Expanding Argentina’s energy production will make cities like Buenos Aires less vulnerable to blackouts. © Dominic Chavez/IFC
|Editor's Note: This is part of a series of stories on IFC’s work to help create markets that give new opportunities to people in developing countries globally. These innovative approaches have helped solve some of the largest problems in countries or, sometimes, entire regions.|
By Vanessa Bauza, IFC Communications Officer
Argentina has some of Latin America’s most abundant renewable energy resources—steady winds in southern Patagonia, year-round sunshine in the remote northwest, and hydropower and biomass fed by rivers and expansive farmland.
Yet, despite its potential, the country has fallen behind many of its smaller neighbors in turning these resources into a reliable power source. Argentina’s grid operates at near capacity, leaving Buenos Aires and other cities vulnerable to blackouts. Less than 2 percent of the country’s electricity comes from renewable energy. Sixty percent of electricity is generated from fossil fuels.
Argentina’s government is moving swiftly to change that. It declared 2017 the year of renewable energy, setting its sights on diversifying the country’s energy matrix, easing dependence on imported fossil fuels, and reducing carbon emissions. To make this happen, Argentina launched an innovative program called RenovAr. Its target: to produce 20 percent of Argentina’s electricity from renewable sources by 2025.
Argentina’s goal is to attract about $35 billion in investments in energy in the coming years, about half of that for renewable power. But with limited public resources, the government reached out to IFC and other development institutions for support in creating a new market for private investment in renewable energy. A team from IFC and other institutions helped organize a renewable-energy auction, including setting up the process to attract international bidders.
IFC’s involvement helped the projects become bankable and meet international standards. The World Bank, meanwhile, provided $480 million in guarantees to reduce financial risks for investors. This systemic approach opened up a space for private sector investment and innovation. It is helping Argentina meet its renewable-energy goals while leveraging private capital and avoiding public debt.
The program has exceeded expectations so far. The first renewable-energy auction, which aimed to attract 1,000 megawatts worth of new projects, ended up with bids for more than six times that amount—a signal of confidence from local and international developers. Ultimately, after two rounds of bidding, more than 2,400 megawatts were awarded, primarily to wind and solar projects. The auctions are expected to usher in $3.5 billion in financing over the next two years. A third round is planned by the end of this year. IFC is now working toward providing financing for some of the successful bidders.
Boosting renewable energy makes good environmental and fiscal sense. “For every 1,000 megawatts in renewable energy, the country saves $300 million annually in liquid fuel,” said Sebastian Kind, Argentina’s undersecretary for renewable energy. “It reduces carbon emissions by 2 million tons.” That’s roughly equivalent to taking 1 million cars off the road, he added.
With a systematic approach, IFC and the World Bank helped build a bridge between the government and the private sector—a bridge that led to new investment in a critical sector.
“Working with our colleagues in the World Bank and the government, we helped to create a new market and to unlock new opportunity,” said IFC CEO Philippe Le Houérou. “We have to ask big questions: What are the major obstacles blocking a country’s economic growth? How can we find ways to bring more private investment and help knock down those barriers?”
IFC is replicating this approach in emerging markets around the world, where inadequate infrastructure stifles development, lowers quality of life, and drives up costs for businesses. Over the next 15 years, up to $90 trillion will be needed to build modern, clean, and efficient infrastructure across the world—with most of the investment in developing countries.
Each year, Latin America invests roughly 3 percent of its gross domestic product in infrastructure—about $180 billion. That amount needs to double if the region is to meet its infrastructure goals. But public resources are limited, which means the region must attract private investment and spend more efficiently. The needs are heightened in Latin America by the fact that it is the most urbanized region in the world, with about eight out of 10 people already living in cities.
“There is a renewed interest in the region to generate new engines for growth, and private sector development is fundamental,” said Jorge Familiar, Vice President of the World Bank for Latin America and the Caribbean. “It has been the first pillar of our regional strategy: private sector development and mobilizing resources to invest in infrastructure.”
This story is also available in Spanish.
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Published in April 2017