Peru to hold new auction for solar and renewables in 2H of 2018 – Interview

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pv magazine: Mr. Coronado, last year, the Peruvian government interrupted the development of large PV projects, when it canceled the planned auction. Will the auction be held this year?

Coronado: In the various talks we had with the government, and also the new Energy Minister, Angela Grossheim, we learned that the new auction for solar and other renewable energies will be held in the second half of this year. We hope that what has been announced several times by the government will be fulfilled. However, the launching of the tender in 2018 is a due act, since the renewable law enacted in 2008 establishes that at least one auction must be held every two years, and as in 2017 there was none, this year it must be done to comply with the law.

Why was the 2017 auction canceled?

It was due to power oversupply. According to the most recent projections, however, this oversupply is destined to end between 2020 and 2021 and, therefore, the launching of a new auction is very urgent, because the lack of generation will make the system resort to diesel, mainly in the south. Also in the regulated market, the three distribution companies that currently dominate the market – France’s Engie, Italian utility, Enel and U.S.-based Sempra – need new contracts with generating companies from 2021 to meet their electricity demand. This is a reality that did not exist before, and it is a very good opportunity for solar and renewables in general.

How much capacity could be allocated in the new auction?

The Peruvian Society of Renewable Energy expects that between 500 MW and 1 GW of new generation power will be contracted. We also hope that many projects can be contracted in the southern regions of Tacna, Arequipa and Cuzco, where most of the mining companies operate. These companies currently import 80% of the electricity they need from the center of the country. We have to get out of this vicious circle of energy dependence of these regions from Lima.

What prices do you expect to come out of the auction for PV technology?

Peru does not have a mature solar market like other countries in Latin America. However, I think we will see prices fall again. In the latest auction, solar came in at about US$48 per MWh. In the next competition, I think we will see prices of between $30 and $40 per MWh. In this sense, I take advantage of the interview to invite all interested investors to help us achieve a result similar to that of other markets. Although, I repeat, such a decrease seems very reasonable. A lot will also depend on the size of the projects that will be contracted.

How are the financing conditions for projects in the auction?

In general they are quite favorable. It must be taken into account that the guarantee of the Peruvian State makes the projects bankable, and that our country has a very high rate of realization of solar projects assigned in auctions, which, if I am not mistaken, could reach 100%.

Are there alternatives, such as private PPAs or the spot market for large-scale solar in Peru?

Especially for the PPA segment, there’s a viable alternative. One obstacle that is currently preventing the first PPAs from being signed is the regulatory limitation that does not recognize firm capacity for photovoltaics and wind power. The owners of solar and wind installations that theoretically would like to close a private PPA with a Peruvian company should paradoxically buy firm capacity from a thermoelectric plant. It is an alternative that can be managed, but it is very clear that, if solar and wind were given the possibility of being recognized a quota of firm capacity, contracting between private companies would be much easier. The Minister of Energy and Mines told us that the recognition of firm capacity for renewable energies will come into force soon.

Have some PPAs for solar projects already been signed?

To date, no, but the day the market becomes more agile, I know of many mining companies that would be interested.

And what about the spot market?

Currently the wholesale market has distorted prices and an oversupply of energy with prices that approach between 8 and 10 dollars per MWh. In this, there are not many opportunities for now. But there are opportunities in the “precios de barras” market in which the distributors move. In this market, prices are approximately around $45 per MWh. The distributors, I repeat, have to contract new power from 2021, and this can be done through the auctions or through PPAs in the “precios de barras” market.