Peru seeks to expand energy infrastructure and grid capacity

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In 2017 global energy demand grew by 2.1%, up from 0.9% the previous year, according to the International Energy Agency. This growth is largely explained by the increase in demand for fossil fuels, renewables and, to a lesser extent, nuclear energy. Peru is following this global trend, with a slight increase in energy demand and lower costs for renewable energy resources compared to conventional technologies. The cost of wind energy is now the same as that of coal: $30 per MWh.

With 50% of its electricity coming from renewable energy – of which 42.7% comes from hydro – and this projected to reach 60% by 2025, Peru is resource-rich; however, it is currently suffering from an oversupply of energy. This can serve as a growth opportunity, but only if the necessary demand can be identified and harnessed. Recognising untapped markets, for example, has the potential to make the energy sector more competitive, with electricity demand in the mining sector estimated at 2 GW in 2018. Indeed, the latter remains something of a bright spot in the broader sector. According to 2017 data from the Central Reserve Bank of Peru, metal mining production increased by 4.2% over the course of the year, compared to the 2.4% drop seem in the hydrocarbons sector.

Regulatory Framework

The use of renewable energy resources has been increasing in recent years , and has gone hand-in-hand with updates to the existing regulatory framework. Legislative Decree No. 1002, a law to promote the generation of electricity from renewable sources, outlined a target of up to 5% non-conventional renewable participation as a proportion of national electricity consumption for the period 2008-13. For this reason, the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM) is evaluating the regulatory framework for renewable energy resources, so that they can participate in the free market with other technologies. The decree also enables investors in renewables a guaranteed price for the energy supplied to the grid for a 20-year period.

Likewise, the framework establishes incentives such as stable prices through auctions, and financial funds for the research and development of renewable electricity generation projects. The regulatory framework states that auctions be carried out via public tender called by MINEM and conducted by the Supervising Organisation of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería, OSINERGMIN) at least every two years.

Exploration & Production

Technologies used to exploit unconventional and difficult-to-access oil and gas have allowed global hydrocarbons supply to expand significantly in the last 10 years. However, Peru’s energy sector saw a downward cycle between 2015 and 2017 due to the lower production of liquefied natural gas (LNG) and natural gas. According to the National Society of Mining, Petroleum and Energy (Sociedad Nacional de Minería, Petróleo y Energía, SNMPE), this was due to lower demand for electricity in the domestic market, as well as lower export shipments.

The average global price of natural gas, meanwhile, was $2.99 per British thermal unit (Btu) in 2017, an 18.7% increase from the previous year. The US Energy Information Administration (EIA) estimates that the price will drop to $2.88 per Btu in 2018, due to anticipated production in the US that will allow the country to cover its domestic consumption, and possibly export a proportion of its own reserves on the basis of estimated international demand.

As of December 2017 year-to-date investment in exploration and production in the hydrocarbons sector amounted to $21.4bn, according to global consultancy EY. Of this total, $8.2bn went to the upstream segment, $5.2bn to midstream, and $8bn to downstream. Exploration investment reached $17.1m, the lowest level reported since 2008, when it registered $356m. On the production side, despite investment reaching $469.8m in 2017, up from $287.7m the previous year, this was still lower than the $1.1bn registered in 2008.

In January 2018 Felipe Cantuarias, president of the National Hydrocarbons Society, told local media that Peru has undeveloped reserves that would guarantee production of 150,000 barrels per day (bpd). This would, however, “involve an investment of $5bn and drilling of more than 1400 wells in the next three years”.

In 2017 the controlled production of liquid hydrocarbons reached 134,340 bpd, a 0.6% increase on the previous year, with petroleum accounting for 43,560 bpd of the total, and LNG comprising 90,780 bpd. Natural gas output, meanwhile, reached 1.3bn standard cu feet per day, up 7.3% over the same period. In terms of location, the Southern Amazon accounted for 65% of oil and LNG production, and 95% of natural gas.

Oil production, meanwhile, reached 48,675 bpd in January 2018, a 20% rise year-on-year. According to reports from SNMPE, Lot X oilfield in Piura, accounted for 12,936 bpd of the total; followed by the Lot 192 oilfield in Loreto, at 9738 bpd; and Lot Z2B in Piura, registering 7954 bpd. Estimates for natural gas production, meanwhile, suggest a short-term increase due to the entry of the Sagari field in block 57, located in the Cusco region, following a $362m investment by Spain-based global oil giant Repsol and the Chinese National Petroleum Corporation.


In 2017 fuel consumption decreased slightly, down 3% from 2016, according to the SNMPE’s annual report. The consumption of liquid hydrocarbons, meanwhile, rose by 0.5%, while the consumption of natural gas fell by 10.4%. Despite the slight reduction in fuel consumption, higher energy prices led to an increase in the fuel import bill. According to figures from the IEA, in 2017 the international price of oil registered an average value of $50.79 per barrel, growing 14.7% on the previous year, when the average value was $43.33 per barrel, its lowest price since 2007. “Liquefied petroleum gas (LPG) is the second-most-used fuel in the country – excluding natural gas consumption for electric generation – with 85% of market penetration. In households, LPG is still far ahead of natural gas consumption, but in the industrial sector there are already 400,000 natural gas connections,” Juan Carlos Zimmermann, general manager of Limagas Natural, told OBG.


Progress in the modernisation of the Talara oil refinery, Peru’s first, provided a major boost for the sector in 2017. By December of that year the refinery’s renovation was 65% complete, following its launch in May 2014, according to state-owned operator Petroperú. Total investment in the project amounts to $936.6m, which includes the execution of the detail engineering service, supply, and construction of the auxiliary units and the refinery’s complementary work areas. In May 2018 Peru’s Grupo Graña y Montero ised an agreement with Cobra Perú to execute various building sites that are part of the construction of the auxiliary units at Talara, valued at $352.9m.

Meanwhile, operations at the Southern Peru Gas Pipeline (Gasoducto Sur Peruano, GSP) have been stalled since January 2017 due to the corruption scandal surrounding Brazil’s largest construction firm, Odebrecht. The project will be relaunched following a new public-private tender expected at the end of 2018. The project’s delay leaves an opportunity for the production of renewables. “In the medium term the delay of the gas pipeline to the south generates a good opportunity to increase the participation of renewable energy projects in the national integrated system,” Daniel Cámac, former commercial and regional manager of Engie Energía Perú, told local media. “This is especially true in the south, which is deficient in energy and imports it from the central region.”

In December 2017 Petroperú announced that it had resumed maintenance efforts on the northern branch of the North Peruvian Oil Pipeline. The cost of the necessary refurbishment and modernisation works could require investment of between and $800m, the company stated.

Electricity & Water

In 2017 the electricity sector again recorded a positive performance in its production, although at lower rates than those observed the previous year, owing to the impact of the El Niño floods on its facilities. Total electricity production in 2017 amounted to 52,499 GWh, a 1.6% increase on the previous year, according to figures from MINEM. The production of energy for public use, excluding self-producers, reached 50,417 GWh, of which 56.6% was hydroelectric energy, 40.7% thermoelectric energy, and 2.7% non-renewable energy. In addition, hydraulic generation increased significantly in 2017, up 19.8%, due to the first full year of operations of both the Cerro del Aguila hydroelectric plant in the Huancavelica region, operated by Kallpa Generación, and the Chaglla plant in the city of Huánuco, managed by Odebrecht.


According to the annual 2017 report from the National Interconnected System Financial Operation Committee (Comité de Operación Económica del Sistema Interconectado Nacional, COESIN), a local non-profit organisation made up of generators, distributors and free users, firms that make up the National Interconnected Electric System (Sistema Eléctrico Interconectado Nacional, SEIN) achieved a national installed and effective generation of 11,970 MW and 11,958 MW, respectively, while maximum annual demand reached 6596 MW.

Although demand increased in 2017, it fell below the energy supply, resulting in an energy surplus of 87%. According to COESIN’s forecasts for 2018, installed capacity is projected to reach 13,535 MW, which would be 84% higher than the maximum energy demand of the SEIN. The oversupply of electricity has impacted the sector’s generation and distribution companies, with revenue losses of $440m in 2017, Carlos Temboury, former Peruvian country manager of Italian-based energy firm Enel, told OBG. Temboury added the oversupply problem will remain latent if demand is not encouraged. According to OSINERGMIN , one way to take advantage of the more than 5000 MW of oversupply Peru produces is to export to neighbouring countries such as Chile and Ecuador. However, for this to occur, it would be necessary to reinforce Peru’s transmission lines.


The sector is therefore open to the possibility of negotiating electricity exchange agreements with Andean Community countries, not only to mitigate oversupply, but also to take advantage of spot prices and help neighbouring countries tackle their power deficits. In 2017 bilateral exchanges between Peru and Ecuador were carried out via the 220-KV L-2280 transmission line between the town of Zorritos in Peru and the city of Machala, Ecuador.

At the beginning of 2018 it was estimated that a transmission line, 50 km in length and with a transport capacity of 200 MW between Peru and Chile would be signed and come into operation in 2019, uniting the cities of Arica (Chile) and Tacna (Peru). However, it had not yet materialised when former President Pedro Pablo Kuczynski resigned in March 2018, leaving it to the new administration to decide whether it is a priority it would like to proceed with.


The government aims to strengthen the existing transmission to more reliably supply electricity throughout the country. The transmission lines in Peru exceed 24,000 km, more than double their reach in 1998. In 2017 operations began on the new 500-KV Mantaro-Marcona-Socabaya-Montalvo line, which meets the demand for energy in southern Peru. In that same year, the 220-KV Carhuaquero-Cajamarca Norte-Cáclic-Moyobamba transmission line came into operation and was granted a concession contract for an investment of over $156m. This line will benefit the regions of Cajamarca, Amazonas and San Martín, directly impacting 200,000 families.

In early 2018 MINEM announced that the Consorcio Transmantaro had signed concession contracts for the Mantaro-Nueva Yanango-Carapongo line, and the 500-KV Nueva Yanango-Nueva Huánuco line, along with both projects associated substations. The total cost of the contract was $272m, with annual maintenance costs of $6.8m. Both links will benefit the regions of Lima, Áncash, Junín, Huancavelica, Pasco and Huánuco.

According to February 2018 figures from MINEM, investment in planned transmission projects is expected to amount to $367.7m by 2026. Among the most important projected investments are the 500-KV, 600-km La Niña-Chorrillos transmission line between Piura in Peru and Guayaquil in Ecuador, developed at a cost of $132.1m; a 220-KV line connecting the northern regions of Pariñas and Nueva Tumbes, at a cost of $53.5m; and the $24.1m, 220-KV La Planicie-Industriales transmission line and associated substations, in the Lima metropolitan area. The former developments are aimed at improving the indices on quality of service outside of Lima, which are much lower than those in the country’s capital. OSINERGMIN’s annual “Energy Quality Report 2017” showed that the System Average Interruption Frequency Index (SAIFI) for the Lima metropolitan area was 5.41 per year, and for the rest of the country it was 18.9 annually. As for the average length of disruptions, based on the System Average Interruption Duration Index (SAIDI) in the Lima metropolitan area it was 17.4 hours, and elsewhere, 45.3.

These indicators have nonetheless shown improvement. In the last two years the SAIFI has decreased for 40 electrical systems corresponding to the companies of Electro Dunas, Electro Oriente, Electro Puno, Electro Sur Este, Electrocentro, Hidrandina and SEAL. Likewise, the SAIDI for incidence and transmission has decreased for 47 electrical systems serving a number of Peruvian electricity companies including Electro Oriente, Electro Puno, Electro Sur Este, Electrocentro, Electronoroeste, Electrosur, Hidrandina and SEAL. As of December 2017, 32 of the country’s 75 electrical systems saw reductions in both their SAIFI and SAIDI scores, with averages of 43% and 68%, respectively.

In May 2018 OSINERGMIN announced a reduction in SEIN electricity tariffs, decreasing by an average of 3.1% for home users, and 4.8% for commercial and industrial users. The reductions are the result of a balance in favour of regulated users, in relation to the contracts between generation and distribution firms.

Rural Electricity

In 2017 national energy coverage reached 93%. In rural areas, however, coverage is slightly lower, with only 70% of the population having continuous grid access. However, the rural electrification coefficient did see a slight increase from 80% in 2016 to 81.5% in 2017. MINEM reported that in 2017 the supply of electric power expanded to 1393 locations, where 191,405 Peruvians live. Although progress has been made in energy coverage in recent years, there are still 2m Peruvians to be reached, Temboury told OBG. In the next few years the electricity sector’s capacity is expected to continue to increase.

However, the SNMPE recommends that given continuing oversupply, it is also important to encourage growth in electricity demand. One way this might be achieved is through large mining investment projects planned for 2018 including a $5bn development at Quellaveco in the Moquegua region; the Pampa de Pongo iron reserve in Arequipa, expected to attract $2.5bn in investment; and the $1.3bn Mina Justa development in Ica, among several others.

Great Potential

In December 2017 the Peruvian Society of Renewable Energy (Sociedad Peruana de Energías Renovables, SPR), reported that only 2.7% of the country’s grid is composed of non-conventional renewables, without considering hydroelectric plants. However, there is potential to develop wind, solar and biomass projects, with approximate investment of up to $2bn. The country’s hydrothermal matrix is made up almost entirely from hydroelectric and natural gas sources. Juan Coronado, president of the SPR, told local media that although some solar and wind projects are already present in the Peruvian market, the entrance of more renewable energies should be encouraged for environmental and economic reasons.

As of February 2018 installed wind power stood at 236 MW, 1.2% of the country’s total energy capacity, while an additional 162 MW, or 0.8%, of projects were under construction, according to MINEM. Three wind terminals are currently under development, with the 126-MW Wayra I being executed in the south of the country, and two 18-MW turbines, Huambos and Dunas, in the north. Potential for solar projects, meanwhile, is to be found in the Andes, with the potential to harness 5.5-6.5 KWh per sq metre; on the coast, at 5.0-6.0 KWh per sq metre; and in the Amazonas region, with 4.5-5.0 KWh per sq metre.

However, given that Peru’s energy demand could surpass its supply as soon as 2021, according to COESIN’s projections, Peru may be forced to turn to non-renewables in the near- to medium-term. “We will have to resort to diesel reserves, which will raise the price to $150 per MWh”, Coronado said, compared to current prices of approximately $48 per MWh.

Competitive Costs

Renewable energies are becoming a relatively inexpensive option compared to fossil fuels and nuclear energy. Renewables contracts in 2017 in Denmark, Egypt, India, Mexico, Peru and the UAE set the price of renewable electricity at approximately $0.05 per KWh, according to the “REN21 Renewables 2018 Global Status Report”. There has been a similar decrease in the average price of awarded renewable energy projects in Peru, between the first auction in 2009 and the fourth auction in 2015, according to MINEM. During this period, photovoltaic solar energy went from $221 per MWh to $48 per MWh, a decrease of 78%, while the price of wind energy fell by 53%, from $80 per MWh to $37 per MWh. “This shows that at present, investing in renewable energy sources is the most competitive option, and compared to other alternatives reduces uncertainty by having short-term results,” Temboury told OBG.

Before President Kuczynski’s resignation, the country’s largest photovoltaic solar power plant, Rubí, was inaugurated in Moquegua. The plant has more than 500,000 solar panels, with a capacity of 144.48 MW of effective power. Investment in the plant by Enel Generación was valued at more than $165m.

Equal Footing

According to Enel Generación, it is important for the government to allow non-conventional renewables to compete on equal terms with technologies such as thermal or hydroelectric. The current framework establishes that power plants cannot sell energy below their assigned firm power – that is, their ability to dispatch energy safely and reliably. In addition, they are prohibited to sell energy through regulated or free market contracts. Therefore, renewable energy companies cannot sign contracts, and can only participate through auctions.

The Peruvian government aims to reduce the electricity deficit in rural areas by installing 500,000 off-grid photovoltaic systems, whose operation is guaranteed for 15 years. The implementation of the project, led by Ergon Perù, a subsidiary of Italian energy firm Tozi Green, will benefit around 15,000 localities and more than 2000 schools in rural areas.

According to figures from MINEM, in 2017 there were 33,946 photovoltaic systems in operation, benefiting approximately 150,000 Peruvian inhabitants. By July 2019 an estimated 194,038 solar panels will be installed throughout the country.


Peru’s energy sector has seen consistent growth in the past decade, and this growth is not anticipated to slow in the near future. If anything, it is the country’s rapid capacity building that has inhibited growth, as domestic demand and international export capacity seek to catch up with growth. While the focus in the coming years is on how to maximise the available resources, having adequate infrastructure and ensuring the maximum capacity of the current grid, while having the correct processes in place, will serve as a direct challenge, as the development of these capabilities can often take several years.

Nevertheless, delays in projects such as the GSP have opened opportunities for energy supply alternatives to be considered in the sector. For this reason, and for its lower production costs, renewable energy resources have been gaining importance in the Peruvian energy market, with growing investment potential and political and regulatory interest. However, there is anticipation within the sector that by the end of 2018 a new bid will be convened for the GSP, which may alter the trajectory of renewable energy prospects once again. This project, along with the new reforms, are expected to reinvigorate the sector after the recent difficult political context that affected sectoral growth in 2017.

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The Report: Peru 2018

Energy chapter from The Report: Peru 2018

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