Can Argentina be weaned from its addiction to oil?

Before the Alderete family moved to the La Perla housing project on the outskirts of Buenos Aires, something as basic as taking a bath was time-consuming and expensive. The four-person family wasn’t connected to the city’s gas network, so they bought gas in propane tanks, heated water on the stove, and then carried it to the bathroom.

“Gas in propane tanks can cost five to six times as much as the gas in the [city] network because gas in tanks is not subsidized,” says Ashley Valle, the international coordinator at the Buenos Aires-based NGO Forum for Energy, Sustainability, and Housing (FOVISEE).

“That automatically leaves lower-income groups paying more for energy,” Ms. Valle says.

Argentina adopted energy subsidies during the country’s economic crisis in the late 1990s and early 2000s as a means of propping up the economy and helping people survive their sudden loss of savings. But the subsidies have led to unintended consequences: They encourage overconsumption, favor the urban middle and upper classes, and cost the government billions of dollars every year, critics say.

In order to feed the country’s inflated energy demands, the government imports gas and oil and has increased its focus on oil exploration. However, several local NGOs have proposed options they say can help ease strains on the budget and reduce the nation’s dependency on fossil fuels.

FOVISEE, for example, has installed solar water heaters on 42 homes in the La Perla housing project in an attempt to help those not connected to formal infrastructure spend less on energy and reduce their use of hydrocarbons. The Alderete family moved into one of these homes, and now only buys six propane gas tanks a year – for cooking, not for bathing.

Easing away from subsidies?

Part of the challenge for Argentine politicians is that turning their back on the long-instilled energy subsidies could be political suicide, observers say. But the longer the government waits to rethink the subsidies, the more painful the transition will be, says Fernando Nicchi, an economics and public policy professor and specialist in energy issues at the Argentine Catholic University.

The environmental benefits of easing away from subsidies could be enormous, says Juan Carlos Villalonga, of the NGO Los Verdes, or The Greens, which designs and promotes environmental policy in Argentina.

“When energy costs are so artificially low,” he says, “it’s not even profitable or rational for people to buy low-energy lightbulbs,” much less to install solar panels.

To make up the difference between energy supply and demand, the government spent more than $9 billion on fuel imports in 2011, a number projected to grow every year, according to the Argentine Energy Institute. That’s practically the entire trade deficit of Argentina, says Mr. Nicchi.

NGOs are stepping in to try to change these trends. FOVISEE hopes that its installation in La Perla will demonstrate that alternative energy is both affordable and practical.

“In Buenos Aires, there’s a tremendous solar resource,” says Ms. Valle. “The solar water heaters can provide up to 70 percent of each family’s hot water needs.”

The solar water heater made a huge difference for the Alderete family’s eight-year-old daughter, who has a respiratory illness.

“The water heater helps because of the steam ... Now, they’ve reduced my daughter’s medication,” says mother Griselda Alderete.

Long-term investment

Argentina has incredible potential not only for solar but also for wind and biomass energy, says Juan Pablo Zagorodny, a physicist who helps develop renewable energy projects at ENARSA, Argentina’s state energy company. He believes Argentina could get all of its energy from renewable energy sources – and, if Argentina’s energy grid were connected to bordering nations, it could even export wind, solar, and hydroelectricity.

That doesn’t just make sense environmentally, Mr. Zagorodny says. It would have economic benefits as well. Argentina could produce its own wind energy for less than half the price per megawatt than it spends on fuel imports.

A normal price for wind energy is $120 per megawatt hour, he says. “Do you know how much a megawatt hour of energy generated with imported gas, or imported oil, can cost?” he asks. “More than $250, up to $300. That is, we could be paying for wind energy” instead of importing oil and using it to generate electricity.

With the exception of some hydroelectricity and a few wind farms, Argentina’s potential for renewable energy is virtually untapped. GENREN, a government program to encourage the development of renewable energy projects, is far behind its initial goal of 8 percent energy from new renewable sources by 2016, largely due to lack of financing.

That’s because Argentina is isolated from international finance markets, says economist Nicchi.

“[Energy] investments are long-term,” he says, “so it’s more difficult to generate investor confidence,” since Argentina regularly changes regulations and there aren’t adequate legal safeguards for investors.

There is also the question of political support. The current belief among politicians is that the country needs to embark on more oil exploration, not redirect its focus away from fossil fuels. That consensus was cemented after last year’s renationalization of the country’s biggest oil company, says Mr. Villalonga of Los Verdes.

Last year, Los Verdes presented a bill to the Argentine Congress to restructure the country’s energy subsidies. A recent study by the NGO suggests that if Argentina redirected the money it currently spends on subsidies toward alternative energy, the country could get 40 to 50 percent of its energy from renewable sources by 2030.

“Argentina has the necessary resources,” says Villalonga. “There are companies that are willing to implement alternative energy projects, and there are investors abroad. All that’s needed is the political will.”