Summary: Argentina’s energy crisis will get worse before it gets better. This article discusses how the country is working its neighbors for energy — to put the fires out while it begins to attract long term investment in the sector.
About the Author: Carlos St. James is an advisor to energy investors and developers in emerging markets. He founded the Argentine Renewable Energies Chamber; is a board member of the Latin American & Caribbean Council on Renewable Energy; founded and is chairman of the Middle East-Americas Energy Council; and is publisher of the Latin American Energy Review.
Argentina had already been in an unacknowledged energy crisis years before Juan Jose Aranguren, the new Energy & Mining Minister, announced it upon taking office last month.
Argentina’s economy has grown at a good pace in the last decade. As a comparison, its annual electricity consumption in gigawatt-hours (GWh) is currently comparable to that of Sweden or the state of Ohio in the U.S. But while demand has remained flat in Sweden and even dropped in Ohio over the last decade — the result of smaller economic growth and greater focus on energy efficiency — during the same period Argentina’s electricity demand rose by over 40% to 131,000 GWh — while installed capacity to generate this electricity grew only 30% (to 32,000 MW). In other words, investment in energy capacity has been insufficient. Simplifying for technical variables, it means that the difference will be made up by increased energy imports – and more blackouts as the margin for error disappears.
No wonder the minister announced that the crisis will last through 2017.
Examples abound. Argentina was once a big exporter of electricity to tiny Uruguay next door, but in recent years the tables have been turned: Argentina went from importing 19 GWh in 2010 to over 1300 GWh in 2015. A mind-blowing state of affairs when you look at a map and see the disparity in size of the two countries. Uruguay is ramping up to begin exporting natural gas to Argentina later this year, too.
But this isn’t enough. Argentina also had to import emergency electricity from Brazil at exorbitant prices in recent weeks as a summer heat wave hit Buenos Aires.
And this in turn fuels financial strain. Bolivia, which exports natural gas to Argentina, announced last week that its customer was in arrears on payments of gas to the tune of $300 million (two months’ worth of gas imports) and that it was considering cutting further supplies until payments were made. This caused a minor international incident and Bolivia’s president had to publicly back off from the statement. But the damage was done, and an embarrassed Argentina committed to making an initial $50 million payment.
This is particularly awkward because Argentina has also signed an agreement with Bolivia to import up to 500 MW of electricity beginning 2017. Bolivia is investing millions in transmission lines to connect with Argentina near the border.
The financial strain in turn creates temptation for mismanagement. Last year neighboring Paraguay formally accused Argentina of illegally profiteering from electricity imports. Paraguay sells electricity from its giant Yacyretá dam on the Paraná River — which under the terms of the agreement cannot be re-sold — yet Argentina was caught red-handed doing just that: arbitraging sales to Brazil for a quick profit.
This reveals the true effect of not having investors: in the last decade virtually the entirety of new installed capacity was fossil fuel driven (combined cycle, internal combustion and gas turbine generators). Hydropower additions have been flat, nuclear energy production actually fell, and renewables – where perhaps the greatest opportunity lies — have yet to make a noteworthy dent.
It wasn’t a conscious plan; it reflects expensive technical problems at the nuclear facilities in a country with little cash on hand and no sources of financing available (see our article about the country’s nuclear program here, written by the President of the Argentine National Atomic Energy Commission), coupled with a reasonable renewable energy program that nevertheless attracted no investors under the last administration.
Buying ready-built fossil fuel generators has been the easiest way to get quick additional capacity, but comes at a cost of lower efficiency, higher contamination, and higher long-term costs. It is a very shortsighted solution, but the only option available to the country.
The new government in Argentina is under stress to reverse this situation and attract long-term investment. Fortunately the nation’s natural resources abound. The much-discussed Vaca Muerta shale fields, for example, contain far more gas than oil (see our article about the challenges of getting Vaca Muerta’s shale to market here). But the shift needs to go away from quick solutions like internal combustion generators and tap its hydro, renewables and even nuclear sources.
© Latin American Energy Review 2016
About the Author:
Carlos St. James is the founder of the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish); board member and was elected the first President Of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); founder and chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of the Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.
He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.