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CONSUMPTION
Thousands of barrels
900 800 700 600 500 400 300 1998 2000 2002 2004 2006 2008 2010
Production Consumption
+35%
CAPACITY FACTOR
33.33
32.44
11,063.6
60.71
17,576.9
85.8 1005
Oil
Gas
Thermal
Renewable energies
Nuclear
Hydro
Coal
Imports
Wind
ARGENTINAS ELECTRICITY SECTOR LAW AND REGULATIONS Argentina has a federal government and 23 provinces. Electricity and Renewable energies regulation is mostly federal but certain provincial regulations may also apply (typically site and environmental issues). The main features of federal regulation are the following: (i) Vertical division of the electricity industry into generation, transmission and distribution. (ii) Competition in generation activities with a wholesale electricity market (the WEM). (iii) Large users entitled to generate their own supply or purchase electricity at the WEM. (iv) A WEM administrator (the Compaa Administradora del Mercado Mayorista Elctrico - CAMMESA) which also acts as off-taker in wind power purchase agreements (PPA). RENEWABLE ENERGIES CURRENT POLICIES The National Renewable Energies Incentive Regime (the GENREN program), in place since 2007 aims that for the year 2016, 8% of the electricity consumed in the country should be generated by the following renewable sources: wind, solar, geothermal, tidal and small hydro (up to 30 MW of capacity) and biomass. The GENREN program includes the following features: Tax bene ts An alternative between: (i) Anticipated VAT refund for durable goods used in the project. (ii) Accelerated amortization of the goods used in the project for Income Tax purposes. Long term PPA with government off-takers The Government has promoted the execution of long term PPA between governmental entities acting as off-takers and private developers as suppliers. PPA execution was rst undertaken via competitive bids called by ENARSA (Empresa Nacional de Energa), a State-owned energy company. Under the GENREN I bid, PPA corresponding to 750 MW of capacity in wind projects were awarded in the 120-130 US$ MW/hour price range. GENREN II bid projects are expected to be awarded soon. In April 2011 the Government adopted new regulations to enable PPA execution with no prior bid and developers allowed to submit projects directly to CAMMESA for the execution of a PPA to be agreed. Regulations approved the basic terms and conditions of the PPA which include the following: - A fteen-year xed term with a xed price to be calculated in US$ per MW/h and to be agreed by the parties. - A guarantee by the off-taker to purchase all of the projects supply up to an agreed quantity. - The possibility of assigning the PPA cash ow to third parties. Other measures being currently discussed The possibility of imposing a minimum renewable energy portfolio standard to large users purchasing electricity at the WEM is under initial assessment by the Government. So why hasnt the wind power market in Argentina boomed yet? What is holding development back? The main issue has been limited access to long term nance due to sovereign risk considerations. In spite of this, Argentinas wind power is now gradually starting to take off due to many of the advantages described in this presentation as well as for reasons such as comparative prices and early entry upsides. Choosing the right project and investment structure is a key to mitigate and hedge risks when considering investing in Argentinas wind power projects. The following are some of the main issues to take into account: 1) Choosing the role to be played and what type of investment to make. Risk does not affect all parties to a wind project in a similar way so the rst thing is to consider which role to play in a project. Supplier, developer, builder, servicing company or nancer to the project? Equity or debt investment? Short or long term exposure? 2) Choosing the project. Green eld projects or existing projects? Risk assessment may vary according to what stage the project is in. While some projects are already operating and others are about to start construction or are on an advanced planning stage, many are on an initial planning stage. a. Green eld projects or projects at initial stages. Pros: the investor gets to shape the project. Cons: time and resources must be devoted to sort out regulatory paper work and other initial stage tasks. b. Advanced or operating projects. Pros: project already generating or about to generate cash ows; all regulatory paper work completed. Cons: proper project due diligence must be undertaken. 3) Choosing the right partners. (i) Local private partners provide knowledge of conditions on the ground and familiarity with local markets and practices. (ii) Provincial and municipal authorities are generally interested in new projects being developed at their jurisdictions and may provide additional bene ts and support. (iii) Multilateral, national development and local governmental banks as well as export promotion agencies can jumpstart nancing by providing a part of it and thus encouraging private banks and investors to join a multi-party structure. 5) Exploring the large user market, inside the fence projects. Large electricity users such as mining and manufacturing companies face increasing energy bills. Thus, opportunities for projects inside industrial facilities are rising.
THE CHALLENGE
6) Exploring alternative project nance structures. The eld may be suitable to go for alternative ways of structuring project nance including a total or partial pre-paid PPA structure with an upfront payment.
Sources: Ministry of Federal Planning, Infrastructure of Argentina; Regional Wind Power Center of Argentina CREE (map); Secretary of Energy of Argentina; CAMMESA and BP Statistical Review of World Energy, June 2011.
ARGENTINA
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