Electricity regulation reform not on Minem's agenda

Although several governments (even before Pedro Castillo's administration) recognized the need to carry out a regulatory reform in the electricity sector, in order to reduce electricity tariffs, this does not seem to be the priority of Dina Boluarte's government.

This could be concluded from the answers given to Gestión by the Minister of Energy and Mines, Oscar Vera, when asked in an interview if his sector is working on the process of modernization of the regulation of the electricity sector, in order to eliminate the cost overruns that raise the electricity tariffs, and which are recognized by Minem's norms.

Minister Vera answered that, in the electric sector, his office will continue with the rural electrification plans (inherited from the previous government) and that the goal is to electrify 3,400 localities until mid 2024, with an investment of S/1,200 million.

"Now we want to carry out works, continue the (rural electrification) projects", emphasized the minister when asked if he plans to move forward with the approval of a new electricity regulation (the process of which was initiated by previous administrations of that ministry).

Reform awaited by the market

However, the president of COES, César Butrón, in a recent interview with the SNMPE, had pointed out that the agents of the electricity sector have currently focused their attention on the need to continue with the regulatory reform required in this activity.

As part of this reform, he had indicated that measures are expected for the promotion and development of non-conventional renewable energies (wind, solar, among other generation technologies), as well as complementary services to achieve a greater penetration of these RER technologies, and the execution of transmission expansion plans.

On the subject, Brendan Oviedo, president of the Peruvian Association of Renewable Energies, told Gestión that today, in view of the increase in generation costs due to the greater use of gas and diesel thermal power plants, access to lower cost generation offered by wind and solar plants must be facilitated, which requires changes in the sector's regulation.

In this regard, according to the last electricity report of the Minem corresponding to November, in that month, although the electricity demand increased by 5.6%, the production with hydroelectric plants fell 25%, but with gas-fired thermal plants it increased 48% and with diesel it increased 12%, compared to the same month of 2021.

Hydroelectric production has been contracting since the end of last year as a result of the drought that continues to plague high Andean areas, including the central area, where the large hydroelectric power plants of the Mantaro complex are located.

What is expected from the changes in electricity regulation?

Oviedo explained that with the change in the regulation, the aim is that the plants that operate with renewable energy resources (RER) can participate in the bids for the purchase of generation capacity, considering the lower costs that wind and solar power plants have today to operate (compared to years ago).

He explained that, currently, RER technologies can produce at costs of between US$30 to US$35 per megawatt per hour (MW/h), compared to the US$60 per MW/h that regulated users pay today, and if they are incorporated into the system, electricity tariffs could be reduced.

However, given that solar power plants, for example, cannot generate at night, the aim is to incorporate into the regulation that allows (generators in general) to deliver energy in hourly blocks, so that solar plants, for example, can supply electricity during daylight hours.

He indicated that this solution has already been applied in Chile, so that today RER technologies represent 37% of that country's energy matrix.

Gas pipeline would result in higher costs for electricity users.

In this regard, the former Vice-Minister of Energy, Pedro Gamio, agreed that the evaluation of changes to the electricity regulation should be resumed in order to incorporate RER technologies, because it will allow lower tariffs.

However, he considered it a mistake for the Minem to try to resume the southern gas pipeline project because, he said, it could lead to double the price of electricity tariffs (since regulated users have paid for the first years of operation of the current Camisea gas pipeline) and he suggested instead extending the current Contugas pipeline along the coast to the southern regions.

However, for Rafael Laca, a specialist from Consultora Enerkory, ways should be sought to reestablish the balance between hydroelectric generation (which currently accounts for 36% of the generation park) and thermal (which accounts for 59%), and then open up the market to RERs.

He mentioned that today, as a rule, the generating park must be composed of 5% of RER energies, but whose operation is onerous for consumers, since they must pay compensation to these plants for not generating when there is no wind or sun, under the concept called RER Premium.