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Argentina – learning from renewables trailblazer Brazil

With Argentina set to join Brazil as a global renewable energy hotspot, GWEC's Ramón Fiestas shares his unique insights into both South American markets

Almost 10 years after Brazil started its tender-based renewable energy programme, Argentina is following in the footsteps of its giant neighbour.

Some issues set the two nations apart, but both have one thing in common – the good wishes of the global wind industry as it expands its horizons.

Ramón Fiestas, CEO for Latin America at the Global Wind Energy Council (GWEC), is in a unique position of having helped spearhead the opening of both the Brazilian and the Argentine markets.

A decade ago, the wind industry’s main concern was overcapacity of its industrial base amid a slowdown of orders for mainly European turbine markets. That meant government financing and local-content policies won the day in Brazil.

Now the excess is in financing. With the ripples of the 2008 crisis still affecting most economies, money is cheap in global markets and ready to venture onto new shores. With an economy that signals it is more open, and with a well-regulated renewables sector to shore-up confidence, Argentina needs to convince banks that its plan to reach 20% renewables by 2025 is for real, despite its less trustworthy track record.

Fiestas spoke to Recharge about the two South American giants.

How do you see these two nations in the context of Latin America’s wind power market?

There are many similarities, but we have here in Argentina some situations that are very different from the ones we faced in Brazil [a decade ago].

The first and most important one is that Brazil, at the time, had an investment environment that wasn’t degraded. This meant investments weren’t considered of high risk, and financing was also not a problem because there was a source of financing that was almost universal –  the government’s National Development Bank (BNDES).

"In Argentina you have something that you didn’t have in Brazil: underlying regulations and planning"
Ramón Fiestas

In Argentina you have something that you didn’t have in Brazil: underlying regulations and planning – which indicates political decisiveness – which at that time Brazil didn’t have.

Here in Argentina, the challenge is not regulatory, because that step has been taken by the Argentine government a year ago. It means that Argentina is ready to – from a regulatory and planning point of view –  develop its renewable power potential.

But at the same time, Argentina lacks a good investment environment and a channel for financing like Brazil had.

[Promoting] investor confidence needs new financing arrangements. In a way, investors are confident, which was patent after the results of the tender, which signalled that there is significant investor appetite.

Differently from Brazil, there is no public bank ready to finance government policies. Here private banks and the multilateral institutions will have to cover this gap.

How confident is the wind industry that regulations will remain stable despite political changes in Argentina?

The renewables law was approved during the last government by almost unanimity in congress – only eight congressmen didn’t vote in favour of the law. This brings security, because…it was approved even by those who would later be in power.

Because of the recent sovereign default the renewables law gave several guarantees that contracts will be respected, in order to compensate for the risk perception. How do we explain this apparent contradiction that even with Argentina’s high risk, the power prices at the tender were very low in relation?

The risk perception has varied between the different bidders. If you take away from the tender results the one that were financed by Asian funds and the Asian component – which allowed for the most aggressive prices – you will see how the rest of the bids had much more reasonable prices between $60 and $70.

You have to make this distinction, because we are talking about technology with different quality from the point of view of investors of projects.

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You are talking about projects with differentiated investment and financing from projects that are invested by the industry without the intervention of a developer: it’s the technology supplier that invests. In the case of [China’s] Envision it is the wind turbine maker that is making the bid, so you cannot compare this to an offer made by a normal developer, which doesn’t manufacture its own machine.

This is similar to what is happening in Mexico, where the bids are very aggressive from groups that don’t compete in normal market conditions.

These are price signals which can confuse regulators, since these kind of prices are not sustainable. You are talking about exceptional conditions that can be used for one or other tender but not for a whole renewable energy programme, because they are not sustainable.

Local content has always been a complex issue for GWEC all over the world. How to you see this in the case of Argentina?

It’s not a complex issue – simply a little understood issue. The development of a supply chain where there is a market, not just an opportunity, is a natural consequence.

So our role is to aggregate the opinion and the experience of the international industry to make it understood which will be the necessary tools to allow a local supply chain to meet the policy objectives in terms of renewables.

In Brazil, because a public bank was financing the wind sector, then there was a policy objective that it cannot finance international projects. In the end, everybody understood [that you needed to create a long-term market].

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Argentina has chosen a different path. For one year Macri has allowed import duties to be exempted from solar and wind equipment, and only after that period will this be reviewed.

Here in Argentina the focus has been from the perspective to support, with fiscal incentives, the development of a local supply chain. You have to give the government time to see whether these regulatory mechanisms produce the desired effects.

Projects with a local supply chain will only be financed if there is confidence that local suppliers have enough quality, so they will need to be certified by entities that can audit the quality of this product. The first to benefit from a local supply chain are the ones that will install wind turbines here.

The concern is when a country believes that there is enough capacity in the supply chain that is not sufficiently mature to supply this capacity.

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