He says, she says: Noise increasing in Peru over proposal to boost renewables

Advancement of a bill in Peru’s congress to increase the participation of renewable energies has led to stepped up lobbying by those for and against the proposal.

The initiative, introduced by the government to congress in March 2023, would modify law 28832, governing the guarantee of efficient power generation development.

The proposal would allow power distributors to procure capacity and energy independently in supply tenders, a change that stakeholders, particularly renewable energy companies, have spent years calling for.

“The price of generation through renewable technology is increasingly competitive, however, the prices of the contracts resulting from the supply tenders have not benefited from the new prices of renewable generation because… there is an obligation to contract power and energy jointly 24 hours a day, so the main barrier that renewable generation presents is this contracting modality,” says the bill, available in the Documents box in the top right corner.

Read Peru presents long-awaited renewable energy promotion bill

“There is currently a portfolio of projects in our country that represents around 20,000MW, which with this law [the bill] would accelerate their entry into the country's electricity market for the benefit of the population and the development of the regions,” energy and mines minister Rómulo Mucho said recently.

Read MINEM: We have a portfolio of renewable energy projects worth more than US$ 31 billion

LOWER COSTS

“According to [energy and mining investment regulator] Osinergmin estimates, if these modifications are not implemented, the country would face a permanent and constant increase in electricity rates, affecting more than 34 million Peruvians,” local renewable energy association SPR said in a statement.

“Currently, the cost of electricity generation paid by Peruvian families is up to 60% higher than that of large consumers such as mining companies,” SPR contends.

The association argues that the changes would diversify and decentralize the power generation park, which is concentrated in Lima and the center of the country, and promote investments of up to US$20bn in different regions.

January-August power generation by year and source (Credit: COES)

Hydro plants are vulnerable to drought and climate change, highlights SPR, which, citing the energy and mines ministry, adds there are only 16 years of proven natural gas reserves left.

“This concentration puts the country's energy security at risk and makes it difficult to electrify sectors, such as transportation and mining, that require reducing their greenhouse gas emissions.”

HIGHER COSTS

Citing a study by Gerens and Laub & Quijandría Energy Group, Peruvian hydrocarbons association SPH points out that the bill’s approval could generate additional and significant costs in storage and transmission infrastructure, known as “shadow costs,” which would exceed US$5.3bn by 2030.

“To date, subsidies granted for the promotion of renewable energies in Peru already exceed US$1.5bn, and all users are assuming that cost," a SPH release quoted Gerens senior partner and research director Arturo Vásquez as saying.

Vásquez also argues that the changes could displace natural gas in favor of more intermittent sources.

SPH has said that such a displacement could reduce gas production royalties for Cusco by 354 million soles (US$94mn).

For his part, LQG partner Carlos Gomero stressed that the “excessive” promotion of renewable energies will not generate a positive impact if not accompanied by the “adequate” development of transmission infrastructure and a “robust” regulatory framework for complementary services.

And although SPH general manager Tiffany Bayly pledged the association’s participation in the promotion of clean energies, she called for the transition not to compromise economic competitiveness.

Read Greater use of natural gas will allow Peru to comply with its international environmental commitments