According to the “Climatescope 2016” report, which asses the ability of countries to attract investment for low-carbon energy sources, Peru is currently one of only a handful of countries in Latin America with a mandatory renewable energy target, assumed to be revised every five years. In 2008 the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM) set its first target, aiming to source up to 5% of total energy from non-conventional renewables by 2025, including wind, solar, biomass projects and small-scale hydroelectric projects (mini hydros) of under 20 MW. As of 2017 the target had not been revised. Under the 2008 Law for the Promotion of Investment in Electricity Generation through Renewable Energy, MINEM decides how much capacity it will put up for auction and provides a breakdown of the energy sources open to bids.
The Supervising Organisation of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería, OSINERGMIN) is responsible for organising auctions at least every two years, with the first held in 2009. Participants make sealed bids offering a price per KWh. Projects are chosen on this basis, with winning bids awarded 20-year production contracts at that price. Peru has held five renewable auctions in total, including one for off-grid solar capacity.
As of May 2017 non-conventional renewables (exclusive of hydro) still only account for 2% of total energy supply, according to state investment agency Provinversión, with installed capacity of 1033 GWh in 2015, of which 58% was wind power, 22% was solar and 19.4% was biomass. Including mini-hydros as part of non-conventional renewables, the percentage rises to 9%.
In terms of hydro, the focus has been on mini-hydro projects, with 282 MW of mini-hydro capacity awarded in the first two auctions, at agreed prices of $47-60 per KWh. The third auction was for mini-hydro only, amid difficulties and delays in wind and solar projects), and MINEM awarded a total of 197 MW of capacity across 14 projects.
The downside of mini-hydro is that their periods of unused capacity, the dry months running from May to October, coincide with the down period for hydro. By contrast, wind farms are complementary to hydro production, with the best winds in June and July, two of the driest months of the year.
In its latest auction, held in February 2016, OSINERGMIN awarded 20-year contracts for 13 projects totalling 430 MW, including six hydro projects equalling 79.7 MW, three wind projects at 162 MW, two solar projects at 184.5 MW and two biomass projects totalling 4 MW. Italy-based Enel Green Power won three-quarters of the capacity on offer, taking contracts for 126 MW of wind power, 180 MW of photovoltaic (PV) solar power and 20 MW of hydro capacity. Enel is now one of the leading players in Peru’s renewables sector.
Ahead of the next renewables auction, Lisbeth Loja Arroyo, investment specialist at ProInversión, told OBG that firms from Europe, China, Japan and South Korea have already shown interest. ProInversión is optimistic, expecting growth rates of between 3% and 5% in non-conventional renewables in the period leading to 2025. Future investment of $8.8bn would be needed to increase the ratio of non-hydro renewable energy to 20% of the total by 2040, according to ProInversión projections.
Loja told OBG that wind power in particular is attracting foreign investor interest. Based on the government’s 2008 wind map, Peru has 22,450 MW of exploitable wind energy. The regions with most potential are Ica, Piura, Cajamarca and Arequipa. In the first two auctions, four wind projects were awarded, with a total capacity of 232 MW. The first to start up, in April 2014, was the Marcona project in Ica, a 32-MW project developed by Spain’s Grupo Cobra. In August 2015 two projects developed by a New York-based company, ContourGlobal, became operational. With a combined installed capacity of 114 MW, the Cupisnique and Talara projects are the largest South American wind farms outside of Brazil, and required investment of $250m. Finally, the 45-turbine, 97-MW Tres Hermanas (Ica) project, also operated by Grupo Cobra, came on-line in March 2016. OSINERGMIN’s 2016 auction included three wind farms with capacity totalling 162 MW.
These contracts were awarded at an average price of $37.79 per MWh, the lowest price awarded to wind projects in Latin America in recent years, the regulator noted. The 126-MW Nazca wind farm, on Peru’s southern coast, is expected to generate around 600 GWh annually once operational. According to ProInversión, wind capacity currently under consideration amounts to around 4000 MW.
Solar energy projects are focused on the southern states of Arequipa, Tacna, Moquegua and Ica. Four 20-MW projects awarded in the first auction came on-line in 2012 and a single 16-MW project offered in the second commenced operations in late 2014, with total investment topping $379m. Solar power has been particular successful in providing remote communities with electricity.
In July 2013 the $200m National Photovoltaic Household Electrification Programme was launched, under which 500,000 remote households without grid access were provided with solar panels. In its 2016 auction OSINERGMIN selected two PV projects with a combined capacity of 184.5 MW. The bids for the solar projects had an average price of $48.09 per MWh, the lowest price for large-scale PV ever recorded in Latin America, OSINERGMIN noted. Solar projects previously demanded the highest electricity prices in Peru’s renewables’ auctions. Cost reductions, however, have been considerable in recent years, as solar energy technology improved rapidly.
Geothermal energy, the production of electricity using heat from the earth’s crust, is believed to have significant potential in Peru’s southern volcanic belt, which lies on the Pacific Rim’s volcanic “Ring of Fire”. ProInversión puts the country’s geothermal potential at a considerable 2860 MW. The discovery of resources and the development of projects are more high-risk activities than for other renewables, and therefore more expensive. It is also the case that some of the prospects lie in national parks and/or indigenous areas.
Nonetheless, several foreign companies have concessions to explore the country’s geothermal potential. Some 20 licences in all have been granted across 138 areas, with 30 of these under testing.
Among those countries with most experience in geothermal energy development is Japan. “Japan has vast experience in geothermal energy development and production, which Peru is currently developing. Keisuke Tanaka, Lima office representative of Mitsubishi UFJ Financial Group, told OBG. “Japan can share its expertise and technology to Peru’s advantage.” Japan’s International Cooperation Agency has also provided assistance to Peru’s plans to develop the sector, helping to prepare the 2012 Geothermal Master Plan. One key advantage of geothermal over other non-conventional renewables is that it doesn’t suffer from problems of intermittency, providing stable power supply on a year-round basis.
In October 2011 Petramás opened a waste-to-energy project at Huaycoloro, Lima’s largest landfill, following a $10.5m investment. The Huaycoloro landfill collects half of the total waste produced in Lima, and the scheme has the capacity to generate 5.7 MW of electricity. Two other existing projects operate on a smaller scale, based on agricultural waste. A further two urban biomass projects were awarded in the 2016 auction.
Peru’s energy network and electricity grid withstood the 2016 flooding crisis, but its housing infrastructure suffered tremendous damage. “A focus on sustainable planning is now urgent in Peru, as the impact of climate change becomes a reality,” Hector Miranda, managing director of Red Regenerativa, a company focused on green building and sustainable urban planning, told OBG.
Proper, careful urban planning, and the use of sustainable low-carbon material can positively impact businesses. “Green building now makes corporate and commercial sense,” Miranda told OBG. The corporate and industrial sectors, both domestic and international, have reacted to the growing consumer demand for sustainability, and are no longer acting solely under regulatory pressure. Increasingly businesses see sustainability as a policy worth pursuing.
Lastly, in reference to the costs of the reconstruction, estimated at upwards of 3% of GDP, Miranda noted that there are multilateral funds available to developing countries to help invest in the infrastructure improvements needed to protect built environments against the impact of climate change.