After accelerating in 2018-2020, the growth of renewable energy capacity in Argentina has run out of steam, impacted by the fallout from access to credit amid broader macroeconomic headwinds.

The main driving force behind the renewable energy sector is the RenovAr program, launched in 2016 to tap into the country’s wealth of renewable energy resources by promoting private production of renewable energy through the auction model.

Some projects caught in the economic turmoil – which started to rise in 2Q18 – remain in limbo. The government recently introduced regulatory incentives to help revive the pickaxes in stalled projects, punishable by penalties for failing to meet contractual obligations.

Success in this area is vital if Argentina is to achieve the objectives of Law 27.191, which sets, among other things, the objective of at least 20% participation of renewable energy sources in the electricity matrix here. 2025 – a proportion which is now around 11 – 12%.

The data shows that RenovAr works. In 2016, renewable energies represented around 2% of production, a proportion that rose to 2.5% in 2018. The share rose to 6.1% in 2019 and 10% in 2020.

Three solar parks and a wind farm, as well as smaller projects, scheduled to come online in July-September, will expand Argentina’s 434 MW unconventional renewable energy farm (NCRE). The new NCRE capacity that is expected to be commissioned next year is expected to be less than half of that commissioned in 2021, based on current forecasts.

ALSO READ: Argentina’s power watch

A lot depends on the good behavior of the carrots and the good market conditions.

To learn more about the state of play and more, BNamericas spoke with Adolfo Durañona, Managing Partner of Baker McKenzie’s International Law Offices in Buenos Aires.

READ ALSO : Snapshot: the NCRE generation fleet in Argentina

BNamericas: Regarding the RenovAr program in Argentina, what is the current situation? Can you give us a brief overview?

Duranona: We believe that the RenovAr program has been positive for the country. In addition to the good results concerning the participation in the program, a scheme was proposed which generated positive results despite the macroeconomic difficulties and the speed of reaching the generation objectives. Proof of this is the growing participation of renewable energies in the energy matrix.

The challenge is to consolidate this upward trend, allowing the realization of projects that have not yet obtained the commercial green light and sufficient capacity in relation to transport needs. Funding projects remains a challenge.

A September 2021 report from the wholesale electricity market administrator Cammesa. 76% of the electricity produced is wind and 10.9% solar.

BNamericas: In August, the government announced measures modifying the modalities of extensions and fines for the RenovAr program. What is the aim or purpose of these measures?

Duranona: The objective is to try to make viable projects which have been affected by the macroeconomic situation of the country – restrictions on access to the foreign exchange market, which restricted the payment of loans, dividends, imports, etc. – and by the effects of the pandemic.

Following these announcements, the Department of Energy issued resolution 551/21, which amended guarantees on renewable energy projects under the term market model – Mater -. It is the market between individuals, which encourages large users to buy renewable energy directly from producers. Also, it aimed to free up transport capacities in favor of the latter.

This is a measure that gives incentives to the sector and affirms the commitment to achieve the production targets set under [renewable energy promotion] Law 26 190 – and its amendments. Like all general rules, there are aspects which are not covered or which do not meet the needs of all projects, but we believe that this is a step in the right direction and that in addition to other measures could be taken to promote the development of renewable production. We understand that measures are being assessed to respond to the RenovAr projects on standby which, among other things, would free up transport capacities, which is one of the demands of the sector.

BNamericas: Do you think that the measures are sufficient for the suspended projects to move forward with their construction, or are there other relevant factors at play that also need to be taken into account, such as the macroeconomic situation and access to credit?

Duranona: As mentioned earlier, we believe the direction is correct but, without a doubt, there are macroeconomic issues which, if normalized, resolved or addressed in general or for the sector, could make a big difference.

These issues affect not only the production sector but also all the other areas that complement it, mainly the different types of demand. Once this demand, especially industrial demand, normalizes to pre-pandemic levels, the real challenge will be to create an environment conducive to growth and stability allowing the regular and sustained development of the sector.

On the other hand, with projects requiring long-term funding, supplies from abroad and stability, such as renewables, there are aspects such as interest rate cuts, upgrades. day tariffs, the flow of foreign currency and the standardized import processes that would help conclude ongoing projects and the implementation of others, both in the area of ​​Mater and distributed production.

BNamericas: Argentina has clearly experienced problems in developing its renewable energy sector. But nonetheless, it seems that the sector has quite a bit of potential. What do you think?

Duranona: Yes, we believe that it has potential because of the characteristics and climatic conditions but also because of other industries that could be generated, such as green hydrogen. Argentina has had its hydrogen law for many years, and although recently there appears to be government interest in exploring its development, nothing has actually happened in this regard.

BNamericas: Can you estimate when we will see more action in the renewable energy sector in Argentina?

Duranona: It is difficult to estimate a time frame. But this process will certainly be gradual as the above-mentioned macroeconomic factors normalize.