many expect a sharp drop in prices from current sky-high generation costs, with some observers predicting offers as low as $60/MWh.

A key factor will be at what rate banks are willing to provide financing to renewables projects, which will depend largely on their assessment of Argentina's economic risk.

Although the power purchase agreement developers would sign with Cammesa, has been designed to be bankable, some investors may still want to opt for a World Bank-backed guarantee.

This would provide greater peace of mind against a breach of contract by the Argentinean state against noncompliance by Camessa, but the guarantee is optional and the cost must be borne by the developer and incorporated into its offer price.

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