Management of Energy Resources in Tropics and Subtropics winter semester 2011/2012

Potential of Alternative Energy Sources in Peru

Pavel Boreck
Renewable energy is ancient. For millenia people have collected firewood for cooking and heating, they have built water mills and ships for sailing, or last but not least relaxed in hot springs. Some about 200 years ago people has begun to exploit with growing intensity the fossil resources: coal, petroleum, natural gas and later, uranium with the then unknown consequences for climate and world peace. These non-renewable sources are now running out.

Road to Energy Efficiency

seeking that the present one, as well as the new generations, become responsible users and cooperate towards sustainable development by way of increasing efficiency, through the improvement of consumption habits and the selection of adequate electrical equipment and appliances, as well as the intense use of renewable energies, efficient architecture, in accordance wih the climatic conditions of each region. (Asia-Pacific Economic Cooperation, 2011) In September 2009 the government of Peru organized a workshop on efficient use of energy where the Referential Plan for the Efficient Use of Energy 20092018 was approved. The objective is to reduce consumption by 15% until the year 2018 in relation to the projected demand for that year, without affecting production and neither services of the different economy sectors nor the comfort of the residential sector. The greater effectiveness will lead to savings that will optimize the consump tion in every sector. (Asia-Pacific Economic Cooperation, 2011) Yet, Peruvian road has another start.

Days of Economic Growth

Since 2002, the Peruvian economy has been a top performer in Latin America. Between 2001 and 2008, prior to the financial crisis, the economy grew by an average of 8.8% in real terms, the highest rate of any South American country. (The World Bank, 2011) Perus rapid economic growth in recent years, as electricity consumption nearly doubled between 1998 and 2008, has led to an increase in energy demand, especially in the industrial and transport sector. (Picture 1)

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Picture 1 Share of the Final Energy Consumption by Sectors, 2008, APEC

Growth could not materialize without the fuel. As technology run the show Perus total oil production increased by over 50 percent from 2000 to 2010. (US Energy Information Administration, 2011) Demand crying for associated natural gas has risen significantly in recent years, from 56 billion cubic feet (Bcf) in 2005 to 123 Bcf in 2009 due to enormous exploration which proved gas reserves in the large Camisea project in southeast Peru. Another major gas field is being explored in southern part of the country at Madre de Dios, with some experts predicting that this field could be as large as Camisea. According to Oil and Gas Journal, Peru had proven natural gas reserves of 12.2 trillion cubic feet (Tcf) in 2011, the sixth largest reserves in South America. (US Energy Information Administration, 2011)

Narrow Path towards Development

As fossil fuels being actually solar energy stored in once living nature, one closer look can put into the question extraction of such a wealth. Since 2003 nearly three quarters of the Peruvian Amazon has been leased to the international oil industry for the highest bid. (Picture 2) Deemed by Californiabased NGO Amazon Watch the most damaging project in the Amazon Basin, the Camisea Gas project has been the subject of widespread controversy in Peru. Up to 75% of gas extractions will be operated within a state reserve set aside for indigenous peoples living in voluntary isolation. (The Amazon Watch, 2009)

Picture 2 Share of Internal Gross Energy Supply, 2008, APEC (DHG, DGE, DGM of Peru)

If we overlooked rights of indigenous people towards their ancestral land and biodiversity under the threat, one would have to still consider other dimensions of economically simplified relation of supply and demand. The transport sector activities have the most CO2 intensive emissions showing total emissions of 12.3 million tons at the end of 2008. The second largest pollutant sector is the industry sector. Emissions have increased robustly with around 2.8 million tons in 1992 to around 7.0 million tons in 2008. (Asia-Pacific Economic Cooperation, 2011) 2

Climate change is the issue, but national economy matters more as political leaders have been regularly showing us. With South American hydrocarbon-driven economies based on export of commodities, not knowledge societies producing added value to products, the serious concern exists about volatility of markets; prices are more variable. Next challenges are appreciation of the currency which can make other parts of the economy less competitive and widespread taxation corruption. As The Economist stated, Chile, Peru and Venezuela still rely on raw materials for more than threequarters of their total exports. (The Economist, 2010) The research and development technology (R&DT) and innovation issues in Peru have been of low importance in the public policies. In Peru, science, technology and innovation issues are not part of the long-term national agenda. Despite the political discourse about improving competitiveness and joining the knowledge society, the government has made limited efforts so far. The economic support for science, research and development through loans funding and national budget is very low (around 0.15% of gross domestic expenditure), highlighted eight economic experts of APEC in Peer Review on Energy Efficiency in Peru. (Asia-Pacific Economic Cooperation, 2011) Comparison of international trend speaks for itself. (Picture 3)

Picture 3 Gross domestic expenditure on R&D as a % of GDP, 2008, APEC

According to 2008 report of U.S. Energy Information Administration (EIA) the growing demand is likely to be fulfilled by Peruvian untapped reserves of natural gas and petroleum. (US Energy Information Administration, 2011) Even influential EIA does not give the state much hope for cleaner and sustainable future and, until very recently, the way of development narrowly determined by Peruvian leaders did not promise any considerable turn. However, where is no glimpse of revolution one might at least look for indications of certain evolution.

Institutional Framework One Step Forward

Along with an innovative Energy Efficiency Referential Plan 2009 2018 came into power one more important document - proposed National Energy Policy Plan 2010 2040 which is being used as a guideline pattern for newly created General Directorate of Energy Efficiency (Direccin General de Efficiencia Energtica DGEE). Body under the Ministry of Energy and Mines will be directly responsible for developing energy efficiency policy, energy planning and the promotion of renewable energy and energy efficiency programs. (Asia-Pacific Economic Cooperation, 2011) The declaration of policy statements has led to the promulgation of new laws on science, technology and innovation and on competitiveness, as well as the adoption of the concept of innovation systems as a policy instrument. However, the implementation of such laws has been poor so far. The Directorate has only been in existence since July of 2010 and its 1 million USD is very small in light of the scope of its current and future activities. (Picture 4)

Picture 4 Potential with Renewable Energy - Projection from 2012 to year 2020, (International Finance Corporation, 2009)

Above all, underfinanced Science, Technology and Innovation National Council (CONCYTEC) established in 1968 by the

Peruvian government received improved tasks within a specific program on Clean Technologies which focuses on research and development of alternative technologies to improve the reduction of emissions, achieving social

security on local and regional level. (Picture 5) After short exposition into the past, review of consequences related to economic growth and institutional overview, we will examine the sources directly.

Picture 5 The five pillars of energy efficiency in Peru, 2008, APEC

Current Status of Renewables

According to recent data from the International Energy Agency (IEA), renewable energies amount to almost 29% of the total primary energy supply (TPES) in Latin America. At first, this figure looks relatively high and somewhat impressive, especially if we compare it to the 5.7% share of renewables of OECD countries and the 0.7% share in the Middle East. (Global Energy Network Institute, 2009) For sure such figure is heavy weapon when it comes to political negotiation, yet reality is more complex. The Latin American renewable energy sector is almost entirely dominated by two forms of renewables: hydro energy and biomass, which covers 36% and 62% share of the total of renewables.

Picture 6 Top Countries with Installed Renewable Electricity by Technology, 2008, US Department of Energy

Hydro Energy
Hydro plants have been particularly important in the production of electricity as it represents 60% of total electrical production in Latin America. Hence, several countries like Brazil or Paraguay have become dependent almost entirely on the hydro sector in generating electricity; it has created problems when there are extended dry periods and water levels fall down significantly. Peru had 7.2 gigawatts (GW) of installed electricity generating capacity in 2008, with 3.2 in hydroelectric generators. EIA expects total capacity to expand by around 70 percent between 2010 and 2020. (US Energy Information Administration, 2011) The government plans centre on the Maran river deep in the Amazon Rainforest with the capacity to generate 10 000 MW from six dams. Last year the government signed an agreement under which Peru will export up to 6 000 MW of electricity to Brazil, a plan that would involve mainly Brazilian companies investing around 20 billion USD. Ecological and human-rights groups are mobilizing, because indigenous people along the river have not been consulted about the hydroelectric schemes. (The Economist, 2011) 5

Position of Global Energy Network Institute experts who reported on renewable energy potential of Latin America is very strict: Apart from creating energy security concerns, large hydro has caused serious environmental and social problems, particularly in sensitive regions like the Amazon Rainforest. Large hydro cannot be properly considered a form of clean, sustainable energy, particularly if viewed from the context of sustainable development. (Global Energy Network Institute, 2009)

Biomass
Due to its widespread non-commercial use in developing countries, solid biomass is by far the largest renewable energy source representing 9.3% of world TPES, or 73% of global renewables supply. However, statistical data does not distinguish between traditional and industrial/modern biofuels mainly produced in OECD countries. The biggest share of solid biomass, 85.9%, is produced for residential cooking and heating in developing countries situated mainly in South Asia and subSaharan Africa. (Glorbal Energy Network Institute, 2009) Seemingly neverending Amazon provides nowadays firewood and charcoal to meet 10% of energetic demand in Peru which also causing deforestation in the same communities. As urbanization and expansion of the electric grid are spreading, there is positive signal that the percentage of traditional biomass will keep shrinking as people turn to other sources of energy. In case of industrial biomass, great CO2 reduction potential has been recognized in bagasse as byproduct of sugarcane and sorghum production and biowaste management, the segment grew on average at 10.4% annually since 1990 (Global Energy Network Institute, 2009), through utilization the materials into biogas and liquid biomass. Summary is now more obvious. Environmentally friendly and environmentally unfriendly kinds of biomass exist. The most common opposition against hydro and biomass power is based on criticism of the dependency on large hydro dams which causing problems when there are droughts and the water levels fall significantly as the result of climate change. Industrial biofuels do not contribute to reducing greenhouse gases, whereas traditional biofuels and production of charcoal can lead to deforestation. Both practices therefore cause crucial environmental and social problems and cannot be considered as sustainable. In any case if we did not count large hydro and unsustainable biofuels production, the region would not be much better in use of renewables than rest of the World. Though, geographical location of the state gives the country extraordinary chance to refute all the long-lasting controversy. 6

Underutilized Boosters of Economy

Wind Energy
The Laureles was once remote community in Uruguay. Actually, it is still remote but not abandoned by society. It was selected as part of a technology transfer project by University of Uruguay Work Group among the others from Argentina, Peru and Brazil to enhance its productive activities of ecotourism and craftworks selling. The simple wind energy system provides them a support to their resolution to continue with their lives there. Community expressed their perception of the benefits expected in its quality of life through an increase in the number of tourists and of their craftworks production. (Ventura Nunes, 2007) The project showed example of good practice. Small scale and decentralized renewable energy solution can contribute to quality of life at any place on the Earth. According to 2008 Renewable Energy Data Book wind energy is the fastest growing renewable energy technology worldwide and its generation grew by a factor of almost 7 between 2000 and 2008. (US Department of Energy, 2009) It is not underestimation that Peruvian exploitation of wind is zero (International Energy Agency, 2010), even though the potential for wind power is large in the country. The World Bank Group estimated total investment potential of wind energy in Peru to 3.400 million USD. (Picture 4) The greatest potential is concentrated along the west coast of the country where the prevailing ocean winds blow on-shore year round. (Annex 1)

Solar Energy
The opportunity for solar power is excellent in Peru with the greatest potential found year-round along all western states the country. It is more evenly distributed then wind energy (Annex 3), as good portions of the region lie within the Sun Belt Region of highest solar radiation. Thus, except for site specific adverse microclimates, solar energy is a predictable and reliable resource, capable of being transformed to heat and electricity by means of several technologies in different stages of development and its commercial availability. (Global Energy Network Institute, 2009) The current use of solar energy in any form is zero. (International Energy Agency, 2010)

Geothermal Energy
Geothermal energy is a technology set to be very important in the future. With geothermal energy, heat is extracted from within the earths crust and transformed either into a hot water system, or if there is plenty of this energy, a geothermal power plant. Especially in the southern region of the country (Annex 2), there is good resource potential for generating geothermal energy. (Global Energy Network Institute, 2009)

Wave and Tidal Energy

Along with other forms of energy available in the ocean, represent an enormous energy potential for coastal countries in the region. Unfortunately, technologies to tap such energy resources are still far from commercialization. (Global Energy Network Institute, 2009) Importance of this source is rising when we realize how abundant the coastline to inland ratio of most countries in Latin America is. OECD countries are not blind towards investment potential of developing countries and if such an activity is driven by socially and environmentally responsible decisions and it helps to increase share of renewables in energetic mix, there is no reason to hinder it. British company ABB claim to be participating in the Peruvian construction of the most remote wind sea farm in the World. The 400 MW farm will avoid the emission of 1.5 million tones of CO2 annually. (UK Trade and Investment, 2010) On the opposite side the government and its institutions are the one to create reliable and upto-date development maps in order to attract direct foreign investment. It counts for all renewable sources of energy alike.

Renewables at the verge of Conquest

Why new renewable source are not more favored while maps (Annex 1, 2, 3) show that, besides the already mentioned dominant two renewable energy sources, there is enough potential to expand greatly the other renewables in Peru? Opinion of GENI is pragmatic: Since the region has an abundance of resources such as oil, gas and hydro, it is in general easier, cheaper and more technically feasible to keep exploiting conventional energy resources than to invest in renewable energies or create appropriate renewable energy policies. Another common explanation is that the development of renewable energies clash with the interest of powerful players, particularly large energy companies, and, therefore, there are few incentives to promote them. (Global Energy Network Institute, 2009) Surprising might be that EIA in its country analysis not mentioned renewables as potential area for future development, for instance, through established DGEE. They forecasted the deepening of exploitation status quo: The Peruvian government has enacted a series of policies to attract foreign investment and increase energy security by promoting the use of domestic natural gas and hydroelectric resources. (US Energy Information Administration, 2011) Isnt it, first of all, guideline for well-established American commodity extractors? APEC addressed energy efficiency of the country stating that: The Peruvian government has focused the robust use of natural gas in the economy because of the high natural gas 8

proven reserves. High dependency of petroleum products is still a challenge in the economy. (Asia-Pacific Economic Cooperation, 2011) The Review Team gave 51 recommendations to Peru. There are 6 of them which author considers the most essential: to develop and implement

National Energy Policy Plan 2010 2040, to make state awareness campaign, to improve thermal power plant efficiency, to built Pan-American electricity grid, to implement new transport technologies such as HYBRID cars, to continue construction of public transport, to improve national public education, to increase GDP expenditure in science, research and technology development. Peru has already established institutions responsible for this task. General Directorate of Energy Efficiency and Science, Technology and Innovation National Council should follow and fulfill approved plans and gain even more executive rights. Because promulgating the transition into knowledge society without any real investment into education, research and innovation could result in weak stumbling behind those who did not regret to support human resources.

References
Asia-Pacific Economic Cooperation. 2011. Peer Review on Energy Efficiency in Peru. [Online] May 2011. [Cited: January 5, 2012.] http://www.ieej.or.jp/aperc/PREE/PREE_Peru.pdf. Global Energy Network Institute. 2009. Renewable Energy Potential of Latin America. [Online] December 2009. [Cited: January 10, 2012.] http://www.google.cz/url?sa=t&rct=j&q=geni%20renewable%20energy%20potential%20of%20latin%20 america&source=web&cd=1&ved=0CCQQFjAA&url=http%3A%2F%2Fwww.geni.org%2Fglobalenergy%2Fresearch%2Frenew able-energy-potential-of-latin-america%2FPotential%2520of%2520R. Hydro-powered dreams: Hopes and fears of a regional energy hub. The Economist. 2011. February 10, 2011. www.economist.com/node/18114659. International Energy Agency. 2010. Renewables and Waste in Peru in 2009. [Online] February 1, 2010. http://www.iea.org/stats/renewdata.asp?COUNTRY_CODE=PE. International Finance Corporation. Assessment of The Peruvian Market for Sustainable Energy Finance. [Online] [Cited: January 12, 2012.] http://www1.ifc.org/wps/wcm/connect/78f59b00493a76e18cc0ac849537832d/SEFMarket+Assessment+Peru-Final+Report.pdf?MOD=AJPERES76e18cc0ac849537832d%2FSEF-Market%2BAssessm. It's only natural: Commodities alone are not enough to sustain flourishing economies. The Economist. 2010. September 9, 2010. www.economist.com/node/16964094. The Amazon Watch. 2009. Peru. [Online] May 2009. [Cited: January 2, 2012.] http://amazonwatch.org/work/peru. The World Bank. 2011. Peru Brief. Peru. [Online] August 19, 2011. [Cited: January 10, 2012.] http://go.worldbank.org UK Trade and Investment. 2010. Renewable Energy Opportunities in Peru. [Online] 2010. [Cited: January 8, 2012.] http://www.google.cz/url?sa=t&rct=j&q=renewable%20energy%20opportunities%20in%20peru&source=web&cd=2&ved= 0CFYQFjAB&url=http%3A%2F%2F212.137.70.163%2Fdownload%2F121929_105650%2FRenewable%2520energy%2520opp ortunities%2520in%2520Peru.pdf.html&ei=31kQT_WPIa-B. US Department of Energy. 2009. 2008 Renewable Energy Data Book. [Online] July 2009. [Cited: January 12, 2012.] http://www.nrel.gov/docs/fy09osti/45654.pdf. US Energy Information Administration. 2011. Peru Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal. Country Analysis Briefs. [Online] April 24, 2011. [Cited: January 10, 2012.] http://www.eia.gov/countries/cab.cfm?fips=PE. Ventura Nunes, Jos Cataldo. 2007. Renewable Energy Supply to an Isolated Rural Community to Enhance Ecotourism Activities. ISES Solar World Congress 2007: Solar Energy and Human Settlement. [Online] 2007. [Cited: January 3, 2012.] http://www.springerlink.com/content/vg62n1142336789m/.

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List of Illustrations
Picture 1 Share of the Final Energy Consumption by Sectors, 2008, APEC ..................................................................................... 1 Picture 2 Share of Internal Gross Energy Supply, 2008, APEC (DHG, DGE, DGM of Peru).............................................................. 2 Picture 3 Gross domestic expenditure on R&D as a % of GDP, 2008, APEC .................................................................................... 3 Picture 4 Potential with Renewable Energy - Projection from 2012 to year 2020, (International Finance Corporation, 2011) . 4 Picture 5 The five pillars of energy efficiency in Peru, 2008, APEC .................................................................................................. 4 Picture 6 Top Countries with Installed Renewable Electricity by Technology, 2008, US Department of Energy ......................... 5

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Annexes
Annex 1.: Wind Power Potential, Ministry of Energy and Mines, Peru

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Annex 2.: Geothermal Power Potential, Ministry of Energy and Mines, Peru

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Annex 3.: Solar Power Potential, Ministry of Energy and Mines, Peru

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