Local player 360Energy feels the squeeze in Argentina

Although $59.75/MWh for solar PV in Argentina might be considered low given the current economic situation of the country, local solar developer 360Energy has learned a hard lesson between the first two rounds of the RenovAr renweables programme run by the South American nation.

“Competition takes its toll,” CEO Alejandro Lew told Recharge, while not denying that his company will take a hit on its expectations of returns in a bid to secure contracts.

In Round 1, 360Energy offered over 635MW of solar projects, winning nothing when the cap price was $90/MWh as bidders brought the average price down to $59/MWh.

Now, with the lower cap price, 360Energy has decided to return to the ring for Round 1.5, the results of which are due to be unveiled tomorrow.

Together with projects owned directly by its controller, it registered 213MW.

“It’s not going to be easy working with rates of return at prices lower than what they should be for Argentina,” said Lew.

In Round 1, the 400MW of solar PV contracted was fully taken up by two companies – Jujuy province’s JEMSE and Spain’s FieldFare – at prices of $59/MWh to $60/MWh.

“We tried but could not get down to these levels,” said Lew, pointing out that the firm's shareholders had pinned rates of return between 15% to 20% to allow the company to carry out its medium and long-term strategy.

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Operating 7MW of Argentina’s total 8MW of utility solar PV capacity, 360 Energy has prepared itself to be one of the top solar PV players in the country since its foundation in 2008.

Aside from the Cañada Honda solar PV plant, the company has a project pipeline of some 900MW in solar throughout the country. Development continues, as 360 Energy will be looking at both the regulated market – aiming to get a share of Argentina’s planned 10GW of renewables to be tendered – and the non-regulated market by developing its business also as a IPP.

But while the non-regulated market awaits final regulations to allow large consumers to meet the 20% renewable energy requirements by 2025 or through self-production, Lew is studying how to best participate in tenders.

According to Lew, Argentina’s prospects in solar are very promising, since he sees the 10GW target set by the government being surpassed.

“Solar power in Argentina will be bigger than wind. I think we can install 2GW to 3GW in coming two to three years since our solar irradiation is as good as Chile,” he said.

This is what drove Alejandro Ivanissevich in 2015 to invest his profits from the sale of a controlling stake in Genneia – one of Argentina’s largest power companies and owner of 70MW Rawson wind farm – to invest in 360 Energy.

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However, political, financial and even grid-connection risks need to be overcome in the next 24 months if the sector is really to take off in the way planned by the government.

While next year’s mid-term congressional elections in Argentina are due to influence the political decision to continue energy sector reforms – especially through much-needed removal of subsidies on final consumers’ bills – the recent renegotiation of the country’s sovereign default has to translate into lower cost of capital.

By Lew’s calculations, about $28/MWh of the final solar PV price comes from such political and financial uncertainties, compared to Chile, Mexico and even Peru, which registered some of the lowest prices in the region.

“There are about 300 points in interest differential rates which results in higher equity requirements and capital costs,” he said.

Transmission bottlenecks also need to be solved, since there is only enough power transport capacity for another two tenders of around 1GW each, after which new lines and transmission infrastructure will need to be built.

“We need to start planning now,” he added.

Like the more than 20 potential bidders for the 200MW of extra solar capacity the government wants to contract in Round 1.5, Lew is in constant contact with financial institutions and potential partners to develop projects.

Shut out from traditional project financing, 360 Energy and other Argentine companies are looking at alternative sources, which includes higher equity, corporate financing – including issuing of bonds in international markets – and financing from multilateral institutions.

“I am confident that we are going to secure the financing we need to execute our projects,” he said. “It might not be the financing structure that I would like to have. Based on that you have to play different assumptions in your model and come up with different rates of return depending on how you end up.”

Although things might be tough for the coming Round 1.5, Lew believes the government will be realistic in coming tenders and will raise prices to guarantee investors' returns.

He points out that the government has three main objectives behind the RenovAr programme: to contract new power to avoid an energy crisis, attract investment and create jobs, and reduce the cost of power.

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