A New Era of Renewables in Latin America?

© 2016 IHS

Presentation

ihs.com

IHS

Argentina SymposiumA New Era of Renewables in Latin America?

Latin America Gas & Power

Timothy Stephure, Director, +55 21 3299 0872, [email protected]

26 July 2016

ENERGY

mailto:[email protected]

© 2016 IHS 2

The Renewable Continent Going Even Greener

© 2016 IHS 3

Regional Auctions Driving Force for Renewables

PERU

BRAZIL

BOLIVIA

ARGENTINA

ECUADOR

COLOMBIA

VENEZUELA

URUGUAY

• Brazilian success story expands across the region

• The regulated auctions started to include renewables in 2007

and have since become the primary mechanism for

contracting new capacity. Following Brazil, markets including

Mexico, Argentina, Chile, Uruguay, and Peru have adopted

similar policies.

• Chile implementing a series of incentives and deterrents.

• One of the region’s most dynamic markets, Chile has not

relied on a single policy and has progressively implemented

several mechanisms including auctions, a renewable

portfolio standard, and carbon taxes.

• Argentina and Colombia next to make significant policy

changes

• Following limited success under previous efforts including

renewables targets, feed in tariffs, and the GENREN

auctions, Argentina will launch its first renewables auction

under the RenovAR framework in September. The auction’s

success will be fundamental to meet its 8% by 2017 and

20% by 2025 renewables targets.

• Colombia has made significant progress developing

renewable energy policy incentives including tax exemptions

and accelerated depreciation, however transmission

bottlenecks and few long term PPA options have continued

to weigh on the industry.

Auction

Mixed

Incentives

Feed In

Tariff

Argentina Symposium – A New Era of Renewables in Latin America

© 2016 IHS 4

Regional Renewable Energy Penetration


• Brazil, Chile leading push to develop renewables

capacity and diversify generation mix.

• Since 2010, Brazil wind, solar, and biomass investments

have increased nearly 250% and total nearly 24 GW.

• In Chile, installed renewables capacity have increased over

10 fold over the past 6 years.

• Mexico starting to ramp up following challenging reform

effort

• Diverse set of incentives including tax credits, clean energy

certificates, regular auction, and binding targets have started

to ignite growth despite access to some of the least

expensive gas in the region.

• Regional fundamentals favor renewables in many

markets

• Unlike the majority of large power markets, renewable

sources including wind, solar, and biomass are often more

economically competitive than conventional thermal. This

has been driven from both sides of the equation: the cost to

develop renewables has steadily declined while natural gas

fired power plants have become more reliant on LNG.

• The region has some of the best and most diverse

renewable energy resources. Hydro, biomass, wind and

solar are all among the best in the world.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013 2014 2015 2016

Brazil Mexico Chile Peru Argentina

Non Hydro Renewables % of Total Generation

Source: IHS

To

tal

No

n H

yd

ro R

en

ew

ab

les %

Non Hydro Renewables % of Total Installed Capacity

Source: IHS

To

tal

No

n H

yd

ro R

en

ew

ab

les %

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016

Brazil

Mexico

Chile

Peru

Argentina

Non-Hydro Renewables Developed Since 2010

Source: IHS

InS

talled

Cap

acit

y (

GW

)

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Auctions Showcase Renewables Competitiveness


0

50

100

150

200

250

2009 2010 2011 2012 2013 2014 2015 2016 2017

Evolution of Regional Renewables Auctions

© 2016 IHS

No

min

al U

S$ p

er

MW

h

Biomass

Solar PV

Wind

Small Hydro

Mexico Brazil Chile Peru

Source: IHS Energy

© 2016 IHS 6

A Defining Moment for Argentina’s Power Sector

© 2016 IHS

Investment Must Unthaw to Bring Reserve Margins to

Safe Levels.

• The Latin America Shakeout: The

good, the bad and the ugly

0

1

2

3

4

5

6

7

8

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Thermal Hydro Nuclear Renewables

SADI capacity additions vs peak demand (1993-2003)

© 2016 IHS

MW

Source: IHS Energy, CAMMESA

GW

(1993 =

0)

-

1

2

3

4

5

6

7

8

9

10

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thermal Hydro Nuclear Renewables

SADI capacity additions vs peak demand (2004-2014)

© 2016 IHS

MW


GW

(2004 =

0)

-2%

0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Thermal Hydro Nuclear Renewables Firm reserve margin

SADI capacity additions (pipeline only) vs firm reserve margin

© 2016 IHS

MW


Fir

mre

serv

e m

arg

in (

%)

Cumulative peak demand

Cumulative dependable capacity

7


© 2016 IHS

0

20

40

60

80

100

120

140

Argentina Brazil Chile

Residential Commercial Industrial

End-2015 retail power prices comparison

© 2016 IHS

US

$ p

er

MW

h

Notes: Average pre-tax prices. Argentina and Chile prices refer to Buenos Aires and Santiago areas, respectively.

Source: IHS Energy, ENRE, ANEEL, Chilectra

Impact on Retail Prices after Resolutions 6 and 7/2016

Average tariff

(“Tarifa Plena”)

effective since

February 2016

Average

generation cost in

April 2016

8


© 2016 IHS 9

Seasonality Brings Additional Challenges for Argentina


0

40

80

120

160

200

240

280

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

CDD HDD 2005-2014 average

© 2016 IHS

CD

D a

nd

HD

D

Notes: Growth rates reflect 3 months moving average. Temperatures refer to Buenos Aires.

Source: IHS Energy, NCDC-NOAA, CAMMESA, ADEERA

Residential power demand growth versus CDD and HDD

-35%

-25%

-15%

-5%

5%

15%

25%

35%

Residential power demand

Mo

nth

ly g

row

th r

ate

© 2016 IHS

Are Renewables the Solution?

10

Natural gas

Oil

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

Patagonia wind generation profile, 2015 generation

© 2016 IHS

MW

h



Lomo Blanca Rawson I Rawson II

© 2016 IHS

Can RenovAr Deliver Argentina’s Renewables Potential?

New RenovAr framework

• In September of 2015, Argentina started along a new path to ignite growth in its renewables sector. In an

effort to address the shortcomings which derailed the GENREN program, Law 27191 establishes clean

generation targets along with mechanisms to facilitate financing for investors in new renewables capacity.

• The government recently announced the first renewables auctions under its RenovAr program which aims

for 1GW of new capacity by the end of 2017 to help meet its 8% target. 600 MW of wind, 300 MW solar, 65

MW biomass, 20 MW small hydro, and 15 MW biogas will compete for 20 year contracts.

• Bids will be due by September 5th with winning bids announced October 12th. Projects will present two

separate sets of documentation with the first containing the guarantees, proof of transmission access,

financing requirements, and development schedule. The second is the economic bid on a $US per MWh

basis. Bids which meet the qualifications will have their economic offers adjusted based on their expected

online dates and level of domestic content.

• Financing rates are expected to come at significant discount to sovereign rates due to a AAA world bank

guarantee for $US500 million that is being currently negotiated. However, concerns remain that the

proposed guarantee conditions may not be sufficient to drive down lending costs to attractive levels. `

11


© 2016 IHS 12

Targets remain challenging but point to significant

upside

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Evolution of Argentina Renewables Penetration (%)

Notes: IHS Reference Case Outlook

Source: IHS Energy © 2016 IHS


2025 Target 2017 Target

IHSTM

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A New Era of Renewables in Latin America?