RenovAR, a renewable energy plan from the government of Argentina, will lower project risk and likely lead to an expansion of Argentina’s renewables sector, according to Fitch Ratings.
The RenovAR program combines a mix of fiscal incentives, U.S. dollar indexation, government backing and World Bank guarantees. The plan’s goal is to increase renewables from the current 2% of Argentina’s energy mix to 8% and 20% by the end of 2017 and 2020, respectively.
RenovAR’s structure addresses legal and off-take risks, and mitigates certain counterparty risks present in traditional renewable energy projects. However, the volatile generation volumes that have pressured some renewables projects — particularly wind generation — remain a risk. The program’s tender guidelines require a minimum of 12 months of measurement data. While this is adequate for solar projects, it may be too short to accurately assess the volatility of wind resources. The regulations require special purpose vehicle structures, pre-tender environmental studies and minimum financial guarantees from potential sponsors. We believe these factors will make it easier for the projects in the program to raise debt.
The program has fiscal incentives for investment in projects and a three-level guarantee mechanism. The government’s Trust Fund for Renewable Energy (FODER) will provide loans, loan and payment guarantees, interest rate subsidies and equity contributions. One guarantee covers delinquencies or nonpayment by power purchase agreement (PPA) off-taker CAMMESA, Argentina’s wholesale power market administrator and clearinghouse. It covers 12 months of payments due to the generator, per the terms of the PPA, on deposit with the trustee. FODER also provides PPA termination payment guarantees, which can be triggered in the event of nonpayment by the off-taker or the sale of a project.
RenovAR is further strengthened by an additional guarantee for USD500 million provided by the World Bank. The Ministry of Energy and Mining, and Ministry of Finance and Treasury will provide funding if FODER does not honor its guarantees.
RenovAR includes fiscal incentives that are favorable for sponsors, including exemption of import duties, accelerated fiscal depreciation, advance value-added tax reimbursement, tax deduction of all financial expenses and exemption of dividend tax if the amount of the exemption is reinvested in infrastructure.
Ninety percent of RenovAR’s tenders are related to wind and solar projects. The first were solicited for 1,000 MW of power from renewables generation facilities with 20-year PPAs. Tenders are formal invitations to suppliers to bid for the right to supply electricity. Offers for 6.3x the solicited amount were received on Sept. 2. A technical review is pending, and we expect PPAs to be awarded on Oct. 12.
Image credit: Buenos Aires by Mauricio V. Genta (Own work) [CC0], via Wikimedia Commons