In recent
years, Argentina has emerged as one of the world’s most visible proponents of
renewable energy, with a stated goal of achieving 20 percent non-carbon
electric production by 2025, a nearly 10-fold increase compared to 2018.
Key to this
effort has been the country’s RenovAr platform, established in 2016 as a way of
encouraging foreign investors to get involved in domestic renewable projects.
For its part, the World Bank has provided nearly three quarters of a billion
dollars in guarantee funding since RenovAr’s inception, including $250 million
announced in 2019 earmarked for utility-scale renewable energy programmes.
One of the
latest efforts comes from YPF
Luz,
the power generation division of Argentina’s state-backed oil company, in which
US-based General Electric holds a 25% stake. YPF Luz will install a
120-megawatt wind farm at Cañadón León in the province of Santa Cruz, on the
steppes of Patagonia.
Sustained westerly winds in Patagonia are strong enough to generate a capacity factor of over 60 percent—the highest such rating in the world, according to YPF Luz.
The
fifth-largest power generator in Argentina, YPF Luz has committed to adding 297
megawatts of wind energy by 2021 (123 megawatts in 2020). This is in addition
to the 99 megawatts installed in Manantiales Behr, another YPF Luz facility
currently operating with a capacity factor of 61%. The wind energy projects
will service various clients including large private firms with long-term
contracts.
The $157
million wind farm attracted significant interest from global firms looking to
invest in sustainability, despite political and economic turbulence affecting
the region. This included $95 million in secured credit on behalf of the YPF
Luz project from BNP Paribas Fortis, a subsidiary of BNP Paribas.
The YPF Luz
project also involved a guarantee from global credit insurer Euler Hermes, with the balance of a $50
million loan from the United States International Development Finance
Corporation (DFC). General Electric is
the manufacturer of the 29 units to be installed. The Cañadón Leon wind farm
will generate electricity equivalent to the consumption of 150,000 households
yearly, reducing carbon dioxide emissions by some 312,000 tons in the same
period.
Power Mecca
Patagonia is an ideal place to install a wind farm. Located along the country’s southernmost steppes, the treeless landscape is continually buffeted by sustained westerly winds that are strong enough to generate a capacity factor of over 60 percent—the highest such rating in the world, according to YPF Luz.However, Argentina’s mounting debt and inflation (currently over 50%), which led to the re-imposition of capital controls in autumn 2019 (including limits on US dollar purchases) threatened the development of the project. A swift, creative financial solution was needed, which was especially challenging given market conditions.
A customised financial framework was put in place to ensure the completion of Argentina’s first renewable financing project in 2020 – underlining the promise and the potential of one of the country’s greatest natural resources in the eyes of investors.
Renewable Interest
Renewable energy plants brought online during the latter part of the past decade have led to the creation of thousands of new jobs in manufacturing and other sectors in Argentina. While current economic conditions have made it more challenging for firms seeking to secure power purchase agreements (PPAs), the YPF Luz deal proved that demand for renewables continues to hold the attention of the global investment world.Looking to the future, structuring creative financial solutions may be the optimal way to ensure continued investor viability – and to nurture the continued growth and development of Argentina’s expanding renewable energy sector.