Argentina has for a long time been known as Latin America’s solar laggard. While other countries in the region such as Chile, Brazil, and Mexico have already deployed a considerable amount of solar capacity, at the end of 2016 Argentina’s operational installed PV power was still sitting at a mere 25 MW – a negligible volume for Latin America’s third largest economy.
The implementation of the RenovAr program
The government of Mauricio Macrí, however, has decided to take action since his appointment in December 2015. His goal is to finally give solar and renewables a real chance, after the failed attempts of all previous governments. The main fruit of these labors was the implementation of the RenovAr program, an auction-based support plan that has so far awarded solar projects with a combined capacity of around 916 MW through its two first bidding rounds – the so called Ronda 1 and Ronda 1.5 – and that promises to allocate another 450 MW of PV in the third round, dubbed Ronda 2.
Whenever an auction for solar is launched in Latin American countries, it is always difficult to predict how much of the allocated capacity will see the light of day because a long list of issues such as securing approval with local authorities, grid congestion, difficult access to financing, and project logistics is enough to undermine the projects of the most experienced and skilled developers. This is especially the case when the country’s regulatory framework presents ambiguities or does not provide long-term certainties.
Exemption from custom duties
Until the end of last summer, one of these ambiguities in Argentina was represented by the exemption from paying custom duties on the import of PV components, which was set to expire at the end of this year. If this event had have occurred, it may have put in danger several projects, especially those selected in the Ronda 1.5, as well as those that will be selected in the Ronda 2, as most developers would have had serious trouble in securing module and inverter shipments by the end of December. It is very likely this would have put a halt to several projects, due to increased LCOE, and would have led to a partial failure of the RenovAr program.
As a result of several months of negotiations with the local renewable energy industry, Argentina’s Minister of Energy and Mines, Juan José Aranguren, announced in late September that the exemption for solar will remain in 2018, while the decree that enacted the exemption was published in the second week of October. “It was a necessary measure because, due to formal delays, the majority of projects were not able to import capital goods in 2017,” Marcelo Álvarez, the President of the Argentinean Chamber of Renewable Energy (CADER), told pv magazine. After all, the domestic PV manufacturing industry still does not possess the necessary criteria to satisfy all capacity allocated through the program, despite local content requirements being embedded in the RenovAr program, which ensure generous fiscal incentives and better access to financing.
Domestic content requirements were lowered
Although large-scale solar projects selected in the first three rounds of the RenovAr program have the possibility of relying exclusively on imported solar modules and inverters, the program’s rules for local content requirements represent an interesting opportunity for those developers that have secured good ties with local manufacturers. On the other hand, the Argentinean government has lowered the quota of local content requirements from 30% in Ronda 1 and Ronda 1.5 to 25% in Ronda 2, thus increasing the chances for PV projects relying on a quota for locally manufactured PV projects to reach completion.
Although the presence of local content requirements commonly slows down the deployment of capacity assigned in bidding rounds – especially when the percentage exceeds 40% – a quote ranging between 30% and 25% is a reasonable level, and may effectively trigger the expansion of the Argentinean solar manufacturing industry, without jeopardizing renewable energy targets. “We welcomed the intention to stimulate the local industry, but we also asked to avoid the generation of ‘bubbles’ with distorted percentages that do not develop competitive supply,” Álvarez commented.
The VAT exemption
Another important move was made by Argentina’s Federal Administration of Public Income (AFIP) in early August, when it issued a resolution (Resolución General 4101-E) that exempts VAT from the purchase, import, or production of components used in the construction of renewable energy infrastructures. The resolution, which came into force on August 10, is enacting a measure including a regulatory decree for renewable energies (Ley 27.191) that was issued in March 2016 and will come into force in 2018.
Under the resolution’s provisions, developers of renewable energy projects will be entitled to obtain the anticipated recovery of VAT for the capital goods included in their projects and, at the same time, apply the accelerated depreciation of the goods to income tax.
Projects under construction and secured PPAs
Lumped together, these three measures have restored confidence among many developers involved in RenovAr’s first two rounds and as a result several projects are now being built. According to information provided to pv magazine by Álvarez from CADER, there are around 400 MW of RenovAr PV projects that are currently under construction, while almost all of the projects have secured a PPA, with the exception of seven facilities, for which their developers will have until the end of November. A vast portion of the capacity under construction is represented by the 300 MW Cauchari solar project, which was selected in Ronda 1 and is 80% owned by Jemse SE (Jujuy Energy and Mining State Society), a mining company of the government of the Argentinean province of Jujuy, where the plant will be located, and 20% by a Chinese consortium formed by Power China, Shanghai Electric, and Talesun, which is building the facility.
The project is being financially supported by Chinese state-owned bank the Export-Import Bank of China and by a $210 million bond that the province of Jujuy issued in mid-September. The bond, which carries an 8.62% interest rate and five year maturity, was offered on the NYSE and was 3.4 times oversubscribed. The plant will sell power to wholesale electric market management company Compañía Administradora del Mercado Mayorista Eléctrico (CAMMESA) at a price of $60 per MWh under a 20 year PPA. As for the second project selected in Ronda 1, the 100 MW La Puna solar plant planned for the province of Salta and proposed by Spanish companies Field Fare and Isolux Corsán, Alvarez believes that it has all the ideal conditions to be built, although Isolúx Corsán filed for insolvency in Spain in early July.
The 20 projects of Ronda 1.5, which have a combined capacity of 516 MW, may have more issues than those selected in Ronda 1, due to their most recent planning and, in some cases, lower size. Five of them totaling 164 MW (including another 80 MW project of Isolux Corsán) are located in the northwest of Argentina, where two projects of Ronda 1 are also located. Six other winning projects, all presented by the state-owned company Mendocina of Energy SAPEM and planned for the province of Mendoza for a total of 94 MW, will obtain financing from the Argentinean financial institution Banco Nación through the development fund Fondear. The projects, in which Canadian investors S2E Tech and Potencia Corp. are also participating, will rely 85% on locally manufactured PV products. In addition, the remaining nine selected plants, including an 80 MW project proposed by Chinese manufacturer Jinko Solar, are located in the province of San Juan and have a combined power of 250 MW.
Prior to going to press the Argentinean government finalized the opening of the technical bids for Ronda 2. PV was the source with the largest capacity in submitted offers, with around 5.2 GW of projects. Wind power was the second largest bidder with 3.8 GW, followed by biomass with 188 MW, biogas with 59 MW, biogas from landfills with 15.2 MW, and small hydropower with a capacity of 32 MW. In the bidding round, the Argentinean government is seeking to award 550 MW of wind, 450 MW of solar, 100 MW of biomass, 35 MW of biogas, 15 MW of biogas from landfills, and 50 MW of small hydropower capacity. The price cap for PV projects was set at of $57.04/MWh. Back in Ronda 1, the median price for PV projects awarded was around
$59.75/MWh, while the average price for the PV projects for Ronda 2 stood at $54.94/MWh. “We expect a further drop in price in Ronda 2,” said Álvarez.
Overall, the first three rounds of the RenovAr program are expected to bring over 1.3 GW of solar online. However, it is possible that not 100% of this capacity will be ultimately connected to the grid, as financing still represents a major issue.
PPAs between large consumers and renewable energy producers
The large-scale solar business may also get a further boost when the government introduces a new regulation that authorizes the sale of power to large industrial power consumers by direct agreement. In mid-June, Argentina’s Ministry of Energy and Mines published the draft of the new rules for private PPAs between large energy consumers and renewable energy power producers.
The new regulation, named “Proyecto de Resolución de Mercado a Término de Energía Eléctrica de Fuentes Renovables”, is also aimed at implementing the provisions established by the country’s regulatory decree for renewable energies (Ley N° 27.191) promulgated in 2016. If introduced, the new provisions would represent an interesting change for the electricity market, as the sale of renewable energy power is currently allowed only to Cammesa. The new contracts will have to be made by direct agreement between the large power consumer and the renewable energy producer, or through joint purchase schemes managed by Cammesa.
Future legislation for DG and net metering
In mid-September, The Chamber of Deputies of Argentina approved – with three votes against and 159 for – the draft bill of the long-awaited distributed generation law. The law, which must now be approved by the Senate, could be promulgated by the first half of 2018, when there will be a new government after the legislative elections on October 22.
The text of the law is the result of all proposals for distributed generation (DG) that were being discussed in the parliament and unified in a single text. The consensus that DG has received from all political parties – unthinkable a few years ago – hints that rooftop solar in Argentina will find favorable conditions. On the other hand, many regional governments are already promoting residential and commercial solar and the Argentinean government decided in early 2017 to partially eliminate subsidies to the tariffs, a measure that affects 32 million residential, commercial, and industrial users across the country, and which without a doubt will convince many to adopt rooftop PV to significantly reduce their electricity bills.
The unified text of the law approved by the Chamber of Deputies, which will authorize the sale of surplus electricity from renewable generators to the national grid under a net metering mechanism, also mandates that any public building project must consider the use of DG facilities from renewable sources. Furthermore, a fund for DG of renewable energies (FODIS) will be created to help homeowners and SMEs to resolve the issue of financing. The fund is estimated to have a budget of ARS 500 million ($28.6 million) for the first year after entry into law. The new provisions could also include a number of tax benefits for producer/consumers (‘prosumers’), for which an additional ARS 200 million ($11.4 million) have been earmarked. Another ARS 200 million will eventually be used for the Promotion of the National Manufacturing of Systems, Equipment and Supplies for Generation Distributed from Renewable Sources (FANSIGED), which plans to support research, design, develop, and invest in DG.
Despite all the challenges that the Argentinean renewable energy sector (and the economy in general) presents for local and international investors, the good news is that favorable conditions for a more stable business environment are emerging. Even an eventual change in the government, after October’s legislative elections, might not represent a danger for the future of solar, because solar and renewable energies are gaining ground as symbols of new energy policies within all political parties.
The Argentinean government is targeting an 8% share of renewables in the country’s electricity mix by 2018, and 20% by 2025. This target will be easier to reach if the new government maintains the ability to tighten things up in future, as more issues will pop up and increasing competition between all market players will complicate the overall situation in the country. S