Peru: Energy Resources

Extend network

National electrification rate (2011): 84.8%. Rural rate: 63.0% Urban rate: 95%.

Energy procedure

As for rural electrification, the National Rural Electrification Office (DGER) is in charge of the National Rural Electrification Plan (PNER), which is framed under the policy guidelines set by the Ministry of Energy and Mines. DGER is in charge of the execution and coordination of projects in rural areas and regions of extreme poverty.

Energy debates

In 2004, spot prices increased heavily but generation companies were not allowed to pass-through the increase in their long-term contracts with distributors. As a result many distributors were unable to contract with generators and therefore to meet end-users demands. Amendments to the Electricity Law of 1992 were passed in 2005 to attempt to solve these problems.

The Initiative for Integration of the South American Regional Infrastructure (IIRSA) launched in 2000 is a highly political project in 12 countries, under Venezuelan direction aimed at integrating and modernizing the physical infrastructure of South America.  The South Gas Pipeline Network comprising Argentina, Bolivia, Chile, Brazil, Paraguay, Uruguay and Peru involves preparing the regulatory framework for international gas transactions and extending the network to link production centres with consumers in Eastern South America.

IIRSA Initiative has proven to be effective in achieving results, producing a Portfolio of Projects with regional vision that has grown significantly and with an acceptable level of performance.

After 10 years of the completion of the First Summit of Presidents of South America, IIRSA has become an asset of the countries of the region and is looking into the future in a new institutional framework.

At less than 8,000MW, Peru’s total electricity-generation capacity is modest, barely matching four modern nuclear power stations. But President Alan García’s government reckons it could produce almost eight times as much power just by harnessing the country’s Amazonian rivers, let alone using increasingly plentiful supplies of natural gas, and wind and solar power. The government has big ambitions to turn the country into a regional energy hub, exporting electricity to Brazil and Chile. Some of these plans are starting to be put into effect. And they look set to generate some equally big protests.

Energy sources

Total installed electricity capacity (2011): 8,695 MW Hydro-electricity: 61.7% Thermal: 38.3%.

In January 2011, Peru had 532,700,000 barrels of proven oil reserves. The country produced 158,300 barrels per day (bbl/d) of total oil liquids in 2010. In 2010, Peru consumed an estimated 189,000 bbl/day leaving net imports of about 88,080 bbl/day

Oil is the dominant fuel source in Peru. Peru had proven natural gas reserves of 345.5 billion cu m  in 2010, the fifth-largest amount in South America. Peru hopes to increase natural gas use in its economy and reduce reliance upon oil and fluctuating hydroelectricity. In 2010, the country produced 7.24 billion cu m and consumed 3.65 billion cu m of natural gas. The start-up of production at the Camisea project in August 2004 was the principle force behind this large increase, and the continued ramp-up of production there will likely cause Peru’s natural gas production to increase further in coming years.

Regulatory roles

The main duty of the CTE/OSINERG is to determine the electricity tariffs following the criteria established by the Law of Electricity Concessions. The CTE also serves as the last administrative remedy to issues relating to electricity tariffs and imposes sanctions for non-compliance with its resolutions. -  Regulation of generation, trading, transmission and distribution -  Application of the General Electricity Law - Price regulation in the electricity (generation, transmission, and distribution) and natural gas industries (transport and distribution). -  Quality and Security regulation in energy industries, including upstream and downstream activities in the petroleum industry. -  Supervision and enforcement of the privatization agreements in the electricity, natural gas and petroleum agreements. -  Dispute resolution of conflicts between energy companies and consumer protection.

Competition

The Electricity Law of 1992 vertically separated the electricity industry into Generation, Transmission and Distribution (retailing activities such as billing and metering remain part of the distribution). However, it is possible for firms to re-integrate with the permission of the Competition Commission. At the moment there are 2 cases of vertical integration between generation and distribution that have been approved by the Competition Commission.   Electricity generators compete for the supply of energy to electricity distribution companies. Also a ‘spot’ market exists for power transfers between electricity generators. Finally, generators and distributors compete for the supply of energy to large end-users (users with demands of more than 1 MW-year).

In July 2006, the government elaborated on the rules established in the Law of Electrical Concession (2005) with the purpose of: - Ensuring the supply of “sufficient efficient generation” so as to reduce the economy’s exposure to price volatility and help assure the final consumer a more competitive electrical tariff; - Reducing the administrative intervention for the determination of the prices by means of market solutions;  -  Taking the necessary measures to create effective competition in the generation market; and - Introducing a mechanism of compensation between the National Interconnected Electrical System (SEIN) and the Isolated Systems so that the prices incorporate the benefits of natural gas production and reduce their exposure to the volatility of the fuel market.

Energy efficiency

The Executive Decree Nº 026-2010-EM of May 28 2010, creates the General Directorate of Energy Efficiency (GDEE) as a line body of the MEM. GDEE depends on the Vice-Ministry of Energy. GDEE is the technical regulatory body in charge of proposal and assessment of energy efficiency and nonconventional renewable energy policies, the promotion of an efficient use of energy formation, as well as the lead of energy planning.

The GDEE is the only institution in charge with energy efficiency policies in the economy. Nevertheless, there are other institutions and organizations that carry out energy efficiency activities: Public and private universities: Research and development. Universidad de Ingeniería, Pontificia Universidad Católica del Perú, Universidad Nacional Agraria La Molina, Universidad San Agustín de Arequipa, among others. National Institute for the Defence of the Consumer and Private Property (INDECOPI): Energy efficiency standards.

In September 2009, the government of Peru through MEM organised a workshop on efficient use of energy where the Referential Plan for the Efficient Use of Energy 2009–2018 was approved. This is the main instrument to achieve the economy’s energy efficiency goals through action plans proposed for each sector. The plan includes an analysis of energy efficiency in Peru, identifying sector programs that could be implemented to achieve the proposed targets.

The objective is to reduce consumption by 15% until the year 2018 in relation to the projected demand for that year, without affecting production and neither services of the different economy sectors nor the comfort of the residential sector

Capacity concerns

Increasing energy imports, combined with depleting domestic resources, have raised concerns over energy supply security within Peru.  As such, the government is promoting the use of natural gas in order to reduce oil import dependency.  The new fuel mix that will include natural gas as an integral element is being undertaken in accordance with the “Plan Nacional de Transformación de la Matriz Energética”.

Government agencies

The National Commission for the Environment

Energy regulation role

The Ministry of Mines and Energy (MEM), is the central body and head of the Energy and Mining Sector, and it is part of the executive branch.

The MEM aims to formulate and evaluate, in harmony with the general policy and plans of the Government, national policies on sustainable development for energy/mining activities. It is also the competent authority on environmental issues related to energy/mining activities.

The Deputy Minister of Energy is the immediate authority of the Minister in the Energy Sector. It directs, supervises and advises the Minister, proposes policy of sustainable development of energy sector, as well as directs and evaluates the activities of the Energy Sector nationally, according to the directions given by the Minister.

The National Institute for Defence of Competition and the Protection of Intellectual Property (INDECOPI) is in charge of monitoring compliance with the Anti-monopoly and Anti-oligopoly Law of 1997.

Ownership

Electricity market In the 1990s Peru privatized part of the electric sector. Following the electricity concessions law of 1992—reformed in 2005, the Peruvian government reduced its participation in the commercial power sector by privatizing some of its commercial assets and allowing the participation of private investors. Most of the distribution is privately owned. There is spare capacity of transmission grids, except in rural areas, where the government is stimulating investment. The government still holds the 1,008 MW Mantaro project, 30% of most of the privatized generation and distribution companies and 100% of the transmission companies in the centre north and the south (ETECEN and ETESUR).

Around 65% of the generation capacity, almost all the transmission capacity and 2 distribution companies that serve the capital of Peru has been privatised. The Government still owns a 1 GW hydro-electric plant that represents 30% of the total generation capacity and several regional distribution companies. Off-grid systems are operated by the government.

Oil market Exploration and exploitation of petroleum is normally carried out by private firms granted concessions from the government. Refining is carried out by two companies, on state-owned and the other private. 

Petroperu, the former state-owned oil company, was privatized in 1993. However, the state still controls most downstream production, the country’s single pipeline, and most refineries. The government can block acquisitions to ensure that private companies do not gain excessive market power. Attempts to privatize the downstream facilities have been resisted heavily by labour unions. Over half of crude production is controlled by the Argentine company, Pluspetrol.

In 2003, the Government established new policies regarding royalties and implemented tax incentives to attract foreign investment to increase oil production, since the refining activities operated at an estimated 85% of their capacity. This created greater interest in exploration within the interior of the country.

Degree of independence

Under the Ley de Concesiones Eléctricas (Law of Electricity Concessions) of 2005, the Comisión de Tarifas Eléctricas (Commission of Electricity Tariffs) is a technical decentralised body of the energy and mining sector with functional, financial and administrative autonomy.

The board is composed by five members, including the President.  Two members are appointed by the Cabinet of Ministers (PCM), one by the Ministry of Energy and Mines (MEM, one by the Competition Agency (INDECOPI) and one by the Finance Ministry (MEF) for a five-year period, which is renewable and staggered. Board members could be removed whenever a serious fault occurs as defined by the law. 

Energy debates

Plan Nacional de Electrificación Rural (PNER) 2012 – 2021

http://dger.minem.gob.pe/ArchivosDger/PNER_2012-2021/PNER-2012-2021%20Texto.pdf

Energy framework

The Ley 28054 de Promoción del Mercado de Biocombustibles, has been passed in 2003.  The goal of this legislation is to promote investment in the production and commercialization of biofuel, and to disseminate the environmental, social, and economic advantages of biofuel use that can be attained through the protection of public health, the environment, and the creation of new jobs.

The Política Energética Nacional del Perú (2010 – 2040) has been passed in November 2010 by the Decree N 064-2010-EM.

Reliance

Peru is a net importer of energy.  In comparison to 2004, Peru increased its primary energy imports by 13.8%.

Most imports of crude oil come from Ecuador and other South American countries.

Role of the government

The Ministry of Mines and Energy (MEM) is in charge of energy policy and planning, concession granting and implementation of projects in rural electrification, renewables and energy efficiency. http://www.minem.gob.pe/

Regulatory framework

In September 2000, the Law for the Promotion of Energy Efficiency (Law No. 27345) was approved, declaring support for the efficient use of energy to be in the national interest. The regulation for this Law was approved in October 2007 (by Supreme Decree No. 053-2007-EM).

Peru created the Fondo de Electrificación Rural y Urbano Marginal – FERUM (Rural Electrification Fund). This initiative involves creating rotating funds for rural electrification, based on a surcharge applied to electrical energy companies’ profits and eventually contributions from cooperation agencies, which finance projects using renewable energy.

The Ministry of Energy and Mines (MEM) through its Directorate General for Energy Efficiency (DGSE) will formulate the Strategic Plan for Sustainable Energy and Biofuels for Peru that will finished by 2012.

Regulatory barriers

N/A

Energy regulator

The Energy and Mining Investment Supervisory Body (OSINERGMIN - Organismo Supervisor de Inversión en Energía y Minería), created in 1996 as OSINERG, is in charge of enforcing compliance with the Electricity Concessions Law (LCE) of 1992 and is also in charge of ensuring the electricity public service. OSINERG is as well the body responsible for enforcing the fiscal obligations of the license holders as established by the law and its regulation. Finally, it is responsible for monitoring compliance of the System Economic Operation Committees (COES) functions and for determining biannually the percentages of market participation by the companies.

In 2000, OSINERG was merged with the Electricity Tariffs Commission (CTE), currently known as Adjunct Office for Tariff Regulation (GART). Together, they are in charge of fixing generation, transmission and distribution tariffs and the tariff adjustment conditions for the end consumers. They also determine the tariffs for transport and distribution of gas by pipeline. http://www2.osinerg.gob.pe/gart.htm

Renewable energy

Hydropower Its geographical location and topography give Peru a huge hydro-electric potential. Proven hydro-electric potential is about 6 GW, but if probable and possible potential is included, the total for potential and proven producible energy would reach 74 GW and 316,702 GWh respectively. Hydro-electricity is the only renewable resource exploited in Peru. In 2006, it accounted for 48% of total installed capacity and 72% of electricity generated. The largest hydro-electric facility in the country is the 900 MW Mantaro Complex in southern Peru, which is operated by state-owned Electroperu. The two hydro-electric plants at the complex generate over one-third of Peru’s total electricity supply. The Peruvian government plans to expand its hydropower generation capacity through several hydro-electric projects: Olmos (624 MW), Sheque (600 MW), Cheves (525 MW), Chaglia (345 MW) and Lluta (210 MW). In February 2006, Egecen S.A. completed construction of the 130-MW, Yuncan hydroelectric plant, located northeast of Lima. The plant will be operated by EnerSur, a subsidiary of Brussels-based Suez Energy International.

In 2011, the Ministry of Energy and Mines (MEM), through its Directorate General for Energy Environmental Affairs (DGAAE) approved the Environmental Impact Assessment (EIA) of the "Hydro-Lluta and Lluclla" presented by the Generation Company Arequipa SA (EGASA), through Resolution N ° 132-2011-MEM/AAE.

The aim of the project is the construction of the Hydroelectric: Lluta I, with an installed capacity of 214.37 MW, Lluta II, with an installed capacity of 52.47 MW and Lluclla, which have an installed power of 238.4 MW.

Wind energy The contribution of wind power to the energy matrix in Peru is negligible, with just 0.7 MW of installed capacity in 2006. To evaluate wind power, 31 metering stations have been set up in almost all of Peru’s districts, which indicate that the best conditions occur on the coast and border regions between Bolivia and Chile. It should be noted that the Peruvian coast has significant wind power potential with averages reaching 8 m/s in Malabrigo, San Juan de Marcona and Paracas. Likewise, along most of the coast, annual averages reach 6 m/s, which encourage analyzing the potential for their use in generating electricity. The Departments of Talara, Laguna Grande, Marcona and Pta. Atico are the regions with the largest wind potential. Studies from the National Meteorological and Hydrological Service (SENAMHI) have estimated a total wind power potential of 19 GWh/year for Peru, or about 70% of current power consumption.

The Executive Branch granted concession to Wind Energy SA to generate electricity in the future Talara Wind Central, with an installed capacity of 30 MW.

Solar energy It has been estimated that Peru has favourable conditions for the development of solar energy projects. However, the country solar potential has not been exploited yet. In the mountain ranges located in the South, solar energy reaches average levels above 6 kWh/m2/day, which are among the highest worldwide. On average, solar radiation across a horizontal area of the Sierra is more than 5 kWh/m2 and in the forest ranges from 4 to 5 kWh/m2.

In a study by the MEM, it is estimated that there are just over 66 000 photovoltaic solar energy machines installed, providing an installed capacity of approximately 4.7 MW being Cusco, Loreto, Cajamarca, Piura and Ucayali the regions with the largest number of these equipments.   In addition, solar cookers have been installed throughout the country. According to the Solar Atlas of Peru, it has being determined that solar radiation levels in average fluctuate between 5.5 and 6.5kwh / m2/day in both the coast and in the Sierra, placing them among the best places of radiation planet.

The MEM, through the DGAAE approved the Environmental Assessment (EA) of the project "Planta Solar Fotovoltaica Panamericana Solar 20 TS" presented by the company Panamericana Solar S.A.C that will take place in the region of Moquegua.   The project involves the construction, operation and maintenance of Solar Photovoltaic Plant and equipment assembly with a maximum capacity of power generation will be 20 MW, as designated in Resolution N ° 135-2011 - MEM / EFA May 10, 2011.

Geothermal energy Peru has 300 hot springs with temperatures ranging from 49 °C to 89 °C located along the western mountain range and to a lesser degree in some of the Andean valleys and the eastern area, which would only be suitable for heating water and providing heat. Based on the available information for the six Peruvian geothermal energy areas, the Ministry of Energy and Mines conducted a geological interpretation, considering the socio-economic aspects of industrial development and possibilities for replacing oil derivatives in thermal plants, which led it to establish the following order of priorities: (i) chain of volcanic cones, (ii) Puno Cuzco, (iii) Cajamarca and La Libertad, and (iv) Callejón de Huaylas, Churrin and Central.

Biomass energy Peru ranked second in Latin America in terms of its forested area. In 1988, the Dirección General Forestal de Fauna – DGFF (Forestry and Fauna Bureau), estimated for Peru’s forestry resources a maximum sustainable flow of 66 million of toeb/year, which would be the equivalent of 36 times estimated fuel wood consumption in 1998. If agricultural and agro-industrial wastes are added, the potential for bioenergy is clearly higher than Peru’s current oil reserves of 43 million toeb.

Biofuels The Government has begun the promotion of biofuels production.  In the costal and forest regions of Peru, there are suitable soil and climatic conditions to develop crops that provide the volumes of adequate raw material to produce anhydrous ethanol and biodiesel.