Peru explores alternative energy options

Although Peru is not subject to international treaties binding it to reduce carbon emissions, in May 2008 the government announced that the country would source up to 5% of its energy from non-conventional renewables, including wind, solar, biomass projects and small-scale hydroelectric projects of under 20 MW. Given that the country’s mega hydro facilities can endure periods of reduced production due to climatic events, the development of more diversified inputs is an important source of energy security.

Tender

The passage of the 2008 Law for the Promotion of Investment in Electricity Generation through Renewable Energy provided a legal framework for new projects. Under this law, the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM) decides the 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.

Solar

With fog covering much of the northern coast for the majority of the year, the government’s efforts to boost solar energy have been focused on the southern states of Arequipa, Tacna, Moquegua and Ica. The four 20-MW projects awarded in the first auction came on-line in 2012 and the single 16-MW project offered in the second auction began operation in late 2014. Total investment in these facilities has topped $379m. Of the contracts signed so far, the solar projects have demanded the highest electricity prices. However, solar power has proven successful in providing remote communities with electricity. In July 2013 Peru inaugurated the National Photovoltaic Household Electrification Programme. Under the scheme 500,000 households in remote regions with no access to the grid will benefit from the installation of over 14,000 solar panels at a cost of $200m.

Wind

According to a wind map completed by the government in 2008, there are 22,450 MW of exploitable wind energy in the country. In the first two auctions four projects were awarded with a total capacity of 232 MW. The initial projects experienced a number of delays and missed their December 2012 deadlines for first production. However, since 2014 the country’s coastal breezes have been powering Peruvian homes and industries. The first to start up, in April 2014, was the Marcona project in the southern province of Ica, a 32-MW project developed by Spanish firm Grupo Cobra. In September 2014 New Yorkbased ContourGlobal inaugurated two projects with a combined capacity of 110 MW, following a $343m investment. The largest of the four wind facilities, the 45-turbine, 97-MW Tres Hermanas, also operated by Grupo Cobra, is expected to come on-line in April 2016. “A key advantage of wind farms is that they are complimentary to hydroelectric production in Peru,” Ricardo Vasquez Campos, country manager of Latin America Power, told OBG. “The best winds are in June and July, two of the driest months of the year.”

Hydro

The experience of the first two auctions demonstrated that mini-hydro projects are the most efficient and easy to install. In the first two rounds, 282 MW of mini-hydro capacity was awarded at agreed prices ranging from $47 to $60 per KWh. When delays to solar and wind projects led to a bottleneck of projects, it was decided that the third auction be for mini-hydro only, with MINEM awarding a total of 197 MW of capacity through 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.

Biomass

The country’s biomass projects are generally on a smaller scale. In October 2011 Petramás opened its 4.8-MW project at Huaycoloro, Lima’s largest landfill, following an investment of $10.5m. Combined with two projects focusing on agricultural waste, the country currently has an installed capacity of 29 MW of biomass energy.

Geothermal

A fifth energy source is also eligible for bids in renewable energy auctions. Geothermal energy, the production of electricity using heat from the earth’s crust, is expected to have significant potential in Peru’s southern volcanic region. However, the discovery of resources and the development of projects is a high-risk affair. Although there are several foreign companies with concessions to explore the country’s geothermal potential, as yet no project has advanced to feasibility study stage.

Tech Gains

The auctions have become progressively more competitive in terms of pricing and capacity factor. The first four solar projects were awarded at an average price of $0.22 per KWh. The only project auctioned in the second auction round, Solarpack’s 16-MW Mariscal Nieto, signed for $0.11 per KWh. Solar remains the least competitive renewable source, mainly due to a capacity factor of 20-30%, but cost reductions have been dramatic. Wind farms have won contracts at an average price of $0.08 per KWh, but profitability has been boosted by better than expected capacity factors. Originally estimated at 46%, wind farms are now approaching a 50% capacity factor. Mini-hydro has also shown strong results, with the average price of energy dropping from $0.06 per KWh in the first auction to $0.05 per KWh in the third.

Fourth Round

Details of the fourth renewable energy auction were announced by OSINERGMIN in September 2015. The projects on the block will add a total of 424 MW to the national grid, making it twice the size of the second and third auctions. Non-hydro projects are also making a welcome return, and 157.9 MW of capacity has been set aside for solar projects with an estimated plant factor of 30%, as well as 136 MW destined for wind projects at an estimated plant factor of 48%. There are also four new biomass schemes up for grabs. OSINERGMIN will auction off energy rights, while private actors are developing the projects. Two of these are 20.4-MW projects, one to be produced by forestry refuse and the other by agricultural waste. Two smaller projects, one using urban waste and the other producing biogas, will each have a capacity of 5.1 MW and a plant factor of 70%. A total of 79 MW is allocated for mini-hydro, presumably through four projects of around 20 MW each.

OSINERGMIN is set to open the bidding envelopes for the fourth auction in mid February 2016, with the concessions agreements to be signed in mid May 2016. Competition for contracts is expected to be very tight as demand is expected to grow in 2016. As of September 2015 there were 23 temporary concessions in place to study potential micro-hydro projects, as well as 17 wind farms and 11 solar projects.