Renewable energy: The state of play in Peru

Changes to Peru’s tax structure would boost development of renewable energies, according to Luis Flores, regulatory affairs manager at Enel Perú.

The executive made the comment during a forum on the promotion of private investment in non-conventional renewables organized by congress’ special committee on climate change following the recent introduction of a renewable energy incentives bill.

Flores’ presentation highlighted that the early recovery of the general sales tax for these projects requires a two-year pre-operation stage which begins with the granting of the definitive generation concession.

A proposed modification would establish a project’s pre-operation stage earlier when the environmental management instrument is approved.

A second proposal seeks to extend the norm that regulates depreciated acceleration to 2030 from 2025.

Citing information from grid coordinator COES, Flores highlighted a project portfolio of 32 wind farms (5,842MW, US$6.43bn) and 16 solar parks (2,100MW, US$1.47bn).

On the regulatory front, Flores applauded the 2019 change that granted firm capacity to wind and solar but called for further modifications to improve the latter’s participation.

Under the change, firm capacity considers energy produced in the last 36 months during peak hours of 5pm to 11pm.

Pointing to a Deloitte study on energy transition in Peru, he said that under an “increased ambition” scenario (i.e., aligned with the country’s nationally determined contributions) solar and wind could account for 18% of generation or 22% in a “green development” scenario (i.e., accelerated policies).

In February, solar and wind together accounted for 5% of Peru’s installed power generation capacity. The government’s current target is 15% by 2030.

[insight#259785419]

NEW SUPPLY CALLS

Panelist Juan Coronado, director of local renewable energy developer Auster Energía, also stressed the need for regulatory changes to allow renewables to participate in power distributors’ supply calls ahead of contract expirations.

“Peru has the second most expensive tariff in South America...a home in Lima pays 20% more tariff than a home in Santiago...a Lima home pays more or less 160 dollars per megawatt hour and a home in Santiago, Chile, for example pays around 120, 130 dollars a megawatt hour,“ he said.

Coronado attributed the higher tariffs to regulated market contracts signed over 10 years ago with prices of US$50-60/MWh, adding that renewable energy projects which could have offered prices of US$25-35 were left waiting due to recent contract extensions.

Other issues raised by the Auster executive were the difficulty and delay in securing temporary concessions and changing the peak hours for solar power, as well as the need to look at green hydrogen produced from renewables, such as solar.

Source: Osinergmin

NOW IS WHEN

For Brendan Oviedo Doyle, president of Peru’s renewable energies association, “now is when” actions should be taken.

During the forum, Oviedo called on the need to provide investors with short-term market signals, such as recognizing firm capacity for solar, allowing independent energy capacity negotiations and modifying the structure of power supply calls by distributors.

In the medium and long term, clear objectives must be established as to the role of renewables in the energy matrix as part of strategic planning, which in the case of Chile has led to hundreds of millions of dollars in investment, work, environmental benefits, energy security, diversification, and decentralization, he said.

“What we do not want is that each ministry does a job toward achieving objectives of decarbonization and introduction of renewables, of massifying renewables by themselves.”

Although Oviedo acknowledged the work being done by the energy and mines ministry and its power sector reform commission CRSE, he sees the effort more as regulatory than strategic planning.

[insight#260217533]

GOOD INTENTIONS

Fellow presenter Pedro Gamio – a former energy vice minister – echoed Oviedo’s words.

“Planning has been done, but always, like, a set of good intentions from different stakeholders, but it is not binding strategic planning,” according to Gamio.

“There are serious distortions today and all that has to do with the fact that there is a lot of political instability, the constant changes of ministers...that is costing us a lot, because my big question is how much have we lost by not making timely decisions to diversify our energy matrix,” he said

“If there is a more attractive market for investment in Peru today, it is that of renewable energies and it is where the so-called social license is less laborious.”

Gamio expressed concern of continuing to use natural gas for power generation as this could put at risk the push to expand gas use for residential, commercial, and industrial use.

GOVERNMENT PLEDGE

"We are committed to advancing in the few months [of government] that we have left with unlocking the participation of renewable energies within the normal auctions for everything that is the distribution system," energy and mines minister Jaime Galvez said in closing the forum.

Galvez said a technical ministry team is working on this front and will coordinate with energy and mining investment regulator Osinergmin.