Peru, Land of Contrasts

Peru, Land of Contrasts

Differing opinions on how to tackle climate change

I was in Peru a few weeks ago in order to better understand the potential for Canadian cleantech companies in the renewable energy and water sectors. I had the opportunity to meet the major players in the renewable energy space, and their views can best be characterized as similar to their beautiful crafts: composed of many distinct and colourful choices.

For example, Lima is a beautiful city by the Pacific Ocean, with a mix of colonial and modern architecture, where people surf and hand glide off cliffs, where a modern shopping center has been built into a cliff overlooking the ocean and where the restaurants are considered some of the best in the world. But by contrast, close to three million Peruvians don’t have access to electricity and 4 million don’t have access to potable water.

Peru is very much impacted by climate change and the El Nino/Nina effect which, among other things, have caused severe flooding and drought. So the country was a natural host for one of the world’s most important climate conferences, the U.N. Climate Change Conference, COP 20, last December in Lima.

Having the major players in the fight for climate change in Lima at the same time however, seems to contrast with the lack of alignment within the country on its own climate issues, particularly on the issue of power.

For example, Peru is first and foremost a mining nation, blessed with large deposits of gold, silver, copper and other minerals. Mining however, uses a lot of power and water in their operations. And with expected investments to 2020 at close to 60 B USD, the country needs to plan for availability of power and for the most efficient use of water. In fact, while the expected growth of the mining sector is, in general, a good economic sign, some forecasts indicate that Peru could eventually run out of the energy required to operate these mines.

Where will Peru’s power come from?

That’s where opinions differ.

Currently about 60 per cent of electricity consumed in Peru comes from hydro power, another 30 per cent from thermal power. Many believe the future is still hydro power, particularly for the mining sector. In fact, some believe Peru has the potential to be a net power exporter to neighboring countries in the near future.

But the reality is that the most of the potential hydro projects are located in the Amazon jungle. In addition to the remoteness, these projects will certainly be challenged by conflicts over the environmental impact and economic benefits to local communities. In fact, one of the major drivers of social conflict in the country surrounds the issues water; specifically how mining companies manage water use and how they safeguard against the potential of polluting fresh water.

Others were of the opinion that inexpensive, some would call ‘subsidized’ gas, would be another future source of thermal power. But known reserves are only expected to last 15 to 20 years, so unless other sources are found, thermal gas is a finite resource.

What about renewable sources?

Peru has a law mandating that 5 per cent of all electricity generated in the country must come from non-conventional (e.g. non hydro) renewable sources such as solar, wind, biomass and small hydro. At the same time, the government announced at the COP20 meeting that by 2025 they wanted 60 per cent of power capacity to come from renewable sources, including hydro and non-conventional power.

Most agreed that solar and wind especially would be good solutions for remote locations not currently connected to the national grid. Indeed, steps have already been taken is this direction, with the recent development of the 97MW Tres Hermanas and 32MW La Marcona wind farm projects.

However, where it got interesting, was the prevailing notion that solar was still significantly more expensive than conventional sources, when in fact solar prices have reduced dramatically from the 12 cents/kWh witnessed in 2012. In fact, within a week of my return it was announced that Berkshire Hathaway Inc.’s NV Energy, a Warren Buffett company, agreed to buy 100 MW of power from First Solar at 3.87 cents/kWh.

But what does this mean for Canadian companies?

I believe the market is open to demonstrate how non-conventional renewable projects can be developed at competitive prices. In particular, targeting the large energy users such as mining companies might be a strategy either for powering their operations directly or to participate in the “work for taxes” program, where they are looking to develop social infrastructure projects.

This may be an interesting opportunity to develop off-grid water plants, off-grid power generation projects and micro-grids for small communities.

So, what is the future of power for Peru? Opinions may differ … thermal, solar, hydro … But as always, history will decide who was right.

If you are new Peru, getting in touch with the local Trade Commissioner’s in a great way to start. In addition Peru has an investment attraction agency, ProInversion, that is a good source of information.

Categories Clean Technologies, Industry Insights, Infrastructure & Construction

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