Argentina development prospects lifted by force of wind and sun

Argentina development prospects lifted by force of wind and sun

Funds are short but many companies want to be involved

When Doris Capurro, chief executive of Argentine renewable energy developer Luft Energía, was pitching a wind power project last year to investors she thought her estimate of its output was high.

Tests had found the so-called capacity factor — average output relative to capacity — of the proposed 100MW Mario Cebreiro wind park, near the port of Bahia Blanca in southern Buenos Aires province, was 47.5 per cent. That was high for wind parks globally and it helped Luft and its partner in the project, Pampa Energía, one of Argentina’s leading independent energy companies, to secure financing for the project.

Yet when the wind farm was put into operation, Ms Capurro says, she was surprised that the capacity factor was 49 per cent. “Argentina is blessed with very competitive [sustainable] natural resources,” she says.

Certainly, Argentina’s winds bend the trees in Patagonia and lure kite surfers to its beaches. In the arid north-west, meanwhile, the sun scorches the earth.

All of this has attracted companies to participate in tenders called by President Mauricio Macri’s government to meet 20 per cent of electricity demand from renewable sources by 2025. Enough tenders have been given the go-ahead to supply about 15 per cent of demand potentially, up from nearly 2 per cent this year, says Maximiliano Morrone, the national government’s director of renewable energy promotion.

He says one driver of such interest is the size of the Argentine market for electricity — the third biggest in Latin America after Brazil and Mexico. Another is the high output potential of wind and solar parks.

Mr Morrone says the average Argentine capacity factor for wind parks is 50 per cent. This is nearly twice the average in Denmark, which gets 40 per cent of its power from the wind, according to data from Brussels-based WindEurope. Argentine solar power parks stand to generate two to three times more output than those in Germany, a leader in European solar power, Mr Morrone adds.

With such potential, Ms Capurro says that it will be years, rather than decades, before Argentina will generate 50 per cent of its electricity from renewables.

This was hard to imagine during the past decade. In Argentina, under the former Kirchner-Fernandez governments, economic and regulatory volatility, including capital controls and fears of private asset confiscation, kept investment away. Meanwhile, wind and solar park construction boomed in much of the world.

Under Mr Macri, Argentina’s late entry into the worldwide movement to build wind and solar parks has had its benefits. The years of under-investment have left room for growth and the chance to capitalise on recent advances.

Gabriel Busca, project manager at Pampa Energía, says this means wind parks today can be built with fewer turbines and less outlay on cables, foundations and roads. That said, local contractors, workers and suppliers lack experience, but he says the industry is learning from foreign companies.

Another difficulty is transmission capacity. Walter Lanosa, chief executive of Genneia, an Argentine company that runs a wind park — and has four more in development — in Patagonia, says no new projects can be developed there because the grid is saturated.

A bigger problem is for developers to muddle through the country’s bouts of economic, financial and political volatility. A crash in the peso since May has led to interest rates of 60 per cent.

“There are a lot of renewable power projects and a lot of interested companies, but little financing, or almost none, to put them into operation,” says Federico MacDougall, a director at First Corporate Financial Advisors in Buenos Aires. “The question is how you cross the desert to get to the oasis.”

There is a silver lining, says Ben Backwell, chief executive of the Global Wind Energy Council, a Brussels-based trade group. Much of Argentina’s generation capacity is “creakily old”, and many fossil-fuelled thermal plants will be retired in the next decade. This could spur the development of renewables as a replacement, as they are “cheaper, quicker and easier to deploy than thermal”, he says.

This does not mean that thermal will disappear. With Argentina’s enormous Vaca Muerta shale gas resources, the goal is to phase out diesel and fuel oil for a cleaner system based on gas and renewables, Mr Morrone says.

“We have spare sun and wind in Argentina,” Ms Capurro adds. As for any other circumstance that may impede development of renewables, she says “we just have to deal with it”.