By Fitch Solutions
- We forecast moderate growth in Argentina’s renewables sector over the coming decade, with non-hydro renewables capacity set to increase from 4,209MW in year-end 2020 to 8,765MW in 2030.
- That said, elevated downside risks will remain for the non-hydro renewables sector over the coming decade as a result of Argentina’s weakened macroeconomic environment, reduced government support and uncertainty within the power and renewables sector, and an underdeveloped transmission and distribution infrastructure.
- The weakened growth outlook for Argentina’s renewables sector means that the thermal sector will remain dominant in Argentina’s power generation mix through 2030.
Argentina’s non-hydro renewables sector is set to see moderate growth over the coming decade, in which we forecast non-hydro renewables capacity will increase from 4,209 megawatts (MW) in year-end 2020 to 8,765MW in 2030. Over the past five years, the market’s non-hydro renewables sector has experienced sizeable capacity and generation growth resulting from supportive policies under the administration of former president Mauricio Macri. This included the awarding of nearly 5,000MW in potential non-hydro renewables capacity additions within the RenovAr renewables power auctions program which ran between 2016 to 2019. In total, non-hydro renewables capacity increased from 883MW in year-end 2016 to 4,209MW by year-end 2020, while the sector’s share of Argentina’s total annual electricity generation grew from 1.3% to 9.1% over the same time period.
That said, we forecast a more muted growth outlook through 2030, with annual capacity additions set to peak in 2021. Through 2030, non-hydro renewables electricity capacity is set to increase by an average annual growth rate of 7.7% – much lower than the 40.6% growth rate seen between 2016 and 2020. Underpinning this outlook is our view that the continuation of challenging macroeconomic conditions in the country and the persistence of government policies unfavourable to the renewables sector will limit project development, particularly the launch of new projects.
We note elevated downside risks to our forecasts for the non-hydro renewables sector, particularly over the medium- to long-term. The renewables project pipeline in Argentina has continued to shrink over recent quarters as the majority of wind and solar projects will either be completed in 2021/2022 or remain indefinitely suspended. Most notably, more than 2GW of projects are currently indefinitely suspended, and we expect to downwardly revise our forecasts if they do not resume development over the coming quarters. Among the factors which have contributed – and will continue to contribute to – limited project developments and elevated downside risks, we note:
- A continued challenging financing environment: While our Country Risk team forecasts real GDP growth to rebound to 7.1% y-o-y in 2020 after three years of contraction, we expect the Argentine economy will remain below its prior highs for several years to come as an unfavourable political environment undermines investment. Most notably, we expect the Argentine government will continue to rely on currency and capital controls to manage external account pressures due to a crisis of confidence in the peso, limited access to external credit, and diminishing reserves. The challenging macroeconomic environment, including capital controls, have played a primary role in impacts to project financials which have led to indefinite suspensions for a reported 1,500MW of stranded wind power projects and more than 1,000MW of stranded solar power projects throughout the market.
- Reduced government support and continued uncertainty within the power and renewables sector: A shift in policy support away from renewables under the administration of President Alberto Fernández, in office since December 2019, has reduced development opportunities. In particular, we note the continued absence of large-scale renewables auctions, a lack of adequate transmission and distribution infrastructure development initiatives, and prolonged uncertainty surrounding freezes to electricity prices. While it was announced in May 2021 that power distribution firms Edenor and Edesur would raise electricity prices by 9% the same month – the first time following a price freeze which had been in place since 2019 – there remains significant uncertainty about future electricity tariff increases moving forward. It has been reported in April and May 2021 that there have been internal disagreements within the government over the direction of energy prices. The lack of support and continued uncertainty within the power sector will continue to weigh on investor sentiment, including within the non-hydro renewables segment, limiting developments over the coming years.
- Underdeveloped transmission and distribution infrastructure: Future growth within Argentina’s non-hydro renewables sector will require significant investment in the expansion of the market’s transmission and distribution infrastructure. That said, we do not expect sizeable improvements over the near-term, as we do not view the launch of new public-private partnerships for transmission projects as likely over the next several years and also do not expect to see a sizeable increase in public funding for transmission infrastructure. Furthermore, it has been reported that the stranded wind and solar projects are further complicating transport capacity and will prevent robust large-scale capacity growth until the situation is resolved. Therefore, the continued lack of development will present significant risks to project development and growth over the coming decade, with projects already seeing impacts.
The weakened outlook for the non-hydro renewables sector means that the thermal sector will remain dominant in the Argentina’s power generation mix over the coming decade. We forecast thermal power capacity will see more modest growth than the non-hydro renewables sector with an increase from 30.4GW at year-end 2020 to 31.1GW in 2030. That said, the thermal sector will remain dominant in the market’s power generation mix over the coming decade with its share decreasing only slightly from 65.6% in 2021 to 62.0% by the beginning of the next decade. The natural gas-fired power sector will account for most of the thermal capacity growth and therefore remain the primary source within the thermal power segment, accounting for more than 95% of the thermal power generation throughout the decade.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
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