Round 2.0 in Argentina: the real test of the market

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On August 18 the government of Argentina launched a second auction for renewable energy projects. It is seeking 1200 MW of power, distributed across multiple renewable sources, with a deadline in October. It is smaller than the previous rounds (rounds 1.0  and 1.5 totaled 2,426 MW ), reflecting the limitations of the transmission and dispatch systems. It is also demanding even more competitive prices (see details below). There is an expectation that this round will benefit from the experience of the first round, and confirm the success of the RenovAr program. Here we do a brief recap of the first round’s achievements and challenges.

Rounds 1.0 and 1.5

A total of 59 renewable energy project were adjudicated via public auction in 2016, distributed almost equally in number and capacity between the first round and a second, spillover round, held to accommodate bidders left out of the first contest. Prices decreased significantly between the two contests, from an average price for wind power going from US$/MWh 58.2 to 53.7 and for solar from US$/MWh 59.7 to 54.8. The maximum prices set for the second round (US$/MWh 57 solar and 56,2 for wind) reflect this downward trend and if met with successful bids would confirm that market conditions -financial, physical, and regulatory-for energy investment in Argentina are adequate.

This outcome, however, hinges on the completion of the projects auctioned in the first round. What has really happened so far?

Of the 59 projects,

  • 48 have signed PPAs with CAMMESA, the system dispatch agency.
  • 32 signed on with the World Bank’s guarantee finalized on August 10, for anywhere between US$150 – 500,000 per MW for a period of 8 to 20 years. The clock on completion periods has now started for participants.
  • 1 project has neither a PPA nor signed up with the World Bank.
  • 360Energy is moving forward with construction of the Nanogasta solar plant, while JEMSE has announced construction on the Cauchari complex for September and Arauco S.A.P.E.M. is moving forward with the expansion of its wind farm.
  • Most projects have not yet closed financing.

So the forecast is cautiously optimistic, no small feat for Argentina. Projects are moving along, behind schedule and with challenges in obtaining financing. Round 2 is expected to incorporate this experience and result in fewer participants and lower levels of uncertainty regarding completion.

 

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