Latin Finance - June 2008 - 37

peru electricity finance Electrifying Peru’s Progress by Lucien Chauvin W ind, water, natural gas. Whatever the source for producing electricity, Peruvian authorities want investors to know that they have abundant supply and growing demand that will keep costs down and guarantee healthy returns. Peru’s energy needs have outpaced robust economic growth almost yearly since economic expansion began in earnest in 2003. Demand has grown by an average of 8% annually since 2001 and the ministry of energy and mines forecasts double-digit increases through 2015. Approximately 350 megawatts need to be added each year to feed consumption. Deputy energy minister Pedro Gamio says supply is assured for the next two years, but that the ministry is concerned that there could be a crunch in 2011 if the heady pace of economic expansion is sustained. GDP jumped 9.2% from March 2007 through February 2008, according to the national statistics institute. Investment in Peru is spurred by a recently signed free trade agreement with the US and a new investment grade rating. “We will have no problem meeting energy demands in the next few years, but we need to lock in investment for projects that can come on line early in the next decade,” Gamio tells LatinFinance. The fastest growing LatAm economy faces crisis in 2011 if it does not revamp its electricity sector. However, new investment could turn Peru into a power exporter. by the end of the third quarter and the Consumption steadily rising estimate is that at least 100 megawatts 4,500 could be added yearly starting in 2010. One megawatt of wind 4,000 energy costs about $1.8 million to install, 3,500 more than traditional sources, but there is no risk of the fuel 3,000 drying up. Wind is just one 2,500 of the sources included in 2,000 renewable energy 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 legislation approved through March by the Peruvian Source: Peru ministry of energy and mines cabinet in April. The legislation states that the minimum increase in energy produced “Investors are not looking only for by renewal sources should be 5% annually opportunities, but the best opportunities for the first five years. It covers energy by and that is what Peru is offering,” says biomass, geothermal, solar, tidal and windEsteban Serra, consultant with Spain’s generation, and provides a number of perks Latin Bridge Business, who has advised – such as accelerated depreciation of assets – South American governments and to incentivize investment. The ministry companies on infrastructure projects. expects that by 2015, around 30% of Peru’s The ministry has granted more than 10 energy will be produced by renewable temporary concessions already this year to produce electricity using natural gas, water sources. and wind. If only the three awarded in April are executed – two for wind, one for a Hydro Push hydroelectric plant – they would add 700 The legislation only partially covers the megawatts to the grid, which now holds principal renewable source, water, by around 4,000 megawatts. including experimental hydroelectric The ministry also signed a contract in systems up to 20 megawatts. Hydro late April for a US-Spanish consortium – generation accounted for 71% of Peru’s formed by Meteosim and Truewind – to energy production in March, according to map the country’s potential for windthe ministry, and the government is actively powered generation. The map will be done pursuing investment in that sector. Energy Peru Peak Energy Demand Propelling Investment A number of moves already this year suggest that Peru will have little difficulty attracting funds to its electricity sector. In fact, Gamio predicts that if all goes as planned investment will total at least $3 billion by the end of president Alan García’s five-term in July 2011. The ministry reports that $591 million was invested in production, transmission and distribution of electricity in 2007, double the previous year and well above earlier in the decade when there was little money going into transmission or generation. (MW) June 2008 LATINFINANCE 37

Latin Finance - June 2008

Table of Contents for the Digital Edition of Latin Finance - June 2008