Fluid situation: A closer look at local hydroelectric resources

With an estimated maximum potential for hydroelectric power of 69,445 MW, Peru has an abundant source of renewable energy. The potential capacity of hydroelectric resources was roughly 12 times greater than peak electricity demand in 2012. However, in recent years hydroelectric plants have become less important in supplying power to the national grid due to the rise of gas-fired thermoelectric plants outside of Lima, a trend which concerns some within the sector.

While short-term plans from the government indicate that the grid will indeed revert to relying on hydroelectric power to supply roughly 60% of generation capacity by 2016, hydroelectric power plants face many challenges, as they must compete with agricultural projects, mines, environmental lobbyists and local communities for control of the nation’s water resources.

The Past

Historically, hydroelectricity has been the primary supplier of energy to the national grid. However, the commercialisation of the Camisea natural gas field in 2004 changed the energy matrix almost overnight. Hydroelectric power was at its peak in 2001, when the country derived over 90% of its electric generation capacity from its water resources, according to the Committee for the Economic Operation of the National Interconnected System (Comité de Operación Económica del Sistema Interconectado Nacional, COESSINAC). As Peru’s economy expanded rapidly due to soaring commodity prices and the renewed investment interest following the nation’s newfound economic and social stability, energy demand began to increase rapidly after the turn of the millennium.

With cheap natural gas on hand, concessions for new gas-fired thermoelectric power plants were awarded to meet rising electricity demand. Within a matter of five years (2006 to 2011), the share of thermoelectric power in the energy mix rose to more than 45% of supply. However, the ascent of natural gas in electricity generation is seen as a short-term solution to a long-term problem. The increased reliance on natural gas plants located outside of the capital could prove hazardous should anything happen to the pipeline coming from the Camisea gas field.

The Present

As of October 2013, 50.5% of the national grid relied on hydroelectric power, with 1729 GWh coming from hydro resources out of the total monthly production of 3418 GWh, according to data from COES-SINAC. Peru’s most important, and one of its oldest, hydroelectric power facilities is located on the Mantaro River, which capitalises on the river’s force generated from its 1000-metre decline from the Andes into the Amazon basin. Though it became operational in 1973 with just 342 MW, the Mantaro facility has gone through many upgrades before reaching its current capacity of 1008 MW. It remains under state ownership through Electroperú and, though it used to supply roughly one-third of the grid’s power, is still responsible for one-sixth of total power generation. Other major hydro plants currently operational include Duke Energy Egenor’s 263-MW Cañon del Pato dam, Edegel’s 247-MW Huinco facility and Celepsa’s 217-MW Platanal plant.

The Future

By 2017, total electricity demand is expected to reach 8066 MW, according to figures from the Ministry of Energy and Mines (Ministerio de Energía y Minas, MEM). Jesús Ramírez Gutiérrez, general manager of Electroperú, told OBG, “According to the COES, Peru’s annual demand for electricity grows between 8% and 9%, which represents an increase of 400-450 MW per year.” It is projected that, from 2013-15, hydroelectric’s share of total electricity production will decline; however, with 1081 MW of potential capacity expected to come on-line in 2016, hydroelectricity’s share of supply will jump to 59% in 2017. This should mark the beginning of the national grid’s return to reliance on hydro resources as the predominant supply of electricity generation. By 2028, MEM expects hydroelectric plants to supply 80% of power to the national grid.

A key factor of the long-term success of MEM’s plan revolves around eight rivers, identified as being of significant importance to the future generation capacity in 2009 when the MEM conducted its latest national survey of hydroelectric potential. MEM identified prospective projects that could potentially add 7,505 MW of capacity – more than doubling current supply. The rivers included the Marañon, Mantaro, Urubamba, Molloco, Huaura, Inambari, Sama and Ucayali. Long-term investments totalling $10.2bn are destined for future hydroelectric projects reaching 6683 MW by 2040, many of which are likely to be built on these rivers, according to according to the New Sustainable Energy Matrix (Nueva Matriz Energética Sostenible, NUMES). However, in the longer term, hydroelectricity’s dominance of the national grid is still up for debate, as NUMES predicts total hydroelectric generation could supply anywhere from 30-75% of generation capacity by 2040, depending on various factors.

Incoming Generation

New hydroelectric projects from 2013-17 have attracted $3.5bn in investment. The two largest of these projects are expected to come on-line before the end of 2016, the Cerro del Águila, a 525-MW plant and Chaglla, a 406-MW facility. Other new facilities include the 168-MW Cheves plant, the 152-MW Pucará plant and 188-MW Curibamba plant, expected to come online in 2015, 2016 and 2017, respectively. These five plants make up the majority (1437 MW, 70.4%) of incoming hydroelectric supply over the next five years. The remaining 605 MW of capacity is split among eight plants, all of which are scheduled to come on-line between 2013 and 2015.

The Cheves plant, the first of the major hydroelectric facilities to become operational, is being constructed outside of Lima by SN Power at a total cost of $249.5m. Chaglla, the second-largest plant, will follow when Empresa de Generación Huallaga completes its $1.2bn facility in early 2016. Chaglla will be followed in 2016 by the Pucará facility, being constructed for $360m by Empresa de Generación Hydroeléctrica del Cusco, and Cerro del Águila’s $750m facility in Huancavelica. The last major hydroelectric plant being developed by Endesa is Curibamba, which, at the time of writing, is still in the planning stages of development.

Challenges

There are several obstacles to the spread of hydroelectric power. In the short term, the relatively cheap price of thermoelectric power plants has already been responsible for carving out a considerable share of supply. This will continue to hamper investment in new hydroelectric facilities, which tend to require larger initial investments and longer recuperation periods. The construction of a new southern pipeline from Camisea will enable the construction of thermoelectric plants not only in the south, but also in Cusco. However, some would prefer to see natural gas resources utilised in the development of a petrochemicals industry or sent abroad for exportation.

Pablo Ferradas Luna, managing director of Lahmeyer Agua y Energía, told OBG, “Using natural gas for domestic power generation is irresponsible and unnecessary, given the hydroelectric wealth of this country. Gas should be exported to other markets or used for value-added activities, but export infrastructure needs to be improved for this to happen.” He went on to highlight the importance of ensuring that such long-term hydro projects are attractive by establishing sufficient tariff levels and improving government coordination.

While thermoelectric plants do represent a viable alternative to utilising hydro resources, an option the country did not previously have, it is not the only impediment. Peru’s water resources are heavily concentrated in the Amazonian jungle, with very limited resources in the coastal desert. As a result, irrigation projects for agriculture often bring water from Amazonian rivers to the country’s west. In addition, water use for consumption and mining projects also provides competition to the expansion of hydroelectric power.

Though Peru boats 69,445 MW of hydroelectric capacity, for planning purposes NUMES has used just those resources with a generation cost of less than $75/MWh. When applied, this model reduces the country’s potential hydro resources to 19,076 MW. Additionally, considering water resources could be diverted to other activities, it will be difficult to fully utilise hydroelectric resources without causing considerable economic and social damage in other areas. Nevertheless, even if practical exploitable hydro resources are significantly less, the abundance is such that the authorities’ long-term goal of assuring hydroelectricity’s strong presence in power generation should be achievable.

Given the vast resources at hand, regardless of the makeup of the national energy matrix, hydroelectric power will remain a key source of power for the foreseeable future. After using thermoelectricity to cover demand increases in the short term, it does appear that promoting investment in hydroelectricity is once again becoming a focus for the government, though investment in thermoelectric power plants is expected to continue over the next five years and beyond.

With $3.5bn invested in new hydroelectric plants in the next five years, hydroelectricity is expected to increase its share within the grid from the current 50% to 59% by 2017, while there will also be a raft of new hydroelectric concessions in the medium term, with a further $10.2bn being invested over the next 25 years.

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The Report: Peru 2014

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