Argentina’s attempt to restructure its foreign debt will prove crucial to determining the future of the country’s renewable energy push.

The two main barriers for the sector are currently lack of access to financing and capital controls. As BNamericas reported previously, projects that have already secured loans from international institutions have seen disbursements frozen or delayed because lenders fear a sovereign default. Similar difficulties are being faced by developers looking to finance new projects.

Meanwhile, controls to stop Argentine and foreign capital fleeing the country are dragging it into deeper recession, weakening the currency and increasing the shortage of dollars. If the debt is successfully restructured, some of the constraints are likely to be eased progressively.

However, a rapid restructuring is looking less and less likely. Argentina needs to secure agreements for large haircuts with bondholders and its economic plan is not in line with the steep austerity measures usually required to get their support and that of the country’s main institutional lender, the IMF.

A switch in rhetoric by finance minister Martín Guzmán last week also suggests the country may be preparing for longer negotiations with uncooperative bondholders.

Regulatory risk

Peronist administrations, such as the current one, have a long history of freezing power and natural gas prices.

As they have been frozen since the peso crash of last August under the previous government, it would be relatively simple for current authorities to keep extending the freezes if they feel the political cost of rising prices would be too high. An economic emergency bill passed late last year already postponed any updates until after mid-2020.

However, this regulatory risk is also dependent on the debt issue. President Alberto Fernández, a moderate, is betting he can secure a deal with bondholders, which would increase his influence in the government coalition. Fernández’s economic vision involves recovering growth through local consumption and he will need foreign investments.

However, if the debt negotiations fail, this is likely to deepen the economic recession and reduce people’s spending power, something that will embolden the left-wing of the Peronist party, which has always been skeptical of the negotiations. These two factors would increase the likelihood of interventionist policies in the energy sector.

Energy policy slowly takes shape

In line with more traditional Argentine energy policy, the energy ministry is looking to nuclear power and hydroelectric generation, as well as gas-powered plants. Developing renewable energy is regarded with some reserve, as it was a policy strongly favored by the previous administration of center-right president Mauricio Macri.

The current administration is likely to look for large-scale deals in nuclear and hydro plants, and has been meeting with Chinese and Russian investors, according to official documents.

On assuming office in December, energy authorities closed the renewable energy department and criticized the RenovAr tender program for renewables.

However, there have been signs of a reduction in skepticism toward renewables in recent weeks. The energy ministry continued signing pending RenovAr contracts and has considered calling for a new round of the renewables term market known as MATER.