The issue of whether or not to incur large loans in Peru’s water power sector is now solved — at least temporarily — according to Peter Wicke*. The answer is to restrict hydro to small schemes, and make use of the country’s gas reserves
Peru has huge untapped hydro resources on the eastern slopes of the Andes, but these will not be harnessed on a significant scale in the near future. There are a number of reasons:
•The lack of ecological impact assessment studies.
•The geological/geomorphological impediments.
•The access difficulties (road infrastructure is almost non-existent in likely hydro areas).
•High initial investment costs, and pay-back periods of several decades.
•The need for transmission lines over very large distances, with power sites far from load centres.
•The reluctance of international lending agencies to consider special soft loan facilities.
•The inconsistent political opinions regarding priorities of regional and decentralised energy development.
•Development of large alternative energy resources — in particular natural gas.
All the same, new hydro moves are being made. This time, they are on a small scale. Statements made by the Ministry of Energy and Mines, at the most recent Latin American Small Hydro Energy Meeting (held in Cajamarca on 14-18 July 1997) made it clear that electricity development will be in two separate directions: remote power supply, preferably on a small hydro basis, and accelerated grid extensions through regional and privatised former state utilities.
The backbone of the Peruvian power system, with an overall installed capacity of roughly 4500MW (around 50% of the total capacity), is large-scale water power. The largest hydro plants are: •Mantaro/Restitución (1015MW).
•Several plants near Lima (200MW).
•Canon del Pato-Huallanca (150MW).
•Charcani V (135MW).
•Macchu Pichu (110MW).
•Other plants totalling less than 500MW.
A handful of new medium sized hydro stations is actually being added to this list, San Gaban in the southeast being the most important and contributing 60MW.
The hydro power stations for the most part have problems meeting peak demand, which is continuously growing, since they are all run-of-river. The exception is Carhuaqero, which has a daily storage reservoir. In addition, several of the plants need frequent maintenance and repair because of sediment load attacks and inefficient desilting systems.
Thermal power stations make up the other 50% of the installed capacity. This is mostly in the form of diesel generators, which are concentrated along the densely populated coastal strip (see map).
When Peru’s annual electricity growth-rate (3-5%) is taken into account, it is necessary for the country’s energy authorities to look for quick solutions and to deal with this latent crisis. Thus, as with other developing countries, gas powered stations are joining the front line — especially since the country has gas resources that can rapidly be exploited.
Peru’s tropical rainforest region offers two most promising natural gas areas: Aguaytía, situated geographically almost in the centre of the country; and Camisea, on the banks of river Urubamba in south Peru, within reach of both the Brazilian border and Peruvian consumption centres.
It seems that the government will give priority to Aguaytía for logistical reasons (the shorter distance to Lima, which is the main energy consuming area) although development of Gas de Camisea is currently more advanced. Shell has had a stake in this project since its beginning more than fifteen years ago. It is now likely also to draw on multilateral financing.
On 16 September 1997 a consortium formed by Shell-Mobile-Bechtel-COSAPI signed an agreement with seven ministries from the Peruvian government, about exploiting Gas de Camisea. Market studies are now under way to assess energy needs until 2010, in which the gas option is compared with more-traditional hydro power development. Whatever the results of the studies, it is considered certain that by 2001 the gas from Camisea will be contributing to the final energy supply solutions for the whole of south Peru. Discussion centres on whether to build gas pipelines crossing tropical forests as well as the cordillera, and whether to erect a combined cycle generation plant of 500-1000MW directly on site. In addition, it still has to be decided how to provide gas for domestic cooking purposes and establish the logistical networks that would be required (including LNG refining facilities near the power plant site). The total investment required is estimated to be around US$2B.
Aguaytía may also come on stream soon if things go well ahead and the direct international investment scene looks bright.
As gas fired power stations on a large scale would meet Peru’s immediate energy needs they are also likely to contribute significantly to Peru’s strategic electricity grid extension programme. They may even strengthen and stabilise the interconnection system, which is steadily moving towards the hinterland with the aim of aiding industrialisation and helping to stop the rural exodus. In this new scheme decentralised power utilities will purchase electricity from the larger generation networks and then transport it through regional grids to local customers for further distribution.
Leaving aside these strategic energy decisions which are the province of central government decisions, we can see that Peru is again enjoying a small hydro ‘bonanza’, after having experienced several such waterpower ‘waves’ in the past.
A history of hydro in Peru
At the beginning of the century a large number of water wheels, Francis pit-turbines and Pelton machines were installed in agro-industrial processing plants, grain mills and other production plants, and in municipal utilities.
In the 1930s, improved turbines were imported from several different countries, for the purpose of productive end-use as well as for lighting.
In the late fifties and sixties, important cities were equipped under a first SHP-dissemination programme. One result of these programmes is that one can sometimes find packages of hydro-electromechanical equipment ‘dreaming’ in wooden cases, jealously guarded by their owners who are unable to bring it into operation. In the 1980s the then state utility ElectroPeru launched a massive provincial electrification programme called PSE (Pequenos Sistemas de Electricidad) mainly on a hydro basis. This included around 60 small and mini hydro power stations, the bulk of which arose through British soft loans together with aid from USAID, IDB, Germany, France, Brazil and China.
This scheme, however, suffered from several setbacks, sometimes putting machines that had already been delivered into ‘mothballs’ for up to a decade. It is only recently that some of the equipment has been put into operation.
Yet today, the situation is somewhat different. In the past, most attention was paid to installing predominantly foreign-made and imported equipment, and national SHP equipment-makers played only a marginal role, but Peru has technical and socio-economical capability in the fields of:
•Hydroelectromechanical engineering and manufacturing.
•Improved hardware manufacturing facilities (for production of advanced crossflow turbines, traditional Francis technology, Pelton machines under licence, etc).
•Regulating devices of all types.
•Engineering and consultancy.
This expertise has arisen thanks to a two-decade-long training period under various co-operative schemes which have not always resulted in economic success, but which have had a long-lasting positive impact on the skills base.
Electrification and SHP
At this moment several rural electrification schemes are underway:
•Under the auspices of the Ministry of Energy and Mines: completion of uncompleted SHP units (1000-1500kW) in the Apurimac-Arequipa-Puno-region (stemming mostly from British aid in the early 1980s); development of 61 new mini hydro sites, funded by Japanese aid and Dependable Turbines/CDN in joint venture with Promihdec-Cusc. The Ministry of Energy and Mines has even more ambitious SHP plans beyond 2000, but these will depend on the outcome of the first phase of development.
•Under the auspices of Programa Nacional de Manejo de Cuencas Hidrográficas y Conservación de Suelos: around 40 projects below 100kW for dispersed villages, partly funded by the Global Environment Facility; a package of larger stations in the 100-500kW range for small town electrifications funded through Fondo Nacional de Vivienda with IDB money; SHP schemes for the regional privatised utilities (largely Hidrandina and Electronorte); refurbishment and grid interconnection of existing plants; new SHP stations in isolated areas with local interconnections (sometimes combined with close-downs of unattractive nearby MHP-plants) in the range of 500-2000kW.
•Philanthrophic NGO programmes. These are generally for social electrification with diversified funding (money from local communities, churches and soft loan agencies, etc).
•Mixed private and community mini-hydro approached on a strictly commercial basis requiring complete cost recovery (no grants nor soft loans) in remote areas and stand-alone plants where people have sufficient purchasing power. These may require: mixed financing (private equipment and material supply, with the community carrying out manual works using local material); private operation and maintenance and repair service on a BOO (build own operate) basis; electricity supply guarantees and special tariff agreements.
•Independent power producers may also enter the market: Gallito Ciego, a 25MW plant, can supply the largest cement factory in the country.
Paradoxically, in certain regions where massive grid extensions are under way they can be accompanied by systematic shut downs of recently built SHP stations. This is said to be a ‘revolving’ case from the mid-eighties, when small hydro was abolished in the wake of the Machu Picchu power station upgrading (increased from 40MW to 110MW).
Today, considering the southern Peruvian grid interconnection and taking into account the fact that 60MW from San Gabán is due to be incorporated shortly, pressure will grow to disconnect ‘idle, small-scale’ water power capacity. This was the case in Quillabama, the capital of La Convención province: a 450kW plant, installed in 1957 with Maier-Brackwede equipment, is now on sale, to be scrapped rather than feed the local grid.
Another problem sometimes arises due to discrepancies between regional governments and local municipal authorities when dealing with small town electrification programmes. For example, north of Lake Titicaca in the provincial capital of Sandia a 2200kW hydro station is under construction. The function of this plant was not to supply the town of Sandia itself but to feed an extended network covering other settlements in an area of up to 60km in diameter. Now these settlements are all following an independent electricity direction, building their power plants alone and managing them on their own. A strategy is now required to interconnect power capacities and develop efficient load management systems.
In this context, a crucial issue is that of electricity tariffs and a ‘reasonable price’ per kWh. In poor regions people spend the equivalent of several US dollars per month on candles, radio batteries etc. This amount of money should also be available when consuming the electricity coming from SHP and paying for it. There was a consensus that US$5-8 from every household is needed in order to sustain a small hydro station. The price per kWh purchased from an independent power producer should be in the range of US$0.05-0.08.
Peru still lacks a legal framework and tariff regime that allow for guaranteed power supply to the grids and reasonable kWh purchase conditions.
There is apparently a bright future in Peru’s electric energy development,with the bulk of new power capacity coming from natural gas. But there are good prospects too, for small hydro power. Based on more than two decades of experience in nationwide co-operation projects the skills are now at hand to move further ahead. They are:
•Making hardware in the form of hydro-electromechanical equipment.
•Managing credit facilities.
•Establishing private power enterprises.
•Feeding and managing local electricity grids.
What is needed, is a more intense commitment on behalf of national and regional political authorities to extend and co-ordinate energy supplies outside the major cities.