Technology-specific auctions have been one of the key drivers of renewables deployment in Peru. In 2008, under decree No. 1002, the Peruvian government established auctions to contract on-grid renewable energy capacity every two years. Since then, four auctions have been conducted. Peru features a modest clean energy generation target, which is pending revision, and a biofuel blending mandate that hasn’t been updated since 2011.
In 2016, Peru generated 10.8% of its total 48.3TWh from renewable sources (biomass, wind, solar and small hydro). Large hydro accounted for 39.8%, natural gas for 46.4%, and coal, oil and diesel for the rest. To promote renewables, Peru offers priority dispatch and 20% accelerated depreciation for renewables projects.
The Ministerio de Energía y Minas (MINEM) is responsible to evaluate the need for auctions, and the Organismo Supervisor de la Inversión en Energía y Minería (OSINERGMIN) conducts the tenders. A fifth renewable auction, expected to be held in 2018, was canceled in April 2017. MINEM’s explanation for the cancellation is that not all projects selected in the previous auction are being developed.
The auctions have been key in spurring project development. The tenders are technology-specific and contracts are awarded to developers who offer the lowest tariff per kWh for a given technology. In the on-grid tenders, OSINERGMIN has awarded power contracts to 71 projects, totaling 1.34GW of new capacity from biomass, small hydro, solar and wind sources.
The latest renewable energy auction winners were identified in February 2016. The contracts awarded for wind and solar projects represented the lowest prices recorded on an unsubsidized basis in the Western Hemisphere at the time, at an average of $38/MWh and $48/MWh, respectively.
Peru also held an auction for off-grid solar in November 2014 to contract up to 500,000 off-grid PV systems to be installed in the North, Center and South regions. The auction had only one winner, the private developer Ergon, which announced that will develop 150,000-200,000 systems.The company is responsible for the delivery, design, procurement and installation of all PV systems. Peru was one of the first countries in the word to hold off-grid energy auctions. However, frictions between MINEM and the OSINERGMIN have caused lack of clarity over the rules and resulted in project delays. In February 2017, MINEM established new deadlines and Ergon expects to install all panels by July 2019.
Peru is one of a handful of countries in Latin America with a mandatory renewable energy target, which is subject to revision every five years. Established in 2008 by MINEM, the first target for the 2008-2013 period was set at 5% of the country’s total electricity consumption. That target is believed to have been reached in 2016.
Peru initially struggled to meet its biofuels blending target established in 2007, which mandated that 7.8% ethanol be blended into the gasoline stock and 5% biodiesel be blended into diesel fuel. Limited national biofuel production and a lack of operations and maintenance service providers to support the industry prompted the government to twice delay the blend start date in parts of the country. However, the blend has been in force country-wide since 2011.
In September 2015, the government of Peru submitted its Intended Nationally Determined Contribution (INDC) to the United Nations. The country set an unconditional target to reduce greenhouse gas (GHG) emissions by 20% below business-as-usual (BAU) by 2030, compared to 2010 levels. The INDC does not establish a new renewable energy target, but indicates it will promote renewable energy sources and replace coal, oil and diesel with natural gas in thermal plants by way of GHG emissions reduction actions.