South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
Argentina’s new government is looking to the icy winds that make the vast plains of Patagonia inhospitable to entice foreign investment and re-energise a flagging economy.
With a large expanse of semi-desert in its north, Argentina is one of the windiest and sunniest places in the world. Centre-right president Mauricio Macri is hoping to attract up to $20bn over the next decade as part of a target to generate a fifth of Argentina’s power from renewable energy sources by 2025 — compared with less than 1 per cent today.
“We want to be a key player in renewables. It’s a hot sector,” says Marcelo Mindlin, chief executive of Pampa Energia, which bid to invest about $400m in an auction last month that the government hopes will drive more than $2bn in investments this year to provide 1,000 megawatts of mostly wind and solar energy.
Argentina’s effort to develop renewable energy comes amid a broader push by developing countries, whose investments in renewables surpassed those of developed nations for the first time in 2015 as generation costs fell. Last year also marked the first time there was more new generation capacity from renewable energy than from all other technologies combined.
Although China accounted for more than a third of global investment in renewables of $286bn last year, Latin America is piling in too. Mexico and Chile more than doubled investment in renewables last year, while more than half of Uruguay’s power is now from renewable sources, with hydroelectricity providing most of the rest.
Similar success in Argentina, which some analysts rate as the most interesting investment opportunity in renewables anywhere, would offset disappointment at the pace of new investments into the huge Vaca Muerta shale formation in Patagonia. Although it boasts some of the largest reserves of shale oil and gas in the world, Vaca Muerta has so far failed to take off due to low oil prices and high drilling costs.
Gabriel Goldschmidt, the International Finance Corporation’s director for infrastructure in Latin America, says Argentina “has a lot of catching up to do” in the renewables sector, after minimal investment in recent years due to poor business climate.
“It would be a huge missed opportunity given the resources available and today’s prices if Argentina missed that boat,” says Mr Goldschmidt, who identifies renewable energy as one of the top areas that the World Bank’s private sector arm is interested in financing.
Although Argentina relies on fossil fuels for about two-thirds of its power — most of the rest is provided by hydroelectricity and nuclear energy — the government is hoping to add 10,000MW of new cleaner energy over the next decade.
That would reduce Argentina’s reliance on costly imported energy, which is the biggest burden on the bulging fiscal deficit that is at the root of its economic woes.
“Argentina wants to be a hub for Latin America in renewables,” says Emilio Ilac, chief executive of Puente, an investment bank in Buenos Aires, arguing that energy companies can expect “phenomenal” growth in Argentina in coming years.
He says there is “huge momentum” for investment in Argentina, with 15-20 foreign investment funds on research trips visiting his bank weekly this year.
Even so, Mr Goldschmidt points to broader “tensions” between the government’s need to attract investment quickly to kick-start the economy — which is expected to contract this year — and the time it takes to plan and implement sustainable projects.
“The government has a keen sense of urgency, which is a very good thing. They are doing lots of the right things at a feverish speed,” says Mr Goldschmidt.
The worry is that the investments the government is banking on to reignite growth are not arriving fast enough. With social tensions mounting as Argentines endure austerity measures including sixfold rises in electricity tariffs that had been frozen for more than a decade, the government’s chances of consolidating power in important midterm elections next year could be in jeopardy if the economy fails to rebound in time.
“The ball is in the private sector’s court,” says Mr Mindlin, who is leading the investment charge after buying the Brazilian oil company Petrobras’s local business, making Pampa Energia the second-largest energy company in Argentina. “Companies have to take the ball and invest.”