Step by Step Development of Renewable Energy Sector in Argentina under the New Government
22 December, 2016
category: Commodities, Trade & Policy
Part 1
In our interview with Mr. Pablo Castagnino, Secretary Embassy of Argentina in Brussels, Head of the Economic Section, we focused on current and future development of renewable energy sector in Argentina.
Mr. Castagnino said, that “Today, wind energy accounts for 55 % of the world’s renewable energy capacity, followed by photovoltaic (29 %), biofuels (13.5 %), geothermal (1.6 %) and solar thermal technology (0.6 %). So, even though there are opportunities in biomass and solar, I would say wind energy projects are the most promising. In theory, Argentina could satisfy all the demand of South America, as we have a wind power potential of 2,000 GW. This wind potential is present all over the country, with an average utilization factor (hours of the year with wind) of 37 % and an average wind speed of 7 meters per second, which is very good considering that Europe projects wind farms with much lower factors and an average speed of 5 meters per second.”
Further he stressed, that “Due to many years of lack of investment and a protectionist attitude, I don’t think there is in the entire world an untapped market such as ours. There are quite a few wind energy projects already under way, while others are under analysis. The central theme will be the prices. The size of the capital that is needed to implement the government’s renewable energy plan and to comply with our commitments at the UN level (COP 21), would not be enough with the internal capital. External investment is also needed. With this in mind, all the decisions taken by the new administration sought to regain investor confidence by giving security, a stable legal framework and attractive conditions of funding”.
Below we publish the first part of our in-depth conversation and a very detailed analysis of current development of Argentina and ways the country’s new government makes it re-emerge in the world market; and specifically how the renewable energy sector is being made attractive to the foreign investors with new policies.
Q.: HAS THE NEW GOVERNMENT ATTRACTED FOREIGN INVESTORS ALREADY, IF YES, WHO?
A.: In November 2016, the national government awarded 30 new electricity generation projects from renewable energies for a total of 1,281.5 Megawatts (MW), closing Round 1.5 of the Renew Program. These are 10 wind technology projects for 765.4 MW, distributed in Buenos Aires, Comahue, Patagonia and other country regions; and 20 solar photovoltaic projects for 516.2 Mw, divided in Northwest and the rest of the country. In this way, after two rounds, the RenovAr program has awarded a total of 59 projects for 2,423.5 MW, with a weighted average price of $57.44 Kw/h, meaning a $4 billion investment.
Q.: IT IS ALMOST A YEAR SINCE MAURICIO MACRI GOVERNMENT TOOK OFFICE. CAN YOU GIVE US A SNAP SHOT OF THE ECONOMIC STATE IN ARGENTINA TODAY?
A.: Upon taking office, the government implemented a series of economic, social and institutional reforms to confront this difficult situation, in three main areas: rebuilding institutions; transiting to a market economy; and promoting Investments. One of the first challenges that the new administration dealt with is the reinsertion of Argentina into the global economy, and more generally into the international community. President Macri, Minister of Foreign Affairs, Susana Malcorra, and many of the members of the cabinet, engaged in constructive dialogue with the Heads of State and leaders of the most important countries (just to name a few: President Macri met with Obama, Renzi, Hollande, Merkel, Xi Jinping, Putin, King Philip and, of course, with leaders in our region). In all cases, he presented the government´s plans, its decision to play a constructive role in the international agenda (in topics such as the global economy, drug trafficking, the environment), the solution of pending bilateral issues, and most importantly, working on bilateral roadmaps focused on our development agenda (in trade, investment and financial issues). As part of the efforts to reinsert Argentina into the global economy, the Argentine authorities attended diverse high level multilateral meetings: the Global Economic Forum; the UN General Assembly; meetings at the Bretton Woods Institutions, etc.
Consistent with the decision to play a more constructive international role, Argentina made clear its intention to join the OECD. We were also confirmed as hosts of the G-20 in 2018 and of the 11th WTO Ministerial Meeting in 2017. We also began, after years in breach of this international obligation, the IMF Article IV consultation.
Another area were we made progress in our transition towards a better economic policy framework was the normalization of the financial market. The new administration eliminated exchange rate restrictions and allowed the peso to float. Capital controls were dismantled, and the gap between official and parallel exchange rates disappeared. Argentina now has one single exchange rate. As you are probably aware, the new administration ended a long-lasting litigation with holdouts. Creditors that had not accepted the debt restructuring offers made in 2005 and 2010 obtained favorable rulings in New York courts. After engaging in negotiations with them, the Government reached a middle-ground agreement. The agreement was then submitted to Argentina’s congress and approved by ample majorities in both the lower chamber and the senate. As a consequence, Argentina regained access to capital markets.
Since then, Argentina´s bond issuances were hugely oversubscribed. At the beginning of 2016, the new administration eliminated all non-tariff restrictions to imports, as requested by the WTO. The government also eliminated most export taxes. Thus, Argentina is now in full compliance with its obligations under WTO and regional trade agreements. The Argentine statistics agency had lost credibility after being politically intervened. President Macri has vowed to make his administration abide by best transparency practices. In that rationale, one of the first decisions he made was to restore transparency to our national statistics.
Over the past ten months, the new INDEC has made a significant progress in doing up the integrity of official statistics and to producing credible data on CPI, output, poverty, trade, etc. We are somehow living a new era from an institutional point of view. I refer to the relation between the executive branch and Congress, which is now based on a constructive dialogue. The current composition of congress is such that no party holds a majority. This marks, indeed, a huge difference with the recent past history, when the party in power held majorities in both chambers and would send law projects to be automatically approved with no real discussion whatsoever. For many, the absence of majorities was a signal of weakness and a worry in terms of governance, but it is actually an opportunity.
Despite these concerns, all important projects sent to Congress were turned into laws (as an example, Congress approved the Holdouts Resolution Law, the Historical Reparations Law for Retirees and Pensioners, the Small and Medium Enterprises Law, National Budget for 2017, etc.). The difference is that we are now open to discuss and change projects. During this first year, the government of Argentina took a significant amount of measures in almost all areas of the economy and all of them intend to put the economy back on track and to generate genuine development, and poverty alleviation.
Q.: ARGENTINA HAS SIGNED AND RATIFIED PARIS AGREEMENT THIS YEAR, HOW DID IT AFFECT ENERGY SECTOR STRATEGY?
A.: Argentina has already signed and ratified the Paris Agreement on Climate Change, being one of the first countries to do so. On April 22 the Agreement was signed by 175 countries in a ceremony at the headquarters of the United Nations. The Agreement was later approved by our National Congress, and on September 22, President Mauricio Macri deposited the instrument of ratification. To enter into force, the Agreement required the ratification of at least 55 Parties that together added up to at least 55 percent of global emissions of greenhouse gases. The minimum number of ratifications was reached on November 4, date from which the Agreement entered into force. The Agreement allows each country to establish their own contribution at a national level and, at the same time, it differentiates the contribution that has to be made by developed and developing countries. In this regard, in October 1, 2015 Argentina presented the national contribution that it intends to make (INDC).
However, after the adoption of the Agreement, our authorities announced that our national contribution would be reviewed, increasing our goals to combat climate change. The INDC presented in 2015 involved a component of unconditional mitigation that consisted in reducing 15% of the country’s emissions from 2020 to 2030, according to a “business as usual” emissions scenario, and a conditional component of 15% in function of the means of implementation received. The contribution also contains a component of adaptation, taking into account the priority that it assigns the Argentina to this subject in attention to adverse effects of climate change already being experienced.
During COP22, the first meeting after the Agreement entered into force, Argentina presented a review of its national contribution submitted last year. In 2015, the country projected to emit, by 2030, 570 million tons of carbon dioxide, which in this recalculation passed to 488 million tons, being the difference of around 15%. According to the new scenario, by 2030 Argentina would reduce greenhouse gases (GHG) emissions by 18% without an international loan, and 37%, with foreign aid. In the original presentation, made by the previous administration and that later became part of the Paris Agreement, reductions were 15% and 30%, respectively. The review arises from the use of another methodology that allows to account for the positive effects of direct seeding. Also, doubly counted measures were corrected, and new measures were included. The review also proposed the creation of a national system to collect climate change inventory statistics on a regular basis.
This way, Argentina became the first country to review its contribution and to improve its proposal to fight climate change. Finally, to make clear the commitment of Argentina with the fight against climate change, it should be noted that in 2016 the environmental authority was raised to the hierarchy of Ministry of State. Also, the National Cabinet on Climate Change was created, which is composed of 12 Ministries, whose work has already shown concrete results. Since its inception, there has been a lot of technical work going on between our Ministry of Environment, Foreign Affairs, Energy, Production, Transportation, and Agriculture, something unheard of in our country, which in the past has seen it position in regard to environmental matters weaken due to unnecessary struggles. For the next years, the National Cabinet on Climate Change has already identified the following goals: zero deforestation, the recovery of degraded lands, the introduction of low-emissions public transport, and a profound change in the energy matrix. (to be continued in part 2)