Argentina’s biggest electric power projects in 2020

Argentina’s power sector, like the country’s economy overall, is at a significant juncture, but several big projects will start operations in 2020.

A booming, if still nascent, renewables sector was hurt by the closing of international markets (a consequence of political and financial uncertainty) and new capital controls, a historic problem for the country. Meanwhile, the natural gas-powered backbone of its electrical system continues aging and is in dire need of new, more efficient generators.

Argentina’s debt restructuring process, expected to begin as soon as the new administration of Alberto Fernández takes office, will determine crucial points like companies’ access to financing both in dollars and pesos. The country’s uncertain macroeconomic situation will also play a key role.

Next year will be subdued as investors await clarity on the rules. But if the new government maintains the regulatory framework and could jump-start the economy, activity should resume at a faster pace from 2021.

FINANCING CRISIS

While the country’s project pipeline was revitalized by a newfound access to international capital markets since 2015, the unsustainable national debt and recently implemented capital controls have again closed-off access to financing. 

Two events will be key to ensure companies can access affordable credit again: Argentina’s debt restructuring process and the removal or easing of capital controls. On the one hand, restoring market confidence quickly by restructuring foreign debt and reassuring investors that the country has a sustainable medium-term plan will be critical to unlock the foreign debt market and allow projects to access financing. Local investors and lenders will also be looking at the medium-term health of the economy, and particularly debt sustainability.

According to Marcelo Álvarez, president of local renewables association Cader, the current capital controls must become more flexible to allow already-financed energy projects to receive their loan payments, as the current regulation imposes several roadblocks.

RENOVAR

Uncertainty is also surrounding renewable tender initiative RenovAr. While four rounds were conducted during the Macri administration (rounds 1, 1.5, 2 and 3) the deteriorating economy has forced several generators that won PPAs to halt and delay development. This was the case of Genneia, which paralyzed construction on four renewable projects worth some US$300mn earlier this month.

President-elect Alberto Fernández has been vague regarding renewable development and the power sector, focusing on Vaca Muerta and natural gas instead. However, signals so far have been contradictory, and it is difficult to predict if RenovAr or something similar, will have a place in the new administration.

Also, uncertainty remains about a possible end to dollar-denomination in future PPA contracts. This could have a negative effect on investment, as PPAs are long-term contracts and the peso is volatile. Still, other forms of development remain possible, for example through renewables term market Mater and the law regulating distributed generation, that would allow projects to seek financing through means other than PPAs.

SUBSIDIES

During 2015-19, the Macri administration slashed subsidies in the power sector while struggling with rising utility prices and a depreciating currency.

Power and natural gas subsidies fell from a peak of 3.5% of GDP in 2014, the year before Macri took office, to a still very significant 1.4% this year, a difference of US$13bn, putting relative spending at 2008 and 2009 levels. Power subsidies fell 68%.

The plan was to end subsidies and liberalize Argentina’s power markets after years of stagnation. In electric power, subsidies had led to underinvestment and increasing outages as generators aged and were not replaced while network upgrades and maintenance were scaled back.

However, due to the ongoing recession and the government’s decision to freeze power and gas prices after a heavy loss in the August primary elections, leaving adjustments for next year, the administration veered off course. While energy subsidies were expected to come down to 1% of GDP this year and 0.2% the next, the latest energy ministry data shows subsidies remained at 1.4% of GDP, barely dropping from last year’s 1.5%. 

It is unlikely Peronists will continue the adjustment. Rising power and gas prices were important sources of discontent against the Macri government, with the “tarifazo” or “utility price hike” becoming a rallying cry among the opposition. This suggest subsidies are most likely to stay at current levels.

PROJECTS

Among next year’s biggest projects count a US$350mn expansion of Pampa Energía’s Genelba Plus natural gas complex, Neoen’s US$234mn Altiplano solar park and Envision’s US$180mn Los Meandros wind farm. Also, some projects from RenovAr round 1 and 2 that had already received financing before the August peso crisis are expected to finish construction next year.

Genelba Plus

Pampa Energía’s Genelba Plus natural gas complex (pictured) expansion is one of the newest and most efficient natural gas plants in Argentina. The last stage of aUS$350mn expansion involves adding a 200MW steam turbine, closing the cycle at the plant. A first stage of the project, involving another 180MW turbine, entered into operation earlier this year. It is the only active project in Pampa’s electric power pipeline. The turbine is expected to come online in Q3.

Altiplano

France’s Neoen is building this 208MW solar park near Salta in Jujuy province. Jujuy has, together with Chile’s northern and Peru’s southern desert regions, some of the best solar resources in the world. The plant will cost US$234mn and is expected to come online in 1Q20.

Los Meandros

China’s Envision began construction of Los Meandros wind farm in February. The plant is near the southern town of Neuquén, in Patagonia, which is known for its strong winds. Los Meandros will have a 125MW capacity for investments of US$180mn. It is expected to begin operations in February 2020.

Cañadón León

This US$160mn wind farm, to be built in Santa Cruz province, has become a 50/50 joint venture between renewables arm of Argentine NOC YPF, YPF Luz, and Norway’s state oil giant Equinor, which is looking to diversify into renewable energy around the globe.

The project will have a 120MW capacity and is expected to enter operations in 3Q20.

Arauco II

The US$160mn wind farm, being built in the far north La Rioja province, belongs to state-owned power company Ieasa (former Enarsa) through subsidiary Parque Eólico Arauco SAPEM. Siemens is providing the turbines and the project is expected to enter operations at the end of 3Q20.

BNamericas' database contains information on 162 electric power projects in Argentina, including early stages, construction and operation. You can access the database here.