Renewable Energy to Argentina

Trends and opportunities

The market

Argentina, as one of the wealthiest countries in terms of natural resources, has started the transition from a fossil fuel economy to a green economy, generating great expectations following the election of President Mauricio Macri. According to the Electricity Market Administration Company (CAMMESA) and the Ministry of Energy, the proportion of clean energy in the energetic matrix is currently less than 2 per cent, with a major domination of traditional fossil fuels: 51.1% natural gas and 32.6% oil. Mr. Macri proved the importance of the “Green Agenda” while creating a Ministry of Environment and Sustainable Development and an Under Secretary of Renewable Energy.

Argentina boasts abundant natural resources. The power of its rivers, the movement of its oceans, the force of its winds and the fertility of its soils are only some of the wonders offered by a wide variety of opportunities in energy generation and access.

Argentina stands out in matters of energy, according to the Argentine Trade and Investments Agency:

  • With enormous wind power potential due to the winds’ direction, consistency and speed, Argentina is one of the most suitable areas in the planet for this type of energy generation (approximately 70 per cent of the territory exceeds the minimum efficiency standard), being the world’s 3rd largest wind reserve
  • The Argentine Northwest is one of the fourth places with the highest potential for solar power generation in the world, which positions the country as the planet’s second largest solar reserve
  • The 4,700 kilometres of coastline offer excellent opportunities in offshore wind energy, ocean and tidal power. Australia is considered a good example for the development of ocean energy, offering good opportunities for technology, equipment and research in this area
  • As the world’s 3rd producer of soybeans, Argentina is one of the main producers and exporters of soybean biodiesel
  • The expanse of the territory and the wide biodiversity it contains provide exceptional natural capacity for alternative energies, such as biogas, biomass and geothermal.

Meanwhile, domestic demand is on the rise: since the start of the new millennium, natural gas consumption has grown 40 per cent, electric energy usage climbed 60 per cent and fuels’ 150 per cent. The expected growth of Argentina’s economy for the upcoming years will sustain the expansion rate of industrial and residential demand.

The wide availability of natural resources, added to the excellent technical skills of human capital and the long-term public policies for the sector, invigorate investment for the generation of sustainable energy.

Bespeaking of the technical expertise of the country’s professionals is the fact that Argentina was the first country in South America to build a nuclear power plant. At present, the Argentine Trade and Investments Agency states that there are three plants in operation, generating 5 per cent of the nation’s total energy, while there are plans to build two additional plants in the upcoming years.

Opportunities

Argentina’s Renewal: Capitalising on reform in South America’s second-largest economy

The first step for this ambitious plan to modify the Argentinian energetic matrix occurred in September 2016 with the first round of the National Renewable Energy Plan (RenovAr), in which the Government published a tender to install 1,000 megawatts of clean energies. With more than 6,000 MW offered and very competitive prices, the tender was an extraordinary success for the Argentinian administration.

A total amount of 400 MW were awarded in solar energy, 708 MW in wind and 1 MW in biogas. There are also opportunities for investment in thermal generation: in recent tenders, the Ministry of Energy and Mining of the Nation awarded a total of 2,871 MW, which will be incorporated into the electricity system between December 2016 and February 2018. The term of contracts is up to 24 months and up to USD 2.0 billion of investment is estimated.

The second round of the RenovAr Plan will take place in November 2017, with great expectations. RenovAr 2 round will be for a maximum capacity of 1,200 MW divided as follows: (i) wind 550 MW, (ii) solar photovoltaic 450 MW, (iii) biomass 100 MW, (iv) biogas 35 MW, (v) waste landfill biogas 15 MW and (vi) small hydro (i.e. less than 50 MW) 50 MW. Wind and solar photovoltaic will also be distributed between geographical regions. So far, the Ministry of Energy has received 228 offers for 9403 MW, almost eight times the quantity that will be tendered.

Maximum prices for each technology are as follows: (i) wind 56.25 USD/MWh, (ii) solar photovoltaic 57.04 USD/MW-h, (iii) biomass 100 USD/MW-h, (iv) biogas 160 USD/MW-h, (v) waste landfill biogas 130 USD/MWh and (vi) micro hydro 50 USD/MW-h. These prices are averages from the initial rounds of RenovAr.

Offerors may apply for the fiscal benefits established by Laws 26,190 and 27,191 and their implementing regulations; including anticipated VAT refunds, accelerated depreciation for income tax purposes, extension to 10 years of the set-off term for tax credits and debits, tax credits and exemption of the minimum presumed income tax and income tax on payments of dividends, among other tax benefits.

A key feature of the tender is a renewable energy trust fund (Fondo para el Desarrollo de Energías Renovables – FODER), that has been created in order to bolster confidence in the stability of the Argentine renewable energy program. The National Government has already allocated US$ 820 million to FODER, designed to both offer project financing and guarantee payments for all the contracts.

Another benefit for the players in the sector is through decree 814/2017, in which the national administration defined a list of goods that will be excluded from paying import taxes if they are intended to be used for the construction of renewable energy plants.

The first step for this ambitious plan to modify the Argentinian energetic matrix occurred in September 2016 with the first round of the National Renewable Energy Plan (RenovAr), in which the Government published a tender to install 1,000 megawatts of clean energies. With more than 6,000 MW offered and very competitive prices, the tender was an extraordinary success for the Argentinian administration.

A total amount of 400 MW were awarded in solar energy, 708 MW in wind and 1 MW in biogas. There are also opportunities for investment in thermal generation: in recent tenders, the Ministry of Energy and Mining of the Nation awarded a total of 2,871 MW, which will be incorporated into the electricity system between December 2016 and February 2018. The term of contracts is of up to 24 months and up to USD 2.0 billion of investment is estimated.

The second round of the RenovAr Plan will take place in November 2017, with great expectations. RenovAr 2 round will be for a maximum capacity of 1,200 MW divided as follows: (i) wind 550 MW, (ii) solar photovoltaic 450 MW, (iii) biomass 100 MW, (iv) biogas 35 MW, (v) waste landfill biogas 15 MW and (vi) small hydro (i.e. less than 50 MW) 50 MW. Wind and solar photovoltaic will also be distributed between geographical regions. So far, the Ministry of Energy has received 228 offers for 9403 MW, almost eight times the quantity that will be tendered.

Maximum prices for each technology are as follows: (i) wind 56.25 USD/MWh, (ii) solar photovoltaic 57.04 USD/MW-h, (iii) biomass 100 USD/MW-h, (iv) biogas 160 USD/MW-h, (v) waste landfill biogas 130 USD/MWh and (vi) micro hydro 50 USD/MW-h. These prices are averages from the initial rounds of RenovAr.

Offerors may apply for the fiscal benefits established by Laws 26,190 and 27,191 and their implementing regulations; including anticipated VAT refunds, accelerated depreciation for income tax purposes, extension to 10 years of the set-off term for tax credits and debits, tax credits and exemption of the minimum presumed income tax and income tax on payments of dividends, among other tax benefits.

A key feature of the tender is a renewable energy trust fund (Fondo para el Desarrollo de Energías Renovables – FODER), that has been created in order to bolster confidence in the stability of the Argentine renewable energy programme. The National Government has already allocated US$ 820 million to FODER, designed to both offer project financing and guarantee payments for all the contracts.

Another benefit for the players in the sector is through decree 814/2017, in which the national administration defined a list of goods that will be excluded from paying import taxes if they are intended to be used for the construction of renewable energy plants.

The regulations establish different tax terms and benefits, namely:

  • Up to 12 months with 0 per cent tariff for the importation of "photovoltaic generator without support structures or machines and mechanical devices with their own function"
  • Up to 60 months (5 years) with a 14 per cent tariff on the import of "Wind turbine with power above 700 kW".
  • Up to 60 months (5 years) with 0 per cent import tariff on EVA (ethyl vinyl acetate) products, PET (polyethylene terephthalate) and 39 other products (see detail at the end of this note).

The tariff scheme that imposed a 0 per cent aliquot on the import of equipment for the production of clean energy was in force until December 31 of this year, and the extension of that period was a decision awaiting the market and that the Government had already announced that it would grant.

With the publication of this decree, a new regime with zero tariff was established from January 1, 2018 and until 2023 in the case of the maximum deadlines.

Excellent prospects for the Argentine renewable energy sector have also seen the country enter the top 20 most attractive places for renewables investment, as ranked by consultancy firm EY. Debuting in 18th place, Argentina is singled out for its robust political stance on pushing through long-term reforms, and with it market stability.

However, there are still many aspects to be solved to have success in this sector, especially related with infrastructure and logistics, considering the dimensions of the tenders, size of the wind equipment, and conditions of the routes.

Tariffs, regulations and customs

Regulatory changes and local government incentives

The Government of President Mauricio Macri, during his first year of administration, regulated the 27.191 Law, approved by absolute majority at the Parliament –including the support of the opposite parties-. This law set a target to increase the proportion of renewable energy in the electric matrix -now lower than 2%- to reach 8% by 2018, and then expand it to 20 per cent by 2025. By doing this, the Argentinian Government seeks to incorporate 10,000 MW of renewable energy to the electric matrix in the next 10 years, a magnitude that represents a third of the current installed power. The plan includes projects in wind energy, solar, biomass, small hydroelectricity projects and biogas, requiring investments of more than 20 billion dollars.

The Regime of National Promotion for the use of Renewable Energy Sources offers incentives such as:

  • Tax exemptions for the import of equipment, parts, spare parts, components and raw materials until the end of 2017
  • Accelerated depreciation in Income Tax
  • Anticipated VAT refund
  • Exemption of Minimum Presumed Income Tax and of the Tax on Dividends for reinvestment in infrastructure
  • Deduction of financial expenses in Income Tax
  • Fiscal Certificate equivalent to 20% of the local content integrated (a minimum inclusion of 30 per cent of national components is required).

Market entry

As mentioned, the 27.191 Law set a target to increase the proportion of renewable energy in the electric matrix -now lower than 2 per cent to reach 8 per cent by 2018, and then expand it to 20 per cent by 2025. It is estimated that 10,000 MW of renewable energy will be incorporated to the electric matrix in the next 10 years, creating opportunities for Australian companies interested in the market.

While the initial two rounds of tenders have already started or are about to execute their projects, it is the moment to visit the market and explore opportunities. The third round of RenovAr Plan is expected to be scheduled for mid-2018.

One of the best ways to gain knowledge from the market is through participating in the main conferences that take place in Argentina, to have a better understanding of local plans within the renewable energy industry. There are two important events around this sector during the year: the Renewable Energy Congress Argentina, and the AIREC (Argentine International Renewable Energy Congress). The first one will take place in June 2018, while the other one will be in October 2018. Both events have their venues in Buenos Aires.

They propose to bring together all key players in the industry to discuss and explore new business opportunities in the region. They are attended by international experts, investors, technology companies and leaders of the renewable energy sector. They analyse the position of renewable energy in the new energy infrastructure of Argentina, latest developments, strategies and market opportunities in solar, wind, geothermal, biomass and hydro will be discussed.

Austrade Buenos Aires Post can assist you with your market entry through market intelligence and providing information on major developments and actors in the sector. We can provide you with a market briefing to have a better understanding of the market, including cultural perspectives. We can also introduce you and your company to our established networks in the local business community: Government, potential partners, local suppliers, service providers such as law firms or accountants and any other relevant contact of the renewable energy sector.

Links and Industry contacts

Argentine Trade and Investment Agency (Renewable Energy area): http://www.investandtrade.org.ar/en/invest_sector_power_generation_and_renewable_energies.php

Renewable Energy Congress Argentina: https://www.renewableenergycongress.com/

AIREC Congress: http://www.airecweek.com/

Ministry of Energy – Under Secretary of Renewable Energy (in Spanish): https://www.minem.gob.ar/energia-electrica/energias-renovables

Argentine Chamber of Renewable Energy (in Spanish): http://www.cader.org.ar/

Contact details

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