Argentina and the Economics of Clean Energy

Over the past 18 months Argentina has entered the clean energy economy with a bang with the highly successful, successive rounds of the utility scale RenoVar programme (3582MW worth of projects licensed in rounds 1/1.5/2, with round 2 yet to happen). In addition recent legislation has seen the launch of Corporate & Industrial distributed generation market. Given the unique nature of Argentina’s economy I thought it would be interesting to think of the likely economic impact of Argentina’s nascent clean energy industry.

Clean energy impacts an economy on 4 main fronts: GDP, inflation, jobs and trade. So for GDP the impact is likely to be strong as these projects will likely replace imported gas. Argentina currently imports gas from 5 international markets and then subsidises approximately 70% of the cost to the consumer. By constructing domestic clean energy projects the multiplier effect of these investments far outweighs the impact of gas imports and Argentina stands to benefit greatly.

Lower Electricity Costs, Lower Inflation

Argentina is blessed with very strong natural renewable resources such as the wind in Patagonia and the solar in the Puna desert, renewables will provide cheaper source of electrons than gas imports especially for an initial phase build out of up to 30% of the energy mix.

Globally the wind market is set to grow from 60GW to 140GW per annum and solar is set to grow from 75GW to a 300GW per annum. As these global industries scale the technology and deployment costs fall (solar is tracking a 28% cost reduction for every doubling of the global installed base). Therefore clean energy is only going to get cheaper and cheaper.

As the cost of electricity reduces, it will reduce the cost of subsidies and have a deflationary impact on Argentina’s crippling 20% inflation rate (the caveat to this is it depends on how urgently the government tackles the energy subsidies nonetheless lower cost electricity gives the government greater leeway to reduce energy subsidies).

Limit to cost impact of renewables

At some point possibly when renewables goes beyond 30% of the energy mix, it is likely that energy system costs would need to include the addition of back up gas burners, electricity storage, international interconnects to cope with the solar flood/duck curve and wind intermittency effects. The duck curve is the shape that a flood of midday solar has on electricity demand on the grid, see image below.

Clean Construction Jobs

Clean energy provides very good construction jobs for the capex phase of the energy build out. In Mexico for example Enel’s large 750MW Villanueva solar project will employ 1600 people for the 18 months of construction and another 10,000 indirect jobs. In addition there is considerable opportunity for long term jobs in the supply chain depending on the size of the domestic market and success in attracting companies to base manufacturing factories. Initially for Argentina the steel and aluminium industry are likely to be likely winners for trackers, mountings and wind turbines (see IMPSA and SICA).

Job Thirsty Decentralised Energy

Beyond utility scale projects, smaller scale solar system installation are much more labour intensive. According to BNEF utility scale solar is 6.6 man years of work per megawatt and small scale solar is 11-13 man years per megawatt. The smaller the scale the more likely these will be Argentinian owner companies that retain profits in country. Therefore as clean energy allows the decentralisation of energy with more corporates and residential investing in their own installation the better for a country’s domestic economy. Finally it is always looking at a more mature market to gain an understanding of how things can develop, in the US clean jobs far outweigh fossil jobs (see below and Forbes piece)

 

A White Gold Future

Some analysts predict that the demand for lithium ion batteries for both stationary and electric vehicles will grow by a factor of 40 between 2016 and 2040. Argentina, as one corner of the lithium triangle (with Bolivia and Chile) is set to benefit tremendously by the trade of this “white gold”.

To summarise Argentina may have short term challenges in reducing inflation and interest rates and thereby servicing the “debt heavy” capex of clean energy but the future is undeniably rosy as the clean energy transition gets underway in Argentina.

Meet the Argentinian Clean Energy Industry Face to Face

To learn more and meet 800 investors and experts in Argentina’s growing clean energy industry then attend AIREC Week next month. The programme of 120 leading speakers, numerous networking functions and a sold out exhibition will be an intense, information and content rich 4 days. Plus you can guarantee the wine and steak will, as always, be excellent!