Renewing regulation

Peru drafts bill to encourage the installation of renewable energy generation.

Renewable energy investors are waiting with bated breath as the regulatory environment around Peru’s energy markets looks set to move in their favour after taking inspiration from Chile. Earlier in the summer, Peru’s Ministry of Energy and Mines published a draft bill aiming to promote the efficiency and reliability of energy generation and the development of renewable energy through the regularisation of independent capacity and energy supply contracts.

Peru’s extraordinary renewable energy potential continues to remain untapped, although 60% of the country’s energy comes from hydroelectric energy and 5% from unconventional sources including wind, solar and biomass. Brendan Oviedo, president of the Peruvian Association of Renewable Energies (“SPR”) said, “Peru is not short on renewable energy potential. We have 13,000 MW of renewable energy generation installed but we have wind potential of more than 20 GW, solar 20 GW, hydroelectric 70 GW and geothermal 3 GW.”

Oviedo also confirmed that Peru was seeking to emulate key aspects of Chile’s energy markets, “The evolution is towards the scheme that Chile implemented for the tenders of its distributors, although it is necessary to perfect some things since our [existing] regulation is not identical.”

“Peru is not short on renewable energy potential. We have 13,000 MW of renewable energy generation installed but we have wind potential of more than 20 GW, solar 20 GW, hydroelectric 70 GW and geothermal 3 GW.”

Brendan Oviedo, president of the Association of Renewable Energies, Peru

Despite the potential, Peru’s renewable energy sector requires regulatory changes to become more attractive for investors. César Butrón, president of COES, the power grid coordinator said that, without auctions designed for renewables, there will never be enough demand to finance renewable energy projects in Peru. Currently, prices for renewable energy is far from being competitive with hydroelectric or natural gas generation.

To solve this problem, Martín Dávila Pérez, Peru’s Vice Minister of Electricity of the Ministry of Energy and Mines (“MINEM”) said, “It is necessary to coordinate public and private efforts in the field of energy, [and to] establish concrete goals that allow progress to be measured. It is essential to institutionalise the work, regardless of political cycles for the benefit of the population.”

“It is necessary to coordinate public and private efforts in the field of energy, [and to] establish concrete goals that allow progress to be measured.”

Martín Dávila Pérez, Vice Minister of Electricity of the Ministry of Energy and Mines (“MINEM”)

To this end, the Ministry started consultations with market stakeholders in August but it remains unclear if the new bill will pass Congress and what opposition it may face. According to the Peruvian Association of Renewable Energies the main debate focused on the model of tenders, inspired by Peru’s neighbouring countries. The new law will include separate contracting regimes for power and energy which will include long-term tenders.

The regulatory environment is not the only barrier to the widespread construction of solar and wind projects in Peru, an industry executive explained, “The transmission system also must be upgraded, both at the operational and infrastructure levels, to accommodate a high participation of new renewable power plants in an adequate and safe manner.”

A similar story is heard across much of Latin America: fantastic potential for renewables but significant work to be done on transmission infrastructure and regulation.

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