How flight-to-quality lending is affecting Argentina’s renewable sector

Summary: As Argentina prepares for Ronda 2 of its RenovAr renewables program, all eyes remain on the largely successful Rondas 1 y 1,5 from last year. Meanwhile lenders, concerned with slow macroeconomic and structural changes, focus on larger corporates with strong balance sheets.

About the publisherCarlos St. James is a leading advisor to energy investors, bankers and developers in emerging markets at Wood Group Clean Energy. He founded the Argentine Renewable Energy Chamber and is currently a board member of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE). He publishes the Latin American Energy Review to help generate debate on the industry’s issues.

The region’s single most important industry event is the LAC-CORE Clean Energy Finance Summit, held in Miami, Florida this week (June 13-15), where investors and bankers discuss the industry’s outlook.

He has been named Conference Chair of the upcoming Congreso de energias renovables, held in Buenos Aires this June 28, and will be attending the Argentina Energy & Infrastructure Finance Forum 2017 on June 29.


The RenovAr renewable energy program is progressing well. While the energy ministry is doing a commendable job, the country’s economy and structural transformation as a whole is not moving as quickly as it needs to in order to attract more commercial lenders.

In a market where bank financing is hard to come by, those with the strongest balance sheets succeed best. It is the case of Argentina this flight to quality means that large local private sector companies are being very successful in issuing bonds, while smaller renewable energy projects — with or without the World Bank guarantee — are struggling to find the financing they need.

What follows are a series of assessments of various aspects of RenovAr and the market.

Have the World Bank guarantees served their purpose in loosening bankers’ purse strings?

Argentina’s re-emergence in international financial markets after more than a decade required that some larger, more credible organization vouch for them. This fell to the World Bank, who provided a limited soft guarantee of the initial RenovAr program. But as the following graph shows (click on them to enlarge), less than half of all winning bids took on some level of the World Bank guarantee – which was optional but came with a cost. It was used far more in Round 1: fully 62% of all bids in Round 1 (R1) took the guarantee, whereas only 40% did so in Round 1.5 (R1.5). This concentration in the first phase reflects the enormous uncertainty surrounding that initial tender, when no one knew where prices would end up or even how many would show up to participate. By R1.5, uncertainty had fallen considerably – and prices dropped a lot, too.

Pie chart: RenovAr 2016 World Bank guarantee usage, Round 1 and 1.5. Source: Argentine Energy Ministry

Each developer had to decide if the guarantee fit their needs. In the end there may be two subtly discernible trends to see who was more inclined to make use of it. First, bidders that had a public sector component seem to have preferred to take the guarantee. Examples include EMESA’s (government of the province of Mendoza) solar projects and Arauco’s (government of the province of La Rioja) wind projects. But at the same time, JEMSE’s (government of the province of Jujuy) solar projects did not take up the guarantee.

Second, Chinese technology providers with access to financing (who played an important role overall as analyzed here) also seemed to have preferred the additional protection. This makes sense given their preference for government-to-government lending (or at least the perception of it). Examples include Envision’s four wind projects; Sinohydro’s wind project; and again, Arauco’s wind projects.

The fact that less than half of all winners opted for the WB guarantee does not mean it wasn’t needed. Make no mistake: without it the RenovAr program would have been dead on arrival. The guarantee’s value proved psychological, providing initial credibility to a market that still needs it.

Which vendors are proving more successful?

There is very little data available on which solar panels are being bought. But there is information regarding wind turbines, and Vestas seems to be having the greatest success to date.

Pie chart: New wind turbine orders emerging from RenovAr program, 2016-17. Source: author’s data

Of the 1.8 gigawatts (GW) of wind projects in play, comprised of 1472 megawatts (MW) of wind winners from R1 and R1.5 plus an additional 370 MW of private sector wind projects outside the scope of the auctions, 36% have selected Vestas as their technology provider. Envision follows with 10% (for its own projects) and Nordex Acciona has another 8% of the pie. Almost half have not yet signed agreements for turbines or at least haven’t announced it publicly.

The 370 MW of private sector wind projects are significant. They include the likes of oil giant YPF and aluminum producer Aluar, each building wind farms for self-consumption, as well as Genneia (the only company in the country with true experience owning and operating wind farms) resuscitating projects from the country’s 2011 failed GENREN tenders. Thus, Vestas is not only getting the most customers, it is getting most of the blue chip clients ones as well.

Have the PPAs finally been signed?

As of today, 71% of all power purchase agreements (PPAs) have been signed. The government had to issue resolutions formally postponing this deadline twice and insists that by the end of June they will all be signed.

Pie chart: RenovAr PPAs signed, Round 1 and 1.5. Source: Argentine Energy Ministry

While I wish all winners the greatest success, I continue to believe some of the projects will fall through the cracks. But my earliest predictions from a few months ago seem to have been too pessimistic: I had estimated that only about half of the approved 2.4 GW would come to life, and given that the government was seeking a grand total of 1 GW in new capacity, it would still be deemed a successful tender. But it looks like far more will get built. A few of the 687 MW that have still not signed may get kicked into Round 2 or 3, giving them time to properly develop their projects and likely change ownership.

All of the winners in R1 have signed their PPAs. But this makes sense as they’ve had more time, the average price was higher than in R1.5, and most of them made use of the WB guarantee.

So all delays are from R1.5, and they have the oppose situation: they’ve had less time to prepare; prices were squeezed to an average $54/MWh, and most declined the guarantee.

Balance sheet financing is the way to go

Commercial banks are slowly beginning to warm to Argentina again, perhaps moved more by fear of missing out (FOMO) than from seeing actual changes in economic structure — but that doesn’t mean they are making any commitments just yet. Argentina continues to be the place for those with access to multilateral bank financing or better yet, a strong balance that allows you to avoid project finance as a whole and simply issue debt in the markets. For example, Arauco (100 MW of wind) sold $200 million of green bonds — the first ever in Argentina — and Pampa Energia (100 MW of wind) raised $750 million in ten year bonds. Debt being raising in New York for Argentine infrastructure and energy projects is consistently and significantly oversubscribed.


Argentina is slowly persuading lenders and investors that it is a credible place to do business. Opportunities abound for those that know what they’re doing or are well advised. Additionally, private sector PPAs are on deck to become a reality, as is a framework for distributed energy. The government is raising debt to expand the transmission grid.

Investors in Argentina, in addition to using hard data and facts, need to use their gut to make decisions — perhaps more than in any other of the larger emerging markets. Earlier investors will reap the greatest rewards — as long as they can sense when to get out. (Argentina’s seductiveness can have a striking similarity to the mythological island of the Sirens. Remember to do like Odysseus and make sure your lieutenants have their ears plugged with wax so they remain objective.) And note that Argentines themselves are betting on the turnaround, bringing money back into the country rather than leaving it hidden overseas. Perhaps that is the best indicator of all, since they are hardened from experience: locals are immune to the song of the Sirens.

In closing, a collective tip of the hat from the industry to Mauro Soares, until recently National Director of Renewables at the energy ministry and now returning to the private sector. We worked closely when I was chairman of the Argentine Renewables Chamber (CADER) and he was a fellow board member while also running the very active wind program at our industry association. Without his talent and work ethic you can rest assured the entire RenovAr launch would not have been as successful.


© Latin American Energy Review 2017

This report has been prepared by Carlos St. James for The Latin American Energy Review. The views expressed on this site are his own and do not reflect the views of Wood Group, its affiliates or business partners. This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The report is based on information obtained from sources believed to be reliable but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed herewith are subject to change without notice and The Latin American Energy Review is not under any obligation to update or keep current the information contained herein. The Latin American Energy Review accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. Additional information will be made available upon request.
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