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 MeccaPatagonia 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 InterestRenewable 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.