63668 Peru Opportunities and Challenges of Small Hydropower Development Formal Report 340/11 Peru Opportunities and Challenges of Small Hydropower Development March 2011 Formal Report 340/11 Energy Sector Management Assistance Program Energy Sector Management Assistance Program (ESMAP) Purpose The Energy Sector Management Assistance Program is a global knowledge and technical assistance program administered by the World Bank and assists low-income, emerging and transition economies to acquire know-how and increase institutional capability to secure clean, reliable, and affordable energy services for sustainable economic development. 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Table of Contents Foreword vii Acknowledgments ix Abbreviations and Acronyms xi Executive Summary xiii 1 Introduction 1 2 Resource Potential and Technical Capacity 3 The Potential for Small Hydro 4 Technical Capacity for Small to Medium-sized Hydropower 9 3 Economic and Financial Viability of Small Hydropower 17 The Benefits of Hydro and Rational Tariffs 17 Economic Viability of Small Hydropower Projects 18 Financial Viability of Small Hydropower Projects 24 4 Institutional and Regulatory Framework 41 Electricity Sector Background 41 5 Barriers and Their Mitigation 49 6 International Experience 57 7 Renewable Energy Decree of May 2008 69 Main Points of the Decree 69 The Fundamental Approach 69 Implementation of the Decree 70 8 Conclusions 81 Issues and Suggestions 84 iii PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Annexes Annex 1: Hydropower Projects Existing in 1976 87 Annex 2: Hydropower Projects with Concessions and Authorizations 89 Annex 3: Candidate Hydropower Projects for Addition to the National Interconnected Power System 93 Annex 4: Catalog of Hydropower Projects up to 100 MW Identified in 1979 “Hydropower Potential” Study (Parts 1–8) 95 Annex 5: Specific Capacity Costs of Projects with Concessions and Authorizations 103 Annex 6: A General Guide to Scope and Accuracy of Hydropower Project Studies 107 Annex 7: National Consulting Engineering Companies Involved in Hydropower and Water Resources Projects 111 Annex 8: National Civil Engineering Contractors Involved in Hydropower and Water Resources Projects 113 Annex 9: Hydropower Turbine Manufacturers in Peru 115 Annex 10: Agreement Between InterAmerican Development Bank and Instituto Nacional de Electrificación, Guatemala, on Feasibility Studies of Small to Medium-Sized Hydropower Projects 117 Annex 11: Requirements to Obtain an Authorization or Concession for Hydropower Development 121 Annex 12: Process for CONAM Approval of a CDM Project 123 Annex 13: Comparison of International Renewable Energy Policies 125 Bibliography 133 List of Formal Reports 137 Boxes Box 2.1 The Peru Hydropower Potential Study in 1979 5 Box 2.2 The Santa Rosa Project 6 Box 2.3 Hydrology Project in India 12 Box 3.1 The Peru LNG Project 19 Box 3.2 The Peruvian “Spot” Market 36 Box 5.1 Camisea Pipeline Capacity Payment Guarantee (GRP) 52 Box 6.1 Tax Incentives in China 66 Figures Figure 3.1 A Framework for Rational Hydro Tariffs 18 Figure 3.2 Carbon Prices in the European Trading Scheme 24 Figure 3.3 FIRR versus Time 27 Figure 3.4 FIRR and Loan Tenor 29 iv Table of Contents Figure 3.5 Impact of Loan Tenor on DSCR 29 Figure 3.6 Yield Curve: Dollars and Nuevos Soles 35 Figure 4.1 The Peruvian Electricity Market 41 Figure 4.2 Spot Market versus Regulated Price (2007) 46 Figure 6.1 The Sri Lanka Energy Services Delivery (ESD) Project Arrangements 64 Figure 6.2 Avoided-cost Tariff, Sri Lanka 64 Figure 7.1 Wind Energy Price versus Load Factor 74 Figure 7.2 Renewable Energy Supply Curve for Serbia 76 Figure A12.1 Process for CONAM Approval of a CDM Project 123 Tables Table 2.1 Hydropower Installed Capacity in Peru 1976 and 2006 3 Table 2.2 Small to Medium-sized Hydropower Plants Commissioned from 1998 to 2006 4 Table 2.3 Small Hydropower Projects with Concessions and Authorizations 8 Table 3.1 Natural Gas Prices (Site of Generation) 19 Table 3.2 Generation Costs for Combined Cycle Gas Turbine Plants in Peru 20 Table 3.3 Small Hydro Projects 21 Table 3.4 Small Hydro Projects ERRs and Gas Price Switching Values to Achieve 14 percent SNIP Rate (excluding carbon benefits) 22 Table 3.5 Peru’s Energy Sector CDM Projects 23 Table 3.6 Small Hydro Projects ERRs Including Carbon Benefits at US$15/ton 25 Table 3.7 Financial Returns of Small Hydro Projects 26 Table 3.8 Financial Returns of Small Hydro Projects (without Carbon Revenues) 27 Table 3.9 Tariff Required as a Function of Load Factor and Capital Cost (UScents/kWh) 28 Table 3.10 Impact of Loan Extension to 15 Years on Feasible Combinations of Capital Costs and Load Factors 30 Table 3.11 Impact of Carbon Finance at US$15/ton CO2 on Project Financial Viability 30 Table 3.12 Impact of Carbon Finance on Feasible Combinations of Capital Costs and Load Factors 31 Table 3.13 Impact of Carbon Finance plus Loan Tenor Extension to 15 Years on Financial Viability 31 Table 3.14 Hydro Projects Smaller than 20 MW 32 Table 3.15 Depreciation Periods 39 Table 6.1 Classification of Renewable Energy Tariff Support Systems 58 Table 6.2 2006 PROINFA Tariffs 60 Table 6.3 Summary of Barriers to Renewable Energy Development and Solutions in Other Countries 67 Table 7.1 Feed-in Prices in Eastern Europe (€cent/kWh) 72 Table 7.2 German Feed-in Tariffs for Small Hydro (2004) 73 Table 7.3 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 1–6 74 Table 7.4 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 7–15 75 Table 7.5 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 16–18 75 Table 7.6 All Inclusive Rate Years 1–20 75 Table 7.7 Summary of Barriers to Small Hydropower and Potential Impact of Renewable Energy Decree 78 Table A2.1 Hydropower Projects with Definitive Concessions 89 Table A2.2 Hydropower Projects with Temporary Concessions 90 Table A2.3 Hydropower Projects with Authorizations 91 Table A2.4 Hydropower Projects with Studies (No Concession or Authorization) 92 Table A5.1 Concessions 103 Table A5.2 Authorizations and Studies 105 Table A6.1 A General Guide to Scope and Accuracy of Hydropower Project Studies 107 Table A7.1 National Consulting Engineering Companies Involved in Hydropower and Water Resources Projects 111 Table A13.1 Hydropower Projects with Definitive Concession 126 Reports and other documents to which reference is made in the text in brackets ( ) are listed alphabetically according to the author(s) in the Bibliography of this Report. v Foreword Peru has had a long and successful experience in the utilization of hydropower. Hydropower supplied 68 percent of total electricity generated in the national interconnected system in 2008 as well as supplying dozens of small isolated communities with electricity. However, with the discovery and development of Camisea gas in the 1990s, hydropower development slowed. Today, the Government is taking renewed interest in development of hydropower of all sizes, including small hydropower, which is seen to be a national resource that can be developed by local entrepreneurs, with minimal social and environmental impact. The objective of this report is to contribute to the discussion on how to establish a framework for promotion of economically, socially and environmentally viable small hydropower development in Peru’s power sector. Among the key issues and challenges to be discussed in this document are the following: • What is the small hydropower potential in Peru? • Why hasn’t small hydropower development occurred on a larger scale in recent years in Peru, including economic, social and environmental considerations? • How can Peru’s Renewable Energy Decree of 2008 be used to promote small hydropower? • What additional measures are needed to overcome key barriers? • What are the lessons learned in other countries that can they be applied to the case of Peru? The Study looks at the challenge of hydropower development specifically in the Peruvian economic and energy context, as of mid 2008. However, the authors hope that the strategic issues examined and the report’s conclusions are also of value to other countries with significant hydropower potential and the desire to make optimal use of this important source of energy. In parallel to this Study, the World Bank has prepared a report on medium sized hydropower titled Peru: Overcoming the Barriers to Hydropower. The World Bank is also conducting a study titled Peru, Assessment of Impacts of Climate Change on Mountain Hydrology: Development of a Methodology through a Case Study. We believe that the combination of these three studies will make a valuable contribution to the dialogue on sustainable hydropower development in Peru and elsewhere. vii Acknowledgments The financial and technical support by the World Bank’s Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. The authors would like to thank the current authorities of the Ministry of Energy and Mines for their help and support, especially Minister Dr. Pedro Sanchez, as well as former Minister Arq. Juan Valdivia Romero, former Vice Minister of Energy, Dr. Pedro Gamio Aita, and former Director General of Electricity, Sr. Ing. Jorge Aguinaga Díaz. Peter Meier prepared the first draft of the report and was responsible for financial and economic analysis as well as the discussion of financing issues and international experience. Eduardo H. Zolezzi was responsible for the discussions of the institutional and regulatory framework, the barriers to small hydropower and their mitigation and the Renewable Energy Decree. Terence Muir was responsible for the discussion of resource potential and technical capacity. Karen Bazex assisted in the analysis of international experience. Susan V. Bogach was the task manager of the Study and prepared the final report. Special thanks go to Janina Franco and Luis Enrique Garcia (LCSEG), who assisted in reviewing and editing of the final draft of the main report; and to Marjorie K. Araya (ESMAP), who supervised the editing, production, printing, and dissemination of the final report. The findings, interpretations and conclusions expressed in this report are entirely those of the authors as individuals. The report was completed under the guidance of the Energy Unit of the Sustainable Development Department of the Latin American and Caribbean Region of the World Bank. ix Abbreviations and Acronyms ATDR Technical Administration of Irrigation District (Administración Técnica del Distrito de Riego) BNDB Brazilian National Development Bank bp basis point (100 = 1percent) BTU British thermal unit CCGT combined cycle gas turbine CDCF Community Development Carbon Fund CDM clean development mechanism CER certified emission reduction CIF cost insurance freight COES System Economic Operation Committee CONAM National Environmental Council (Consejo Nacional del Medioambiente) CO2 carbon dioxide CUMEC cubic meters per second DGAAE General Directorate for Energy Environmental Matters DGE General Directorate for Electricty (Dirección General de Electricidad) DSCR debt service cover ratio ECL Electricity Concession Law DL 25844 of 1992 EPC engineering, procurement and construction ERR economic rate of return ETS European Emission Trading Scheme EU European Union E&M electrical and mechanical FAO UN Food and Agriculture Organization FIDIC International Federation of Consulting Engineers FONAM National Environmental Fund (Fondo Nacional del Medioambiente) FIRR financial internal rate of return GEF global environment facility GHG greenhouse gas GoP Government of Peru GTZ German Technical Assistance (Gesellschaft für Technische Zusammenarbeit) GW 1000 MW IDC interest during construction IEA International Energy Agency IFI International Finance Institution IGN National Geographic Institute (Instituto Geográfico Nacional) IGV value-added tax INADE National Institute for Development (Instituto Nacional de Desarrollo) INC National Institute of Culture (Instituto Nacional de Cultura) INGEMMET Geologic Mining and Metallurgic Institute (Instituto Geológico Minero y Metalúrgico) xi PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT INRENA National Institute for Natural Resources (Instituto Nacional de Recursos Naturales) IPP independent power producer LIBOR London inter-bank offer rate (interest rate) LNG liquefied natural gas MCM million cubic meters MEM Ministry of Energy and Mines (Ministerio de Energía y Minería) MEF Ministry of Economy and Finance (Ministerio de Economía y Finanzas) mm million MUV Manufactures’ unit value MW megaWatt OSINERG Supervisory Commission for Investments in the Energy Sector (Organismo Supervisor de la Inversión en Energía) OSINERGMIN Supervisory Commission for Investment in the Energy and Mining Sector (Organismo Supervisor de la Inversión en Energía y Minería) PAD project appraisal document (of the World Bank) PCF prototype carbon fund PMA Environmental Management Plan (Plan de Manejo Ambiental) PPA power purchase agreement PROINFA Program of Incentives for Alternative Electricity Sources (Programa de Incentivo a Fuentes Alternativas de Energía Eléctrica) PTC production tax credit SENAMHI National Meteorology and Hydrology Service (Servicio Nacional de Meteorología e Hidrología) SHP small hydro project SLF system load factor TUPA Consolidated Text for Administrative Procedures (Texto Unico de Procedimientos Administrativos) UIT unidad impositiva tributaria UNFCCC United Nations Framework Convention on Climate Change VAT value-added tax xii Executive Summary The purpose of this report is to evaluate the alternatives to encourage the development of potential contribution of small hydropower small hydropower in Peru’s power sector. to electricity generation in Peru and to suggest additional measures to encourage Small Hydropower’s Potential and its development. Among the key issues and challenges to be discussed in this document are Fundamental Constraints for its the following: Development Peru’s significant small hydropower potential, • Resource potential. What is the small defined as plants with capacity less than hydropower potential in Peru? Is the 20MW, is conservatively estimated at over magnitude of the potential important 1,600 MW. In this regard, there is no solid basis considering Peru’s electricity demand for estimates of the technical potential of small growth needs? hydropower (<20 MW) in Peru because of the • Primary constraints for the development of lack of inventories of such resources. The main small hydro. Why hasn’t small hydropower source of data on hydropower resources is the development occurred on a larger scale Hydropower Potential Study of 1979, which in recent years in Peru? What barriers focused on identifying larger-scale projects exist, including economic, social and for development by state-owned integrated- environmental considerations? What are power-sector monopolies. These uncertainties the necessary conditions to overcome the notwithstanding, there is no doubt that Peru key barriers? has considerable potential for small hydropower • Use of policy instruments. How can Peru’s development. International experience has Renewable Energy Decree be used to shown that wherever there are considerable promote small hydropower in the power water resources in hilly or mountainous terrain, sector? developers have no difficulties in finding sites • Additional measures. What additional that are financially attractive—provided only measures are needed? What can be done that the tariff levels reflect full opportunity costs to make obtaining necessary permits and of other energy sources for generation and that licenses simpler? How important is access to the regulatory and institutional framework is long term financing for the financial viability rational. of small hydro? The most fundamental constraint to • International experience. What are the developing Peru’s hydro potential has been lessons learned in other countries? How can the low tariff faced by generators, which is a they be applied to the case of Peru? consequence of the low domestic price of natural gas. Almost all new power generation installed The objective of this report is to help provide in Peru during the last decade has been based on answers to these questions and establish a low priced natural gas from the Camisea Field. framework for the discussion of finding feasible The price of Camisea gas delivered to plants xiii PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT near Lima is estimated at US$2.15 per mmBTU, Inversión Para la Generación de Electricidad con which means an average price for gas-based el Uso de Energía Renovable). In this Decree, generation of around 3.5 US cents/kWh. Given the government has chosen to set a target that Peru will shortly become an LNG exporter, ceiling for a share of renewable in electricity the opportunity cost of natural gas is now linked generation, in combination with a premium to international prices. Under conservative price. Although, small hydro will not be assumptions about international gas prices, the considered in the indicated ceiling it will benefit netback opportunity cost for delivery to thermal from the incentives in the law. It may be expected generators in the Lima area will be at least US$4/ that small hydro projects would compete in the mmBTU, which would result in a gas-based auctions for the premium mainly with wind generation price of around 5.6 US cents/kWh. based technologies. Development of small hydropower has not Even though implementation issues were been financially viable because the financial cost still being worked out at the time of the of generation was set by the cost of gas-based preparation of this report in 2008, it is clear generation at a lower price for natural gas from that the Decree is an important step to promote Camisea. At an average price for gas-based the development of the small hydro potential generation of 3.5 US cents/kWh, a 17.5 percent in Peru. The Decree will be particularly useful financial rate of return (FIRR) on equity, a provided that the resulting tariff is set at about 10-year loan period and a 70 percent load factor, 6 US cents/kWh. However, whether the tariff the maximum capital cost that is financially premium to be given to qualifying facilities viable for a hydro project is around US$850/kW. unlocks financing problems will depend not just When carbon finance is taken into consideration, on its magnitude, but also on its certainty at the the allowable capital costs increases to around time of financial closure. US$1000/kW—and precisely such projects The details in the implementation of the (Santa Rosa, Poechos) are in fact being built. Renewable Energy Decree will determine the Nevertheless, greenfield small hydro projects degree of success for the efficient development of cannot be built at such low capital costs. renewable technologies. The keys to unlocking Unlocking the significant potential of the small hydro potential will be an adequate small hydropower in Peru would require and predictable tariff, as well as an efficient either the removal of the low price for natural and transparent auction system for tariff gas from Camisea or a preferential tariff for premium allocation. Some of the key issues to small hydropower that reflects the economic be considered include the following: opportunity cost of gas powered generation. Using a generation price based on the economic • The methodology for determination of an opportunity cost of gas generation of 5.6 US¢/ adequate tariff based on the “premium” kWh and the same assumptions for FIRR, loan defined in the Decree. It is recommended tenor and load factor, the allowable capital cost that a simple, economically justified method for small hydro increases to US$1,400/kW. This be used to set the tariff. is a level that would make many small hydro • The way in which the decree will be applied plants financially viable in Peru, even with to different technologies. It is suggested recent increases in hydro construction costs. that technology bands not be used in the auction or that number of technology bands be limited because of the small scale of the Peru’s Renewable Energy Decree target. The government issued a Renewable Energy • The way in which the proposed auctions Decree for the promotion of electricity generation will work in combination with the relatively using renewable energy on May 2, 2008 small target ceiling, the premium and the energy (Decreto Legislativo de Promoción de la lack of penalties for non-compliance with the xiv Executive Summary Decree. The key is that the auction provides Vietnam and Turkey. Without involvement of certainty of the premium price for sufficient the government in assisting access to project time to enable financing of the Project, e.g., financing for small hydro, it is unlikely that 15 or 20 years. non-recourse project financing can be achieved, and the present 100 percent collateral/corporate guarantee requirements of the commercial Additional Issues and Suggestions banks will remain a major barrier to all but large for the Efficient Development of corporate sponsors. Small Hydropower Water rights difficulties have been cited as In addition to the tariff issue, that can be resolved impeding the development of projects. This with the help of the correct implementation of issue could be addressed by setting up new, the Energy Decree, there are several other issues transparent regulations for authorization of that affect the viability of the development of water use. Most developers indicated that the small hydropower plants. main problem in obtaining water rights is the Portfolio benefits of hydro (small or large) unpredictable process. The lack of a specific TUPA are not well captured in the present capacity (Consolidated Text of Administrative Procedure) charge approach. In terms of transmission cost, is the main complaint. What is needed is a TUPA hydro is disadvantaged relatively to thermal that describes in detail the documentation generation from gas as transportation costs from requirements including: (a) eligible entities that the Camisea gas fields to the gas generation plant could submit a solicitation; (b) the format of the are charged separately to the consumer (through application and whether a payment is necessary; a surcharge to pay for gas transmission), whereas (c) the specific roles of different internal units equivalent costs for hydro are charged to the or offices; (d) the type of official document generator. It is suggested that OSINERGMIN and authority responsible for authorization review the capacity charge methodology to fully or approval; (e) if the application is rejected, capture the benefits of small and large hydro. If a full explanation of the reasons for rejection; the implementation of the preferential tariff for and (f) finally speciation of the timing and a small hydro is based on a one-part tariff, then maximum duration for the whole process. the methodology of capital cost recovery for Similarly, many issues that have arisen from the regulated market is not relevant. But if the rights-of-way could be settled by requiring preferential tariff for renewables is to be based on a social assessment for all hydro projects. The a two-part tariff (with separate remuneration for current regulations contain the necessary capacity), the present approach will not provide requirements and process to obtain, the necessary for adequate recovery of investment costs. temporary and definitive concessions that grant Finding access to long-term financing for the use of the land to develop a hydropower small hydropower projects has been difficult project. However, when land belongs to for companies without strong balance sheets, communities, legally registered or otherwise especially considering the limited interest (“traditional” settlement ownership), the right- of commercial banks in project finance and/ of-way problem, compounded with water use or small-scale projects. A range of financing rights, is much more complicated. The study problems will face developers even if an adequate agrees with the recommendation made by some tariff is provided under the Decree, including developers, to formalize a “Social Assessment” unrealistic risk assessments by the commercial of hydropower projects, with a defined banks, high transaction costs, and lack of long- scope, required documentation, approval term loans. These could be mitigated by a long- process, and implementation and monitoring term financing facility from domestic resources plan. The approved Social Assessment of a or with support from an international financial project, including rights-of-way and water use institution, along the lines of facilities in Brazil, agreements, would be a document that would xv PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT be binding on all parties, the community, the that tariffs be set at least at the level of avoided developer and the government. costs. In addition, promoters have been assisted The implementation of “early recovery of V AT” to gain access to long-term financing. In policies can greatly benefit the development countries where a refinancing facility has been of small hydro. The early recovery of VAT is introduced offering loans of much longer tenor limited to projects with construction periods of than previously available (Brazil, Turkey, Sri four years or more. At the same time, thermal Lanka, India), there is evidence that the benefit projects, which are less capital intensive, can is not just one of reducing financing costs for the be financed as lease deals, one of the principal projects that directly benefit, but that this has advantages of which is immediate recovery of helped pave the way for increased involvement VAT. But lease deals are difficult for small hydro of commercial banks in renewable energy projects because the tariff cannot support the project lending and capacity building for risk high payments implied by the typically much assessment. shorter lease terms. The net effect of these The most extensive experience with measures provisions is an unfair disadvantage for small to promote renewable energy, including small hydro. We recommend that this discrepancy be hydropower, is in Europe. Three main types eliminated (perhaps as part of the implementing of measures have been used in the region: regulations for qualifying renewable energy (1) feed-in tariffs, where electricity suppliers are facilities under the new law). obliged to purchase renewable electricity at a The development of small hydro potential technology specific price (e.g., in Germany and can be complemented by medium-scale hydro Spain); (2) obligations on electricity suppliers projects. In the particular case of Peru, it could to procure renewable electricity where the be argued that small hydropower below 20 MW renewable electricity price is set at technology has no particular economic or environmental specific auctions (e.g., Brazil’s PROINFA, Non- advantage over medium-sized hydro in the 20 Fossil Fuel Obligation in the United Kingdom); to 200 MW range. The latter projects are also and (3) obligations on electricity suppliers generally run-of-river projects (with minimal to procure renewable electricity where the storage sufficient for daily peaking operation renewable electricity price is set by trading in the dry season) and with minimal numbers renewable energy certificates (e.g., new system of project-affected households and little impact in the United Kingdom, see Annex 13). on forests and agriculture. Projects in this size The most successful experience in Latin category have the potential to make a more America has been with technology specific significant aggregate contribution to meeting auctions to purchase renewable electricity the fast-growing power demands. There is combined with low-interest loans, as exemplified an argument to expand the coverage of the by the Brazilian PROINFA program. Small Renewable Energy Decree to such medium scale hydropower promotion and capacity building hydropower projects, or to find an alternative programs have usually included some of the mechanism to permit their development as following activities: support for development economically viable clean energy projects. of a potential pipeline of projects; development of the legal and regulatory arrangements to facilitate such projects; improvement of dam International Experience with safety regulation and introduction of modern Small Hydropower Development techniques for dam safety monitoring and The international experience shows clearly disaster mitigation; and the preparation of that for small hydro (or renewable energy) to technical standards to lower the transaction costs be developed on a significant scale requires of project approval. xvi Introduction 1 Peru is favored by a stable and growing including greenhouse gases, an increasingly economy and the availability of indigenous important benefit given ever-growing concerns sources of energy for electricity generation, about climate change. including hydro and natural gas. The Peruvian However, investment in new hydropower electricity sector is among the few in LAC that projects in Peru has been minimal in recent has not confronted a crisis in recent years. years. The problem is not unique to Peru, as The power sector in Peru was reformed and commercial investors the world over tend to restructured between 1991 and 1993, followed prefer low-risk, noncapital-intensive projects by a privatization and concession process. A with short construction periods and rapid modern legal and regulatory framework was returns on investment. Thermal generation established in the Electricity Concessions Law projects have these characteristics. Hydro of 1992/93. projects, despite their significant economic Installed capacity in Peru in 2006 was 6,658 benefits, have characteristics that make financing MW, of which 48 percent was hydro-based. Peru difficult: multiple requirements for approval at produced roughly 27,255 GWh of electricity local, regional and national level, high capital in 2007, of which about 68 percent was from costs, construction risks, uncertainty of output hydropower. This represents a large decline in due to hydrological risks, and, in the case of large the relative importance of hydropower from projects, high environmental and social visibility. just a decade earlier when hydro generated over The government is strongly committed to 85 percent of Peru’s electricity. Total hydropower increasing investments in electricity generation, generation increased by only 5 percent over the especially from hydro resources. Most recently, five years from 2003 to 2007 (1 percent/year). in May 2008 the government promulgated a Almost all the increase in demand is being Renewable Energy Decree for promotion of supplied by new thermal generation. generation from renewable energy, including There is a consensus that hydroelectric small hydro up to 20 MW. Congress eliminated power has an important role to play in current the import duty on hydroelectric equipment in and future generation in Peru, since it uses an December 2006, and the Ministry of Economy indigenous resource that has a long history and Finance (MEF) has permitted early recovery of cost-effective, safe, and reliable electricity of the value-added tax (IGV) for projects with provision in Peru. Hydropower development construction periods of four years or more. in Peru has occurred with little social or The Ministry of Mines and Energy (MEM) has environmental damage, because it has been simplified the permit system for small hydro mainly run-of-the-river or constructed with projects. small reservoirs. Hydropower is also clean Given the potential importance of hydro energy that generates electricity while releasing generation in Peru and the fact that this potential fewer pollutants than thermal generation, is not being realized, the Bank and GoP agreed to 1 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT carry out two studies to investigate the situation technical capacity for development of small and proposed mechanisms to overcome existing hydropower in Peru; (3) economic and barriers to development of hydropower, one financial viability of small hydro development focused on projects of small size below 20 MW in Peru; (4) institutional and regulatory (this report), and another focused on medium- environment; (5) identification of barriers to to large-scale projects, titled Peru: Overcoming small hydropower development and mitigation Barriers to Hydropower. measures; (6) international experience with This report contains the following Chapters: small hydropower development; and finally (1) introduction; (2) resource potential and (7) conclusions and recommendations. 2 Resource Potential and 2 Technical Capacity Development of the hydropower resources The total increase in hydropower installed of Peru started over a hundred years ago in capacity in this 30-year period shown in Table 2.1 the early years of the previous century. Initial was 1,797 MW,2 of which the 154 MW increase developments took advantage of the accentuated in small hydropower installed capacity (up to topography, which features particularly in the 30 MW) represents only 8.5 percent. It appears, rivers draining the Pacific side of the Andean therefore, that the major efforts in hydropower chain, and augmentation of dry-season flows by development in these years have concentrated snowmelt. Hydropower plants were intended on construction of large-scale hydropower for the supply of local electricity demands and, projects (or expansion of existing large plants) increasingly, the requirements of the mining for integration in the national interconnected industry. power system. This represented an average In the second half of the last century, regional annual growth rate of just 2 percent over the power networks emerged and hydropower 30-year period. development began to encompass large-scale Table 2.2 lists the hydropower projects with schemes. As shown in Table 2.1, by 1976 the installed capacity in the range 1 to 20 MW that total installed hydropower capacity in Peru had have been commissioned in the years 1998 to reached 1,406 MW (see Annex 1), accounting for 2006, i.e. since a few years after deregulation of around 75 percent of total installed capacity (and the electricity sector. Over 30 percent of the total of energy production) in the country.1 58 MW is made up by three projects, (Poechos II, Table 2.1 Hydropower Installed Capacity in Peru 1976 and 2006 19761 20062 Installed Installed Installed Capacity Range Capacity (MW) No. Plants (–) Capacity (MW) No. Plants (—) Greater than 30 MW 1,223 11 2,867 19 1 to 30 MW 306 71 183 — Smaller than 1 MW 31 77 Total 1,406 — 3,203 167 Fuentes: 1. Lahmeyer-Salzgitter-MEM (1979), Vol 2, Tabla 2.3 (Ver Anexo 4.) 2. MEM (2007a), Anuario Estadístico Electricidad 2006, Anexo 6. 1 Lahmeyer-Salzgitter-MEM (1979). 2 MEM (2007a). 3 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 2.2 Small to Medium-sized Hydropower Plants Commissioned from 1998 to 2006 Installed Capacity1 Year Plant Owner (MW) 1998–2001 — — — 2002 Quanda Electro Oriente S.A. 2.88 Huanchór Sociedad Minera Corona S.A. 18.86 Chiquián (Extension) Electronorte Medio S.A.—HIDRANDINA 1.62 Baños IV Empresa Administradora Chungar S.A.C 1.20 Tingo Empresa Administradora Chungar S.A.C 1.20 Baños III Empresa Administradora Chungar S.A.C 0.98 Baños II (Initial) Empresa Administradora Chungar S.A.C 0.54 2 2003 Monobamba (Extension) Compañía Minera San Ignacio de Morococha S.A. 5.35 2004 Poechos II Sindicato Energético S.A. 15.64 Santa Rosa II Eléctrica Santa Rosa S.A.C. 1.50 2 Membrillo (Extension) Compañía Minera Sayapullo S.A. 1.05 2 Baños II (Extension) Empresa Administradora Chungar S.A.C 1.00 2005 Llaucán Minera Colquirrumi S.A. 1.00 2 Carpapata (Extension) Cemento Andino S.A. 1.20 2006 Santa Rosa I Eléctrica Santa Rosa S.A.C. 1.20 San Martín de Porres ICM Pachapaqui S.A.C. 1.60 Huari (Maria Jiray), Unit2 Electronorte Medio S.A.—HIDRANDINA 1.50 TOTAL 58.32 Source: MEM (2007), Anuarios Estadísticos Electricidad, 1998 to 2006. 1. Declared installed capacity (may differ from effective installed capacity). 2. For own-consumption. Santa Rosa I and Santa Rosa II), which have 30 years, against a background of steadily involved the incorporation of hydropower decreasing overall growth in hydropower generating facilities in already existing irrigation development. infrastructure. Table 2.2 also shows that 15 percent of the total 58 MW are hydropower projects constructed The Potential for by enterprises (mining companies) for their own consumption, not for public service. Small Hydro In addition, local and regional governments There has never been a nationwide inventory and as well as mining companies have continued to ranking (or master plan) of small hydropower construct a number of mini-scale hydropower schemes in Peru. The evaluation of the national plants with installed capacities of less than 1 MW. hydroelectric potential by Lahmeyer-Salzgitter- From this brief review of hydropower MEM (1979)—the so-called Plan Maestro—was development in Peru to date, it can be seen restricted to projects with installed capacities that development of small hydropower, greater than 100 MW, lower installed capacities in particular greenfield projects for public being considered only in the case of projects with service, has remained limited over the past large reservoirs providing over-year storage or 4 Resource Potential and Technical Capacity those composing part of an overall river basin a list of “Projects with Studies.” The latest development scheme (see Box 2.1). list, comprising 21 projects, is reproduced in Similarly, while the Instituto Nacional de Annex 2. The studies behind this list were all Recursos Naturales (INRENA) of the Ministry carried out before deregulation and privatization of Agriculture regularly publishes a national of the power sector in the 1990s, generally inventory of canals and other infrastructure within the framework of technical cooperation associated with the principal irrigation systems,3 programs and multilateral banks assistance there has never been a systematic inventory with Electroperú or other government agencies. of possibilities for the incorporation of small It may be noted that of the 21 projects in the hydropower projects in existing hydraulic list, only 3 projects have proposed installed structures (at reservoir outlet works, canal drop capacities of less than 30 MW. structures, etc). As already noted, two basic opportunities The Dirección General de Electricidad (DGE) exist for the development of small hydropower of MEM publishes on its Web site, in addition projects, namely (1) incorporation of power to the lists of hydropower projects that have plants in existing hydraulic infrastructure, been granted concessions and authorizations, and (2) greenfield hydropower project Box 2.1 The Peru Hydropower Potential Study in 1979 The only comprehensive evaluation of the • on account of unfavorable technical conditions hydroelectric resources in Peru was undertaken (e.g., topography, geology), or by the MEM under an agreement with the German • on the basis of a minimum installed capacity of: technical cooperation agency GTZ (Gesellschaft - 100 MW for run-of-river projects. für Technische Zusammenarbeit). It is commonly - 50 MW for projects with monthly storage. referred to as the Plan Maestro (Masterplan), - 30 MW for projects with over-year storage although this was in fact a system expansion plan (except for isolated locations, in which case study carried out in 1980 to 1981 after completion a minimum of 20 MW was applied). of the major work “Evaluación del Potencial The final catalog contained a total of 543 Hidroeléctrico Nacional” in 1979. The 1979 hydropower projects. Of these, 163 projects evaluation study will be therefore referred to as featured installed capacities less than 100 MW, the Hydropower Potential Study. including some of less than 30 MW, which formed The objective of the study was to identify part of the recommended overall basin development projects that could form part of the expanding schemes. These 163 projects are listed in Annex 4, and interconnecting regional power-generation together with their principal characteristics (mean systems. As such, it focused on relatively large flow, net head, installed capacity, average annual hydropower schemes. However, a brief analysis energy production, and estimated investment of the resulting catalog of projects could provide costs). The hydropower potential costs are given some indication of the potential for further at the January 1979 price level. As a very rough development of greenfield small hydropower approximation, these costs were actualized to the projects. 2007 level using the manufactures unit value (MUV) T h e i n i t i a l d e s k s t u d y p h a s e of t h e index published by the World Bank. Hydropower Potential evaluation study resulted Source: Authors’ recollection based on Lahmeyer International, in the identification of around 800 projects. Salzgitter Consult and Minsterio de Energía y Minas (MEM) [1979], After extensive field surveys and river basin “Evaluación del Potencial Hidroeléctrico Nacional,” Report to Minsterio de Energía y minas, German Agency for Technical optimization studies, about 250 projects were Cooperation (GTZ) and International Bank for Reconstruction and eliminated, either: Development (IBRD), Lima, 1979. 3 Ministry of Agriculture (2005). 5 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT development—that is, projects, perhaps As already indicated, 18 MW of the 58 MW previously identified and already studied to of the small hydropower projects brought on some level of detail, but not involving any line since 1998 (about 30 percent) have been existing hydraulic infrastructure. projects of this type, in all cases utilizing existing irrigation infrastructure. A further 28 MW, Poechos 2nd powerhouse and Quiroz- Small Hydro Projects Vilcazán, are included in the list of projects Incorporated in Existing with concessions and authorizations, shown in Hydraulic Infrastructure Table 2.3 in Annex 2. Small hydropower developments of this type Although it is possible that the developers involve incorporation of power-generating of the existing projects of this type have carried facilities in hydraulic structures already out some form of analysis of further possibilities constructed for purposes of irrigation, mining, or for similar projects, it would appear that no power production (see Box 2.2 for an example). systematic inventory (basin by basin, structure Obvious advantages include easy access, limited by structure—dams, diversion weirs, and canal geotechnical uncertainties, minimal civil works, drop structures) has been carried out to date. and hence, short implementation times. Such An indication of the possible outcome of advantages were specifically cited by several of such a survey is provided by the results of the government organizations, developers, and a recent investigation carried out jointly by consultants interviewed by the Study Team. the National Irrigation Commission and the Nevertheless, they are also open to opposition National Energy Commission in Chile.4 In a from local stakeholders who feel inconvenienced survey covering 97 percent of the total irrigated by the project. area in Chile, the investigation identified a total Box 2.2 The Santa Rosa Project The Project is composed of three small run-of- verification, and certification. The World Bank will river hydroelectric power plants located in Lima, also have the option to purchase a further 62,400 Peru, Province of Sayan. The project has a total tCO2-eq generated by the project after the Contract generation capacity of 4.1 MW and an annual ERs have been delivered, on the same terms as the energy production of approximately 30,000 MWh Contract ERs. (Santa Rosa I: 7,900 MWh, Santa Rosa II: 12,000 The three plants will take advantage of the MWh and Santa Rosa III: 10,000 MWh), which will hydro resources from the existing Santa Rosa be dispatched to the National Grid by connecting to irrigation infrastructure, which has been in use the 22.9 kV transmission line belonging to Edelnor. since 1963. They use the same water flow and will Santa Rosa I and II are now in operation and Santa be located in a cascade in the three sections of the Rosa III is expected to be in operation in 2009. existing canal. Santa Rosa is the first small hydro project in Santa Rosa has a five-year PPA with EDELNOR Peru to benefit from carbon finance. The World (a distribution company) to take 100 percent of Bank as Trustee of the Community Development output of Santa Rosa II at the regulated price Carbon Fund (CDCF) will purchase the first 88,300 (which is marginal cost and capacity charges as tCO2-eq (ERs) generated by the project at a unit determined by the regulator). Santa Rosa I and III price of US$5 per ton. Total CER purchases will will be covered by a third party (Cahua) at the spot be US$441,500. This total includes recovery of market price (which is generally somewhat higher project preparation expenses such as those related than the regulator’s marginal cost). to baseline establishment, validation, monitoring, Source: World Bank (2005). 4 CNR-CNE (2007) 6 Resource Potential and Technical Capacity of 290 possible hydropower plants with installed at the present time is quite difficult. While capacities in the range 2 to 20 MW, which could the 163 projects in the Plan Maestro include be installed in existing irrigation infrastructure. many projects on the principal tributaries of The total installed capacity amounted to most river basins, possibilities for smaller- 860 MW, 75 percent of which corresponded scale projects on a number of tributaries were to run-of-river plants constructed in canals. ignored. At the same time, not all tributaries are According to the AQUASTAT database of the likely to provide suitable possibilities for such UN Food & Agriculture Organization (FAO), projects. Tributaries in the middle or lower the total irrigated area in Chile amounts to reaches of basins in the Atlantic watershed, for around 1.9 million hectares, while that of Peru example, have almost zero flows during much comes to about 1.1 million hectares. Assuming of the April to November dry season unless the same ratio of total installed capacity to there are significant areas of permanent snow irrigated area, it could be expected that a similar (above about 5,000 m asl) and/or natural (or survey in Peru would result in a total technical regulated) lakes in their headwaters. Based on potential of around 510 MW for small to medium our extrapolation of the Plan Maestro (Box 2.1), hydropower plants incorporated in the existing and the experience in other countries, the irrigation infrastructure. potential of greenfield small hydro is estimated The survey carried out in Chile identified at around 1,500 MW, or some 150 projects of only the technical potential for hydropower 10 MW, assuming a maximum capital cost of incorporated in the existing irrigation US$3,000/kW. infrastructure. No attempt was made to assess These results are, of course, very tentative, the costs or financial viability of the identified given the limitation on project size considered possibilities. However, as noted during the in the Hydropower Potential study. However, workshop held in January 2008 at which the a new Hydro-GIS study underway by MEM results of the survey were presented, the costs under the Rural Electrification Project assisted of such projects for which Environmental Impact by the World Bank will provide a more reliable Assessments have already been submitted assessment of the technical potential for small- to (mandatory for projects with installed capacities medium-sized hydropower development. of 3 MW and above) have been in the range Not all of this technical potential is necessarily US$1,500 to US$3,000 per kW.5 Experience with economically or financially feasible, since the the existing projects in Peru (Poechos, Santa latter depends on other important assumptions Rosa) would indicate that somewhat lower costs about which there is also high uncertainty (such are achievable. Nevertheless, bearing in mind as the annual load factor, and the ability to the upper limit of US$1,250 per kW cited by provide low cost daily peaking storage). some developers for an economically acceptable project under present conditions in Peru, it The Potential Project Pipeline would seem that a conservative estimate of the Current plans for development of Peru’s total capacity that could be additionally installed hydropower resources can be represented by in the existing irrigation infrastructure would be the concessions and authorizations which MEM at least in the range 100 to 200 MW. has issued (see Tables 2.1 and 2.2 in Annex 2 published by MEM in October 2007), which Greenfield Small Hydro Projects include definitive concessions, temporary Given the lack of good inventories, and the focus concessions, and authorizations for hydropower of the Plan Maesto on larger projects (mostly over schemes. A list of hydropower projects “with 30 MW), estimating the small hydro potential studies” is also included. Table 2.3 shows the 5 Red Agricola (2008); http://www.redagricola.com/content/view/82/1/. 7 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 2.3 Small Hydropower Projects with Concessions and Authorizations Estimated Design Annual Estimated Capacity Production Investment No. Name Project Sponsor (MW) (GWh) (US$ Mio.) Definitive Concessions 1 Centauro I and III Corporación Minera del Perú S.A.— CORMIPESA 25 — 14 9 Pías I Aguas y Energía Perú S.A. 11 82 13.4 10 Poechos (2nd Sindicato Enérgetico S.A.— Powerhouse) SINERSA 10 — 9 Subtotal 46 Temporary Concessions 9 Quiroz-Vilcazán Junta de Usuarios del Distrito de Riego San Lorenzo 18 — — 15 Uchuhuerta Electroandes S.A. 30 235 36 16 Pías II Aguas y Energía Perú S.A. 16 — — Subtotal 64 Authorizations 1 Caña Brava Duke Energy Egenor S. en C. por A. 5.65 — 6.05 3 Gratón SIIF Andina S.A. 5.00 — 4.72 4 Ispana-Huaca Inversiones Productivas Arequipa S.A.C. 9.60 — — 5 La Joya Generadora de Energía del Perú S.A. 9.60 — 9.57 6 Patapo Generación Taymi S.R.L. 1.02 — 0.77 7 Roncador Agroindustrias Maja S.A.C. 3.80 — 2.5 8 San Diego Duke Energy Egenor S. en C. por A. 3.24 — 2.93 9 Shali ABRIngenieros S.A.C 8.95 — 8.1 Subtotal 46.86 With Studies 1 Aricota III Empresa de Generación del Sur- EGESUR 19.00 66 21 3 Camana Plan Maestro 2.80 23 8 5 Culgul Electroperú S.A. 20.00 133 54 Subtotal 41.80 All Projects Total 198.70 Source: Ministerio de Energía y Minas, Dirección General de Electricidad, October 2007. The numbers in the left-hand column refer to the corresponding numbers in Annex 2, in which further details of the projects are given. 8 Resource Potential and Technical Capacity small hydropower projects (1 to 30 MW), which than a simple desk-study have been carried out by feature in the lists in Annex 2.6 a state organization on behalf of itself or another The MEM has also published a list of state organization, all before deregulation of the hydropower schemes, shown in Annex 3, which electricity sector in the early 1990s. As such, the it has considered as candidate projects for composition of the list is somewhat arbitrary. inclusion in the Plan Referencial 2006 to 20157 Furthermore, with respect to small hydropower, for the national interconnected power system. it can be seen that the list contains only three None of these candidate projects is a small projects in the capacity range 1 to 20 MW. hydropower plant with installed capacity less The only comprehensive national inventory than 20 MW.8 Of course, not all these projects will of potential greenfield hydropower projects necessarily be implemented, in particular those available at present is the Hydropower Potential with authorizations (which must be obtained study,9 described in Box 2.1. Although specifically before field studies can be undertaken) and those concentrating on larger-scale developments that are simply described as “with studies.” (lower limits for run-of-river projects 100 MW, projects with over-month storage 50 MW and projects with over-year storage 20 MW) and Technical Capacity for Small based only on hydrological information available to Medium-sized Hydropower 30 years ago, it is nevertheless evidently still in This section reviews briefly the national capacity use by small-scale developers (as confirmed by of Peru for: (1) the identification, design and at least one of the developers interviewed by engineering of small hydropower projects, the Study Team). and (2) the construction of civil works and While there is no currently available manufacture of equipment for such projects. inventory of potential hydropower projects incorporated in existing hydraulic structures, the Instituto Nacional de Recursos Naturales Project Identification, (INRENA) of the Ministry of Agriculture Design, and Engineering publishes a national inventory of canals and Project Identification other infrastructure associated with the principal As already noted, MEM regularly publishes irrigation systems.10 The latest inventory is a list of power projects for which concessions for the year 2004.11 The latest comprehensive and authorizations have been issued, as well as inventory of lagunas and small dams constructed a list of projects with only studies (see Annex 2, for flow regulation for agriculture, however, Table 2.4). This list comprises principally those appears to be that prepared by the Oficina projects for which more detailed investigations Nacional de Evaluación de Recursos Nacionales 6 The survey separates hydros into various groups, the first one being 1 to 30 MW, hence the fact that the table includes plants from 20 MW to 30 MW. 7 MEM (2006). 8 It can also be seen that there are differences, in some cases significant, between the values given in Annex 2 and Annex 3 for installed capacity and estimated investment costs of some projects. 9 Lahmeyer-Salzitter-MEM (1979). 10 Ministry of Agriculture (2005). 11 Ministry of Agriculture (2007). 9 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT (ONERN, now INRENA) in the year 1980.12 other climatological variables in addition to These inventories could serve as a basis for precipitation). According to information provided preparation of an inventory of potential small in an interview with SENAMHI personnel, the to medium-sized hydropower stations that number of hydrometeorological stations operated could be incorporated into existing hydraulic by SENAMHI had evidently risen to nearly 2,000 structures. in the early 1980s. Currently, however, SENAMHI In summary, there is currently no list operates only 780 hydrometeorological stations, of possibly suitable small to medium-sized including 156 hydrometric stations. hydropower projects available to a potential Experience of obtaining and using data developer. Such a list, either of a comprehensive from SENAMHI usually reveals a number of nature or of only selected projects, should shortcomings in the service that the organization indicate the level of study to which each is currently capable of offering—for example, project has been taken; in this connection, the excessive time required to obtain data, guide to the scope and accuracy of hydropower nonavailability of recent observations, absence project studies, presented in Annex 6,13 could of information on how data were obtained (in be of use. the case of flow data, for instance, the number and frequency of flow measurements carried Project Design out in order to derive rating curves and the The availability of the basic field information range of water-levels and discharge covered)— required for project design is generally good: so as to enable some judgment to be made on the reliability and precision of the data. These • Electronic versions of topographic maps at shortcomings are the result of budget limitations 1:100,000 scale are immediately available on manpower and on hardware and software for from the Instituto Geográfico Nacional acquiring and processing field data. (IGN), and electronic maps at smaller scale Another principal aspect of the (e.g., 1:25,000) can be obtained from IGN hydrometeorological data in Peru today upon request. is the increasing fragmentation of data • Similarly, 1:100,000 scale geological maps and collection activities, in particular since several smaller-scale regional and local maps deregulation of the electricity sector. Many are available from the Instituto Geológico more hydrometeorological stations are now Minero y Metalúrgico (INGEMMET). being installed and operated by private-power • Hydrometeorological data are available companies, mining companies, and developers. from the Servicio Nacional de Meteorología It is understood that, according to the law, e Hidrología (SENAMHI), but it is evident permission to install and operate such stations the capacity of this organization has been should be obtained from the government, deteriorating over the past decade or so. and also that the information obtained from T h e a b o v e - m e n t i o n e d H y d ro p o w e r the station should be made available to the Potential study14 notes that in 1978 SENAMHI government, but this is apparently rarely done operated a total of 145 hydrometric stations in practice. In addition, other national and and approximately 900 meteorological stations local state agencies—for example, the Instituto (of which 145 provided information on Nacional de Recursos Naturales (INRENA), the 12 Ministry of Agriculture (1980). 13 Oud and Muir (1997). 14 Lahmeyer-Salzgitter-MEM (1979). 10 Resource Potential and Technical Capacity Instituto Nacional de Desarollo (INADE), the Hidrológico Internacional-Latin America and Direcciones Regionales Agrarias, the regional Caribbean (PHI-LAC). Such studies could be Distritos de Riego and other entities within the carried out, with little expense, by SENAMHI Ministry of Agriculture, continue to operate (or other government agency, e.g., INRENA) or stations and compile data that are not stored in by university research departments. any central location. A central repository of all hydrometeo- The difficulty in accessing all available rological data would also be of considerable hydrometeorological data does indeed affect assistance to developers and designers of small some aspects of the project design (e.g., design hydropower projects. In this connection the floods and dimensioning of spillways, sediment World Bank-supported Hydrology Project in transport). For such design aspects—and also India15 could serve as an example of how a for estimation of output during the low-flow Hydrological Information System for use by all season—the results of regional studies would potential users concerned with water resources be of undoubted assistance. planning and management, both public and This situation results in the perception private, can be established and sustainably that the difficulty in accessing all available operated (see Box 2.3). hydrometeorological data relevant to a project In any case, in addition to collection and is a major obstacle in the design and economic analysis of the basic field information available assessment of the project. In practice, this is, as described above, local topographic, geological in fact, generally not the case. Even for small and hydrometric investigations at the project hydropower schemes, the installation of a site must be carried out. For this purpose, there hydrometric station at or close to the proposed is general agreement that there is sufficient project site and operation of the station for a local capacity in all the required areas, with a period of one or two complete years must be number of firms offering up-to-date services and considered a minimum requirement. Together competitively bidding for these services. with long-term data at hydrometeorological There are also a number of national stations in the same (or even adjacent) river consulting engineering companies able to carry basin—obtainable from SENAMHI and/or out project design services (see Annex 7) for any another government agency at not insignificant type of small hydropower project. In addition, expenditure of time and money—a reasonable there are a number of international consulting estimate of average energy production (and engineering firms—for example, MWH (USA), possibly even “dependable” dry season output) Lahmeyer International (Germany), with offices can usually be obtained. in Peru, staffed largely by Peruvian nationals. From the description of the impediments Suitable expertise is available at most levels, posed to potential developers of hydropower although it could be argued that, as a result projects—small, medium or large—it is evident of the limited number of larger-scale water that a radical reform of the current situation resources schemes designed and constructed in with regard to hydrometeorological data is not recent years, there are only a limited number of absolutely necessary. Some of the impediments people with the comprehensive and long-term could be removed by the realization of regional experience required for successful overall project studies of floods, sediment, low flows and management. basinwide water balances, extending the work There is no evidence that systemized initiated by UNESCO (2006) under its Programa project design, which could reduce the time 15 World Bank, (2004b). 11 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Box 2.3 Hydrology Project in India The World Bank-supported Hydrology Project in level agencies. The phase I was completed in India was initiated in December 1995 in response December 2003. The data base developed provided to the need for a reliable and easily accessible uniform, acceptable and accessible hydrological hydrometeorological data base for various records in the nine states and six central agencies activities in planning and management of India’s it covered. But the system continued to be deficient water resources, to meet the challenges of ever- in terms of geographic coverage and use of increasing demand for reliable and good quality modern analytical tools and skilled manpower for water supply for various uses such as domestic and hydrologic modeling and analyses. industrial water supply, agriculture, and irrigation In January 2006 the government of India and power generation. and the World Bank signed a loan agreement of The main objective of the Phase I Hydrology US$105 million for the Hydrology Project Phase II. Project was to improve the institutional and This Phase II will extend and promote the sustained organizational arrangements, technical capabilities, and effective use of the HIS, by all potential and physical facilities available for measurement, users concerned with water resources planning validation, collation, analysis, transfer and and management, both public and private (i.e., dissemination of hydrological, hydrometeorological four more states and two central agencies, the and water quality data, and for basic water resources Central Pollution Control Board and the Bhakra- evaluations within the concerned agencies at the Beas Management Board). A longer-term aim of central government level and in nine participating the project is to assist the governments at both states. The project, therefore, aimed at upgrading central and state levels with regard to issues and expanding hydrometry and data management, of intrasectoral demands, and overall resource and improving institutional management through planning and management. TA and training. A primary activity in Phase I The Ministry of Water Resources will implement was the development and implementation of the project over a period of six years. a Hydrologic Information System (HIS) with a Source: World Bank (2004), “Hydrology Project Phase II,” Project network of data banks and data bases, integrating Appraisal Document (PAD No. 28140-IN) on a proposed loan to the and strengthening the existing central and state Government of India, 19 July 2004. and costs associated with the design of small authorized to carry out environmental impact hydropower, is currently being used in Peru. analyses,16 of which 74 are authorized to work In this connection, some of the design manuals in the electricity sector. It should be noted, for small hydropower produced by a number of however, that the list includes not only most national and international organizations could national engineering consulting companies as be of use (e.g., International Energy Agency well as the local offices of many international (IEA), European Small Hydropower Association engineering and environmental consulting (ESHA), Hangzhou Regional Center (Asia- firms. Pacific) for Small Hydropower, China (HRC)). There are also a number of locally based It is suggested that efforts could be made to companies offering services relating to the organize workshops or translate manuals, Clean Development Mechanism (CDM) and perhaps with the assistance of foreign funding. the acquisition of carbon credits, such as A2G National capacity in the field of the and some engineering consultants, as well as environment is also not lacking. The MEM international companies such as Eco Securities, maintains a list of 125 consulting companies Net Source, AHL Carbon, and Econergy. 16 MEM (2007b). 12 Resource Potential and Technical Capacity Project Engineering have established local offices, such as San Jose As for project design, it is generally agreed Perú S.A.C., Abengoa Perú S.A., and Cobra Perú that there is sufficient national expertise/ S.A. (all Spanish), largely staffed by Peruvian experience among the consulting engineering nationals. Much of the major equipment used companies listed in Annex 7 to carry out all the by the contractors is imported. services required in the preparation of contract documents for construction and the supervision Equipment Manufacture of contractors and suppliers during construction. There is at present only one company in Peru This expertise/experience covers both fabricating the Francis and Pelton types of the “traditional” client-consultant-contractor turbines suitable for small hydropower projects form of project arrangement, as well as the with medium to high heads. Other companies engineering procurement and construction manufacture cross-flow turbines of the Mitchell- (EPC) type of contract, although, as pointed out Banki type. Further details of these companies, in other parts of this report, the latter may not which also produce the associated generators be the most appropriate arrangement for small and control systems, are given in Annex 9. to medium-sized hydropower projects. As can be seen in Annex 9, the maximum One area, however, where some of the size of Pelton or Francis turbines currently engineering tasks for small hydropower manufactured locally is 5 MW. Projects with projects could be facilitated is the preparation large unit sizes are therefore subject to the of specifications and contracts. It would appear current rapidly increasing prices of turbines that in most cases specifications and contract on the international market, as well as to the documents are prepared from scratch, or at least increasingly long delivery times. on the basis of previous similar projects. The Most hydraulic steel structures (gates, use of standard contract documents, such as valves, etc.) required in small hydropower those produced by the International Federation projects can be manufactured in Peru, although of Consulting Engineers (FIDIC), although equipment for opening/closing (servomotors) intended principally for larger projects, could may need to be imported. Transmission lines at possibly be of assistance in this respect. It may the voltages associated with small to medium- be noted that previous attempts to use the sized hydropower projects, including towers Spanish-language versions of the FIDIC contract and cables, can also be manufactured in Peru, documents in Peru have highlighted some with some components (e.g., insulators) being differences of interpretation of certain words in imported. the context of Peruvian law. Technical Assistance and Training Construction and Equipment Development of small hydropower in Peru could Manufacture be facilitated through technical assistance and Civil Engineering Construction training of personnel from all technical fields and National capacity with respect to civil engineering geographic (central and regional) areas (e.g., in construction of small hydropower projects may workshops, training programs, etc). The fields be viewed as fully sufficient. Larger-scale covered could include areas such as operation projects, including some with reasonably long and maintenance, and fabrication of turbines tunnels, have been constructed by national and control equipment. contractors. A list of national contractors with A number of national and international experience in significant water resources organizations offer technical assistance and development projects, including hydropower training programs (including online courses) projects, is shown in Annex 8. In addition, there dealing with hydropower, some specifically are a number of international contractors, which small hydropower: 13 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT • International Centre for Hydropower, and strengthening of these “community” Norway (www.ich.no). organizations, participation in trade missions • International Energy Agency (Hydropower (to and from the country involved), assisting Competence Network) (reef.iea.org/ the establishment of partnering arrangements moodle). (e.g., U.S. Hydropower Council for International • International Hydropower Association Development partnerships in India and Mexico), (www.hydropower.org). and dissemination of information. • Hangzhou Regional Center for Small Suggestions for mitigating some of the Hydropower (sponsored by UNDP) (www specific technical impediments to small .hrcshp.org). hydropower development in Peru are presented • Organización Latinoamericana de Energía— in Chapter 5. Further assistance to small OLADE (www.olade.org.ec). hydropower development could be similarly facilitated through government-sponsored Given that the potential developers and activities, such as those outlined in the previous operators of small hydropower schemes are paragraph. Given the national capabilities project likely to be mainly private organizations, design, construction and turbine manufacture, it would be necessary for a government described in Chapter 2, these activities would agency, presumably the Dirección General de most likely best focus on the following: Electricidad (DGE) of the Ministerio de Energía y Minas, to take the initiative in organizing • Dissemination of design and contracting/ such training courses and programs. That is, construction standards and procedures in the DGE would need to make contact with these the Spanish language. organizations, establish the market for possible • Promotion of domestic manufacture of training courses, and arrange for the training to ancillary components, such as control and take place, recovering any costs involved (some communications equipment. organizations may be able to offer grants) from • Training in operation and maintenance of the participants. small hydropower plants. In most countries, both developed and developing, where small hydropower and other A number of national and international nonconventional renewable energy sources have organizations offer technical assistance and been successfully developed to a significant training programs (including online courses) degree, government-sponsored technical dealing with hydropower, some specifically assistance and training has played an important small hydropower. These include the following: role. This is true even in those countries (e.g., India, Nepal) where that development • International Centre for Hydropower (ICH), has increasingly involved public-private Norway. ICH (www.ich.no) is an international partnerships, as well as private companies association of companies and organizations alone. In such instances, however, the targets that are active in all aspects of hydropower of government-sponsored promotional efforts generation, its principal activities covering have been not so much the “traditional” targets (1) improving the standards of competence of (energy ministries, national utilities, consultants industry personnel by organizing intensive and contractors—provided with assistance in training (including online courses—see preparing master plans and project studies) below), (2) disseminating technical, financial, but rather “community” organizations such social and environmental know-how relevant as trade associations, technical institutes, to the hydropower sector, and (3) organizing universities, publishers, libraries, conference seminars, workshops and conferences. organizers, regional support centers, and so • International Energy Agency (IEA)— on. Such activities have covered the start-up Hydropower Competence Network (HCN). The 14 Resource Potential and Technical Capacity IEA’s HCN (www.reef.iea.org/moodle) • U.S. Hydropower Council for International provides online training courses, organized Development. The U.S. Hydropower Council by the International Centre for Hydropower, for International Development (www.us- on a range of hydropower topics, including hydropower.org) advocates hydroelectric technology management, operation and power as a preferable energy option, serving maintenance. global environmental and energy policy • International Hydropower Association (IHA). objectives, and initiates and participates in Formed under the auspices of UNESCO in trade missions, conferences, workshops, 1995 as a forum to promote and disseminate and other educational activities, policy good practices relating to hydropower development and recommendations projects, development and operation, the IHA’s partnering and joint venture facilitation, (www.hydropower.org) activities include special analysis, and reports, such as needs the publication of design and operation assessment and capacity potential. guidelines and organization of workshops • Organización Latinoamericana de Energía and seminars. (OLADE). Founded over 30 years ago to • European Small Hydropower Association promote agreements between its Latin (ESHA). The ESHA (www.esha.be) is American and Caribbean countries and a nonprofit association that promotes carry out actions to satisfy their energy needs renewable energies—small hydropower by means of the sustainable development plants—with emphasis on environmental obtained from the different sources of integration and is active in the dissemination energy, OLADE (www.olade.org.ec) offers of information, the organization and online and at-site training courses in a promotion of seminars and conferences. range of topics including micro and small • International Network on Small Hydro Power hydropower development. (IN-SHP), China. IN-SHP (www.hrcshp .org), based in the Regional Center for An initial step could be the holding of a Small Hydropower, Hangzhou, China, is workshop or seminar in Lima, with participation an international organization sponsored by by a range of local stakeholders and possibly the United Nations Development Program international organizations, with the specific (UNDP) and United Nations Industrial objective of establishing precisely what forms Development Organization (UNIDO). It of technical assistance and training are required specializes providing training in small for promoting small hydropower development hydropower planning, design and operation under the conditions in Peru prevailing at and maintenance. present. 15 Economic and Financial 3 Viability of Small Hydropower This Chapter examines the economic and However, the economically rational level financial viability of small hydropower projects. of hydro (or renewable energy in general) in It first examines the general question of the the system will be given by the intersection of economic benefits of hydro and the need for the hydro supply curve with the avoided social a hydro generation tariff that refl ects these cost of thermal generation (PSOC, QSOC), which benefits. This is followed by an assessment of includes consideration of the local environmental the economic viability of small hydro projects, damage costs of thermal generation (VL.ENV). In an analysis that uses economic rather than many countries where coal is the mainstay financial costs, and which is therefore based of thermal generation (China being the most on the economic price of natural gas. We then notable example), these local damage costs can examine the financial viability at the current be several UScents/kWh. In Peru, given that financial price of natural gas, and establish the thermal generation is largely gas, and the main conditions under which small hydro becomes gas power stations are some distance away financially viable. This is followed by an from the major population centers, these costs assessment of the ability to raise equity for are much smaller—though they are unlikely to small hydro projects, and the ability to raise be zero. debt finance. To be sure, the presumption of this representation is that the environmental externalities of the hydro projects are The Benefits of Hydro internalized in the total project costs represented by the supply curve. Under current practice, that and Rational Tariffs requirement is generally met, given the stringent In competitive generation markets, prices will be requirements for adequate relocation and set on the basis of financial rather than economic resettlement compensation, and environmental input prices, so to the extent that these inputs requirements. Indeed, in the particular case of are subsidized, market prices will not reflect small hydro, such impacts as may be associated the economic costs of the marginal generators. with large storage reservoir projects are almost This means, as illustrated in Figure 3.1, that entirely absent. the quantity of hydro that is induced by the Given the clean energy benefits of present financial price (PFIN, QFIN), is smaller than hydropower, a rational hydro tariff should be that induced at the economic price of thermal based on at least the avoided economic cost of generation, (PECON, QECON). Indeed, as we show thermal generation. If a market based gas price in Chapter 4, the many institutional barriers cannot be achieved—or achieved only over prevent even this level of hydro from being a longer time period—then the second best implemented (represented in Figure 3.1 as the solution is to set a preferential tariff directly at business as usual quantity, QBAU). PSOC. This approach has been adopted by most 17 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Figure 3.1 A Framework for Rational Hydro Tariffs Source: Author’s calculations, 2008. countries in their efforts to increase the level of projects are generally seen to have a positive renewable energy generation—although there impact on small communities. More importantly, are many different ways to achieve this (as where electricity consumption is growing very discussed in Chapter 7). fast, small hydro brings in sources of equity (and The final step in achieving the globally debt) not available for large power plants (from optimal level of hydro development is to include small domestic entrepreneurs and construction the cost of carbon damages. This additional companies).17 quantity of hydro (to QG) will depend on the value of avoided carbon. We examine in the discussion of carbon finance the likely impact Economic Viability of Small this will have on development of the small hydro resource in Peru. Hydropower Projects There are, in principle, a number of additional Gas prices for power generation in Peru are benefits to small hydro that are quite difficult to among the lowest in the world (see Table 3.1), account for a hydro tariff. Although large hydro largely as a consequence of the pricing policy projects may have undesirable social-economic that has set a cap on the Camisea sea field impacts on remote rural communities (e.g., large price for power generation. Current prices but temporary construction camps), small hydro at the Camases field to generators are set at 17 Another potential advantage of small (grid-connected) hydro systems is in providing system stability and voltage support at the rural extremes of the distribution network to which such generators are connected. However we know of no example where this benefit has been quantified. 18 Economic and Financial Viability of Small Hydropower Table 3.1 Natural Gas Prices (Site of Generation) Corresponding CCGT Gas Price, (US$/ Generation Variable Cost, mmBTU) (UScents/kWh) Peru18 2.15 1.70 Vietnam 3.20 2.24 Georgia (imports from GAZPROM) 3.50 2.45 Azerbaijan (imports from Russia) 6.77 4.74 USA, October 2007 Henry Hub Spot Price 7.02 4.91 Source: World Bank ADB, Platts. US$1.30 to US$1.39/mmBTU. Delivered prices LNG exporter (see Box 3.1), the economic cost to generators near Lima in 2008 are US$2.13 to of natural gas, netted back to the Camases gas US$2.24 /mmBTU. field, is likely to be very much greater than the Thus, the current Peruvian price of gas for current ex-field price for power generation of power generation is below the opportunity US$1.31to US$1.39/mmBTU. cost, as set by the international market for A recent study for the World Bank19 highlights traded LNG. Now that Peru is becoming an the sharp increases in thermal generation capital Box 3.1 The Peru LNG Project The LNG plant will be located at Pampa Melchorita The output of the LNG Plant will be sold to on the Pacific coast of Peru, 169 km south of Repsol Comercializadora de Gas S.A. of Mexico under Lima. The project consists of one 4.4 million ton an 18-year sale and purchase agreement. While the per annum liquefaction plant train and related sales price of LNG is unknown for this transaction, loading facilities, supplied by a 408 km 32 pipeline the World Bank forecast for U.S. gas prices, not likely extension to the existing TGP pipeline, sourcing to be that different from Mexico, is as follows: gas from Blocks 56 and 88 of the Camisea gas 2008: US$8/mmBTU field. The project sponsors, Hunt Oil Company 2009: US$7/mmBTU (USA), SK Corporation (South Korea) and Repsol 2010: US$7/mmBTU YPF S.A. (Spain) will provide approximately 2015: US$6/mmBTU US$1.7 billion in equity and the balance is long- It is obvious that the economic netback price at term senior secured debt, including US$400 the Camisea gas field will be substantially greater million from the Inter-American Development than the current field price for power generation Bank. With a total cost of US$3.8 billion, this is the of US$1.30 to US$1.39/mmBTU. largest foreign investment project in the country. Source: Authors. 18 The 2008 prices for thermal generators using Camisea gas set by OSINERGMIN are as follows (in US$/mmBTU): Ventanilla Santa Rosa Chilca Kalpa Price at Camisea 1.31 1.38 1.38 1.40 Transmission 0.74 0.74 0.74 0.74 Distribution (Chilca-Lima) 0.12 0.12 Total 2.17 2.24 2.11 2.14 19 URS, Study of Equipment Prices in the Engergy Sector, World Bank (2009). 19 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT costs over the past few years. Although most in 2008 is estimated at 5.6 UScents/kWh assessments of CCCT capital costs still use (column 2). costs at around US$600/kW, according to the new study, the completed cost for actual plants ranges from US$1,410/kW in the United States Economic Returns to Hydropower to US$1,140 to 1,170/kW in Eastern Europe and Development India.20 If the latter range is representative of Table 3.3 shows the small hydro projects for Peru, then Table 3.2 shows that at an economic which there are sufficient data to make estimates gas price of US$4/mmBTU, the total economic of economic and financial returns. Although the generation cost including capital recovery reliability of the energy estimates is uncertain, Table 3.2 Generation Costs for Combined Cycle Gas Turbine Plants in Peru Economic Gas Price Present Gas Price ($4/mmBTU) ($2.15/mmBTU) Capital Capital Cost 2006 Capital Cost Cost 2006 Capital Cost Estimate 2008* Estimate 2008* [1] [2] [3] [4] Fuel cost Plant heat rate kcal/kWh 1800.0 1800.0 1800.0 1800.0 Gas cost, coif Chilca/Kalpa $/mmBTU 4.0 4.0 2.15 2.15 BTU/kCal 3.968 3.968 3.968 3.968 $/kWh 0.029 0.029 0.015 0.015 Non-fuel operating cost O&M $/KW/year 22.0 22.0 22.0 22.0 Capital cost $/kW 600.0 1150.0 600.0 1150.0 Life [years] 20.0 20.0 20.0 20.0 Discount rate [] 10.00% 10.00% 10.00% 10.00% Annual cost $/KW/year 70.0 135.0 70.0 135.0 Total fixed costs $/KW/year 92.0 157.0 92.0 157.0 $/kW/month 7.7 13.1 7.7 13.1 Plant factor [] 0.65 0.65 0.65 0.65 Fixed costs [$/kWh] 0.016 0.028 0.016 0.028 Total cost [$/kWh] 0.045 0.056 0.032 0.043 Source: Authors’ calculations, 2008. (*) ESMAP Technical Paper 122/09: Study of Equipment Prices in the Power Sector, December 2009. http://www.esmap.org/esmap/sites/ esmap.org/files/TR122-09_GBL_Study_of_Equipment_Prices_in_the_Power_Sector.pdf 20 The costs (in US$) at January 2008 price levels are summarized as follows: United States India Romania Gas turbine combined cycle plant, 140 MW $1,410/kW $1,170/kW $1,140/kW Gas turbine simple cycle plant, 580 MW $860/kW $720/kW $710/kW 20 Economic and Financial Viability of Small Hydropower the average of the load factors is 67 percent. increases in the value of the index have been Estimates of capital costs also require great driven largely by the recent depreciation of the caution, for there are wide variations in the dollar against the euro and yen. Given that most published sources of data on these projects. small hydro equipment will be imported from For example, in Table 3.3, wh ose source is Europe rather than the United States, the impact MEM dated November 2007, the capital cost on E&M equipment costs may be greater still. estimate for the 5.66 MW Caña Brava project is There is similar concern regarding cost shown as US$6.05 million (or US$1,071/kW). escalation for civil works, with a number Yet the UNFCCC published CDM registration of anecdotal reports suggesting increases document shows a capital cost of US$1,600kW, significantly higher than the general rate of for a capital cost of US$9.04 million, a difference inflation. Estimates of recent construction cost of close to 50 percent.21 increases for larger hydro projects suggest some An additional source of uncertainty is the significant problems: for example, the 2006 cost impact of recent increases in inflation and the estimate for the 220 MW El Platanal project now extent to which the forecasts for the MUV under construction was US$170.3 million; the index,22 which may be used as a proxy for prices estimate at 2008 prices is US$217.4 million,23 in imported goods, really applies to imported an increase of 28 percent. For these reasons, the hydroelectric equipment. The sharp recent MEM capital cost estimates of Table 3.3 have Table 3.3 Small Hydro Projects Installed Capital $/kW Capacity Energy Load Cost $/kW Current (MW) (GWh) Factor (US$M) (MEM) Estimate Project Company [1] [2] [3] [4] [5] [6] Caña Cajamarca Duke Energy Brava Egenor 5.6 38.6 0.78 6.05 1,071 1,285 Poechos Puira SINERSA 15.4 60.0 0.44 16.9 1,097 1,317 Moche I&II La Libertad Electricidad Andina 20.6 100.2 0.56 16.7 811 975 Gratón Lima Electricidad Andina 5.0 27.7 0.63 5.4 1,080 1,284 El Sauce San Martin Electricidad Andina 9.5 39.6 0.48 11.7 1,232 1,487 Cerro Lambayeque Electricidad Mulato Andina 8.0 56.9 0.81 8.7 1,088 1,210 Camana ElectroPerú 3.0 23.0 0.88 8.0 2,667 3,200 Culqui ElectroPerú 20.0 133.0 0.76 54.0 2,700 3,240 Aricota III EGESUR 19.0 66.0 0.40 21.0 1,105 1,326 Source: Ministero de Energía y Minas (2007b). 21 Nor is it clear whether the costs in the 2007 MEM presentation consistently include or exclude VAT. For example, the Terucani cost in the MEM presentation is US$54.3 million. In the Terucani CDM cost presentation, the capital cost is given as US$50 million without VAT and US$52 million with VAT. These are presumably costs estimated in 2005 since the CDM project was approved in 2006. By contrast, in the case of Poechos, the US$16.9 million construction cost given in the 2007 MEM compilation is exactly the same as the corresponding CDM document—excluding VAT. 22 MUV index: Manufacturing unit value index. 23 From the Peru: Overcoming Barriers to Hydropower Study, 2010. 21 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT been escalated by 20 percent. The resulting responsible for building the line. With meters estimates in column 6 of this table are used in at the plant site, the transmission energy the following analysis. losses in the connecting line are paid by the The following additional assumptions are buyer. made for the economic analysis: • Global environmental benefits. The avoided carbon emissions are valued at US$15/ • Construction disbursement. A two-year tonCO2, with an emission factor of 0.57 kg/ construction period, with 50 percent kWh, based on the recently approved Caña disbursed in each year. Brava.24 • Own-consumption. 1.5 percent of gross generation. At realistic values of the opportunity cost • Transmission connection. These vary widely. of natural gas (US$4/mmBTU), and realistic Among examples the two extremes were a values of capital costs of CCCTs (US$1,150/ 1 km 66 kV to connect the first powerhouse of kW), resulting in an economic value of the planned Santa Cruz cascade and a 91 km gas generation of 5.6 US cents/kwh, four 138 kV for the Tarucani project costing US$10 projects have economic rates of return (ERRs) million. For the calculations, it is assumed substantially above the Sistema Nacional de that transmission costs are included in the Inversion Pública (SNIP) hurdle rate of 14 total investment cost. The developer is percent (Table 3.4). 25 Table 3.4 Small Hydro Projects ERRs and Gas Price Switching Values to Achieve 14 Percent SNIP Rate (excluding carbon benefits) Capacity ERR (At Gas Price For Factor Capital Cost $4/mmBTU) ERR = 14 percent (percent) ($/kW) (percent) ($/mmBTU) Result [1] [2] [3] [4] [5] Cerro Mulato 81% 1,210 26.0% <1.00 Caña Brava 78% 1,285 24.1% 1.00 Economic at present gas MocheI&II 56% 975 21.7% 1.60 price Gratón 63% 1,284 18.7% 2.20 Poechos 44% 1,317 12.7% 4.60 El Sauce 48% 1,487 11.3% 5.20 Aricota 40% 1,326 9.9% 6.00 Camana 88% 3,200 8.4% 6.80 Culqui 76% 3,240 5.8% 6.80 Source: Authors’ calculations, 2008. 24 The baseline emission factor for the 5.67 MW Caña Brava small hydro project is 0.56927 kg CO2/kWh (Caña Brava CDM Project Design Document). This emission factor is used in the illustrative calculations. 25 MEF´s Resolution dated August 2, 2007, defines the nominal social discount rate as the social discount rate (TSD) adjusted to inflation. The social discount rate is 11 percent and the nominal social discount rate is 14 percent. The economic assessment of this study was done using the nominal social discount rate of 14 percent. 22 Economic and Financial Viability of Small Hydropower Economic Return Taking emissions either over the ocean, or into the into Account Social Benefits even less sparsely populated mountain area to the east, rather than North into the Lima (PSOC, QSOC) metropolitan area), there is no evidence of In principle, the economic analysis should power sector emissions causing human health take into consideration not just the avoided damages or acid rain related consequences on global environmental damage costs, but also agriculture or buildings. Lima itself is suffering the avoided local environmental damage costs from increased air pollution problems, but these of the fossil-fuel generation that it displaces— are the result of automobile emissions, which and indeed in many countries—most notably are orders of magnitude greater than the power China—the damage costs from coal-fired plant emissions. In the absence of any evidence generation in particular are a major incentive of such damage costs from power generation in for renewable energy and small hydro projects. Peru, there are no grounds for including these However, in Peru most of the thermal in the economic analysis. generation is located in a sparsely populated area some 60 km south of Lima. Gas-based power generation has no significant particulate Economic Return Taking into or sulfur emissions, and only NOx emissions are Account Carbon Benefits (Pg, Qg) of major concern. With low population density Eight of 13 of Peru’s registered CDM projects, in the area, and the predominating weather as shown in Table 3.5, are hydro.26 The benefit of regime being land and sea breezes (blowing carbon finance on the economic return of small Table 3.5 Peru’s Energy Sector CDM Projects UNFCCC CDM Date Project Technology Reference # Withdrawn Paramonga CDM Bagasse Boiler Bagasse 70 23 Oct 05 Santa Rosa SHP 88 14 Nov 05 Poechos SHP 86 06 Sep 06 Tarucani I SHP 285 05 Mar 07 Huaycoloro Landfill Gas Capture and Combustion LFG 708 06 Apr 07 Quitaracsa I SHP 874 06 Jul 07 Peruvian Fuel-Switching Project Fuel Switching 1073 23 Sep 07 Palmas del Espino—Biogas Recovery and Heat Generation From Palm Oil Mill Effluent (POME) Ponds, Peru Biogas 1249 30 Nov 07 Ancon—EcoMethane Landfill Gas LFG 1104 04 Jan 08 Rehabilitation of the Callahuanca Hydroelectric Power Station SHP 1245 08 Feb 08 Caña Brava Hydroelectric Power Plant SHP 1444 Requesting Registration Carhuaquero IV Hydroelectric Power Plant SHP 1424 Requesting Registration La Virgen Hydroelectric Plant SHP 1445 Source: UNFCCC, 2008. 26 By comparison, Bolivia has three registered energy sector CDM projects (of which one is SHP); Ecuador 11 (of which 5 are SHP) 23 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT hydro projects depends on the carbon price. The at carbon prices of US$5–7/ton CO2. But prices first small hydro project in Peru to obtain carbon are rising: A CDM aggregation project for small finance was Santa Rosa, which achieved a carbon hydro projects currently under negotiation in price of US$5/ton: the Poechos project expects Vietnam has been offered a US$10/ton price for 4.1 euros/ton (US$6.47/ton) for CER purchases. The CERs by the World Bank carbon finance unit. Tarucani and Quitaracsa projects (which are larger Obviously, including carbon benefits has hydro projects of 49 MW and 115 MW, respectively) a positive effect on the economic return of the have been registered under CDM, and expect to hydro projects under consideration (using the get US$15/ton from a European thermal plant economic netback gas price). At US$15 per ton of company that needs the carbon offsets. CERs, ERRs increase between 2.5 and 5 percent By far, the largest volume of carbon is traded and only three of the nine projects fail to meet in the European Emissions Trading Scheme with the 14 percent SNIP hurdle rate (Table 3.6). €24 billion (US$30 billion) traded in 2006, up from €8billion (US$10 billion) in 2005. However, the prices have been volatile, in 2006 ranging from Financial Viability of Small €15/ton (US$23.7/ton) to €30/ton (US$47.3/ton) CO2, and with spot prices recently down to as Hydropower Projects little as €1/ton (US$1.6/ton) (Figure 3.2). In an This Chapter begins by assessing the financial apparent effort to avoid a collapse of the carbon viability of small hydro projects under the current market, in October 2007 the Commission has set tariff conditions, with an average tariff yield of an EU-wide CO2 cap of 2.08 billion tones for 2008 3.5 US cents/kWh, which would be the purchase to 2012, giving member states 10 percent less CO2 price of bulk power under a power purchase allowances than requested: this is expected to agreement (PPA) with a distributor selling to bring the price back into the €20 to 25/ton range. consumers in the regulated market under the Carbon prices in the funds administered prices set by OSINERGMIN. This price is based by the World Bank (such as the Community on the low price of natural gas. The subsequent Development Carbon Fund used by the Santa sensitivity analysis assesses the tariff needed to Rosa project) have seen much lower, but also make small hydro projects financially viable. more stable prices: typical CDM and carbon fund Even though in reality small hydro financing transactions over the past few years have been in Peru has always been based on recourse to the Figure 3.2 Carbon Prices in the European Trading Scheme Source: World Bank (2007a). 24 Economic and Financial Viability of Small Hydropower Table 3.6 Small Hydro Projects ERRs Including Carbon Benefits at US$15/ton Installed Capacity ERR (at ERR Including Capacity Factor Capital Cost $4/mmBTU) GHG Benefit GHG Benefit Project (MW) (percent) ($/kW) (percent) (percent) (percent) [1] [2] [3] [4] [5] [6] Cerro Mulato 8.6 81% 1,210 26.0 4.3 30.2 Caña Brava 5.7 78% 1,285 24.1 4.0 28.1 MocheI&II 20.6 56% 975 21.7 3.9 25.5 Gratón 5.0 63% 1,284 18.7 3.5 22.2 Poechos 15.4 44% 1,317 12.7 2.8 15.5 El Sauce 9.4 48% 1,487 11.3 2.8 14.2 Aricota 19.0 40% 1,326 9.9 2.8 12.7 Camana 3.0 88% 3,200 8.4 2.7 11.1 Culqui 20.0 76% 3,240 5.8 2.7 8.5 Source: Authors’ calculations, 2008. corporate sponsor (or has required 100 percent • Corporate tax. The standard rate is 30 percent, collateral), the following analysis reflects the as there are no holidays or reduced rates. There structure as might be typical in a nonrecourse are tax concessions in Loreto (Amazon region) project financing. This reflects the cash flow for all projects, not just power projects, but this analysis that would be prepared by a project requires a corporate office in Loreto to qualify. sponsor even if the actual financing deal was • Depreciation. This is specified in Table 3.15 based on corporate guarantees.27 for a conventional financing. All calculations are at nominal prices, with • VAT. Assumed at the standard rate since O&M rates escalated at the rate of inflation. small hydro construction periods are The nominal net cash flows are then adjusted less than 4 years. The impact of leasing for inflation to derive the cash flows at constant that incorporates immediate recovery is 2008 price levels to calculate the real FIRR. The examined in the sensitivity analysis below. following additional baseline assumptions are • Regulation fee. 1 percent of sales revenue, 0.6 used for this analysis: percent to OSINERGMIN, 0.4 percent to MEM. • Own-consumption. 1.5 percent of gross • Construction disbursement. Equity generation. contributions in construction are pari passu • Carbon price. No carbon credits are assumed with debt. in the baseline. The impact of carbon finance • Debt terms. 10 years, 2 years grace, IDC on financial returns is assessed later in this capitalized, interest = 6.3 percent +2 percent Chapter. spread for assumed primate corporate • Inflation. Set at the current inflation target of sponsor +1.5 percent project spread = 9.8 the Central Bank of Peru at 2 percent.28 percent. Debt repayments as an annuity. • Tariff. US cents 3.5/kWh. • Debt-to-equity ratio. 70:30. • Project life. 20 years. 27 A large mining corporation could finance a small project on the basis of a lease deal, with a cash flow that would look quite different. 28 Central Bank of Peru (2008). 25 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Financial Returns assumptions about the capital cost of CCGTs, Financial Return at Current (Subsidized) and the economic cost of gas (US$4/mmBTU), Price of Gas then Table 3.2, (Column 2) shows an estimated At the current financial gas price of US$2.15/ cost of PECON at 5.6 UScents/kWh. Table 3.8, mmBTU (cif Lima), the average revenue yield compares the FIRR at this market based gas for generation is taken as 3.5 US cents/kWh, price (PECON) with that for the actual low price with the results for financial returns (FIRR) as shown in Table 3.7. As expected, the top four shown in Table 3.7. The Table 3.7 also shows projects are now financially viable, but not the the natural gas price necessary to make a given remaining projects. project financially viable, taken here as meeting a The standard calculation of FIRR is to the 17.5 percent return on equity. None are financially assumed end of the economic life of the project— viable at the present gas price, but four projects taken here at 20 years. For example, the Gratón would be so at market based gas price of US$4/ project has a nominal FIRR of 18.2 percent. But mmBTU. The remaining projects require gas price this is the value attained only in year 2030—as valuations in excess of US$8/mmBTU to be viable shown in Figure 3.3, the payback period is 8 under the financing assumptions noted. years, and even after 10 years, the FIRR is only 10 percent. These are long investment horizons. Financial Viability Based on the Economic It therefore comes as no surprise that many (Unsubsidized) Cost of Gas investors appear to have little interest in hydro A rational tariff for small hydro should be based generation, and that the only real interest in on the avoided costs of thermal generation (in developing the larger hydro projects comes Figure 3.1, PECON if not PSOC). Using realistic from Peruvian mining and industrial companies Table 3.7 Financial Returns of Small Hydro Projects (At the current low gas price and without carbon revenues) Required Tariff for Gas Price FIRR = Installed Capacity Capital FIRR- at FIRR = 17.5 percent Capacity Factor Cost nominal 17.5 percent (UScents/ (MW) (percent) ($/kW) (percent) ($/mmBTU) kWh) Cerro Mulato 8.6 81% 1,210 11.1% 3.5 4.1 Viable at Caña Brava 5.7 78% 1,285 9.8% 3.8 4.3 tariff of 5.6 Moche I&II 20.6 56% 975 6.6% 4.5 4.8 US cents/ kWh Gratón 5.0 63% 1,284 4.0% 5.4 5.5 Poechos 15.4 44% 1,317 –0.8% 8.4 7.5 El Sauce 9.4 48% 1,487 –2.8% >8.0 7.6 Aricota 19.0 40% 1,326 –4.5% >8.0 7.6 Camana 3.0 88% 3,200 –6.1% >8.0 7.6 Culqui 20.0 76% 3,240 –8.7% >8.0 >8.0 Source: Authors’ calculations, 2008. 26 Economic and Financial Viability of Small Hydropower Table 3.8 Financial Returns of Small Hydro Projects (without Carbon Revenues) FIRR- FIRR Present Market Based Gas Price Gas Price Installed Capacity Capital (3.5 UScents (5.6 UScents Capacity Factor Cost /kWh) /kWh) (MW) (percent) ($/kW) (percent) (percent) Cerro Mulato 8.6 81% 1,210 11.1% 30.7% Caña Brava 5.7 78% 1,285 9.8% 27.2% Moche I&II 20.6 56% 975 6.6% 23.0% Gratón 5.0 63% 1,284 4.0% 18.2% Poechos 15.4 44% 1,317 –0.8% 9.3% El Sauce 9.4 48% 1,487 –2.8% 7.5% Aricota 19.0 40% 1,326 –4.5% 5.6% Camana 3.0 88% 3,200 –6.1% 3.6% Culqui 20.0 76% 3,240 –8.7% 0.4% Source: Authors’ calculations, 2008. Figure 3.3 FIRR versus Time Source: Authors’ calculations, 2008. with a long-term view of the development of the the 15 to 20 percent range, and the likely terms Peruvian economy. and conditions of financing, what combinations of load factors and capital results are viable at Sensitivity Analysis different levels of tariff? The previous analysis looked at a number of Table 3.9 shows the tariff required to achieve individual projects. The basic question for a 17.5 percent FIRR, as a function of load factor evaluating the financial viability of small hydro and capital cost. Conditions below the bottom potential is the following: Given the minimum left staircase are combinations of load factor expectations of financial returns to equity in and capital cost that are feasible at the current 27 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 3.9 Tariff Required as a Function of Load Factor and Capital Cost (UScents/kWh) Capital Cost ($/kW) Load Factor 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 35% 7.2 7.9 8.6 9.3 10.0 10.7 11.4 12.1 12.9 13.6 14.3 15.0 40% 6.3 6.9 7.6 8.2 8.8 9.4 10.0 10.6 11.2 11.9 12.5 13.1 45% 5.6 6.2 6.7 7.3 7.8 8.4 8.9 9.4 10.0 10.5 11.1 11.6 50% 5.1 5.6 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 55% 4.6 5.0 5.5 5.9 6.4 6.8 7.3 7.7 8.2 8.6 9.1 9.5 60% 4.2 4.6 5.0 5.4 5.9 6.3 6.7 7.1 7.5 7.9 8.3 8.7 65% 3.9 4.3 4.6 5.0 5.4 5.8 6.2 6.5 6.9 7.3 7.7 8.1 70% 3.6 4.0 4.3 4.7 5.0 5.4 5.7 6.1 6.4 6.8 7.1 7.5 75% 3.4 3.7 4.0 4.4 4.7 5.0 5.3 5.7 6.0 6.3 6.7 7.0 80% 3.2 3.5 3.8 4.1 4.4 4.7 5.0 5.3 5.6 5.9 6.2 6.5 85% 3.0 3.3 3.6 3.8 4.1 4.4 4.7 5.0 5.3 5.6 5.9 6.2 90% 2.8 3.1 3.4 3.6 3.9 4.2 4.5 4.7 5.0 5.3 5.5 5.8 Source: Authors’ calculations, 2008. tariff of 3.5 UScents/kWh. The entries in bold, and a load factor of 55 percent, the difference between the first and second staircase, represent between a 10-year and a 15-year tenor is an the increased range of combinations that become increase from 14.6 percent to 18 percent: a feasible at the estimated economic avoided further extension to 20 years raises the FIRR cost of gas generation—rounded to 6 UScents/ to 20.9 percent. This is the reason that many kWh. Finally, the shaded area represents the countries have domestically or internationally combinations that would require a tariff higher financed programs that assist investors in than 6 UScents/kWh. renewable energy, including small hydropower, While the economically justified price to obtain long-term financing. It is normally requires more precise analysis, it can be seen difficult for sponsors of small projects to access that projects with load factors in the range of such financing without such assistance. A 60 to 65 percent would be financially viable refinancing program that extended tenors from at capital costs up to US$1,300–1,400/kW. At 10 to 15 or 20 years would make a significant capacity factors of 70 to 75 percent, capital costs difference to financing feasibility. could increase to US$1,500 to US$1,600/kW. This As shown in Figure 3.5, whether financed as an indicates that a considerable number of projects annuity, or with constant principal repayments, could be developed, if small hydropower were DSCRs in the early years are significantly better to receive a price equivalent to the economical with the longer loan maturities.29 avoided cost of thermal generation. Longer loan tenors also extend the feasible range of capital costs and load factors, as shown The Importance of Loan Tenors in Table 3.10. Extension of tenor by 5 years Loan tenors have significant effect on FIRR (from 10 to 15 years) is equivalent to a 5 percent (Figure 3.4). In the example shown, for a generic increase in load factor, or an increase in the project with capital costs of US$1,000/kW, allowable capital cost by about US$100/kW. 29 However, when financed as an annuity, DSCRs fall over time (because under the assumptions made here of a constant tariff but O&M costs increasing over time (as a result of inflation), net revenue decreases over time, and hence DSCR falls. By contrast, under constant principal repayments, DSCR improves over time, because the reduction in interest payable as principal is paid off more than offsets the effect of inflation on O&M costs. 28 Economic and Financial Viability of Small Hydropower Figure 3.4 FIRR and Loan Tenor Source: Authors’ calculations, 2008. Figure 3.5 Impact of Loan Tenor on DSCR 2.4 15 year 2.2 2 1.8 DSCR 1.6 10 year 15 year [annuity] 1.4 1.2 10 year [annuity] 1 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Authors Estimates, 2008. Impact of Carbon Finance on Financial sot of generation at market based price of natural Viability gas. Both Cerro Multato and Caña Brava have Table 3.11 shows the impact of carbon finance on FIRRs in the feasible range with carbon finance. the nine hydro projects examined previously. The The impact of carbon finance can be more impact of carbon finance on financial viability is systematically assessed by analyzing the range very significant. At typical load factors of 50 to 80 of load factor/capital cost combinations that percent, carbon finance can add 1.5 to 7 percent are feasible with carbon finance, as shown in to the project FIRR, using the avoided economic Table 3.12. Again, the shaded cells show the 29 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 3.10 Impact of Loan Extension to 15 Years on Feasible Combinations of Capital Costs and Load Factors Capital Cost ($/kW) Load Factor 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 35% 6.7 7.4 8.0 8.7 9.3 10.0 10.6 11.2 11.9 12.5 13.2 13.8 40% 5.9 6.4 7.0 7.6 8.1 8.7 9.3 9.8 10.4 11.0 11.5 12.1 45% 5.2 5.7 6.2 6.7 7.2 7.7 8.2 8.7 9.3 9.8 10.3 10.8 50% 4.7 5.2 5.6 6.1 6.5 7.0 7.4 7.9 8.3 8.8 9.2 9.7 55% 4.3 4.7 5.1 5.5 5.9 6.3 6.7 7.2 7.6 8.0 8.4 8.8 60% 3.9 4.3 4.7 5.1 5.4 5.8 6.2 6.6 6.9 7.3 7.7 8.1 65% 3.6 4.0 4.3 4.7 5.0 5.4 5.7 6.1 6.4 6.8 7.1 7.4 70% 3.4 3.7 4.0 4.3 4.7 5.0 5.3 5.6 5.9 6.3 6.6 6.9 75% 3.1 3.4 3.7 4.0 4.3 4.6 4.9 5.2 5.6 5.9 6.2 6.5 80% 2.9 3.2 3.5 3.8 4.1 4.4 4.6 4.9 5.2 5.5 5.8 6.1 85% 2.8 3.0 3.3 3.6 3.8 4.1 4.4 4.6 4.9 5.2 5.4 5.7 90% 2.6 2.9 3.1 3.4 3.6 3.9 4.1 4.4 4.6 4.9 5.1 5.4 Source: Authors’ calculations, 2008. Table 3.11 Impact of Carbon Finance at US$15/ton CO2 on Project Financial Viability (Gas Price of US$4/mmBTU) Installed FIRR (with Capacity Load Carbon Change in MW Factor $/kW FIRR Finance) FIRR Cerro Mulato 8.6 81% 1,210 30.7% 37.6% 6.9% Caña Brava 5.7 78% 1,285 27.2% 33.3% 6.1% MocheI&II 20.6 56% 975 23.0% 28.5% 5.5% Gratón 5.0 63% 1,284 18.2% 22.5% 4.3% Poechos 15.4 44% 1,317 9.3% 11.5% 2.2% El Sauce 9.4 48% 1,487 7.5% 9.6% 2.0% Aricota 19.0 40% 1,326 5.6% 7.4% 1.8% Camana 3.0 88% 3,200 3.6% 5.3% 1.6% Culqui 20.0 76% 3,240 0.4% 1.8% 1.4% Source: Authors’ calculations, 2008. combinations that become feasible at this level capital costs of US$1,500 to US$1,600 would of carbon finance. Carbon finance at US$15/ton become feasible. considerably extends the range of potential costs When combined with extension of loan tenor and load factors that become feasible: At this from 10 to 15 years, the range of feasible projects value of carbon, any given tariff extends the load expands further, as shown in Table 3.13. factor by about 10 percent, or the capital cost by Carbon finance has already played a role in the US$100/kW. At load factors of 65 to 70 percent, development of larger hydropower projects. The 30 Economic and Financial Viability of Small Hydropower Table 3.12 Impact of Carbon Finance on Feasible Combinations of Capital Costs and Load Factors (UScents/kWh) Capital Cost ($/kW) Load Factor 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 35% 6.6 7.3 8.0 8.7 9.4 10.1 10.8 11.5 12.2 12.9 13.6 14.3 40% 5.7 6.3 6.9 7.5 8.2 8.8 9.4 10.0 10.6 11.2 11.8 12.5 45% 5.0 5.5 6.1 6.6 7.2 7.7 8.3 8.8 9.4 9.9 10.5 11.0 50% 4.4 4.9 5.4 5.9 6.4 6.9 7.4 7.9 8.4 8.9 9.4 9.8 55% 4.0 4.4 4.9 5.3 5.8 6.2 6.7 7.1 7.5 8.0 8.4 8.9 60% 3.6 4.0 4.4 4.8 5.2 5.6 6.0 6.5 6.9 7.3 7.7 8.1 65% 3.3 3.6 4.0 4.4 4.8 5.2 5.5 5.9 6.3 6.7 7.0 7.4 70% 3.0 3.3 3.7 4.0 4.4 4.7 5.1 5.4 5.8 6.1 6.5 6.9 75% 2.7 3.1 3.4 3.7 4.1 4.4 4.7 5.0 5.4 5.7 6.0 6.4 80% 2.5 2.8 3.1 3.5 3.8 4.1 4.4 4.7 5.0 5.3 5.6 5.9 85% 2.3 2.6 2.9 3.2 3.5 3.8 4.1 4.4 4.7 5.0 5.2 5.5 90% 2.2 2.5 2.7 3.0 3.3 3.5 3.8 4.1 4.4 4.6 4.9 5.2 Source: Authors’ calculations, 2008. Table 3.13 Impact of Carbon Finance plus Loan Tenor Extension to 15 Years on Financial Viability (UScents/kWh) Capital Cost ($/kW) Load Factor 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 35% 6.1 6.7 7.4 8.0 8.7 9.3 10.0 10.6 11.3 11.9 12.6 13.2 40% 5.3 5.8 6.4 7.0 7.5 8.1 8.6 9.2 9.8 10.3 10.9 11.5 45% 4.6 5.1 5.6 6.1 6.6 7.1 7.6 8.1 8.6 9.1 9.6 10.1 50% 4.1 4.5 5.0 5.4 5.9 6.3 6.8 7.2 7.7 8.1 8.6 9.1 55% 3.6 4.1 4.5 4.9 5.3 5.7 6.1 6.5 6.9 7.4 7.8 8.2 60% 3.3 3.7 4.0 4.4 4.8 5.2 5.6 5.9 6.3 6.7 7.1 7.4 65% 3.0 3.3 3.7 4.0 4.4 4.7 5.1 5.4 5.8 6.1 6.5 6.8 70% 2.7 3.1 3.4 3.7 4.0 4.4 4.7 5.0 5.3 5.6 6.0 6.3 75% 2.5 2.8 3.1 3.4 3.7 4.0 4.3 4.6 4.9 5.2 5.5 5.8 80% 2.3 2.6 2.9 3.2 3.4 3.7 4.0 4.3 4.6 4.9 5.1 5.4 85% 2.1 2.4 2.7 2.9 3.2 3.5 3.7 4.0 4.3 4.5 4.8 5.1 90% 2.0 2.2 2.5 2.7 3.0 3.2 3.5 3.7 4.0 4.3 4.5 4.8 Source: Authors’ calculations, 2008. Quitarasca project company was recently bought Potential Corporate Investors in by a large mining group for whom the sale of Small to Medium-sized Hydropower CERs made the difference between a project that without the carbon revenues would not have met Table 3.14 lists small hydro projects (20 MW the necessary hurdle rate, and one that is now in or less) currently underway in Peru. Most active development (with tenders now underway). sponsors are small companies, established by 31 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 3.14 Hydro Projects Smaller than 20 MW Capacity No. Name Status Project Sponsor Type Dept. (MW) 1 Pátapo Auth Generación Taymi S.R.L. small Lambayeque 1.0 company 2 Camana study Plan Maestro small Arequipa 2.8 company 3 San Diego Auth Duke Energy Egenor S. En large Ancash 3.2 C. Por A. company 4 Roncador Auth Agroindustrias Maja Sac large Lima 3.8 company 5 Gratón Auth Siif Andina S.A. small Lima 5.0 company 6 Caña Brava Auth Duke Energy Egenor S. En large Cajamarca 5.7 C. Por A. company 7 Shali Auth Abr Ingenieros Sac small Lima 9.0 company 8 La Joya Auth Generadora de Energía del small Arequipa 9.6 Perú S.A. company 9 Ispana- Auth Inversiones Productivas small Arequipa 9.6 Huaca Arequipa Sac company 10 Carhuaquero Auth Duke Energy Egenor S. En large Cajamarca 9.7 IV C. Por A. company 11 Poechos Def Sindicato Energético S.A.— small Piura 10.0 Sinersa company 12 Pías I Def Aguas y Energía Perú S.A. small La Libertad 11.0 company 13 Pías II Temp Aguas y Energía Perú S.A. small La Libertad 16.0 company 14 Quiroz- Temp Junta de Usuarios del cooperative Piura 18.0 Vilcazán Distrito de Riego San Lorenzo 15 Aricota III study Empresa de Generación small Tacna 19.0 del Sur—Egesur company 16 Culqui study Electroperú S.A. distr. company Piura 20.0 Source: Annex 2. Notes: Def Difinitive concession Temp temporary concession for studies Auth projects with Authorization Study projects with no concession or authorization small entrepreneurs to exploit small hydro. raise the sort of guarantees required by Peruvian Needless to say, with most development rights banks. This inevitably raises the usual issues of in the hands of such small companies, project control, and the valuation of “sweat equity”— financing under such terms poses a formidable the costs invested by the promoters to obtain obstacle to large-scale development. Typically, the water rights and conduct the initial studies. these companies have little financial strength, One recent small hydro project in Peru, the and must find more capable equity partners to 1.5 MW Santa Rosa I Project, commissioned in 32 Economic and Financial Viability of Small Hydropower August 2004, is sponsored by Eléctrica Santa projects. Nevertheless, these funds still account Rosa, a special-purpose company created by for several hundred million dollars. five private investors to identify, build, and The concentration in the stock market is a operate hydro power plants. Santa Rosa II simple consequence of the spectacular returns (1.5 MW) has been added since (see Box 2.2). achieved there over the past few years. However, The most important point about this project ProFuturo recognizes that the present yields are from the perspective of project financing is not sustainable over the long run, and therefore that the first phase required 100 percent cash has appetite for placing its growing assets in collateral, making this in effect a project with investment funds. 100 percent equity.30 Upon completion of Santa Until the end of 2005, ProFuturo offered its Rosa II (the second stage), the debt-to-equity customers only one type of portfolio, but now it ratio of the company was improved to 33:67, and offers three: a “conservative” portfolio consisting upon completion of Santa Rosa III, it is expected of 90 percent fixed income and 10 percent that this ratio could increase up to 63:37. These equity; a “balanced” portfolio of 55 percent are relatively small percentages of debt by fixed income and 45 percent equity; and an international standards, the reasons for which “aggressive” portfolio of 20 percent fixed income are discussed in the next Chapter. and 80 percent equity. Customer demand for the aggressive portfolio has been growing especially fast, and ProFuturo needs to look at more ways Pension Funds of finding good equity investments. ProFuturo In the past few years, a number of potential has invested in six private investment funds in sources of equity have emerged, notably the local market: Peruvian asset funds, a significant proportion of which are funded by Peru’s fast-growing 1. Operating and leasing, US$50 million private pension funds. Other Latin American managed by SIGMA. countries are also seeing interest from equity 2. Two real estate funds, managed by AC funds established expressly for investment in Capitales, US$25 million. renewable energy projects.31 3. Infrastructure fund, US$50 million, managed This assessment of the potential availability by AC Capitales. of small hydro equity investment from pension 4. Agro-industrial fund, US$50 million funds is based on discussions with ProFuturo, managed by AC Capitales (just starting). the largest of the four big private pension 5. Private equity, US$50 million, managed by funds in Peru, which together manage some ENFOCA. US$20 billion. ProFuturo has no project finance 6. Venture capital, US$15 million, managed by capability, and therefore entrusts its investment SEAF. funds to specialist asset management firms (such as AC Capitales). At present, 55 percent of its Two more funds are in the process of overall portfolio is in fixed income securities, 45 being established, each at US$50 million. percent in equity. Of the equity portion, 5 percent Management fees are 1 to 2 percent of assets is invested internationally and 40 percent in under management. ProFuturo is looking for Peru. In turn, of that 40 percent, 39.5 percent has 15 to 20 percent returns from its infrastructure been invested directly in the stock market, and investment fund. ProFuturo would be, in only 0.5 percent in investment funds that are principle, interested in mezzanine financing, but the potential providers of equity to small hydro would not want to take a controlling interest in 30 This is the first hydro project in Peru to secure carbon finance, from the World Bank managed Community Development Carbon Fund. Box 2 describes this project in further detail. 31 See Chapter 6 for details of the Brazilian PROINFA program. 33 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT any venture, and in any event would take no Developers expressed doubts that Peruvian more than a 49 percent interest in any special banks would take into account carbon revenues. project vehicle. However, there are now several European banks that offer project financing under which some Asset Funds fraction of carbon revenues are directly pledged to the lending bank. Even more interesting from AC Capitales is one of Peru’s major asset fund the perspective of raising equity, it was reported managers. Four of the six investment funds in that some banks are apparently prepared to the market are managed by AC Capitales. The put up as much as 70 percent of the NPV of firm’s investment mandate for the infrastructure the carbon revenue stream as collateral, which fund allows the inclusion in their portfolio of in turn enables the developer to offer this as a small hydro projects, even greenfield projects, contribution to equity. since unlike some other private equity and venture capital funds, they expect returns as dividends, rather than the capital gains of an Availability of Financing for Small early exit strategy. to Medium-sized Hydropower The US$50 million infrastructure fund was The availability of financing is closely related to launched in 2004 with a three-year horizon. the type of financing. For corporate balance sheet With US$40 million already subscribed, this financing, the best clients (i.e., large companies) fund is being enlarged to US$100 million, and get corporate prime rate no matter what kind its horizon extended to five years. The firm of project, and small hydro projects for which has seen a number of proposals from small major companies are willing to provide balance hydro developers.However, they expressed the sheet guarantees will encounter few difficulties view that most had unreasonable expectations in finding finance in the present situation of high about the value of the development rights and banking liquidity. whatever studies had been done to date. Few The difficulties arise for project financing. developers had sufficient equity of their own Even where sponsors are deemed to be reputable to contribute, and AC Capitales expressed and with strong balance sheets, when these considerable skepticism about valuation companies create special-purpose entities for methodologies proposed by developers. 32 power projects, the banks insist on recourse back Requests to fund feasibility studies had also to the sponsors to at least project completion. been rejected. To date, the fund has invested Indeed, since the late 1990s, Peru has seen only in nine equity projects (none small hydro), of few examples of nonrecourse project financing which seven were operating assets, and only for even large-scale infrastructure projects: two greenfield projects. Of the two greenfield projects, one was an urban infrastructure project • Kalpa, a US$60 million, 170 MW open cycle with an EPC, the other in an oil and gas venture generation project (sponsored by Globeleq),33 with an internationally renowned contractor. financed by Banco de Crédito del Perú and For operating assets, 15 percent return is sought. Citibank. For greenfield projects, returns in the high end • In 2005, a gold field mining project. of the 15 to 20 percent range would normally • In 1999, a transmission project sponsored by be sought. However, the fund managers noted Hydro Quebec (80:20 debt equity). that they did not see higher IRRs as mitigating • Two other transmission projects (national completion risk. grid). 32 One such methodology is to value the developer’s contributed equity as the present value of the difference between the projected revenue stream and what was necessary to give the fund a 15 percent return. 33 Globeleq is owned by CDC (Commonwealth Development Corporation of the UK). The Latin American operating power businesses, including Kalpa, were sold in May 2007 to a consortium of D.C.Constructions Ltd. of India and Israel Corporation Limited for US$542 million. 34 Economic and Financial Viability of Small Hydropower The banks have seen very few small hydro Loan Maturities projects over the past few years, typically no The increasing length of loan maturities reflects the more than one or two per year. Among the banks increasing access of the Peruvian banking sector to interviewed, there was a general consensus that global capital markets. The first 10-year financing most of the small hydro proposals they had seen was in 2005, considered a landmark. At present, were from developers who had concession rights unlike elsewhere in the world, there is no shortage were judged to have inadequate experience of liquidity in Peru. The yield curve is relatively to construct and operate the projects being flat, with the difference between government proposed, and had little financial strength. 10-year and 30-year bond only 50 basis points Moreover, in the view of the banks and some (6.3 percent and 6.8 percent, respectively). Spreads of the fund managers, many developers have on LIBOR financing are 150bp on 5-year, 300-325bp unrealistic expectations about the value of their on 10-year (Figure 3.6). development rights. Many developers propose Longer maturities would more likely be valuations of their contributions (development available to strong corporate clients for balance rights, preparatory studies) that are an order sheet financing. One bank expressed the view of magnitude greater than valuations seen as that a 12-year financing at an interest rate based reasonable.34 on the government yield curve, plus 200 basis The combination of generally weak sponsors points for normal commercial lending plus an with unrealistic expectations and skeptical additional 150 basis points for a project financing bankers is one of the main reasons why would be feasible in the current climate of good small hydro development is encountering the liquidity, given a small hydro project with difficulties. The other main reason, discussed completion guarantees provided by a reputable in more detail in the next Chapter, is that of EPC. However, there has been no such experience low off-take price: prices in both regulated and with project finance for small hydropower, and unregulated markets are set by a gas price that is no examples of such lending exist. As already substantially below levels encountered in most noted, project financing is generally difficult to other countries. obtain and the debt-to-equity ratios required Thus, in the view of the bankers, the interest by Peruvian banks for such projects are high by of larger companies is in thermal projects that are international standards. less capital intensive and offer shorter payback periods than small, or even large, hydro. Figure 3.6 Yield Curve: Dollars and Nuevos Soles 7.00 6.65 6.30 5.95 Global Sovereign 5.60 5.25 4.90 0 3 5 8 10 13 15 18 20 23 25 28 30 Average Life Source: Peru Ministry of Economy and Finance: Daily Report, Sept. 11, 2007. 34 The bankers have seen proposed valuations of developer’s equity “in the millions” when “a few hundred thousands” would be more reasonable. 35 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Risk Factors and Their Mitigation combined cycle generation over the short and Small hydro projects are subject to the following medium term. risks, which shape the perceptions of lenders to However, the PPA coverage requirement potential project financings: varies across the banks (and across generation technologies). One bank had different • Price risk (less than expected revenue where requirements for thermal and hydro projects: off-take is at market price). thermal projects require 75 to 100 percent PPA • Completion risk (including risks of delay due coverage, while hydro projects might be 50 litigation during construction, cost overruns, percent or even zero: a reflection of the very high delays due to geotechnical problems). probability of hydro projects being dispatched, • Hydrology risk (less than expected electricity and receiving the system marginal price on the generation due to lack of water). spot market (see Box 3.2 for an explanation of the • Operational risk (inability to operate functioning of the spot market). Another bank because of mechanical failures or operational looks for 50 percent PPA coverage from small problems at the plant). hydro projects. • Off-take risk (failure of the buyer to take power due for reasons of dispatch, Completion Risk transmission congestion, or transmission This is the major concern of lenders. The banks line failure). see the involvement of reputable EPCs as the appropriate mitigation for completion risk. But Price Risk the difficulty is that the completion guarantees Banks in Peru do not see price risk as a as may be provided by EPCs come at a high major problem for hydro projects. The pricing cost: indeed, even aside from guarantees, mechanism is well understood, and the risk is the participation of the EPC is costly to the easily mitigated by requirements for a certain developer, some of whom expressed the view portion of output to be covered by a PPA with that this could add 20–30 percent to the cost of large users or distribution companies. One bank projects (which, given the low off-take price, uses outside consultants to provide projections make projects uneconomic). of future market prices, which, as explained Even when large corporate sponsors set in Chapter 5, are likely to be set by gas-fired up special-purpose entities (as in the case of Box 3.2 The Peruvian “Spot” Market Spot market is something of a misnomer. In fact, • Uncontracted generators who are so-dispatched the procedure is more like a classic power pool, receive the observed system marginal cost, and as follows: transactions among the parties are equalized monthly in classic power pool fashion. • COES, the system operator, dispatches on the • Special rules apply to transmission congestion basis of “audited” variable costs, which are conditions, but these, in OSINERGMIN’s view, submitted monthly by the generators (except that were rare. gas generators may provide a yearly price). The marginal cost is therefore simply the cost of the This procedure makes it likely that small hydro most expensive unit in the system. will be dispatched at all times largely mitigating • Generators submit a single average value of any off-take risk because uncontracted power will variable cost, rather than in the form of curves invariably be taken at the system marginal cost. as in some other countries. Source: Authors’ recollection based on interviews with OSINERGMIN, • Small and large hydropower is therefore 2008. assured of being dispatched. 36 Economic and Financial Viability of Small Hydropower the Plantanal 220 MW project sponsored by finance without the participation of reputable Cementos Lima, that was done without an EPC, turnkey EPCs. Indeed, the first successful small instead using an in-house engineering arm), hydro development in Peru, the 1.5 MW Santa banks look to the sponsors at least to completion. Rosa project, required 100 percent equity. Special However, the Kalpa project was judged to have a deals with mining companies have been used strong EPC, and was done as a nonrecourse deal. in some cases, but such circumstances apply The lack of certainty in water rights was cited only to a small fraction of the total number of as one of the completion issues, arguably more potential projects. of a concern than geotechnical or engineering risk.35 Several projects have been delayed by late Hydrology Risk interventions by NGOs and local communities, Neither the banks nor developers seemed disputing the decisions made by the central concerned with hydrology risk. Yet the one bank government. There seemed general agreement that mentioned this risk had not in fact reviewed that a new Water Rights act is required, which any greenfield hydro sites, and stated that it needs to clarify the jurisdiction of the various would engage a local consultant to do a review entities of government. of the hydrology assumptions. Another bank It is unclear whether this concern is justified noted that if an otherwise sound small hydro in the case of small hydro projects. Interventions project ran into financial difficulties consequent by local communities and NGOs tend to arise to cash flow problems attributable to several in large projects sponsored by big corporations consecutive dry years, then such a project could seen as insensitive to local concerns. Small hydro simply be refinanced. projects, by contrast, are rarely of a scale for which substantive questions about water use Operational Risk should arise, especially given the fact that they Banks rightly see this risk as low. For thermal are generally run-of-river with no (or negligible) projects, manufacturers of gas turbines offer very consumptive use, and little disturb the extant high availability guarantees, and hydro turbines flow regime. and generators are perceived correctly as being Indeed, much the same can be said of the of high reliability. general perception of small hydro projects that Chinese turbine-generator equipment is are shaped by the problems that arise from time being offered in Peru at prices that are typically to time with large hydro projects. Worldwide 70 percent of the established European suppliers it can be said that small hydro developments such as Alsthom. The lower prices come at the very rarely encounter the sort of geotechnical price of significant efficiency penalties (e.g., (and tunneling) problems faced by large hydro, 89 percent for Chinese turbines vs. 93 percent much less do small hydro projects result in the for Alsthom). As noted in Chapter 2, there range of environmental impacts associated with are several Peruvian manufacturers of small major impoundments. Moreover, operating turbines, but the prices offered are reportedly and maintaining a small hydro project requires sometimes above Chinese equipment, and it is a much lower level of technical sophistication unclear how lenders would assess the reliability than that required, say, for a combined cycle of such equipment. Some concern was expressed gas project, and the important tasks (keep about the reliability of Chinese equipment, trash racks clean, regular flushing of sediment mainly in connection with the way in which accumulations, etc.) require minimal technical Chinese equipment was being offered in Peru. skills. It appears that Chinese suppliers appearing in However, the reality is that individuals and Peru are mainly integrators rather than original small companies, even small civil engineering equipment manufacturers, taking components companies, would unlikely obtain project from various sources, which raises some doubts 35 The strongest views about the problems of uncertainty of water rights were expressed by financial lawyers. 37 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT about the quality of manufacturer’s warranties of the debt covered by collateral, the DSCR being offered. However, the concerns about plays less of a role than in the case of pure non- Chinese equipment reliability lacked any recourse financing. specificity. Equity Contributions Off-take Risk The equity requirements for small hydro appear Off-take risk is seen as small (and none of high in comparison to other countries. One bank the banks even mentioned it). There are two currently looking at a 3 MW small hydro project potential sources of off-take risk: the failure to would require 40 percent equity (and, as noted, be dispatched, and the failure of the buyer to the Santa Rosa small hydro project required 100 take the power for reasons of transmission line percent cash collateral, equivalent to 100 percent failure. Indeed, for a hydro project, failure to be equity). In international experience of small dispatched is most unlikely, given the dispatch hydro financing programs, equity requirements methodology in place. would normally be in the 25 to 30 percent range. Depending on the collateral in place, some Lending Requirements banks would waive pari passu requirements In addition to the lending terms themselves, (meaning that the bank would be content to fund small differences in lending requirements are first, and equity holders last).38 reported to have influenced selection of lenders Lease Deals in the currently competitive Peruvian banking market. All of the recent power sector project financings have been structured as leases, including the Debt Service Escrow Kalpa thermal project and several transmission lines. In addition to accelerated depreciation, Different banks have different requirements. leasing enables up-front recovery of VAT on One bank requires a six-month debt service construction (recovered by the bank), rather than escrow, while another was of the view that a having to wait until offsetting of VAT receipts on letter of credit would suffice. sales becomes possible.39 Typically, separate lease deals are done for Major Maintenance Escrow equipment (two years), and civil works (five Not generally required. One bank requires such years), with financing coincident with lease an escrow for thermal projects, but this was not terms. Depreciation can be taken over the term a concern for hydro projects because no major of the lease deal, rather than over the normal overhauls are anticipated within loan maturities. lifetime of the works in question (see Table 3.15). There is a provision that VAT can be Debt Service Cover Ratios recovered up front in the case of projects with Most banks cited first-year debt service cover more than four-year construction periods, but ratio (DSCR)36 requirements as 1:2 to 1:3, though this concession is of no help to small hydro there were some differences in the definition of projects, where construction is typically between the ratio.37 Needless to say, with a large portion two and three years. 36 For a given year, the ratio of net internal cash generation (net income adjusted for noncash items such as depreciation) divided by the debt service obligation (interest and principal). 37 One bank cited its more stringent definition of DSCR (including income tax) as one of the factors that led to the loss of a project financing to a competitor. 38 Pari passu in the context of project financing means that every tranche of funding during the construction phase is made in the same proportions of equity and debt as is agreed at financial closure for the entire project. 39 In other words, the difference is between immediate recovery of VAT, and the interest cost on the VAT on construction—VAT paid during construction is carried as an account receivable until the project starts operating, and the VAT recovered from VAT levied on sales. As discussed in the next section, the immediate recovery of VAT can add between 2 and 3 percent to the FIRR. 38 Economic and Financial Viability of Small Hydropower Table 3.15 Depreciation Periods project needing US$7 million of debt finance is of relatively little interest, particularly where Mechanical & Civil Works Electrical such projects are located in remote areas posing difficulties for due diligence. The transaction Lease 5 2 costs for a 200 MW CCGT near Lima are little Conventional different than that of a 5 MW hydro. Although Financing 33 15 large, financially strong corporations would Source: Banco del Crédito del Perú. encounter few financing problems for any project on a balance sheet basis, these companies have Whether leasing deals can be done over little interest in small hydro (except in the case such short time periods in the case of small of mining companies who have long built small hydro projects is unclear. The problem is that hydro projects for self-use). In contrast, smaller the shorter the lease period, the higher are the investors that might be interested are required lease payments, which may not be feasible if they by banks to provide 100 percent collateral. must be sustained by project cash flow alone. In Another issue is the lack of risk assessment the case of a large company that has the ability capability within the banks, whose perceptions to absorb cash losses, these may be offset by are shaped by the more publicized problems the tax advantages to the parent corporation. of large hydro projects. Consequently, there is Several developers noted that a two-year lease a mismatch between the expectations of those on M&E could not be accommodated at current who own water rights and have an interest in price levels. building them (but who are generally financially weak), and those of the asset funds and the General Conclusions on Financing banks. This is, in turn, compounded by the There appears to be adequate liquidity for practical difficulties of securing project financing Peruvian banks to finance infrastructure and long-term loans. investment projects with maturities of around These issues are encountered worldwide. This 10 years. Some banks are beginning to consider explains why in many countries, governments lending for longer maturities of up to 15 years. have provided financing assistance to investors However, actual project financing deals for through national development banks (e.g., power sector projects at tenors of over 10 years Brazil) or through finance facilities established have yet to materialize: lease deals (over two to in partnership with International Financial five years) and balance sheet transactions are Institutions (IFIs) for small hydro financing still the predominant approach. programs, which address all of these issues A major concern is transaction cost. The together, and provide the necessary technical corporate finance departments of the major assistance to the banking system to help them banks have limited staff, and are understandably to develop risk assessment capability for project focused on larger transactions. A small 10 MW financing of renewable energy projects. 39 Institutional and 4 Regulatory Framework Electricity Sector methodology for rate setting, the granting of concessions, customer service guidelines and Background accountability of the operators, plus changing The power sector in Peru was reformed and the role of the State from owner and operator restructured between 1991 and 1993, followed to policy maker, rule maker and regulator. The by a privatization and concession process. As a main regulatory body created by the law was result, a modern legal and regulatory framework the Organismo Supervisor de la Inversión en was established in the Electricity Concessions Energía (currently OSINERGMIN) (“Supervisory Law of 1992/93. A transfer was made from Commission for Energy Investments”), in charge of public to private hands of assets ownership, tariff setting, supervision and monitoring of the management, and operation of the main legal and technical regulations for the electricity electricity facilities. As noted in the introduction, sector. Figure 4.1 describes the organization of the legal framework also established the the Peruvian electricity market. Figure 4.1 The Peruvian Electricity Market Economic Dispatch F COES Generation FC Companies Spot Transactions n Coordination tio ) a (R R F in e ord Rat F Co io n iss sm an Tr R EC Transmission Coordination Distribution Company Companies Transmission Rate (R) R: Regulated Transactions EC: End Customer (Regulated) F: Free Transactions FC: Free Customer Source: Authors. 41 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT The Peruvian electricity market is divided only an increase in the price of natural gas or a into three parts: preferential tariff for small hydropower would unlock significant small hydro potential. 1. The regulated market, under which a On May 2, 2008, the government issued generator may contract with a distribution a new legislative decree for the promotion company at maximum prices fixed by the of investment in electricity generation using regulator, OSINERGMIN. renewable energy (Decreto Legislativo de Promoción 2. The unregulated or free market, under de la Inversión Para la Generación de Electricidad con which a generator may contract with major el Uso de Energía Renovable). The key provisions of customers with demand greater than 1 MW, this decree and its implications will be discussed and which accounts for about 45 percent of in Chapter 7. As the decree has not yet been the market. regulated and is not yet effective, this Chapter on 3. The spot market, run by the Committee for institutional and regulatory arrangements will Economic Operation of the System (COES), describe the situation prior to the effectiveness which balances supply and demand (the of the Decree. operation of this market was described further in Box 3.2). Administrative and Environmental During 2003 to 2004 spot prices of electricity Framework for Small Hydropower increased considerably due to limited hydro Development production and delays in the expected This Chapter presents a summary of the main implementation of new generation. The gap conditions prevailing in the Peruvian electricity between the spot electricity price (determined by sector law and regulations for the development the economic merit order dispatch of the plants) of hydroelectric projects, including small and the calculated regulated generation price hydropower projects. The contents of this charged to retail consumers caused generators summary draw mainly from data provided by to refuse contracting supply to distribution the MEM and internal work by OSINEGMIN, companies, which provide electricity to the the sector-regulating entity. regulated retail consumers. To address this problem, a new/updated electricity law was Administrative Requirements proposed in Congress in June 2005. Under this The basic legal framework for all activities in new sector legislation (approved by Congress the Peruvian electricity sector is the Electricity in September 2006), distributors will conduct Concession Law DL 25844 of 1992 (ECL), public auctions for electricity supply from complemented by the Law 28832 of 2006, and generators, for short to long-term contracts, and their main regulations. In the case of hydro to pass-through the resulting contract prices to generation, other regulations concerning water the “regulated” price (see Figure 4.1). resources and protection of the indigenous heritage are also applicable. It is important Renewable Energy Decree to note that regulations of the Electricity Law of May 2008 apply only to systems with demand/capacity The economic analysis above shows that when of 500 kW or more. Smaller systems are free opportunity costs are used to estimate the value of regulations under the Electricity Law, but of electricity in the wholesale market, small are subject to other sector regulations, and hydro is economic. However, because of the low requirements from regional or local authorities price of natural gas, at present small hydro is not (like permits and authorizations), which are financially viable, except for a limited number usually not standardized. of projects that benefit from existing irrigation Under the ECL and its regulations, infrastructure. This chapter concluded that hydropower plants are subject to authorization or 42 Institutional and Regulatory Framework concession, depending on their capacity size. An INC an archaeological assessment report. It authorization is required for the development of also requires the INC to issue a Certification of activities to generate electricity using hydraulic Absence of Archaeological Remains (Certificado resources for capacities from 500 kW to 20 MW. de Inexistencia de Restos Arqueológicos), or CIRA, A concession is required for power plants larger once the archaeological assessment of the than 20 MW. A recent regulation transferred the project has been completed. Construction of authorization and concession process from MEM projects cannot begin until the CIRA has been to regional governments for hydropower plants issued. The law also establishes that developers with capacities up to 10 MW (although, there of projects that include partial or complete are no known regional regulations detailing the excavation of archaeological sites must carry out requirements and the process to follow). Archaeological Recovery Projects if the National Also, under ECL regulations, to obtain Archaeological Commission so recommends. a concession for hydropower generation, a Although CIRAs are required for construction, sponsor has the option to request from MEM a project developers prefer to get CIRAs during temporary concession to develop the necessary studies. studies of a particular project. A temporary concession gives no rights to the sponsor and Regulation of Environmental Protection with is not a requirement to obtain a final/definitive Regard to Electricity Activities concession. The ECL and its regulations also In May 2008, a Ministry of Environment was contemplate the possibility of competition of created, but the management of environmental two or more sponsors/projects for a concession safeguards in the case of energy remains within for a single water resource. the environmental department of the MEM. It is important to point out that INRENA (the Environmental protection of all electricity National Institute of Natural Resources), under activities (including electricity generation in all the Ministry of Agriculture, and INC (National its forms) is established in two basic regulations: Institute of Culture), under the Ministry of the “Maximum Emission Limits Permitted for Education, participate actively in the approval of Electricity Activities” (R.D. No.008-97-EM) and hydroelectric projects. INRENA reviews and gives the “Rules for Environmental Protection in its opinion on the environmental study (including Electricity Activities” (D.S. N° 029-94-EM articles the minimum river flow requirements); authorizes 19, 20, 21, 23, 24, 29, 38, and 39). Concessionaires studies for hydropower development; approves of electricity activities (generation, transmission, these studies concerning river interventions and distribution) must prepare and obtain and water use and restitution; and provides approval of an environmental study (ES) for water rights for use in hydropower generation project construction and operation. The General (once MEM gives a definitive concession and Directorate for Energy Environmental Matters construction is scheduled). (DGAAE) is MEM’s official office in charge of The regulation on Archaeological Research reviewing and approving the ESs of energy (Reglamento de Investigación Arqueológica, projects. In case of hydroelectric generation, Resolución Suprema 004-2000-ED) classifies INRENA has to review and provide its opinion the archaeological inheritance of Peru and of the ES before it is approved. Small projects establishes procedures for carrying out like hydro plants with capacities of less than Archaeological Assessment of Projects and 20 MW do not require a full ES. Instead, their content. The project sponsor or developer this type of project needs only to submit an is responsible for carrying out and filing with Environmental Impact Declaration (DIA40) and, 40 A DIA is a document that is a sworn statement that the concerned project meets the regulatory environmental requirements, and that, if negative environmental impacts are generated, these are minor according to environmental regulations. 43 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT if some mitigation measures are required, an of 120 calendar days. DIAs should be approved Environmental Management Plan (PMA41). within 45 days of submission. ESs should consider all the potential effects In the period of 30 days after the completion that the concerned installation or project may of project construction, the project developer have on the quality of air, water, soil, and must submit to OSINERGMIN, the energy natural resources. Project design, construction, regulator, a report about the compliance with operation, and retirement or abandonment the relevant measures recommended in the ES. should aim at the elimination or reduction of possible damaging effects to the environment. Local Requirements for Projects under the Special care must be taken in order not to create Clean Development Mechanism instable environmental conditions such as Peru signed the Kyoto Protocol in 2002, and has erosion or lack of stability of the slopes or the been participating in the clean development storage of dangerous substances. mechanism (CDM) and the related carbon In the case of hydroelectric generation, emission reduction market since 2005. Peru potential damaging effects of the project on the was introduced to this market through the morphology of lakes, water flows, and water uses Prototype Carbon Fund (PCF), administered (drinking, agricultural, aquiculture, industrial, by the World Bank. The Comisión Nacional recreational, esthetic quality, aquatic habitat, del Medioambiente (CONAM) is the Peruvian etc.) must be reduced or eliminated. Riverbeds institution officially designated as focal point or shores, ravines, or crossed natural rain water of the Clean Development Mechanism. In this drainages must be protected. Installations must activity, it is supported by Fondo Nacional del be built according to its natural regimes in order Medioambiente (FONAM) as a promotional to avoid erosion of the riverbeds or shores as an agency and also in the evaluation of projects outcome of the accelerated water flows. In the submitted for qualification for CDM validation same way, installation or activities that may have and registration. Under the existing rules an impact on the aquatic fauna must be avoided. and regulations of the CDM, the “third part Biodiversity must not be seriously affected countries” have the responsibility of approving by the project and must not have irreversible the qualification of projects as contributing to negative impacts on flora and fauna that are at the sustainable development of the country an extinction risk, or on the productive quality of involved. flora species that have a food or pharmaceutical CONAM has established a process that a value. Any altered and deforested areas as a sponsor has to follow to obtain the approval of result of project construction or operation should the project as a CDM project. Annex 12 shows be recuperated and replanted. diagrammatically the different stages of the The DGAAE keeps a list of professionals and process, the documentation requirements and consultant companies authorized/accredited the responsibilities.42 in the preparation of ESs. DIAs should also be prepared and signed by these accredited professionals. Once all clarifications and Regulatory Framework explanations on the ES and the PMA, if required, The Peruvian electricity regulatory system43 have been satisfactorily responded, the DGAAE is based in three main principles: (1) the will approve the ES and PMA, within a period electricity business is segmented into 41 The PMA is the operational plan for the implementation of environmental practices, for preparing mitigation measures, prevention of risks, contingencies, and implementation of environmental information systems in compliance with environmental regulations, and to ensure that the established standards will be met. 42 Annex 11 contains CONAM Form P34, which describes in detail the different stages of the process, as well as the requirements. 43 The legal framework of the electricity sector is the Electricity Concession Law DL 25844 of 1992 (ECL), complemented by the Law 28832 of 2006, and their main regulations. 44 Institutional and Regulatory Framework generation, transmission, and distribution/ Therefore, generators face two markets—a commercialization; (2) generation is considered competitive unregulated market composed of a competitive segment of the business, where large users, dominated by bilateral contractual prices are determined mainly by “free” negotiated transactions of quantity/price, and the transactions, and transmission and distribution/ “distribution-captured” retail market, where the commercialization are regulated; and (3) prices to generation price is capped by regulation. Risk the regulated segments are determined by cost- perception of these two markets is very different causation and/or benefit-causation. for developers of thermal and hydro plants, and between developers of small and “large” hydro. The Generation Market A pure hydro developer (and especially large The demand side for generation transactions is hydro developers) needs long-term contracts to divided into two categories of users in relation obtain a project financing. to their size. One category is the so-called As already noted, the small hydro projects “large users,” those with power demands financed to date (Santa Rosa, Poechos) have above 1 MW, and the other category is made done so on the basis of a mix of relatively up of the “small” retail or regulated users. short-term PPAs with distribution companies Large users contract directly with generators or at the regulated price, plus spot market distribution companies, through bilateral, freely prices. With spot markets often higher than negotiated contracts. Distribution companies the regulated price (see Figure 4.2), the latter supply electricity to retail or regulated users requirement has not been of great concern. Of in their concession areas, at a regulated price. course the paradox is that spot markets will The generation-regulated price is determined be especially volatile during droughts, which by the regulator every six months, according means that electricity prices will increase when to the expected evolution of generation supply water is scarce. This is fortuitous for the hydro capacity, fuel prices, competitive generation developer, because during dry periods its auction prices (of short, medium, and long- output will be smaller but will fetch a higher term), and other economic parameters (like price price, so the developer ’s revenue loss on indexes and inflation). Also, the tariff system spot market transactions will be smaller than ensures that needed investments in transmission under the fixed price of a PPA. This explains and distribution (as evaluated by the regulator) why lenders are not unhappy if developers are recovered during the economic life of the rely on the spot market for a portion of their assets and a rate of return, up to 12 percent on expected output. investment, is guaranteed. However, since the actual financing Real-time dispatch of generation supply transactions have really been balance sheet is done on a cost-based merit order procedure rather than project financings, the past is carried out by COES, independently of any not necessarily a good indication of what bilateral contracts or auction prices. Hourly (in the commercial banks would require for reality every 15 minutes) transactions between a true nonrecourse project financing. The generators and large users in the wholesale international experience suggests that project market are done at the “marginal/spot” (last unit financings require PPAs for at least as long as in the dispatch merit order) price. The wholesale the debt maturity. Indeed, as we will see in market is in reality a “differences market” of Chapter 6, the Brazilian PROINFA program quantities contracted (bilaterally or through provides for 15 year PPAs with Electrobras auctions) and “demanded” by the dispatch. COES for qualifying renewable energy projects. manages the wholesale market, establishing Therefore, the extent to which the new payment obligations between generators, large preferential price provides revenue certainty users and distribution companies, in accordance will be the key to the success of the new with individual balance of energy dispatch. renewable energy preferential price. 45 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Figure 4.2 Spot Market versus Regulated Price (2007) 8 US cents/kWh 6 4 2 0 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Regulated price Spot market price Source: OSINERGMIN, Reporte Estadístico, Operación del Sector Eléctrico, febrero 2008. Capacity Payments thermal plants). It should be noted that if firm An important characteristic of the Peruvian capacity of existing plants equals peak demand electricity price system is that supply charges plus required reserve (an ideal situation), no and payments to/from final users and between reduction of payment for full firm capacity of wholesale market’s participants are based on the units is required. If excess firm capacity a two-part tariff system, very similar to the exists (above required reserve), the capacity classical scheme of peak-load pricing, of capacity payment will be less than that corresponding to and energy charges. The capacity payment is the firm capacity of a unit. The contrary happens based on the annualized investment and O&M when required reserve is less than the required costs of a peak-load generation unit, of “adequate amount. This means that there is a penalty in the capacity in relation to the size of the system capacity payment if the system reserve is above and the reserve requirements” (this quantity is the requirements and an incentive if it is below. called base price of power in the regulations). The Even though the Peruvian electricity system regulator determines the main characteristics is mainly hydro-based, the regulations for of this unit each year, for application in the capacity payment are oriented toward peak periodic review of generation tariffs. The current demand coverage and required capacity reserve reference peaking unit is a 175.6 MW open-cycle of the system. As such, capacity payment to natural gas-fueled unit (reference investment peaking units (mostly thermal) covers most of requirement is taken from statistics of last five their investments. Hydro storage for energy years published by Gas Turbine World). shortages during dry season or peaking hours The capacity payment received by each is not directly recognized in the generation unit is determined by the contribution of the payment system. unit to cover the peak demand and the “base price of power.” The contribution of the unit to Transmission cover the peak demand is based on the unit’s Electricity generated at power plants needs to “firm capacity” adjusted by a factor necessary reach demand centers through the transmission to fill the total demand of the system plus the and distribution systems. Both generators and required reserve margin, by stacking up the consumers share the responsibility to pay for “reduced” (or augmented) firm capacities of these facilities. Usually, there is no discussion on generating plants (first the hydro and then the how this would work for the common network 46 Institutional and Regulatory Framework interlinking supply and demand centers. Administrative Procedure (a TUPA), that Consumers would pay their portion of the describe in detail what are the requirements transmission costs (if the split is 50/50, then half and the process to obtain authorizations or of the common transmission network would be approvals. Furthermore, the intervention and charge to the consumers) and generators would responsibility of INRENA internal offices in all pay the remaining part of the costs. Generators these activities are not clearly defined. A case in would then add these costs to their own point is the determination of the ecological water generating costs to charge to their customers. flow of a river. There is no defined standard Instead of having generators as intermediaries procedure for its calculation, and no specific in collecting common transmission costs from INRENA office is in charge of its approval. consumers (as part of generating costs), the Almost all project developers reported Peruvian electricity regulations charge directly problems, mostly of administrative and to consumers all the cost of the common procedural nature, in their dealings with transmission system, leaving generators to INRENA, related to the required authorization charge only for generation facilities costs. for studies and the water license. One can say on In general, segments of transmission and this issue that there is no certainty on the specific substations needed to connect a generating requirements and documentation formalities plant to the common network are considered needed, what payments or dues are required for part of the investment of the power plant. initiating or obtaining official documents, what If the national interconnected transmission criteria would be used to qualify or evaluate a system reaches most places of a country, the request, or what internal office(s) is in charge connection investment is a minor percentage of qualification or evaluation, dealing with of total investment of power plants; therefore, controversies or conflict resolution, and so on. in this circumstance transmission is not a This relatively informal and ad hoc process problem when evaluating and implementing produces uncertainty, delays, and unexpected generation projects. In cases like Peru, with a costs to project developers. large territorial area, with particular difficult topological conditions and not fully electrically Rights-of-way connected, transmission requirements could be The Peruvian Electricity Law (LCE) provides for a serious barrier to hydropower development, the imposition of rights-of-way for electricity large or small. activities, which require a concession.44 The meaning of imposition is that owners of land where Water Rights facilities/installations will be located, which As reported above, INRENA intervenes in critical have an electricity concession, must provide steps of project implementation. In particular: for the right-of-way for such installations. The (1) it has to authorize the development of studies LCE and its regulations detail the requirements of water resource use for power generation; (2) it and process of this imposition of right-of- has to approve such studies; (3) it has to review way. The legislation establishes that a just and and give its opinion on the environmental economically reasonable price for buying (or study of a hydropower generation project; and expropriation) or renting of the required land (4) it has to give the license for water use of a should be negotiated. Also, the legislation hydropower project, before construction starts. stipulates that any damage caused to land or Some general stipulations on implementation any other asset of third parties, such as pass- of these procedures are established in laws and through for construction (known as temporary high-level regulations. However, the problem is rights-of-way), should be justly compensated. that there are no specific rules, or a Consolidated The owner of the land cannot refuse to provide 44 Hydroelectric generation larger than 500 kW, transmission and distribution require a concession. 47 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT for the right-of-way, which is why the legislation communities, indigenous or otherwise, with used the term imposition in this regard. communal ownership (that is not necessarily Usually, when the owner has documented legally registered), the legal provision of legal registration of the land, an agreement is imposition of right-of-way is almost impossible finally reached, and, in general, payment of to enforce, if an agreement is not reached. The right-of-way is not a cost problem. If the “owner” protracted negotiations required in these cases of the land has precarious or no clearly registered are the main complaint of developers. rights, or with land traditionally belonging to 48 Barriers and Their 5 Mitigation This Chapter describes the specific barriers is needed in the development of regulations that must be overcome to enable larger-scale to ensure that tariff levels are adequate and development of small hydropower projects, predictable (see Chapter 7). and discusses the possibilities for overcoming them. By far the most important is the low tariff Lack of Long-term Financing (Chapter 3). Because the bulk power tariff is In many countries, the most significant barrier based on low priced natural gas, small hydro to implementing small hydro has been the projects have found it difficult to compete. There limited availability of longer loan tenors. Several are other financial and technical barriers that also programs have enabled small hydro projects need to be overcome, but these are of secondary though on-lending at more favorable loan tenors importance to the tariff issue. (e.g., Brazil, Sri Lanka, Nepal and Vietnam). While Peru has a sophisticated banking sector Financial Barriers that has access to global capital markets, project Low Tariff Based on Low Cost of Natural Gas financing in general is difficult and even more An adequate tariff is an essential ingredient of a difficult in the case of small projects such as successful renewable energy program. The low small hydropower projects. Access to finance is price of natural gas and the resulting low tariff for limited by the high transaction costs in relation power generation (which is even declining in real to profitability of such small projects, and also terms) has made it very difficult for most small by the lack of familiarity of banks with the hydro projects to compete in the marketplace. project characteristics and issues that need to There are two options for mitigating this be appraised. Although debt finance is available problem. The first is basing Camisea’s natural in principal, in actual fact developers would be gas prices on market values, preventing unlikely to receive project financing for 12 to distortion of capital investment in the power 15 years at competitive rates. sector. The second option is to provide for a special tariff for renewable energy projects Transaction Costs of Financing (including hydro), an approach followed in Although the commercial banking sector is many other countries, and an approach that is competitive, it really only benefits the large now embodied in the Renewable Energy Decree. projects, for which the banks are prepared to The extent to which this preferential tariff will compete. Small companies that are seeking encourage implementation of small hydro debt finance for single hydro projects are in projects will depend not just on the magnitude a difficult negotiating position. The project of the premium, but also on its certainty. A financing groups at the major banks are small, certain premium of 2 UScents/kWh over the and they therefore prefer to concentrate their market price is worth more to obtaining finance limited resources on larger deals (which for the than a premium that may vary from 1 to 3 U.S. power sector means large gas CCGTs (typically cents/kWh. For the decree to succeed, attention >100 MW) and transmission projects). 49 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Unfortunately, the volume of potential Many small hydro projects cannot afford such transactions in small hydro investments is cost increases. insufficient for lenders to develop standardized The operation of small hydro stations is documentation packages—the usual first step a very simple matter, and requires a level of in lowering transaction costs for small loans. technical sophistication that is much less than A number of World Bank projects (Sri Lanka, that required for operating a thermal plant. Vietnam) have developed such standardized The most important aspects of operating documentation for small hydro projects as part small hydro stations relate to straightforward of financial intermediation projects—but this measures (cleaning trash racks, regular flushing involves significant effort to set up the procedures of sediments etc.). Routine maintenance of and build up the necessary technical capacity of turbines and generators is relatively simple: the the implementing agency,45 transaction costs that technology is well tested and understood. are only warranted for large lending programs Given the lack of experience in small (US$100 million or more). hydro and the unwillingness of lenders to Nevertheless, the Brazilian example shows devote significant resources to completion the potential advantages of a project aggregator risk assessment or to confidently assess the (in that case, an off-shore equity/guarantee capacity of a small developer to manage facility) in being able to negotiate a single debt construction itself, ways must be found to commitment from a large bank under reasonable provide comfort to lenders. These could include terms. However, for that option to work requires training on risk assessment and study tours by that the project aggregator injects significant commercial bankers to other countries, and/or equity funding of his own, in an amount the involvement of an international entity that sufficient to provide the necessary comfort to has greater experience with small hydropower lenders. development. The strongest measure would be The challenge is to attract the attention of that the government itself would make available such potential international funds—which is financing through a national development bank, much easier for Brazil with its widely publicized as has been done in Brazil through PROINFA. hydro potential than for Peru, where market conditions are less favorable. Regulatory Barriers Unrealistic Risk Assessments Based on Chapter 4 described the main characteristics Large Hydropower and issues of the electricity legal and regulatory Neither the banks nor the asset fund managers framework. The extents to which these issues appear to have an adequate perception of the represent barriers to small hydropower actual completion risks for small hydro projects. development, as well as possible needed Small hydro projects suffer from their association correcting actions are examined next. with large hydro projects, where the completion risk is clearly greater. Even though few small Capacity Payment hydro projects involve tunneling risk, the As noted in Chapter 4, under the existing banks and asset fund managers take the view regulatory framework, a generating unit that completion risks are sufficiently great to receives payment of its electricity supply in require the involvement of large EPCs. But this two distinct parts: (1) contribution to the peak significantly increases construction costs, which power demand; and (2) energy production. All are under great pressure from the low tariff. available operational generating units receive a 45 Project aggregation, of the type being developed for carbon finance transactions, is another potential possibility, but it is hard to see how credit risks can be passed through the intermediary that performs the aggregation. 50 Barriers and Their Mitigation monthly capacity payment. The generating units multiple hydro plants. Studies in other countries that have operated and supplied energy to the show clearly that the seasonal variations of a system receive the energy payment in accordance portfolio of small hydro run-of-river plants with their production. This is for all generating is smaller than that of individual plants, and plants that belong to COES or are under COES therefore the present capacity pricing approach operational dispatch administration. underestimates the value of hydro capacity in Firm capacity of thermal units is relatively aggregate.46 well defined in the technical literature (installed We conclude that the present two-part capacity affected by an availability factor that payment system regulation for generation takes into account maintenance and forced (capacity and energy) favors thermal units outages). Availability factors for different against hydro, and should be adjusted to provide types of thermal units are regularly compiled a more realistic valuation of the capacity value and published. On the one hand, there is of hydro projects. relatively high certainty in estimating future revenue coming from capacity payments for Transmission thermal plants. On the other hand, in the case The need for longer transmission networks of hydroelectric units, there is no standard is an intrinsic disadvantage of hydro versus procedure to calculate their firm capacity. The thermal plants, but in the case of Peru, there is an probabilistic nature of hydrology introduces additional problem to consider. The natural gas a risk factor not present in the case of thermal field of Camisea is located 700 km east of Lima, plants. Therefore, the firm capacity of hydro the main electricity load center of the country. plants is linked to the probability persistence of Thermal generators that use Camisea natural gas the available water flow. pay directly just a fraction of the transportation The Peruvian regulation establishes a level of costs of gas. The remaining gas transport cost 95 percent hydrologic probability persistence to is charged to consumers in their electricity define the firm capacity of a hydro plant. For run- bills (under a designation of Capacity Payment of-river plants (most of the small-size plants), Guarantee of the gas pipeline—see Box 5.1), for this probability persistence level to define firm recovery of the gas pipeline total investment cost. capacity undervalues the contribution of the This way, during the initial years of operation of plant to cover peak demand (not necessarily the pipeline, most of the cost of the transportation the single day of the year when peak demand of gas from Camisea to Lima is charged to is the maximum). Furthermore, given the electricity consumers, reducing the natural level of investment of a peaking thermal unit gas price for electricity generation. Therefore, compared to a hydro plant (two to three times the equivalent of electricity transmission for higher), the capacity payment for a thermal plant hydro plants (i.e., the transportation of gas to represents between 60 percent and 90 percent of thermal plants), which should be included in total payment requirements (from base load to the investment of the plant, is being paid by the peaking units), but for a hydro plant this is no consumers, not the generators. This is clearly a more than 30 percent. barrier to hydro generation. The question is, if Moreover, even if the firm capacity of a most of the cost of gas transportation for thermal single plant were accurately assessed by the 95 generation is charged to consumers, why is percent probability level, the existing approach the same concept not applicable to electricity does not take into account the portfolio effect of transmission for hydro plants? 46 In Sri Lanka, a system with several hydro plants with seasonal storage, one of the documented benefits of the small hydro program was the ability to defer releases from this storage into the later months of the dry season. See T. Siyambalapitiya, “Study on Grid-connected Small Power Tariff,” report to the Ceylon Electricity Board, Sri Lanka, 2001. 51 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Box 5.1 Camisea Pipeline Capacity Payment Guarantee (GRP) Studies for the pipeline indicated unattractively fixed natural gas price for electricity generation is high tariffs, due to low demand during initial years guaranteed. The GRP is included in the electricity of production. Investors required the government bills as a component of the transmission tariff. As to guarantee a minimum capacity usage/payment seen below, initially almost all the payment comes during the first 10 years. MEM and OSINERG from electricity users, diminishing as natural gas designed a payment guarantee called GRP demand increases. The guarantee will cease when (Garantía de Red Principal). Part of the payment is actual demand reaches the guaranteed demand or collected from electricity users. In return, a at the end of the tenth year. Source: Authors’ calculations, 2008. Connection Requirements by Distribution It is suggested that the MEM/DGE examine Companies the existing national grid code (Código Nacional A number of the hydropower developers de Electricidad) with a view to arriving, interviewed by the Study Team cited the together with the distribution companies, at excessive technical connection requirements a specification of connection requirements (protective relays, etc.) insisted on by the based on the principle of requiring only what distribution companies, significantly increasing is deemed to be absolutely necessary under connection costs. This is not an uncommon consideration of the consequences of an outage problem with regard to all forms on small-scale of the connection. and renewable energy sources. A recent report A final point to mention is the use of existing by the European Network for the Integration distribution lines by small hydro plants. Recently of Renewables and Distributed Generation47 approved regulations established that (small) documents the difficulties encountered in 18 hydro plants injecting supply through existing European Union countries. Experience in other distribution lines, reducing the prevailing load continents has been similar. of the line, will not pay for the use of the lines. 47 ENIRDGnet (2004). 52 Barriers and Their Mitigation This change in regulation was made in response projects is subject to the discretionary decision to requests from small generators. of the entity in charge of such function in the Ministry of Agriculture, which is at present Water Rights INRENA, with the favorable opinion of the corresponding ATDR. In this way, the public All INRENA internal procedures start at the officials in charge apply existing limited corresponding local Administración Técnica del norms at their own criteria and convenience, Distrito de Riego (Technical Administration of in processing the requests of the interested Irrigation District, ATDR in Spanish) where the party. The lack of specific regulations and the project is located, which establishes its particular existing administrative informality reduces requirements, has its own unspecified timing, considerably the predictability of the legal and uses discretionary and arbitrary criteria and regulatory system, and introduces for qualifying or evaluating the projects. The additional risks to development and final paperwork to go through an ATDR could take implementation of hydropower projects.” several months with complete uncertainty of the final result. The report also says, “INRENA intervention Furthermore, the existing Peruvian causes that the estimated timing for project legislation and regulations on water resources development should be prolonged, to take into are dated, incomplete, and have gaps in some consideration the period that the institution important and critical areas. Article 51 of Title III requires to approve a petition and the time of the Water Law (Decree Law 17752), indicates necessary to respond to its inquiries, which in that “water uses rights could be provided for energy many cases go beyond standard international generation and for industrial and mining activities, practices.” giving preference to those included in promotional and development government plans.” In the regulations of the Water Law (Supreme Decree 261-69-AP), Rights-of-Way and Community Intervention the articles dealing with “Energy, Industrial and As indicated in Chapter 4, most of the problems Mining Uses” refer to entities that have been of rights-of-way for large-scale hydroelectric dismantled or to inapplicable or obsolete rules. projects are caused by “owners” of the land So, the legal and regulatory base of these types with precarious or no clearly registered rights of water uses is very weak or inexistent. or with land of communal ownership. These Recently, there have been changes in some problems are exacerbated by the large extensions regulations to clarify the role of INRENA in of land involved in this type of project (river processing and approval of water rights, in side civil works, water canals, penstock, power particular for “large” hydroelectric projects, plant, transmission lines, etc.), combined with mainly by centralizing the process. But these the “ownership” (not supported by any legal changes have introduced new actors, such as right) of the water resources by communities. the regional governments, in the approval of All this forces project developers to conduct water rights in the case of small projects. Local prolonged discussions, negotiations, and deals authorities are questioning some preexisting with communities, not necessarily binding or water rights for small hydroelectric projects. enforceable legally. Some developers interviewed A recent consultant report contracted by for the study have indicated that it would be OSINERGMIN concludes,48 on this specific topic: better to formalize these activities through a social assessment of the project, with a defined . . .therefore, the provision of authorizations scope, required documentation, approval and licenses for water use of hydroelectric process, agreements reached, implementation 48 First report of Universidad ESAN to OSINERGMIN on Análisis de Barreras de Entrada para la Inversión en Centrales Hidroeléctricas, February 2008. 53 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT and monitoring plan. An approved social projects, ensuring that the concerns of all public assessment of a project would be a binding and private stakeholders, at national, regional, document to all parties, the community, the and local level, are also addressed. Most of the developer, and the government. developers interviewed by the Study Team cited opposition at regional and local level as a source Technical Barriers of delay and expense, even though all necessary permits had been obtained at the national Lack of Detailed Guidelines on Required Levels of Studies level. The document “Environmental Due Diligence (EDD) of Renewable Energy Projects— There appears to be a lack of specific requirements Guidelines for Small-Scale Hydroelectric Energy for the levels of studies to be submitted to the Systems,” produced by the United Nations MEM/DGE in applications for concessions or Environmental Program in collaboration with authorizations. This can lead to delays in the the Basel Agency for Sustainable Development approval of these applications or the acquisition (UNEP-BASE, undated) could be of assistance of other permits required for implementation of in this respect. In addition to these measures, the projects. the submitted studies should be subjected to In addition, the studies carried out close inspection and evaluation by MEM/DGE frequently do not adequately address all the to ensure that they fulfill all requirements. technical and economic risks that are the concern of potential financing institutions. Inadequate socioenvironmental investigations Absence of Clear Guidelines Regarding can lead to difficulties and lengthy delays Environmental Flows in obtaining the required permits, as well A number of the developers and government as the support and cooperation of regional/ agencies interviewed by the Study Team noted local authorities. Furthermore, the absence of the absence of clear guidelines—from either the detailed requirements can provide opportunity Consejo Nacional del Medioambiente49 (CONAM) for speculation involving the acquisition of or MEM/DGE —regarding the determination development rights on the basis of studies of of environmental flows at the dam/diversion limited scope, simply in the expectation of being sites of hydropower projects. This flow (also able to sell these rights at significant profit. This variously denoted in English by expressions such situation can result in significant delays or even as compensation flow, reserved flow, mandatory nonimplementation of potentially attractive release; in Spanish by ‘caudal ecológico’) is an projects. important determinant of the dependable output of The current specifications of requirements a hydroelectric scheme—in particular, high-head for the issue of concessions and authorizations plants exploiting small flows. should be reviewed with a view to ensuring It is generally accepted that in the early that they are sufficiently detailed and specific. stages of assessment of a hydropower project a The “General Guide to Scope and Accuracy tentative estimate of the environmental flow is of Hydropower Project Studies” presented in made on the basis of the measured or estimated Annex 6 may serve as an initial checklist for this flow at the diversion site. In the absence of purpose. Particular attention should be given to specific guidelines from CONAM or MEM/DGE ensuring that the technical (e.g., hydrological, an arbitrary criterion, such as 10 percent of the geological) and economic risks (e.g., costs) are long-term mean flow or 50 percent of the mean addressed in a manner acceptable to potential dry-season flow with over 95 percent probability financing organizations. is often used. Particular attention should also be given It is also generally accepted that in later to the socioenvironmental assessment of the stages of study of the project, when all 49 CONAM is also the National Designated Agency for the Clean Development Mechanism of the Kyoto Protocol. 54 Barriers and Their Mitigation relevant baseline environmental information conditions in Peru would be of assistance has been compiled, an attempt is made to to both project developers and government establish the environmental flow on the basis agencies entrusted with authorizing powers. of the identified environmental and social conditions in the stretch of river between the Limited Use of Standardized Designs, diversion site and the location at which the Costing Procedures Specifications, and Contract Documents turbine flows are returned to the river. In a similar absence of specific guidelines from Notwithstanding the availability of national CONAM or MEM/DGE, various approaches technical capacity for the design of hydropower can be arbitrarily taken, often leading to projects, there appears to be a certain lack of delays in obtaining final acceptance and awareness of standardized designs, procedures approval of the project. for cost estimation, standardized specifications, Given the importance of the finally contract documents, and so on that have been prescribed environmental flow in determining specifically developed for small hydropower the dependable output—and hence economic/ projects (of up to, say, 1 to 5 MW installed financial benefit—of a project, it is suggested capacity). that CONAM and MEM/DGE collaborate in Use of such design aids could to some extent producing the following guidelines specifically reduce time requirements, enable an increased for hydropower projects, possibly—at least number of projects variants to be evaluated, initially—focusing specifically on small to and facilitate the comparative assessment of medium-sized hydropower projects: alternative projects. The MEM/DGE could disseminate information on currently available • Guidelines for the initial estimate of standardized procedures for design and costing. environmental flow on the basis of measured As noted in the Chapter 2, previous attempts or estimated flow at the diversion site. to use Spanish-language versions of standard • The “Manual de Normas y Procedimientos contract documents, such as those produced para la Administración de Recursos Hídricos” by the International Federation of Consulting issued by the Direccción Nacional de Aguas Engineers (FIDIC), have highlighted some of Chile,50 which provides four alternative differences of interpretation of certain words definitions of environmental flow based on in the context of Peruvian law. Nevertheless, natural flow, could be used as an example. it is suggested that the MEM/DGE, perhaps in • Guidelines for the establishing the collaboration with organizations such as Colegio environmental flow on the basis of de Ingenieros del Perú, reinitiate the discussion t h e i d e n t i f i e d p re v a i l i n g b a s e l i n e of the matter, with a view to promoting the use socioenvironmental conditions in the stretch such documents. of river between diversion and tailrace. The International Energy Agency51 has made • There exists a plethora of procedures a review of available “Assessment Methods that have been proposed for establishing for Small-Hydro.” Although the report is now the desirable environmental flow in this somewhat out-of date, many of the procedures manner. The European Small Hydropower dealt with in the report are still available, some in Association (ESHA) has published a critical significantly advanced versions. Details of these review of the numerous approaches that methods, including ASCE Small Hydro (USA) have been proposed in the newly expanded and RETScreen (International) can be obtained European Union. Guidelines specific to from the IEA Web site.52 50 DGA (2002). 51 Wilson, (2000). 52 http://www.small-hydro.com/index.cfm?Fuseaction=planning.tools 55 International Experience 6 Private-sector involvement in small hydropower (often construction companies) would not development has taken place in a large number otherwise be available to the power sector. of countries worldwide over the previous three In countries where electricity demand is decades, and is steadily increasing. Often, this growing very rapidly, and where the most has occurred within programs to encourage serious issue in the power sector is how the development of grid-connected renewable the necessary capital is to be mobilized, energy. Most countries, whether industrialized additionality of finance can be a very strong or developing, have initiated programs to reason for small renewable energy projects develop renewable energy, including small (the best example of which is Vietnam, where hydro (though the definition of “small” varies electricity demand is growing at 12 percent widely, from 10 MW in Sri Lanka to 50 MW in per year, and mobilizing investment capital China). Some of the reasons given for supporting is the main problem of the power sector). renewable energy development are as follows: • Portfolio benefits. Renewable energy plays the same role in a portfolio of electricity • Renewable energy results in lower environmental generation assets as Treasury bonds play in damage costs than thermal generation, especially a portfolio of financial assets—characterized those from greenhouse gas emissions. Since as having low returns, but high certainty of these damage costs are not captured by a those returns. The diversification of energy competitive generation market, special price generation sources acts as a hedge against support to correct for this market failure is the uncertainty of international fossil energy warranted. However, large hydro results in markets. This argument is most powerful in the same avoidance of damage costs. small island countries that lack fossil and • Renewable energy, including small hydro, hydro resources, and otherwise depend on rarely has significant problems of relocation high-cost liquid fuels for power generation— and resettlement associated with large hydro for which the best example (in the World schemes. This is generally true, although may Bank experience) is the rationale for wind not apply as much to Peru where medium- power in Cap Verde. and large-scale hydro projects tend to have limited storage. One could also argue that the dispersed • Renewable energy projects are able to tap locations of a small hydro project portfolio sources of debt and equity not available either provides system support at the remote edges to large hydro projects, or to fossil generation of the transmission system, and reduces projects. World Bank loans are no longer the probability of transmission congestion. available for thermal projects, but they are However, where there is large variation between for renewable energy projects. And the wet and dry season output and local loads are equity contributed by many small companies small, then transmission lines would need to 57 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT be sized to evacuate the wet season output, Peru (in the new Renewable Energy Decree) is imposing shallow network costs on the system. discussed in Chapter 7. In general, where the government sets the tariff (as in the German feedlaw), it is the market Options for Promoting Renewable that determines the quantity; conversely, where Energy the government sets the quantity (as in countries The international experience shows clearly that set renewables purchase obligations), it is that for small hydro (or renewable energy) to the market that sets the price. be developed on a significant scale requires Worldwide, by far the most widespread special tariff incentives (to reflect full economic approach to renewable energy tariff support is value or as a temporary measure to support the so-called feed-in tariff, under which electricity technologies while achieving economies of suppliers are obliged to purchase renewable scale) and often requires assisting promoters electricity at a technology-specific price based to gain access to long-term financing. Table 6.1 on the estimate of the producer’s costs. Note shows a classification of tariff support systems, that this approach bears no relationship to the classified according to the basis for setting the framework for rational pricing presented in tariff (the columns of the table), and the method Chapter 3—since the price set has no direct of implementation (the rows of the table). The relationship to the benefits—though advocates system of tariff support recently adjusted for of the system argue that the benefits are implied Table 6.1 Classification of Renewable Energy Tariff Support Systems Tariff based on costs of the: Quota (Obligation) Buyer (“Avoided Systems, Subsidy Producer (Seller) Cost Tariffs”) Auctions Government Sets Government Sets the Price the Quantity Published Most European countries Sri Lanka (until 2006) (“Feed-in tariffs”) Indonesia Ontario Hungary Sri Lanka 2007 most American States Brazil PROINFA Vietnam (starting 2009) Market Price + Fixed Spain, Czech Republic Premium Market Price + Auctioned Peru Premium Discussed in Chapter 7 Set by market (tradable Chile green certificates, quotas) Romania, many Latin American countries Zhejiang Individually Negotiated Vietnam (present) Source: Authors’ calculations, 2008. 58 International Experience in the electricity consumers’ willingness to pay 2. Countries where the World Bank has assisted the incremental costs. The government’s goal national programs with refinancing facilities here is simply to promote certain technologies. offering longer loan maturities (Sri Lanka, The second most common approach is for Turkey). government to provide a preferential tariff based 3. Innovative approaches that have mitigated on the avoided costs of the buyer—the most the problems of low tariffs arising from successful example of which was the renewable market reforms (as in Zhejiang, China). energy tariff provided in Sri Lanka. Although this system is economically rational (notably, Brazil that the market decides which technologies Generation capacity in Brazil is largely should be implemented), it has its opponents dominated by hydroelectric plants, which among renewable energy supporters because the account for 77 percent of total installed capacity, tariff often does not enable the more expensive with 24 plants above 1,000 MW. technologies. In 2002, Brazil established the Programa The third approach depends on the de Incentivos a Fontes Alternativas de Energia government setting the quantity of renewable Eléctrica (PROINFA, Law 10,438 of 26 April), energy that distribution companies must with the goal of developing 3,300 MW of purchase (most often as a percentage of total renewable energy generation (1,100 MW each purchases, increasing over time), with significant of wind, SHP and biomass) under 20-year penalties for noncompliance (as in the United PPAs with Electrobras. The projects were to be Kingdom). This can be economically rational commissioned by the end of 2008. PROINFA if the targets are set on estimates of QSOC (see defines a small hydro project as follows: Figure 3.1), but again, the difficulty is that unless the quantities are set by technology, • 1 to 30 MW installed capacity the proponents of high-cost renewable energy • Maximum flooded area of 3 km2 technologies—notably wind—complain that • Use of generating units of 5,000 kW maximum the incentives do not enable their favored each technology. Thus the UK has recently proposed • Maximum flow rate of 2 m3 per second a modification of the renewables obligation • Maximum dam height of 10 meters system that uses a technology banding system • No tunnels under which RE technologies still in the early phases of development (offshore wind, tidal Qualifying small hydro projects can obtain energy) receive a higher number of certificates 80 percent financing from The National Bank than the mature technologies. Annex provides for Economic and Social Development (BNDES) further details on the support systems in other (some wind projects are also being financed countries. by the Bank of Northeast Brazil). However, With successful small hydro development to qualify for the PROINFA financing, a programs in dozens of countries, this review minimum of 60 percent of the value of the is necessarily selective and is focused on three project procurement must be of Brazilian-made examples: equipment,53 and 20 percent must be equity capital.54 BNDES loans under the program have 1. Countries where national legislation has 12-year maturities, including a six-month grace provided the impetus for renewable energy period following completion of construction, a investment (Brazil, Chile). commitment fee of 1 percent, and lend at the 53 This domestic content requirement is similar to the wind concession bidding program in China. 54 The original requirement was for 30 percent equity, but this was reduced in March 2004 following difficulties encountered by many project sponsors (often small companies) in meeting the guarantee requirements. Financing delays also led to the extension of the program from December 2007 to December 2008. 59 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT TJLP (the Brazilian long-term interest rate set by the second quarter of 2006. Registered with the the Central Bank).55 Brazilian Securities and Exchange Commission In the classification of price support systems (Comissaio de Valores Mobiliarios), and supported of Table 6.1, the Brazilian PROINFA approach is by an American Foundation (Fiorello La Guardia one where the main intervention is the price—but Foundation), 80 percent of the capital is subscribed where the government has also set an upper by Brazilian pension funds. An additional US$18 bound to the quantity that qualifies for the price. million is being sought from investors in OECD Small hydro projects of less than 30 MW countries. The fund is looking for IRRs of 13 to enjoy other concessions, aside from the PROINFA 14 percent plus inflation (about 4.5 percent in program: 2006)—that is, 17 to 19 percent. The fund plans to support 200 MW of new • Size threshold for participation in the market small hydro capacity in 13 projects in the states is 500 kW (as opposed to the normal 3 MW). of Mato Grosso and Minas Gerais. Construction • Only an authorization from ANEEL is has begun on the five Mato Grosso plants, which required, as opposed to a mandatory are scheduled to be on-line in early 2008. The auction for a concession required under the financing facility has negotiated US$275 million tendering law. in debt from the Brazilian National Development • There is a 50 percent discount on transmission Bank (BNDB), and negotiations are underway and distribution fees. with BNDB to replace its current requirement for real asset guarantees with financial guarantee The most important feature of PROINFA is structures. the fixed tariff, available for approved projects up As of April 2007, 55 percent of the 3,300 MW to the limits specified in the law (see Table 6.2).56 target (1,809 MW) was either in operation or The second phase of the program will require under construction, and a further 18 percent had that a minimum of 15 percent of the annual been contracted:57 increment of electricity must be contracted from these renewable sources (excluding large hydro), • SHP: 1,077 MW SHP (90 percent of target) in under 15-year PPAs. operation or under construction. The PROINFA program has attracted the • Wind: 218.5 MW (15 percent of target) in attention of international equity funds. For example, operation or under construction. a private US$91 million equity/guarantee facility • Biomass: 514 MW biomass (75 percent of for small hydro development began operation in target) in operation or under construction. Table 6.2 2006 PROINFA Tariffs Euro/MWh UScents/kWh Small hydro 47.80 7.36 Wind 73.60–83.46 11.33–12.85 Sugar bagasse 39.30 6.05 Rice husk 42.15 6.49 Woodchips 41.40 6.38 LFG 69.05 10.63 Source: Brazil Ministry of Mines and Energy. 55 In December 2007, this stood at 6.25 percent, compared to money market rate of 11 percent and the basic financial rate of 10.3 percent. 56 The wind tariff is based on a sliding scale (on the model of the German feed-in tariff) dependent on load factor: projects with annual load factors of up to 32 percent receive 9.783 US cents/kWh, decreasing linearly to 8.626 US cents/kWh at 42 percent load factor. 57 “Energias Renováveis,” Laura Porto, São Paolo, April 24, 2007. 60 International Experience PROINFA was extended until end December government initiated a series of incentives 2008 in order to achieve the targets. affecting small to medium-sized hydropower. Chile 2004 Short-law No. 19-940 In 2004, the Ministerio de Economía, Fomento y As in Peru, the use of hydropower in Chile has a Construcción introduced Law No. 19-940, long tradition, mainly in the form of micro- and “Regulation of Transmission Systems, mini-hydropower plants in the southern regions. Establishment of a New Tariff Regime for These plants were usually privately owned and Medium-sized Power Systems and Introduction operated, either as stand-alone systems or in of Adaptations to the Electricity Supply Law.”59 small local grids together with diesel plants. The law applies to all generators, but includes In the second half of the last century, larger some measures specifically affecting small hydro: hydropower plants began to be constructed, mainly in the Bio-Bio region south of Santiago, • Right of energy sale on the spot market is and regional interconnected networks were ensured for any generator, regardless of size. formed. • Equal treatment conditions entail a simplified Compared with the hydropower evolution business treatment (price stabilization in Peru, Chile has been somewhat more and ensured access to trunk networks if successful in developing its hydropower connected). resources since deregulation and privatization • Price paid to generator includes not only a in the 1990s. However, in the face of rapidly marginal energy cost component but also increasing demand, Chile has been itself forced recognition for installed capacity or the backup to implement significant thermal generating capacity available during peaks of demand. capacity, mainly fueled by imported natural gas. Hydropower as a proportion of total installed In addition, specifically for producers capacity has fallen from 57 percent in 1995 to just employing nonconventional renewable energy 38 percent in 2007.58 Hydropower capacity grew (NCRE) technologies, including hydropower at an annual total growth rate of over 4 percent, under 20 MW installed capacity, the law compared with Peru’s 2.8 percent, and small- to provided for: medium-sized hydropower capacity (< 30 MW) grew a 1.8 percent, comparable to Peru’s. • Access rights to the power grid at either The legal base for hydropower development transmission or distribution level are legally is the 1981 Código de Aguas (Water Law), which secured for NCRE producers under 9 MW. privatized the water rights and, for the first • NCRE producers under 9 MW are exempt from time in Chile, separated water rights from land transmission tolls, while NCRE producers rights. This law defines water as a national good between from 9 MW to 20 MW pay transmission for public use whose user rights are granted tolls proportionately. These effective subsidies by the Dirección General de Aguas (DGA), a are borne by the other generators in proportion unit within the Ministry of Public Works. After to their supply capacities. granting these water rights, the state does not intervene further. 2008 Short-law No. 20-018 One of the objectives of the government’s In 2005 the Ministerio de Economía, Fomento PER, initially launched in 1994, is the promotion y Construcción introduced Law No. 20-018, of the use of renewable energies. In 2004, the “Modification of the Regulatory Framework of 58 Tokman (2007). 59 In Spanish: “Regula Sistemas de Transporte de Energía Eléctrica, Establece un Nuevo Régimen de Tarifas para Sistemas Eléctricos Medianos e Introduce Las Adecuaciones que Indica a la Ley General de Servicios Eléctricos.” 61 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT the Electricity Sector,”60 which included further distribution companies issuing tenders, the provisions favoring NCRE producers: mean energy price offered being just under the price cap. • Five percent of the total electricity demand to Subsequently, the Ministerio de Economía, regulated clients is to be supplied by NCRE Fomento y Construcción, issued Decreto generators. Supremo Num 244, “Regulations for Non- • It provides for the Economic Development Conventional and Small Generators,”65 which Agency (CORFO) to offer financial provided for various administrative and and technical support to investors and technical manuals and standards to support entrepreneurs interested in developing NCRE generators.66 NCRE projects. In the tendering process prices are CORFO-CNE Co-financing of Studies determined by a payment mechanism based In 2005, the Economic Development Agency on stable long-term (marginal) costs and are and the National Energy Commission (CNE) indexed to the input costs of each bidder.61 The initiated a program of financial support to NCRE capacity price is fixed and corresponds to the projects: node price prevailing at the time of the call for bids, while the maximum energy price is capped • Subsidies of up to US$60,000 per project at 20 percent greater that the prevailing average (selected competitively) are provided free-market price.62 for preinvestment studies, specialist The first auction under the above mechanism investigations, detailed engineering was held in October 2006, involving supplies to design, and studies required for the Clean five distribution companies of around 11,000 Development Mechanism (CDM), on a GWh/a, requiring about 2,750 MW installed “matching fund” basis up to a maximum capacity, over the period 2010 to 2024. Bids of 50 percent of total cost of studies and were received covering about 90 percent of the investigations, and up to 2 percent of total auctioned supplies, with a mean energy price of investment cost. US$52.6 per MWh, significantly lower than the • In the first two annual bidding processes cap of US$62.7 per MWh.63 The capacity price carried out in 2005 and 2006, CORFO-CNE was set at US$7.86 per kW per month, applicable selected a total of 91 projects—including to effective capacity (which generally amounts 40 hydropower projects—with an estimated to around 65 percent of installed capacity in the total installed capacity of 550 MW and total case of run-of-river small hydropower projects).64 investment cost of US$850 million. The In the second auction, held in October 2007, total amount of subsidy funds provided by offers were received from only one of the three CORFO-CNE was US$2.6 million.67 60 “Modifica Marco Normativo del Sector Eléctrico” (2005a). 61 Comisión Nacional de Energía, (2006). 62 Benarion, P., (2006). 63 Rudnick, H., Moreno, R. and Barroso, L., (2007). 64 United Nations Development Program (UNDP) and EndesaEco, (2007). 65 Ministerio de Economía, Fomento y Construcción, (2005b). 66 The documents included: (1) “Technical Standards for Connection and Operation” of NCRE generators (2) “Manual for Evaluation of the Environmental Impact of NCRE Projects,” to be made available on the Web site of National Energy Commission (Comisión Nacional de Energía—CNE), (3) A Cooperation Agreement between the CNE National Irrigation Commission (Comisión Nacional de Riego—CNR) to promote development of NCRE (hydropower) projects by irrigation entities, and (4) “Guide to the Clean Development Mechanism (CDM) for NCRE Projects.” 67 Further details of the two bidding processes—including problems encountered—are to be found in presentations by CORFO (2007) and CNE (2007b). 62 International Experience 2008 Renewables Obligation Law (SHP) industry has commissioned over 100 MW In March 2008, a law was passed requiring the of privately owned, small-scale (less than generating companies in Sistema Interconectado 10 MW), grid-connected projects. As of June 30, Central (SIC) and the Sistema Interconectado 2006, Ceylon Electricity Board had 141 SHP del Norte Grande (SING) with total installed projects accounting for 270 MW.70 capacity greater than 200 MW to generate at least The World Bank financed 1997 Energy 5 percent of annual energy production through Services Delivery Project (ESDP) in Sri Lanka was NCRE by the year 2010. This percentage will rise one of the first refinancing facilities established to 8 percent by 2024. Companies failing to meet expressly to support renewable energy projects.71 the obligation will pay penalties from US$4,300 The main objective was to provide loans at much to US$6,400 per MWh. Presidential approval of longer maturities than previously available the law was expected in 2008. (10 years rather than the typical 3 to 7 years), and The CNE and the National Irrigation to familiarize the commercial banking system Commission (CNR) carried out an inventory with lending to renewable energy facilities. The of small- to medium-sized hydropower facility is available to grid-connected SHPs, as projects (2 to 20 MW capacity), which could well as to off-grid village hydro schemes.72 Funds be constructed in existing irrigation systems in are provided to the Government of Sri Lanka 8 regions covering approximately 97 percent (GoSL) as an IDA credit under typical terms, for of the irrigated area in the country. The results which the GoSL carries the exchange risk. GoSL, of the inventory68 show possibilities to implement in turn, nominated the Development Finance 290 projects with a total installed capacity Corporation of Ceylon (DFCC) to administer of around 860 MW. CNR-CNE highlighted the the program through a special account set up need to bring together the irrigation entities and in the Central Bank of Sri Lanka. Developers the generating companies in order to implement (IPP1, IPP2 in Figure 6.1) obtain financing from the projects. qualified commercial banks (BANK1, BANK2, At a recent investors meeting in Santiago etc.) under normal lending terms,73 with interest it was noted that, as result of the various at the normal bank +5 percent.74 The commercial government measures described above, a banks then refinance, at normal lending rates, substantial pipeline of NCRE projects has been with the administrator of the program, some established, including 23 small hydropower portion (typically 75 to 80 percent) of this loan. projects with total installed capacity 193 MW Prior to the ESDP, there was no interest in for which social and environmental impact commercial financing of renewables. Under the assessments have been submitted for approval.69 original ESDP (1999–2003), US$24 million was disbursed through two development banks and three commercial banks; under the follow-on Sri Lanka project (2004–2007), one development bank, one Sri Lanka’s power sector is dominated by commercial bank, and two leasing companies hydroelectricity (54 percent of total generation in joined the program. In addition, two finance 2007). Since 1996, the modern small hydropower companies and a rural development bank have 68 CNR-CNE (2007). 69 Tokman, M. (2007). 70 World Bank (2008). 71 World Bank (2003), (2007b). 72 147 off-grid village hydro schemes (average size 10 kW) have also been financed, and the refinance facility is also available to microfinance institutions for financing household PV solar home systems. 73 However, these subloan maturities are limited to 10 years including a maximum of 2 years grace, and no more than US$3 million to any individual project. 74 Six banks were appointed under the original program, namely DFCC Bank, National Development Bank, Sampath Bank, Hatton National Bank, Commercial Bank, and Sarvodaya Economic Enterprises Development Services [SEEDS] (a microfinance institution). 63 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Figure 6.1 The Sri Lanka Energy Services in establishing a broader basis for commercial Delivery (ESD) Project financing for renewables. By the end of 2006, Arrangements some 95 MW in 38 small hydro projects had obtained finance under the program, and 17 further projects, bringing the total to 137 MW, are in progress. However, the most important difference between Sri Lanka and Peru is in the tariff. Renewable energy projects in Sri Lanka below 10 MW have benefited from an avoided-cost tariff, which is quite high because Sri Lanka has no natural gas or domestic oil resources, and the marginal thermal projects are auto-diesel fueled combustion turbines. The tariff (which varies by wet and dry season) is shown in Figure 6.2. Thus, with tariffs of between 5 and 6 US cents/kWh, and capital costs of US$1,100 to US$1,300, it is no surprise that so many small hydro schemes have been built. To be sure, Source: World Bank (2003). recent capital cost increases have also affected Sri Lanka, with more recent capital costs reported in the US$1,200 to US$1,500/kW range. In early started lending to renewable energy projects 2007, the avoided cost tariff was replaced by a outside the World Bank project. The Sri Lanka fixed feed-in tariff of around 7 US cents/kWh ESDP has been successful not only in serving (the avoided cost tariff under the old system as a catalyst to the establishment of a viable, would have been more than 12 US cents/kWh private-sector small hydro industry, but also as crude oil prices have risen to US$100/bbl). Figure 6.2 Avoided-cost Tariff, Sri Lanka Source: www.energyservices.lk 64 International Experience Turkey and models public–private development of large hydropower development, improvement Like Peru, Turkey is well endowed with of dam safety regulation and introduction of hydropower resources, but unlike Peru, Turkey modern techniques for dam safety monitoring lacks gas and other fossil fuels. A total of 88 small and disaster mitigation, and the preparation of hydro projects less than 30 MW are in operation, technical standards to lower the transaction costs the bulk of which are private BOT projects, and of project approval; and (4) support for project a further 10 are under construction. There are a implementation and monitoring. further 344 identified projects. Unlike thermal The Turkey Project is similar to the Nepal and wind projects for which many opportunities US$35 million World Bank-assisted Power for financing though export credits exist, long- Development Fund Project, also designed term financing of the local costs of small hydro to provide long-term financing for private- projects remains a major problem. sector small and medium-sized hydropower In response to this problem, in 2004 the developments in Nepal to overcome the lack Turkey Renewable Energy Project was approved of sufficient debt financing for private-sector by the government and the World Bank, hydropower projects and the inadequate including a debt facility to provide long-term maturity of available debt financing. The lending. The World Bank loan will be on-lent by Fund is managed by a fund administrator, a the Treasury to two financial intermediaries, the private Nepalese commercial bank selected private Turkish Industrial Development Bank by the government through a competitive and the Government Development Bank.75 These bidding process. A government-formed entities will appraise subprojects, make loans board is responsible for approving loans in to subproject sponsors, and supervise project accordance with the recommendations of the implementation. fund administrator. The Turkey Renewable Energy Project includes financing of US$250 million from IBRD and US$250 million from commercial banks Zhejiang Province, China and four components: (1) a Debt Facility that China is the world leader in small hydro, with combines World Bank funds with funds from more than 25,000 MW in place.76 The bulk of this two commercial banks to provide long-term capacity was installed in the 1960s and 1970s, loans to private sponsors of projects (intended and the driving force has been its historical role to leverage equity from local private investors, in rural development in areas not served by the export credit financing and other financing grid. However, under extensive power-sector for construction and operation of renewable reforms in China, past models of investment facilities between 10 and 50 MW); (2) capacity in small hydro by local governments are being building to support development of a potential replaced. pipeline of projects; (3) technical assistance to The province of Zhejiang, on the East Coast, develop the legal and regulatory arrangements is one of the more advanced in introducing to facilitate such projects, including the market reforms into the power sector, and has development of renewable energy legislation instituted an innovative competitive process 75 World Bank, (2004a). 76 In China, the definition of “small” hydro is now projects less than 50 MW. 65 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT for the development of small hydro projects. In return, developers pay a small hydropower Zhejiang has some 1,690 MW of small hydro in management fee, 1 percent of power revenue, place, and about 200 MW per year are expected to the grid operator, who, in turn, disburses the to be added over the next five years under a new proceeds to provincial, prefecture and county incentive system. Renewable energy projects Water Resource Boards. in China also benefit from a number of tax concessions (see Box 6.1) The first part of the bidding system is Conclusions on International a guaranteed fixed price for small hydro Experience generation that provides for a premium above Table 6.3 summarizes the discussion in the text. the prevailing market price. The guaranteed The international experience shows clearly that price assures a revenue stream that makes for a for small hydro to be developed on a significant bankable project.77 scale, special tariff incentives are required. These The second component is a bidding system can be provided in several different ways, but the under which the county government has the most successful in Latin America have been fixed authority to award the development rights technology-dependent tariffs as exemplified by through tenders or auctions; developers pay the Brazilian PROINFA program. an up-front fee. Recently, a pilot auction of It is too soon to gauge the success of the development rights for the Wencheng project Chilean approach of a renewable obligations had 30 bidders, with the winner paying Y3.5 requirement, the law having been passed just a million (US$425,000) for the development few months ago. However, it may be noted that rights. The Provincial Water Resources Board is this law is much stronger than the new Peruvian responsible for approval of project design and regulation. In Chile, there are penalties on the future safety management after commissioning. distribution companies if the obligation is not Box 6.1 Tax Incentives in China Renewable energy benefits from a range of tax There are also special incentives for small incentives and special subsidies in China. Although hydro in the poor western provinces: the Western small hydro does not enjoy an income tax reduction, China Cropland Conversion Program and the it does benefit from a preferential VAT rate. Western China Energy Development Program provide special funds derived from government VAT Corporate bonds for small-scale hydropower development. (percent) Income Tax The Ministry of Water Resources has also provided interest rate subsidies. General 17% 33 With an extensive domestic small hydro Small hydro 6% 33 equipment manufacturing capability, equipment Biogas 13% 15 imports are not an issue in China (though other renewable energy technology imports, where Wind 8.5% 15 classified as “high technology” (such as wind Landfill gas 0% 33 turbine) benefits from preferential customs duty rates. Source: Li et al (2006). 77 There is no special pricing provision at the national level for small hydro. However, for biogas and wind, special pricing rules were implemented in early 2006 (National Development and Reform Commission of the People’s Republic of China, Document No.: NDRC Price Decision No. 7, 2006). For example, biogas is given a fixed subsidy of 0.25 Y/kWh (for 15 years) above the reference price for a coal project with FGD. 66 International Experience met, whereas in Peru, the 5 percent is merely and with a revenue stream that is easily predicted. an upper bound for the amount of renewable High transaction costs are also an issue. energy that the system dispatcher must take. In countries where the World Bank has The problem of small developers with provided a refinancing facility offering loans development rights not being able to obtain of much longer tenor than previously available financing is also not unique to Peru. As we (Turkey, Sri Lanka, Nepal), there is evidence have seen in Chapter 3, financing will always that the benefi t is not just one of reducing be difficult where tariffs are inadequate, and financing costs, but that the involvement of the the international experience seems to confirm Bank has provided comfort to the commercial this. Competitive bidding is another approach banks with renewable energy project lending to solving this problem, but concession bidding and the necessary capacity building for risk only works if there are profits worth bidding for, assessment. Table 6.3 Summary of Barriers to Renewable Energy Development and Solutions in Other Countries Country Main Barrier Barrier Overcome by Brazil Lack of PPA; PROINFA law: feed in tariff, access to low cost Inadequate tariff loans, 15-year PPAs with PROINFA law (less than 30MW) Lack of long-term financing Chile Limited investment Binding renewables obligation with penalties for High pre-investment costs noncompliance; Preinvestment grants Sri Lanka 1998 No preferential tariff Published tariff based on avoided cost of buyer Lack of long-term finance World Bank assisted financing facility provided long-term loans Turkey High transaction costs, lack of TA for regulation, development of standard standard contracts contracts, tariff Lack of long-term finance World Bank assisted financing facility Zhejiang, China Difficulties in site allocation and Competitive bidding for sites plus feed in tariff licensing; World Bank assisted financing facility for small Desire to introduce market- hydro under CRESP (China Renewable Energy based approaches Scale up Project) Vietnam, 2006 Lack of standardized PPA, tariffs Avoided-cost tariff published by regulator; through ad hoc negotiation; standardized, nonnegotiable PPA; World Bank– many small hydro projects held assisted financing facility for renewable energy up for lack of finance small power producers (below 30MW) Source: Authors’ recollections, 2008. 67 Renewable Energy Decree 7 of May 2008 On May 2, 2008, the government issued a new lower than the tariff, both established by legislative decree for the promotion of investment OSINERGMIN (Article 5). in electricity generation using renewable energy • The premium and tariff will be calculated (Decreto Legislativo de Promoción de la Inversión taking into account the type of technology Para la Generación de Electricidad con el Uso de and other characteristics of the installations, Energía Renovable). and will “guarantee” a rate of return on investment of no less than that established in Article 79, Law Decree 25844 for electricity Main Points of the Decree concessions, which is currently 12 percent. The key provisions of this decree are as follows: • The premiums will be “auctioned” by OSINERGMIN (Article 7.1). • Every five years, MEM is charged with • Transmission costs to connect the renewable issuing a target ceiling for renewable energy. energy plant to the interconnected grid are For the first five years (i.e., until 2013), the considered as part of the investment cost ceiling is set at 5 percent of total national of the plant for the premium calculation electricity consumption (Article 2). (Article 7.1). • Wind, solar, geothermic, biomass, and tidal/ • The incremental costs will be recovered by wave energy are considered renewable a user charge (Article 7.2). energy sources, as well as hydro not greater than 20 MW (small hydro) (Article 3). • Small hydro is not accounted for in the The Fundamental Approach ceiling of 5 percent; therefore, this type of The Government has chosen to set a target ceiling technology will benefit of the incentives for a share of renewable energy (excluding of this new legislation regardless of the small hydropower, which is not subject to percentage of its participation in the total this ceiling), in combination with a premium national electricity consumption (Article 2). price. The financial analysis indicates that a • Renewable energy will have priority in the price in the range of 5 to 6 US cents/kWh for daily dispatch, meaning that COES will hydro could unlock significant investment in consider as zero its production variable small hydropower. In 2007, total generation cost. Renewable energy plants will sell was 27,255 GWh, so the 5 percent target ceiling their energy production to the spot market would require 1,362 GWh from renewable (Article 5). energy sources. At an annual load factor of 60 • Renewable energy plants will receive percent, this corresponds to 260 MW. Although, the marginal (spot) price of energy plus small hydro will not be considered in the a “premium” in case the spot price is indicated amount, this type of projects should 69 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT compete in the auctions with other technologies of the avoided environmental damage costs of for the premium. In the short term, wind power thermal generation (VL.ENV). appears as the other renewable technology in The third issue relates to technology choice. competition for the premium. We may note that The moment one introduces technology banding 14 of the 16 identified projects listed in Table 2.3 (i.e., different prices for different renewable meet the 20 MW size threshold, totaling 143 MW. energy technologies), there can be no pretense The decree raises three fundamental issues about the system being economically efficient. of approach. The first concerns the introduction For example, there is no economic justification of a renewable energy ceiling. The numerical for paying 9 UScents/kWh for wind, rather than ceiling is not really a renewable energy target, but 6 US cents/kWh for hydro, unless one believes rather, a limit on the amount of energy that must that the social costs of small hydro exceed the be taken by COES at the premium price. Also, social costs of wind by 3 UScents/kWh. There according to MEM, small hydro will qualify for are no studies that show differences in social the preferential tariff but will not be subject to the costs of this order of magnitude.78 ceiling. This is unusual; most countries include Nevertheless, the decree represents an small hydro in the renewable energy target, and important step forward. If the implementing many countries, including those of the EU, now rules provide some degree of certainty in the include large hydro in their country-specific preferential tariff, then one can expect that many renewable energy targets. More importantly, small hydro projects currently stalled for lack since the decree sets no penalties on any entity of an adequate tariff and the related financing in the case of noncompliance (unlike, say, in difficulties move to implementation. Chile), the decree is much weaker than in other Clearly, this decree is weaker than the countries that have set specific targets. corresponding Chilean regulation (see Chapter 6) The second relates to the general principle that imposes a renewables obligation (rather than of enacting subsidies. The economically rational just a target), with penalties on the generating approach (suggested in the framework of companies for failure to meet the obligation. Chapter 3) argues that the generation tariff Nevertheless, the decree represents an important be set on the basis of economic avoided step forward. If the implementing rules provide costs—meaning that gas would be valued at some degree of certainty in the preferential tariff, its opportunity cost rather than at its currently then one can expect many small hydro projects subsidized price. Elimination of the artificially currently stalled for lack of an adequate tariff low gas price would therefore enable not just and the related financing difficulties to move to all hydro projects, whether small or large, but implementation. would also eliminate the perverse incentives for open cycle gas generation (rather than the more efficient combined cycle). Unless the Implementation of the Decree ceiling set for the preferential price is close to Although the decree has not yet been regulated PSOC, there is a risk that the Renewable Energy (by the time on the analysis), the language of the Decree simply compounds the distortions of one decree raises a number of questions that need to subsidy (on gas) with another (on renewable be resolved: energy). Indeed, if the gas price subsidies were eliminated, there would be no need for a • It is unclear upon what set of principles the preferential tariff for renewable energy (or small tariff calculation is to be based. The reference hydro in particular), except to reflect the value to “allowable profitability” suggests that 78 The only circumstances under which one could argue for a special consideration for wind power is in countries where there is a potential for large-scale domestic turbine manufacture. For example, in China (and Brazil) there is an argument for wind power insofar as only the development of a large domestic market will induce the development of a domestic manufacturing capability, which (as has been true in China) brings the prospect of long-run cost decreases that may outweigh the short run costs of subsidy. That argument has no merit for Peru (or other small countries where there is no chance that a commitment to wind power will affect the future supply price). 70 Renewable Energy Decree of May 2008 what is intended is a cost-based feed-in It is clear from this list of issues that there tariff that allows for a “fair” rate of return are many practical details to be settled as part not to exceed the statutory maximum. of the process of developing the regulations that However, there are other tariff options will permit implementation of the decree 1002. more in harmony with the existing tariff Only after these details are decided would it be principles—for example, the tariff could be possible to make judgments about the extent to based on marginal costs using the market which the new tariff regime will significantly price—i.e., based on the avoided economic assist small hydro (and renewable energy) costs of the buyer, which has no need to be producers. Thus, whether the decree will in technology specific. fact encourage small hydro projects depends • Article 7.2 implies that tariffs will be calculated critically on the implementation details: for each renewable energy technology. The wording says, “taking into account the • The entire 5 percent target could be taken up different renewable energy forms.” But by two or three wind farms if there are no exactly what is intended here is unclear. separate targets by technologies, crowding More detail is needed. For example, in out smaller projects (of whatever other Germany the current feed-in law provides a technology). tariff for wind power that is also a function • At what point does the premium tariff of the load factor. In many jurisdictions there become a bankable off-take commitment by are different tariffs for small hydro according COES? If the premium is to be considered as to their size. a secure revenue stream for project financing, • It is unclear whether the premium applies then that commitment must be in place at just to the energy payment or to the capacity financial closure—several years ahead of the payment as well. first premium payment. • There is a conflict between the apparent • If a two-part tariff is intended (which requirement that premiums will be raises the important issue of the basis of “auctioned” and that technology-specific the capacity charge, how will capital cost tariffs will apply. It may be that the tariffs are recovery (which accounts for the bulk of meant to be an upper bound to the auctions. costs for a renewable energy facility) be • The presumption is that the decree ensured? introduces a must-take obligation on COES Based on informal discussions with MEM, up to 5 percent. If the premiums are to be there appear to be three main issues in the auctioned, then the realities of the costs of implementation of the preferential tariff: different renewable energy forms is that the winners of the auctions will always be 1. Technology banding the cheapest technology, other than small 2. Determination of the tariff hydro, which is excluded from the ceiling. 3. Auction of the premium The Brazil PROINFA program resolved this problem by setting targets for each The basic concept seems to be that candidate technology (1000 MW each for small hydro, technologies are to be banded by type (wind, biomass, and wind). However, the decree is biomass, small hydro), and a tariff will be silent on this matter. issued for each category, and perhaps even by • The list of qualifying renewable energy projects with longer and shorter transmission technologies excludes specific mention connections. The premium to be paid over of biogas: most regulations (e.g., EU the market price will be determined through directive) on renewable energy make auction, but would be capped by the difference express mention of biogas as an eligible between this tariff and the market price. For category, thereby making eligible landfill technologies other than small hydro, the auction gas projects. will be only for an amount equal to the energy 71 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT target set in the decree. MEM has indicated that efficiency interest is surely best served by the process cannot be “first-come first served,” letting the market make decisions about which so even if there is less capacity (energy) offered technology is offered and built. than the cap, an auction process would still be needed in the interests of efficiency. MEM also Technology Banding expressed the view that the premium should Although banding by technology has been have separate energy and capital charges. adapted by several countries (as in the case of But it is hard to see why the possible Brazil, see Chapter 6, where there are three bands, differentiation by length of transmission 1,000 MW for each of wind, biomass, and small connection fosters economic efficiency: All other hydro below 30 MW), the degree of technology things equal, surely the public interest is to build differentiation varies widely. For example in the those small hydro plants that have as short a Eastern European countries that have adopted transmission connection as possible. feed-in tariffs, the banding is relatively simple, Nor is it clear what economic efficiency as shown in Table 7.1. Small hydro is at most interest is served by setting individual technology divided into two or three categories (less than targets. What is important is that the energy for 1 MW, more than 1 MW, and in Slovakia with a which the consumer pays the premium is simply special rate for small hydro rehabilitation). a properly qualified renewable energy type. However, at the other extreme, the German Whether that comes from wind, small hydro, feed law is very finely differentiated, as shown in or biomass does not really matter: all bring the Table 7.2. The 2004 rates decrease by 1 percent per same benefit of avoided local and global air year (a plant built in 2004 receives the payment emissions from thermal emissions. The economic shown during its lifetime; but a plant built in Table 7.1 Feed-in Prices in Eastern Europe (€cent/kWh) Hungary Slovakia Bulgaria Slovenia Czech Republic € US € US € US € US € US Avoid-cost peak 10.0 15.8 Off-peak 6.3 9.9 Wind <1 MW 6.46 10.2 6.10 9.6 8.74 13.8 >1 MW 6.46 10.2 5.90 9.3 Geothermal 9.01 14.2 5.90 9.3 15.98 25.2 Small hydro 5.94 9.4 4.09 6.5 8.49 13.4 Small hydro <1 MW 6.20 9.8 1-10 MW 6.14 9.7 5.90 9.31 Small hydro rehab 6.20 9.8 7.71 12.2 LFG 5.30 8.4 8.09 12.8 Biogas 6.46 10.2 10.80 17.0 Biomass co-firing 5.17 8.2 Biomass plantation 7.75 12.2 Biomass 5.17 8.2 8.31–12.00 13.1–18.9 <1 MW 9.36 14.8 >1 MW 9.11 14.4 Source: World Bank, Serbia: Analysis of Policies to Increase Renewable Energy Use, 28 Sept. 2007. 72 Renewable Energy Decree of May 2008 Table 7.2 German Feed-in Tariffs for Small Hydro (2004) €cents/kWh UScents/kWh less than 500 kW 7.7 11.5 500 kW–10 MW 6.7 10.0 10 MW–20 MW 6.1 9.2 20 MW–50 MW 4.6 6.8 50 MW–150 MW 3.7 5.6 Source: Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. 2005 gets 1 percent less, and a plant built in 2005 • Debt-to-equity ratio: 70:30 gets 2 percent less, and so on. This digression is • Interest rate 5.5 percent designed to incentivize early investment and • Return on equity 12 percent reflect expected technological progress.79 There is a similar differentiation for biomass This results in a price that varies by load projects, but for wind, the differentiation is based factor, and, in effect, rewards wind energy not on size, but on load factor. producers at poorer inland sites: the better the In the case of Peru, with the size of overall site, the lower the feed-in tariff (Figure 7.1). renewable target being limited (estimated at This is not economically rational, but was 565 MW—assuming a load factor of 27.5 percent), introduced in the latest version of the law in it is not advised to set up too many technology response to equity concerns to achieve more bands. For instance, in the case of Brazil uniform development of wind energy across PROINFA, three technology bands were Germany, rather than being concentrated established (small hydro, wind, and biomass), in the coastal areas of northwestern areas with a size of 1,100 MW each. characterized by the highest wind speeds. The differentiation may also be seen as an Determination of the Tariff attempt to limit scarcity rents at the highest- There are several different approaches for setting wind-speed sites. technology-specific tariffs. The German feed-in But such feed-in tariffs come in many other tariff illustrates the basic principle for renewable forms. As of January 2007, Sri Lanka introduced energy projects: the most important assumptions cost-based and technology-specific tariffs are the capital cost and load factor. For example, (replacing the avoided-cost system described in the calculation of the wind power tariff makes Chapter 6). Two options are provided: a three- the following assumptions: tier tariff and a flat rate tariff. • Capital cost (equipment), €895/kW Tariff Option 1: Three-tier Tariff (US$1,412.66/kW) The tariff in the first six years is front-loaded, and • Capital cost (site), 30 percent of power plant set in such a way as to allow 20 percent posttax • Operating cost in years 1–10 (4.8 percent of return for developers. The tariffs for the first tier the power plant cost) (i.e., years 1–6) are shown in Table 7.3. • Operating cost in years 11–20 (6 percent of The tariffs for the second and third tiers the power plant cost) (years 7 to 18) are substantially lower, as shown • Inflation over 20 years: 2 percent in Tables 7.4 and 7.5. 79 However, the expectation of a decline in capital costs has not come to pass. Over the past few years, the strong market for wind turbines has led to a sellers market, with upward pressure on prices—some smaller wind farms in developing countries have had no bidders at all. This is similar to the situation for PV, where surging demand in Japan and Europe has created a worldwide shortage and higher prices. 73 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Figure 7.1 Wind Energy Price versus Load Factor 9 8 EuroCent/kWh 7 6 5 0.18 0.2 0.22 0.24 0.26 0.28 0.3 0.32 Load factor Source: Author’s calculations, 2008. Table 7.3 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 1–6 Year of Operation 1 2 3 4 5 6 Mini-Hydro Nonscalable 7.99 7.99 7.99 7.99 7.99 7.99 Escaled O&M 0.48 0.52 0.56 0.6 0.64 0.69 Total 8.47 8.51 8.54 8.59 8.63 8.68 Wind Nonscalable 13.88 13.88 13.88 13.88 13.88 13.88 Escaled O&M 1.67 1.80 1.93 2.08 2.23 2.40 Total 15.55 15.68 15.81 15.95 16.11 16.27 Biomass Nonscalable 5.22 5.22 5.22 5.22 5.22 5.22 Escalated fuel 5.00 5.25 5.51 5.78 6.07 6.37 Escaled O&M 0.84 0.90 0.97 1.04 1.12 1.20 Total 11.06 11.37 11.69 12.04 12.4 12.78 Source: Sri Lanka Sustainable Energy Authority. A bank guarantee will be required to ensure Tariff Option 2 (Flat Tariff) that the SPP operates in years 7–12 of the second Selection between the three-tier tariff and this tier, in return for the high tariffs paid in the first flat tariff would be entirely at the discretion of tier. The guarantees have to be provided to the the developer. There will be no requirement for utility over years 1–6, and they will be returned bank guarantees by SPPs opting to be on this flat from year 7 onward. tariff (see Table 7.6). 74 Renewable Energy Decree of May 2008 Table 7.4 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 7–15 Year of Operation 7 8 9 10 11 12 13 14 15 Mini-Hydro Nonscalable 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 Escalated O&M 1.48 1.59 1.71 1.84 1.97 2.12 2.28 2.45 2.63 Total 4.28 4.39 4.50 4.63 4.77 4.91 5.07 5.24 5.42 Wind Nonscalable 4.85 4.85 4.85 4.85 4.85 4.85 4.85 4.85 4.85 Escalated O&M 2.57 2.76 2.97 3.19 3.43 3.68 3.96 4.25 4.57 Total 7.43 7.62 7.82 8.04 8.28 8.54 8.81 9.10 9.42 Biomass Nonscalable 1.82 1.82 1.82 1.82 1.82 1.82 1.82 1.82 1.82 Escalated fuel 6.68 7.01 7.36 7.73 8.11 8.51 8.93 9.37 9.84 Escalated O&M 1.29 1.39 1.49 1.60 1.72 1.85 1.98 2.13 2.29 Total 9.80 10.22 10.67 11.15 11.65 12.18 12.74 13.33 13.95 Source: Sri Lanka Sustainable Energy Authority. Table 7.5 Inclusive Tariffs for SPPA 2007 (LKR/kWh): Years 16–18 Year of Operation 16 17 18 19 20 Mini-Hydro Nonscalable 2.06 2.17 2.27 2.39 2.51 Escalated O&M 2.82 3.03 3.26 3.50 3.76 Total 4.89 5.20 5.53 5.89 6.27 Wind Nonscalable 2.06 2.17 2.27 2.39 2.51 Escalated O&M 4.90 5.27 5.66 6.08 6.53 Total 6.97 7.44 7.94 8.47 9.04 Biomass Nonscalable 2.06 2.17 2.27 2.39 2.51 Escalated fuel 10.32 10.84 11.37 11.94 12.53 Escalated O&M 2.46 2.64 2.84 3.05 3.27 Total 14.85 15.64 16.48 17.37 18.31 Source: Sri Lanka Sustainable Energy Authority. Table 7.6 All Inclusive Rate Years 1–20 Technology All inclusive rate (Rs/kWh) for years 1–20 Mini-hydro 7.10 (6.6 UScents/kWh) Wind 12.83 (11.9 UScents/kWh) Biomass 11.87 (11.0 UScents/kWh) Source: Sri Lanka Sustainable Energy Authority. The flat tariff will not be escalated for any kWh charge. This means that the seller assumes reason over the entire 20-year period. It may hydrology risk (or in the case of wind power, the be noted that all of these systems are one-part risk of low wind years)80 because in dry years, tariffs, with the capitals costs covered in a single few kWh will be sold. 80 A study of annual variations in wind output in Sri Lanka showed that the resulting variation in annual generation cost was higher than the variation in cost of auto-diesel based CCGT power generation due to volatility of Singapore spot prices. Studies of Danish wind farms suggest annual variations of 20 percent around the mean. 75 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Figure 7.2 Renewable Energy Supply Curve for Serbia Source: Authors estimations. An alternative approach to tariff setting is eastern Europe in areas where lignite is used based on avoided cost of the buyer, plus such without FGD systems), the social cost of thermal adders that reflect the avoided damage costs of generation is 4.75 eurocents/kWh (7 UScents/ thermal generation. The concept is illustrated by kWh)—a level that the supply curve intersects at a recent study for Serbia.81 35 MW—a mixture of biomass and small hydro The first step is to derive a so-called supply projects (QENV). If one adds to this the avoided curve, which takes the inventory of renewable global externality cost, resulting in a cost of energy projects, sorts them by production cost, 5.75 eurocents/kWh (9.07 US cents/kWh), and then displays the project in increasing order the economic quantity of renewable energy is of cost showing the cumulative generation (or 265 MW (QG.ENV). Note that the wind projects MW) available as a function of cost (Figure 7.2). in Serbia would require a social cost of thermal This follows precisely the rational framework for generation of 6.5 eurocents/kWh (10.25 US renewable energy pricing presented in Chapter 3. cents/kWh)—in other words, even if one were to Economic theory states that the economically include the avoided global externality cost into efficient quantity of renewable energy is account, wind would not be economic in Serbia. given by the intersection of the supply curve Note that knowledge of the supply is only with the avoided cost of the buyer. In Serbia, required if one wishes to set an economically the marginal production cost is set by low- efficient target, for a technology that is more cost lignite-based generation, with a cost of expensive than the avoided economic cost slightly over 3 eurocents/kWh (4.5 US cents/ of generation (e.g., wind power). From the kWh). As shown in the Figure 7.2, only 1 MW point of view of overall economic efficiency, (a small biomass project) is economic at this it suffices to set the tariff on the basis of the cost (denoted QECON in the Figure 7.2). If one avoided economic costs of the buyer this will now adds the avoided environmental damage automatically provide whatever renewable costs of thermal generation (which is high in energy is economic—though that will unlikely 81 World Bank (2007d). 76 Renewable Energy Decree of May 2008 enable wind power. Such avoided cost systems because the expected value of revenue is higher have been effective in many countries (as noted, than the published feed-in tariffs. for example in Sri Lanka from 1998 to 2006, as In any event, the details of what precisely discussed in Chapter 6). is being auctioned are unclear. Because of year- on-year variations in output (true of both small Auction of the Premium hydro and wind), the auction cannot be for a fixed Several countries provide for a premium number of kWh each year; in the case of small over the market price to be paid to qualifying hydro, there have to be carry-over provisions from renewable energy producers, and the closest drought years to wet years; and possibly even a appears to be Thailand, where developers bid cap on wet-year generation. Nor can the auction for a subsidy, subject to a maximum amount of be conducted each year: the premium revenue subsidy per kWh generated. This (fixed) subsidy available to any developer must be known at the is provided for a five-year period. However, the time of financial closure if the premium revenue bidding process is technology neutral, and there is to have any benefit for financing. is no separate auction by technology. There is a The advocates of renewable energy single cap that applies to all. auctions—whether for price subsidies or the The green bonus system adopted in the right to develop specific sites (as in the case of Czech Republic is another relevant model for the Chinese Wind farm concession program)— Peru, which was introduced in a 2005 law on argue that such auctions encourage efficiency electricity from RE. Producers of electricity thorough competition, and secure for consumers can choose from two support schemes, namely some part of the benefits of low-cost renewables. fixed feed-in tariffs or a green bonus, under This may have some merit where concessions which the producer sells its electricity at the involve thousands of MW. But this has very little wholesale market price plus a premium from merit in the case of Peru, where, at best, a few the distribution system operator. Green bonuses hundred MW would be auctioned. In fact, the are fixed one year ahead for individual types auction is simply a way for consumers to capture of RE in such a way that the expected total part of the producer surplus (site rents). This revenue is higher than that for the fixed feed- may indeed have merit from the perspective of in purchase prices, to reflect for the risk in the keeping tariffs low, but should not be confused price uncertainty of the wholesale market. with the optimal allocation of resources (the However, in this system the bonus is fixed, and latter being best served if PECON is available to there is good certainty about the revenue stream all producers). 77 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table 7.7 Summary of Barriers to Small Hydropower and Potential Impact of Renewable Energy Decree Role of Renewable Major Barriers Options for Mitigation Responsible Energy Decree Lack of (a) Reduce subsidies on natural OSINERGMIN Regulation must ensure remunerative tariff gas for power generation premium is predictable (b) Introduce a preferential and adequate. Recommend tariff. basing tariff on avoided economic cost of Government has elected option generation based on (b) in Renewable Energy Decree. opportunity cost of gas. Capacity charging Revise methodology to properly OSINERGMIN Regulation must ensure methodology reflect capacity contributions this. If the premium tariff of hydro (and to reflect the is two-part, capacity portfolio benefits). charge should reflect capacity costs of SHP. Transmission costs Include costs of gas OSINERGMIN Not affected by decree transmission in generation price of CCGT. Security of water New Water Act is under Not affected by decree rights discussion. Lack of clear Formalize a “social assessment” CONAM and MEM Not affected by decree regulations and for hydro projects, with a in collaboration norms when land is defined scope, required with stakeholders under “traditional” documentation, approval settlement process, agreements reached, ownership implementation, and monitoring plan. Inappropriate Existing national grid code MEM/DGE Not affected by decree requirements for should be revised and connections abbreviated version prepared for small generators. Financing problems: Financing facility using national MEM, MoF Not affected by decree unrealistic risk development bank, commercial assessment, lack of banks, or international finance long-term loans and facility. project finance, and Training and outreach to high transaction commercial banks can costs supplement but not replace facility. 78 Renewable Energy Decree of May 2008 Table 7.7 continued Other Barriers VAT recovery Reduce construction period MEF Not affected by decree discriminates eligibility from 4 to 2 years for against small hydro renewable energy projects. Lack of guidelines Draft and implement guidelines. CONAM and MEM/ Not affected by decree on environmental DGE flows Lack of Prepare guidelines, conduct MEM Not affected by decree standardized training programs. guidelines for design, feasibility studies, business and financial plans 79 Conclusions 8 Peru’s significant small hydropower potential This will be especially difficult for small (<20 MW), conservatively estimated at over hydropower in Peru, because of the need to 1,600 MW, merits development as part of a predict the price of imported equipment that renewable energy development program on has been subject recently to steep price increases economic and environmental grounds. The due to increasing material costs, increasing fundamental constraint to developing Peru’s demand for hydropower equipment, and the hydro potential has been the low tariff faced decline of the dollar. In the case of wind and by hydro generators, which is a consequence biomass, where production costs are likely to be of the low natural gas prices of Camisea gas. significantly higher than the avoided economic With gas costs for power generation in Lima cost of the buyer, there may be no alternative but of only US$2.15/mmBTU, among the lowest to issue a technology-specific tariff. However, anywhere in the world outside the Middle East, because small hydro is economic if market prices gas generation costs are little more than 3.5 US reflected the opportunity cost of natural gas, cents/kWh. the preferential small hydro tariff could be set However, the government has now decided on the basis of avoided economic costs of the to provide small hydro projects less than 20 MW buyer—that is, at the market based price of gas with a premium on the tariff under the 2008 generation. This option would avoid the need Renewable Energy Decree. If the tariff resulting to estimate a premium separately for different from the Renewable Energy Decree is adequate types of projects (e.g. at existing irrigation and predictable, and similar to small hydro infrastructure, greenfield projects, projects less preferential prices in other countries (roughly 5 than 1 MW, less than 10 MW etc), and the need to to 7 US cents/kWh), the main barrier to small estimate costs for “typical” small hydro projects. hydro development would be overcome. The problem of low-generation tariff resulting from the low gas price is compounded The Renewable Energy Decree by two further distortions in the tariff The decree, once it is regulated and effective, is environment. The first concerns the allocation an important first step to unlocking the small of transmission costs. In the case of hydro hydro potential of Peru. However, whether the projects at distant locations, the incremental tariff premium to be given to qualifying facilities transmission connection costs are charged to the unlocks financing problems will depend not just hydro generators. That is perfectly reasonable, on its magnitude, but on its certainty at the time and should indeed be taken into consideration in of financial closure. an economic comparison of generation options. Attempts to promote renewable energy However, the corresponding capacity costs of while regulating rates of return of renewable gas transmission to gas plants located in and energy projects, as suggested by the language of around the Lima area should also be taken into the decree, have often failed in other countries. consideration in such an economic analysis. But 81 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT under the present arrangements, these costs are T h e p ro p o s e d p re m i u m u n d e r t h e carried directly by consumers and paid as part Renewable Energy Decree may result in meeting of the transmission charge. This further favors the fundamental requirement of a remunerative gas generators. tariff, and therefore increase the interest of The second issue concerns the methodology potential equity investors in the sector. However, for determination of capacity charges. Again, it is far from clear that this alone would also given the significant variations of seasonal transform the debt market to enable project output from run-of-river projects, it may not financing at long loan maturities. be unreasonable to base the capacity charge for Indeed, the commercial banks have limited a particular project on the 95 percent probable project finance capacity (project finance groups availability. A single small hydro project may are small, though very well qualified), so they well add little to dry season capacity. However, tend to divert their internal resources to big studies of the capacity credit of renewable deals, not small projects. With no large hydro energy generation in other countries clearly projects being proposed, the banks have limited show the diversity effects of a portfolio of projects, interest in doing project financing for the small such that the capacity benefits to the system number of projects that are presented to them, of the portfolio is much greater than the sum and under these circumstances they have even of individual capacity benefits. These benefits less interest in developing the necessary in- should be estimated and recognized in the house risk-assessment capability—particularly premium tariff system. for projects that are in locations far from Lima. The Santa Rosa project required 100 percent The Financing Environment collateral for the first unit. The desire of lenders The commercial banking sector in Peru is to impose expensive EPC contracts with “name” relatively competitive, and Peru has weathered firms on small projects may well mitigate the present international liquidity crisis much lenders’ risks, but the incremental costs of such better than most. To date, however, very few an approach simply make many small projects nonrecourse deals for infrastructure have actually unprofitable. None of the banks, fund managers, been completed—and the only such power or potential equity providers saw higher rates of generation project was for a thermal project. return (FIRR) as offsetting risk concerns. Their At the same time, private equity funds are view is that completion risk is mitigated by eager to invest in infrastructure, and the private EPCs, not an extra 2 to 3 percent on FIRR. Peruvian pension funds would like to rebalance Government assistance could be helpful their investment portfolios toward such projects, to enable access to long-term financing for recognizing that the very high returns achieved investors, other than large corporations that over the past decade in the stock market are can finance on the balance sheet. This financing unsustainable. However, in the past tariff could be done in many different ways, such environment, financially strong entities have as through a development bank as in the case had no interest in small (or even large) hydro of Brazil, or through a project that involves (except for small projects dedicated entirely for an international finance institution, like the own-use of mining companies) because there cases of Turkey, Sri Lanka, and Zhejiang. is too little profit to be made, while financially International financial institutions (IFIs) are weak developers who have the concession/ more experienced than national commercial water rights have unrealistic expectations about banks in assessing the unique risk profiles the value of these rights with the result that of hydro projects, and can assist in building both debt and equity providers discount their confidence. This cannot be achieved just by technical acumen as well. Indeed, over the past technical assistance and lectures about the need few years the commercial banks have seen no big to upgrade risk assessment techniques, but hydro projects at all, and just one or two small needs to be coupled with meaningful financial hydro projects. participation of the IFIs. 82 Conclusions This may be of lesser importance to the larger in the discussion of Chapter 4, the biggest companies likely to sponsor medium to large problem faced by small hydro developers is the hydro projects, whose financial strength enables uncertainty of the process and its duration, one them to raise debt from the commercial banks. that relies heavily on administrative discretion. But for small hydro projects—and for renewable The hassle, risks, and difficulties of this process energy projects in general, assistance for access doubtless influence the developer’s perceptions to financing will be an important advantage. of the value of securing these water rights, which is perhaps insufficiently appreciated by the Peru in the International Marketplace: commercial banks. Carbon Finance and Other Incentives Chapter 3 has shown the potential value The Case for Hydro Projects in the of carbon finance and longer loan tenors to 20 to 200 MW Size Range improve financial returns. With recent increases Many of the arguments for small hydro are, in in carbon prices, and future expectations of fact, shared with medium and even large hydro— yet further increases, carbon finance makes a such as the avoidance of the environmental significant difference to developers’ cash flows damage costs of thermal generation (which and enhances debt service cover ratios required constitutes a market failure in that these costs for nonrecourse financing. are not captured in the market price), and the To get the attention of the increasing portfolio and diversity benefits of an energy number of international private equity funds source not subject to the volatility and supply interested in clean energy investments requires security issues of internationally traded fossil clear government interest and commitments— fuels. for which there is no substitute for targeted Small hydropower in the particular legislation to assist small renewable energy circumstances of Peru (<20 MW), except in projects. If the Renewable Energy Decree is the case of projects that have the ability to successfully implemented, this could trigger use existing irrigation infrastructure, has no such interest. If the new preferential tariffs for particular economic or environmental advantage small hydro are in the range of 5 to 7 UScents/ over medium-sized hydro in the 20 to 200 MW kWh (the Brazilian PROINFA tariff is more range. The latter projects are generally run-of- than UScents 7/kWh), and provide reasonable river projects (with minimal storage sufficient tariff certainty, then one may be confident that for daily peaking operation in the dry season) Peru will attract the interest of specialized and with minimal numbers of project-affected international equity funds. households and little impact on forests and agriculture. Water Rights As shown in Chapter 2, the probable Security of water rights is a major concern, and potential for hydro projects is much greater than there have been instances where uncertainty in for small hydro of less than 20 MW, and projects water rights has led to significant delays and in this size category therefore have the potential costs for large hydro projects. Many call for a for making a more significant aggregate new Water Act or major revisions to the law. contribution to meeting the fast growing power Tensions between project developers and local demands. communities, intervention of the various levels However, the case for a more active of government and regional differences in the government role to promote such larger projects capacity of the legal system to address complex is much greater, since the potential for issues technical matters create difficulties. over water and land rights are more likely; and Although it seems unlikely that small hydro feasibility studies are more expensive, so there development would spark the sort of major will be a greater reluctance of private companies legal confrontation as may be encountered to undertake them, and prepare them to a stage in the case of large hydro projects, as noted where entities of more substantial financial 83 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT strength (mining companies, existing generating variations in output will be handled. The key companies) would finance, construct, and is that the auction provides certainty of the operate them. premium price for sufficient time to enable financing of the project (e.g., 15 or 20 years). Issues and Suggestions It will also be very important for The main barrier of an adequate tariff appears OSINERGMIN to have access to experts with to have been largely addressed through the renewable energy tariff experience in other Renewable Energy Decree. It is important to note, countries, technical assistance that could be however, that there are secondary barriers whose provided through a workshop in Peru with the removal, while not essential, would help small participation of such experts. hydro developers. We recommend, therefore, The timetable provided by the decree for that the government proceed on addressing OSINERGMIN to develop the implementation these secondary barriers and recommend details of the decree is only 90 days. Experience improving access to hydrology data, clarification in other countries suggests that much more time of requirements and approval process for studies, is required to do this well. clarification for environmental evaluation, social approval and ecological flows, relaxation of rigid Capacity Charge Methodology connection requirements, and standardization of It would be helpful for small hydropower specifications and contract documents. if OSOSINERGMIN should review the Implementation of the Renewable methodology of setting capacity charges. It is Energy Decree clear that the portfolio benefits of hydro (small The key to unlocking the small hydro potential or large) are not properly captured in the will be a remunerative and predictable tariff. current approach. If the implementation of the Implementation of the price premium and preferential tariff for small hydro is based on auction provisions in such a way as to minimize a German-style feed-in tariff, in which capital uncertainty with respect to the premium received outlays are recovered in an one-part tariff, then is particularly important. Unless the preferential the general methodology of capital cost recovery tariff is predictable, and the transaction costs are for the regulated market is not relevant. But if the minimized, the decree will have little impact. preferential tariff for renewables is to be based on Part of the success of the Brazilian PROINFA a two-part tariff (with separate remuneration for program has been the simplicity and clarity of capacity), the current approach will not provide its implementation. for adequate recovery of investment costs. Key specific suggestions for the implementation of the decree are as follows: Long-term Financing Facility As noted in the assessment of barriers, a range • It is recommended that a simple and of financing problems will face developers even economically justified method be used to set if an adequate tariff is provided under the new the premium tariff—such as using avoided decree. These problems include unrealistic risk economic cost of gas-based generation when assessments by the commercial banks, high gas is priced at opportunity cost. transaction costs, and lack of long-term loans. • It is suggested that technology bands not be These would all be mitigated by a long-term used or that a number of technology bands financing facility from domestic resources like be limited because of the small scale of target. a national development bank or entity as in the • Many details of the auction process need to case of Brazil, such as COFIDE, or with support be decided—for example, what exactly is from an international financial institution, such being auctioned (presumably the premium as the World Bank, along the lines of similar price), over what time period, and how facilities in Sri Lanka, Vietnam, and Turkey. 84 Conclusions Absent such a facility, it is very unlikely that This legal framework and its specific regulations nonrecourse project financing can be achieved contain the requirements and process to obtain, for small hydro projects, and the 100 percent in a formal way, the necessary temporal and collateral/corporate guarantee requirements of definitive use of the required land to develop the commercial banks will remain a major barrier a hydropower project. This systems works to all but large corporate sponsors. well when land property is clearly defined and A major long-term goal of such a facility legally registered. In most cases, an agreement is to demonstrate to the commercial banks is reached between the owner of the land and that lending for small hydro (and other small the project developer, either buying or renting renewable energy projects) is viable, and that the required land. If an agreement could not be whatever risks as are actually an issue can reached in these cases, a legal imposition of the be mitigated by less draconian requirements right-of-way is possible, although not desirable than 100 percent cash collateral. The necessary due to the time required to settlement. technical assistance to the banking system is When land belongs to communities, legally an integral part of all of such projects in other registered or otherwise (“traditional” settlement countries. ownership), the right-of-way problem, compounded with water use rights, is much Water Rights more complicated. An agreement is more Despite some attempts to improve and clarify difficult to obtain due to the interventions of regulations regarding the requirements and many people acting as leaders of the community, procedures to obtain the necessary approvals and the requirement that the majority of the and permits to carry out studies and water use community approves the final agreement. Also, rights for power generation, the situation at this type of agreement is not legally enforceable present is still not satisfactory. Most developers and is subject to change of opinion of leaders or indicated that the main problem is not excess the community. of requirements but the unpredictable process. To deal with the indicated problem, the study The lack of a specific TUPA (Consolidated team agrees with the suggestion recommendation Text of Administrative Procedure) is the made by some developers, to formalize a social main complaint. What is needed is a TUPA assessment of hydropower projects, with a defined that describes in detail the documentation scope, required documentation, approval requirements; who could submit a solicitation, process, agreements reached, implementation, its format and if a payment is necessary or not; and monitoring plan. The approved social the intervention of different internal units or assessment of a project, including rights-of-way offices, specifying their specific roles in the and water use agreements, would be a binding process and timing; type of official document document to all parties, the community, the and person(s) who sign the authorization or developer, and the government. approval of the petition; if petition is rejected, a full explanation of reasons for rejection; and Early Recovery of VAT finally, specification of the maximum duration The early recovery of VAT is limited to projects of the whole process, after which the petition with construction periods of four years or more. is considered approved if there is no official At the same time, thermal projects, which are rejection. less capital intensive, can be financed as lease deals, one of the principal advantages of which Rights-of-way and Community Intervention is immediate recovery of VAT. But lease deals The Peruvian electricity legal framework cannot be done for small hydro projects (because provides for the imposition of rights-of-way the tariff cannot support the high payments for hydropower generation and other electrical implied by the typically much shorter lease activities such as transmission and distribution. terms). The net effect of these provisions is 85 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT an unfair disadvantage for small hydro. We time, the case for a more active government role recommend that this discrepancy be eliminated in overcoming the institutional and regulatory (perhaps as part of the implementing regulations barriers is at least as great. The special tariff for qualifying renewable energy facilities under incentives that the new decree provides to small the new law). projects will not be available to these larger projects under the 20 MW threshold set in the Medium Scale Larger Hydro Projects draft decree, which therefore implies the need A similar study is underway on hydro projects for: (1) setting the gas price at market levels, in the 20 MW to 200 MW size range. As already which is desirable on macroeconomic grounds; noted, such projects have a much larger potential (2) raising of the 20 MW limit of the Renewable role to meet the fast-growing power demand of Energy Decree to higher levels; or (3) another the country (with required capacity additions approach to overcome the distortion of the low of several hundred MW annually). At the same tariff based on the current low cost of gas. 86 Annex Hydropower Projects 1 Existing in 1976 Average Year Installed Annual Energy Start of Capacity Production No. Project River Basin Operation (MW) (GWh) 1 Stgo. Antuñez de Mayolo Mantaro 1965 342.0 2,640 2 Huinco Rimac 1964 258.0 921 3 Matucana Rimac 1971 120.0 665 4 Yaupi Tambo 1956 108.0 693 5 Cañon del Pato Santa 1964 100.0 700 6 Callahuanca Rimac 1938 67.0 501 7 Moyopampa Rimac 1951 63.0 475 8 Malpaso Mantaro 1926 54.0 189 9 Cahua Pativilca 1967 40.0 293 10 Macchu-Picchu Urubamba 1957 40.0 280 11 Huampani Rimac 1960 31.4 192 12 Aricota I Locumba 1967 24.0 138 13 Charcani IV Chili 1962 14.4 87 14 Pachachaca Mantaro 1929 12.0 45 15 Aricota II Locumba 1967 12.0 in Aricota I 16 Oroya Mantaro 1930 9.0 56 17 Charcani VI Chili 1978 9.0 67 18 Carpapata II Perene 1970 6.3 in Carpapata I 19 Charcani III Chili 1939 4.6 33 20 Sicay-Huarisca Mantaro 1970 3.8 11 21 Carpapata I Perene 1958 3.0 37 22 Ingenio Mantaro 1950 1.8 7 23 Charcani I Chili 1909 1.5 10 24 Charcani II Chili 1913 0.8 5 Others — — 80.3 — Total : 1,405.8 8,046 Source: Lahmeyer-Salzgitter-MEM [1979], Vol 2, Table 2.3. Note: Listed in order of descending installed capacity 87 Annex Hydropower Projects 2 with Concessions and Authorizations Table A2.1 Hydropower Projects with Definitive Concession Estimated Design Annual Estimated Capacity Production Investment No. Name Project Sponsor (MW) (GWh) (US$ Mio.) 1 Centauro I y III Corporación Minera del Perú 25.0 Not 14.0 S.A.—Cormipesa estimated 2 Cheves Empresa de Generación 158.0 Not 160.4 Eléctrica Cheves S.A. estimated 3 G1 El Platanal Compañía Eléctrica El Platanal S.A. 220.0 1100 155.0 4 Huanza Empresa de Generación Huanza S.A. –Emghuanza 86.0 338 56.2 5 La Virgen Peruana de Energía S.A.A. 64.0 385 54.9 6 Marañón Hidroeléctrica Marañón S.R.L. 96.0 425 78.0 7 Macchu Picchu Empresa de Generación 71.0 Not 85.0 (Extension) Eléctrica Machu Picchu S.A. estimated 8 Morro de Arica Cementos Lima S.A. 50.0 248 128.0 9 Pías 1 Aguas y Energía Perú S.A. 11.0 82 13.4 10 Poechos Sindicato Energético S.A.— 10.0 Not 9.0 (2nd Powerhouse) Sinersa estimated 11 Pucará Empresa de Generación Hidroeléctrica Del Cuzco 130.0 900 136.4 12 Quitaracsa I Quitaracsa S.A. Empresa de Generación Eléctrica 112.0 720 78.5 13 San Gabán I Empresa de Generación Macusani S.A. 120.0 725 132.2 14 Santa Rita Electricidad Andina S.A. 173.5 1000 134.1 15 Tarucani Tarucani Generating Company S.A. 49.0 418 46.9 Source: Ministerio de Energía y Minas, Dirección General de Electricidad, October 2007. 89 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table A2.2 Hydropower Projects with Temporary Concessions Estimated Design Annual Estimated Capacity Production Investment No. Name Project Sponsor (MW) (GWh) (US$ Mio.) 1 Copa Empresa de Generación 92.0 Not Studies: Eléctrica Cahua S.A. estimated S/. 33,000 2 Chaglla (Variante) Empresa de Generación 240.0 Not Studies: Huallaga S.A. estimated S/. 309,382 3 Cheves II Empresa de Generación 75.0 Not Studies: Eléctrica Cheves S.A. estimated S/. 60,000 4 Cheves III Empresa de Generación 123.5 Not Studies: Eléctrica Cheves S.A. estimated S/. 60,000 5 El Caño Electroandes S.A. 100.0 726 119 Studies: US$ 399,692 6 La Guitarra Electroperú S.A. 220.0 1831 235 Studies: S/. 81,050 7 Llaclla 2 Empresa de Generación 71.0 Not Studies: Eléctrica Cahua S.A. estimated S/. 33,000 8 Napo-Mazan Iquitos Hepp S.A. 154.1 Not Studies: estimated US$ 1,059,725 9 Quiroz-Vilcazán Junta de Usuarios Del 18.0 Not Not estimated Distrito de Riego San estimated Lorenzo 10 Rapay Empresa de Generación 90.0 Not Studies: Eléctrica Cahua S.A. estimated S/. 33,000 11 San Gabán II Empresa de Generación — Not Not estimated (Refurbishment) Eléctrica San Gabán S.A. estimated 12 San Gabán III Empresa de Generación To be 1219 153 Eléctrica San Gabán S.A. determined Studies: S/. 130,000 13 Santa Teresa Empresa de Generación 108.8 821 103 Eléctrica Machu Picchu S.A. Studies: S/. 955,800 14 Tablachaca 2 Iesa S.A. 200.0 850 Not estimated 15 Uchuhuerta Electroandes S.A. 30.0 235 36 Studies: US$ 342,192 16 Pías II Aguas y Energía Perú S.A. 16.0 Not Studies: estimated US$ 462,612 Source: Ministerio de Energía y Minas, Dirección General de Electricidad, October 2007. 90 Hydropower Projects with Concessions and Authorizations Table A2.3 Hydropower Projects with Authorizations Estimated Design Annual Estimated Capacity Production Investment No. Name Project Sponsor (MW) (GWh) (US$ Mio.) 1 Caña Brava Duke Energy Egenor 5.65 Not 6.05 S. En C. Por A. estimated 2 Carhuaquero IV Duke Energy Egenor 9.67 Not 5.36 S. En C. Por A. estimated 3 Gratón SIIF Andina S.A. 5.00 Not 4.72 estimated 4 Ispana-Huaca Inversiones Productivas 9.60 Not Not estimated Arequipa S.A.C. estimated 5 La Joya Generadora de Energía del 9.60 Not 9.57 Perú S.A. estimated 6 Pátapo Generación Taymi S.R.L. 1.02 Not 0.77 estimated 7 Roncador Agroindustrias Maja S.A.C. 3.80 Not 2.50 estimated 8 San Diego Duke Energy Egenor 3.24 Not 2.93 S. En C. Por A. estimated 9 Shali ABR Ingenieros S.A.C. 8.95 Not 8.10 estimated Source: Ministerio de Energía y Minas, Dirección General de Electricidad, October 2007. 91 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table A2.4 Hydropower Projects with Studies (No Concession or Authorization) Estimated Design Annual Estimated Capacity Production Investment No. Name Project Sponsor (MW) (GWh) (US$ Mio.) 1 Aricota III Empresa de Generación del Sur—Egesur 19 66 21 2 Ayapata Empresa de Generación Eléctrica San Gabán S.A. 80 491 183 3 Camana Plan Maestro 3 23 8 4 Chaglla Electroperú S.A. 420 2,811 586 5 Culqui Electroperú S.A. 20 133 54 6 Cumba Electroperú S.A. 825 4,524 974 7 El Chorro Ex Corporación del Santa 150 491 48 8 Huascarán Heracles 55 99 56 9 La Guitarra Electroperú S.A. 220 1,831 235 10 Lluclla II Peruana de Energía S.A. 90 121 112 11 Lluta Plan Maestro 280 1,604 417 12 Mayush Electroperú S.A. 100 695 207 13 Molloco I Electroperú S.A. 200 1,014 235 14 Molloco II Electroperú S.A. 110 558 95 15 Olmos I Proyecto Especial Olmos— Tinajones 300 1,116 239 16 Pampa Blanca Chavimochic 66 514 60 17 Paquitzapango Electroperú S.A. 1379 10,734 1,775 18 Puerto Prado Plan Maestro 620 4,764 1,250 19 Quishuarani I Electroperú S.A. 90 467 125 20 Rentema Electroperú S.A. 1500 6,509 750 21 San Gabán IV Empresa de Generación Eléctrica San Gabán S.A. 130 845 183 Source : Ministerio de Energía y Minas, Dirección General de Electricidad, October 2007. 92 Annex Candidate Hydropower 3 Projects for Addition to the National Interconnected Power System Installed Specific Capacity Investment Capacity Cost Project Region (MW) (US$ Mio.) (US$/kW) C.H. Olmos I Norte 120 80.02 667 C.H. Olmos II Norte 120 89.83 749 C.H. Quitaracsa I Norte Media 112 94.79 846 C.H. Santa Rita Norte Media 174 137.60 791 C.H. Cheves Centro 158.6 146.50 924 C.H. Huanza Centro 86 84.10 978 C.H. G1 El Platanal Centro 220 246.21 1119 C.H. La Virgen Centro 58 56.40 972 C.H. Macchu Picchu (Extension) Sur 71 73.95 1042 C.H. Santa Teresa Sur 110 72.30 657 C.H. San Gabán I Sur 120 141.51 1179 C.H. Tarucani Sur 50 55.59 1112 C.H. Lluclla II Sur 380 307.97 810 C.H. Pucará Sur 130 136.40 1049 Source: From Ministerio de Energía y Minas [2006], Plan Referencial 2006–2015, Tabla 3.3. 93 Annex Catalog of Hydropower 4 Projects up to 100 MW Identified in 1979 “Hydropower Potential” Study (Parts 1–8) 95 96 Price level: January 1979 Price level: 20073 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 1 JEQUE70 33.5 105.1 29.4 164.8 14.4 1.03 408 22.4 1.60 634 2 PISCO70 30.2 359.7 90.5 721.3 102.0 1.22 939 158.3 1.90 1,458 3 JORGE10 31.8 332.7 88.2 651.5 112.3 1.16 1,061 174.3 1.80 1,647 4 CHICA30 51.9 67.3 29.1 168.7 102.8 1.55 2,944 159.6 2.41 4,570 5 ANDA20 6.5 687.9 37.3 186.3 19.1 1.20 427 29.7 1.87 663 6 ICA10 23.6 179.9 35.4 254.9 148.7 2.04 3,501 230.8 3.17 5,434 7 CHIN20 77.2 73.4 47.3 384.8 73.3 2.23 1,291 113.8 3.47 2,005 8 ANDA30 6.5 875.8 47.5 237.2 28.6 1.41 502 44.4 2.20 779 9 OTOCA10 9.6 754.4 60.4 529.0 56.6 2.42 781 87.9 3.76 1,212 10 VNOTA10 104.0 108.4 94.0 706.7 147.1 2.44 1,304 228.4 3.79 2,025 11 PER20 259.7 31.0 67.1 416.1 58.6 1.65 728 91.0 2.56 1,130 12 HUA40 30.0 287.8 72.0 473.6 78.2 1.94 905 121.4 3.01 1,405 13 CHICA20 50.6 105.5 44.5 269.7 256.8 2.37 4,809 398.7 3.68 7,466 14 LAMB10 17.2 346.7 49.8 315.8 37.9 1.41 634 58.8 2.19 985 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT 15 TACNA30 4.3 976.3 35.0 240.0 44.7 2.19 1,064 69.4 3.39 1,652 16 LUCUM20 4.6 372.1 14.3 125.0 32.0 3.01 1,865 49.7 4.67 2,895 17 MARA150 104.0 61.8 53.6 286.4 49.4 2.02 768 76.7 3.14 1,192 18 PALCA30 23.1 286.4 55.2 338.2 47.4 1.64 716 73.6 2.55 1,111 19 APUR25 57.3 56.7 27.1 161.3 39.2 2.85 1,205 60.9 4.43 1,871 20 URAB10 9.6 1228.8 98.4 861.6 230.3 3.14 1,950 357.5 4.87 3,028 21 VNOTA200 109.0 53.5 48.6 291.8 55.4 2.23 950 86.0 3.46 1,475 22 MARA160 107.3 68.3 61.1 398.6 70.6 2.08 963 109.6 3.22 1,495 23 MARA120 93.6 104.4 81.5 443.4 88.5 2.34 863 137.4 3.63 1,340 24 CHON10 24.1 220.6 44.3 295.5 72.4 2.87 1,362 112.4 4.46 2,114 25 OTOCA20 11.6 713.9 69.1 576.6 157.9 3.08 1,904 245.1 4.79 2,956 (continued) Price level: January 1979 Price level: 20073 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 26 CHIR10 26.0 264.1 57.3 456.0 80.8 2.08 1,175 125.4 3.23 1,824 27 HUAL150 236.0 26.7 52.5 325.2 49.3 1.78 783 76.5 2.76 1,215 28 TAB10 75.0 86.9 54.3 424.8 95.4 2.63 1,464 148.1 4.09 2,273 29 HUA10 10.2 898.2 76.7 524.9 102.9 2.30 1,118 159.7 3.57 1,736 30 TACNA50 4.3 321.5 11.5 79.1 17.8 2.65 1,290 27.6 4.11 2,002 31 CHIN10 69.3 99.8 57.7 469.0 130.3 3.26 1,882 202.3 5.06 2,921 32 ANDA10 6.5 786.7 42.6 373.5 111.2 3.49 2,175 172.6 5.42 3,377 33 TACNA40 4.3 357.6 12.8 88.0 20.3 2.71 1,322 31.5 4.20 2,052 34 MAN130 74.5 88.0 54.7 324.3 78.9 2.86 1,202 122.5 4.43 1,866 35 SANTA60 52.0 214.8 93.2 646.4 194.7 3.06 1,741 302.3 4.75 2,703 36 MAN60 56.1 64.0 29.9 184.9 41.3 2.62 1,151 64.1 4.06 1,787 37 OLMOS20 32.4 269.8 73.0 501.1 103.9 2.43 1,186 161.3 3.78 1,841 38 JEQUE10 8.5 674.5 47.8 277.9 73.8 3.11 1,287 114.6 4.83 1,997 39 TACNA20 4.3 482.9 17.3 118.7 29.8 2.94 1,435 46.3 4.57 2,228 40 CHIL130 12.9 645.3 69.5 348.5 90.0 2.90 1,079 139.7 4.51 1,675 41 CHANC10 9.2 1093.4 84.3 536.5 110.8 2.42 1,095 172.0 3.76 1,700 42 LAMB20 30.2 269.3 67.9 426.4 119.2 3.28 1,463 185.1 5.09 2,271 43 SANTA90 73.5 86.2 52.8 331.5 97.7 2.82 1,542 151.7 4.37 2,394 44 MAN70 58.8 44.3 21.7 134.1 37.0 3.23 1,421 57.4 5.02 2,206 45 JEQUE20 8.5 360.8 25.6 155.0 46.4 3.24 1,510 72.0 5.03 2,345 46 CHFC10 6.6 1246.0 68.4 472.9 136.5 3.39 1,663 211.9 5.26 2,582 47 CHAN30 77.1 150.6 96.8 669.2 191.5 3.36 1,649 297.3 5.21 2,559 48 MAN80 92.5 87.8 67.7 413.4 120.8 3.43 1,487 187.5 5.32 2,308 49 MANTA10 9.8 954.6 77.9 423.6 92.4 2.56 988 143.4 3.97 1,534 50 PUZ20 48.6 237.4 96.2 733.8 261.6 4.18 2,266 406.1 6.49 3,518 51 COLCA10 11.2 171.0 16.0 105.4 36.1 4.02 1,880 56.0 6.24 2,919 (continued) 97 Catalog of Hydropower Projects up to 100 MW Identified in 1979 “Hydropower Potential” Study (Parts 1–8) 98 Price level: January 1979 Price level: 20073 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 52 CASMA50 24.3 269.8 54.7 375.8 125.5 3.80 1,912 194.8 5.90 2,968 53 TOTOR10 14.8 179.9 22.2 127.4 27.5 2.53 1,032 42.7 3.93 1,603 54 SANTA30 32.3 151.0 40.7 286.0 112.9 3.60 2,312 175.3 5.60 3,589 55 TABLA10 27.5 421.1 96.6 576.3 182.2 3.54 1,530 282.9 5.50 2,375 56 CHAMA50 87.0 54.6 39.6 262.4 84.6 3.78 1,780 131.3 5.87 2,764 57 JEQUE30 8.5 359.7 25.5 159.5 68.1 3.79 2,226 105.7 5.88 3,455 58 JEPF10 123.0 53.3 54.7 339.1 85.4 2.27 1,301 132.6 3.52 2,020 59 CASMA60 24.3 80.9 16.4 113.6 54.6 4.09 2,774 84.8 6.34 4,307 60 PISC020 9.1 756.9 57.4 254.6 56.8 2.62 783 88.2 4.06 1,215 61 CHANC20 15.7 719.4 94.0 593.2 153.8 3.04 1,364 238.8 4.72 2,117 62 MOCHE10 5.8 1512.3 73.5 384.3 163.7 4.22 1,856 254.1 6.54 2,881 63 SANTA40 18.3 524.0 80.1 623.1 2,717.3 4.82 2,885 4,218.4 7.49 4,479 64 MARCA70 64.0 179.9 96.0 595.0 138.5 2.73 1,202 215.0 4.24 1,866 65 HUABA20 141.4 65.7 77.4 482.9 146.0 3.55 1,572 226.7 5.50 2,440 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT 66 PISC040 16.9 361.4 50.9 229.6 50.7 2.59 830 78.7 4.02 1,289 67 SANJU20 20.0 533.9 89.1 395.8 114.2 3.38 1,068 177.3 5.25 1,658 68 PAUC270 61.0 157.4 80.1 656.1 297.4 5.32 3,094 461.7 8.25 4,803 69 CHICHA10 17.8 614.9 91.4 457.1 149.0 3.82 1,359 231.3 5.93 2,109 70 QUIRO10 13.0 151.7 16.4 100.9 39.6 4.61 2,012 61.5 7.15 3,124 71 SANTA10 7.2 238.1 14.4 120.5 85.8 5.46 4,965 133.2 8.48 7,708 72 CHAN10 13.0 648.9 70.4 438.7 186.9 5.00 2,212 290.2 7.76 3,435 73 PAMI10 44.8 64.7 24.2 140.0 56.3 2.66 1,939 87.4 4.13 3,010 74 CHAMA30 51.6 129.4 55.7 361.8 128.3 4.16 1,920 199.2 6.46 2,980 75 SANJU10 14.3 530.6 63.3 280.9 89.0 3.71 1,172 138.2 5.77 1,819 76 URUM15 21.2 563.4 99.6 695.1 312.3 5.26 2,613 484.8 8.17 4,056 77 VNOTA60 91.1 97.6 74.1 538.4 258.8 5.64 2,911 401.8 8.75 4,518 (continued) Price level: January 1979 Price level: 20073 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 78 SAMA30 30.0 314.8 78.8 361.5 104.6 3.39 1,106 162.4 5.27 1,717 79 UTC30 50.0 131.1 54.7 387.4 186.3 5.64 2,838 289.2 8.76 4,406 80 JEQUE60 33.0 144.9 39.9 209.3 133.7 5.04 2,792 207.6 7.83 4,335 81 JFQUE50 32.5 196.3 53.2 314.9 189.2 5.41 2,964 293.7 8.40 4,601 82 RIMAC10 5.1 1253.1 53.3 421.3 199.6 5.56 3,121 309.9 8.63 4,845 83 CANET90 31.8 283.3 75.2 373.4 122.4 3.84 1,356 190.0 5.97 2,106 84 MARA50 32.4 346.2 93.4 514.8 227.9 5.19 2,033 353.8 8.06 3,157 85 SAMA20 30.0 314.8 78.8 361.5 109.0 3.54 1,153 169.2 5.49 1,789 86 APUR90 69.6 73.7 42.7 213.9 31.8 4.48 1,596 49.4 6.96 2,478 87 CHILL20 8.4 359.7 25.3 161.2 54.5 3.97 1,795 84.6 6.16 2,787 88 RIMAC20 27.0 224.8 50.6 266.1 95.7 3.94 1,576 148.6 6.12 2,447 89 CHILI20 8.3 223.8 15.5 97.6 122.3 5.95 6,575 189.9 9.24 10,208 90 JEQUE40 17.2 171.0 24.5 133.8 114.7 5.49 3,901 178.1 8.52 6,057 91 SGAB60 75.0 109.3 68.3 432.5 175.5 4.76 2,141 272.5 7.39 3,324 92 YANA10 32.0 274.9 73.4 478.5 172.5 4.23 1,958 267.8 6.56 3,040 93 CANET40 20.3 481.9 81.7 410.5 167.9 4.69 1,713 260.7 7.28 2,659 94 PAM84 36.6 59.4 18.1 104.9 48.3 5.24 2,224 75.0 8.14 3,452 95 ICHU20 13.2 352.4 38.8 207.0 94.0 5.33 2,019 145.9 8.27 3,134 96 CHAL10 20.2 294.8 49.8 275.9 135.3 5.75 2,264 210.0 8.93 3,515 97 VIL10 21.6 275.6 49.6 330.0 167.3 5.95 2,811 259.7 9.23 4,364 98 CHILL10 8.4 940.6 66.2 353.4 123.7 4.10 1,557 192.0 6.37 2,417 99 TAMBO30 31.5 359.7 94.5 751.5 231.1 5.89 2,038 358.8 9.14 3,164 100 SAMA40 30.0 107.9 27.0 236.5 68.8 7.04 2,123 106.8 10.92 3,296 101 PISCO30 12.0 539.6 54.0 239.3 79.3 3.89 1,224 123.1 6.04 1,900 102 OYO10 5.7 1879.0 89.3 337.1 175.8 6.12 1,641 272.9 9.50 2,547 103 SAMA50 33.2 60.9 16.9 147.8 30.5 7.06 1,504 47.3 10.96 2,335 99 Catalog of Hydropower Projects up to 100 MW Identified in 1979 “Hydropower Potential” Study (Parts 1–8) (continued) Price level: January 1979 Price level: 20073 100 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 104 MALA20 16.0 539.6 72.0 319.1 106.7 3.92 1,235 165.6 6.09 1,917 105 CHOTA10 17.2 108.0 15.5 108.3 57.1 6.19 3,070 88.6 9.60 4,766 106 QUIRO20 20.4 257.6 43.8 276.9 148.4 6.29 2,823 230.4 9.76 4,383 107 CHON20 37.6 214.8 54.8 363.7 193.4 6.24 2,941 300.2 9.68 4,566 108 VIL20 37.2 94.0 29.2 163.7 75.2 5.39 2,146 116.7 8.36 3,332 109 COTAH20 30.3 359.7 90.8 316.7 105.1 3.89 965 163.2 6.03 1,497 110 HUAN10 19.1 343.1 54.8 446.4 284.4 7.47 4,325 441.5 11.60 6,714 111 OXA30 16.1 264.5 35.5 249.6 141.9 6.67 3,331 220.3 10.35 5,171 112 TAMBO20 24.2 302.6 61.1 533.5 235.0 7.87 3,205 364.8 12.22 4,976 113 OCONA80 89.7 127.9 95.7 442.8 203.2 5.51 1,813 315.5 8.56 2,814 114 TAMBO90 54.3 179.9 81.5 557.9 170.9 6.14 1,747 265.3 9.54 2,711 115 MALA10 16.0 584.5 78.0 345.6 142.1 4.58 1,518 220.6 7.11 2,357 116 COLCA60 46.4 89.9 34.8 187.8 70.5 4.40 1,688 109.4 6.84 2,621 117 SANJU30 20.0 359.7 60.0 265.3 104.6 4.62 1,453 162.4 7.18 2,255 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT 118 BLANC10 3.9 390.1 12.7 81.7 89.5 7.94 5,873 138.9 12.32 9,117 119 CANET10 5.4 1022.2 45.6 353.8 290.2 8.39 5,303 450.5 13.02 8,233 120 CHILL30 8.4 179.9 12.7 80.6 37.0 5.39 2,428 57.4 8.36 3,769 121 TACNA10 4.3 472.0 16.9 138.2 100.2 8.50 4,941 155.6 13.19 7,670 122 OYO20 7.9 972.5 64.2 164.3 61.0 4.35 792 94.7 6.76 1,229 123 SANJU40 20.0 354.1 59.1 267.1 118.4 5.20 1,670 183.8 8.07 2,592 124 MOCHE20 5.8 582.8 28.3 125.7 50.0 4.67 1,472 77.6 7.24 2,286 125 TAMB0100 54.3 179.9 81.5 557.9 212.6 5.91 2,170 330.0 9.17 3,368 126 CONAS10 14.2 180.5 21.4 160.2 114.7 8.40 4,467 178.1 13.03 6,934 127 PUCH10 15.4 223.7 28.7 154.3 85.0 6.46 2,468 132.0 10.03 3,832 128 SANTA20 13.1 303.7 33.3 223.8 161.0 7.43 4,029 249.9 11.54 6,255 129 CHAMA10 29.2 169.9 41.4 321.0 239.7 8.76 4,825 372.1 13.60 7,490 (continued) Price level: January 1979 Price level: 20073 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 130 SANTA70 52.0 170.9 74.1 456.7 236.6 6.08 2,661 367.3 9.43 4,131 131 TAMBO110 56.5 107.5 50.6 373.7 167.9 8.15 2,765 260.7 12.66 4,293 132 SONDO30 13.2 583.2 64.2 393.1 293.7 8.76 3,812 456.0 13.61 5,918 133 STOM30 25.7 300.2 64.4 368.3 238.0 7.58 3,080 369.5 11.77 4,781 134 PISC050 16.9 539.6 76.1 342.8 140.5 4.81 1,539 218.1 7.46 2,389 135 CHOTA30 17.5 105.8 15.4 113.9 86.6 8.92 4,686 134.4 13.84 7,275 136 SUNDO20 6.8 458.7 26.0 154.7 109.8 8.32 3,519 170.5 12.92 5,463 137 ARMA20 9.4 1164.0 90.8 232.1 97.4 4.67 894 151.2 7.25 1,388 138 CHAMA40 51.6 89.9 38.7 251.1 127.4 5.95 2,743 197.8 9.24 4,259 139 VIZCA10 15.6 248.0 32.4 168.3 121.4 8.46 3,122 188.5 13.14 4,847 140 SANJU50 20.0 171.5 28.6 148.1 104.7 8.29 3,051 162.5 12.88 4,736 141 ARMA30 9.4 1217.5 94.9 242.8 115.9 5.60 1,018 179.9 8.69 1,580 142 TAMBO80 54.3 179.9 81.5 557.9 356.0 8.62 3,640 552.7 13.39 5,651 143 APU10 11.8 171.0 16.8 135.6 133.0 11.49 6,597 206.5 17.83 10,242 144 HUAN20 23.4 129.4 25.2 179.6 143.1 9.34 4,732 222.2 14.51 7,346 145 VILCA70 26.4 344.2 75.9 406.3 283.6 8.19 3,114 440.3 12.71 4,834 146 COLCA30 32.1 128.8 34.5 251.4 221.8 10.02 5,358 344.3 15.56 8,317 147 HUAN35 29.3 45.0 11.0 75.7 57.9 8.99 4,386 89.9 13.96 6,810 148 PISC010 9.1 353.1 26.8 145.2 143.0 11.00 4,447 222.0 17.07 6,903 149 PARA20 7.2 765.8 46.3 153.7 71.0 5.42 1,278 110.2 8.41 1,984 150 MARCA40 32.4 156.9 42.4 282.5 248.6 10.32 4,886 385.9 16.02 7,585 151 CHICA10 7.0 527.9 30.8 173.8 178.2 12.02 4,821 276.6 18.67 7,485 152 OCONA05 19.6 351.0 57.4 256.0 236.4 10.83 3,432 367.0 16.81 5,328 153 CHOTA20 6.3 236.3 12.4 73.5 59.0 12.60 5,302 91.6 19.56 8,232 154 TAMBO10 19.0 172.1 27.3 238.8 300.3 14.12 9,167 466.2 21.92 14,231 155 COLCA40 32.1 89.9 24.1 164.6 181.3 10.75 6,269 281.5 16.69 9,732 101 Catalog of Hydropower Projects up to 100 MW Identified in 1979 “Hydropower Potential” Study (Parts 1–8) (continued) Price level: January 1979 Price level: 20073 102 Specific Specific Specific Mean Installed Annual Investment Energy Capacity Investment Specific Capacity Flow Net Head Capacity Energy Cost1 Cost2 Cost Cost1 Energy Cost2 Cost No. Project (m3/s) (m) (MW) (GWh) (US$ Mio) (US¢/kWh) (US$/kW) (US$ Mio) (US¢/kWh) (US$/kW) 156 CAJA10 14.7 65.6 8.1 55.3 59.2 12.54 6,091 91.9 19.47 9,455 157 YAUCA20 7.4 699.5 43.2 153.3 148.1 11.26 2,857 229.9 17.48 4,435 158 MOCHF30 9.9 216.5 17.8 96.9 143.7 12.90 6,728 223.1 20.03 10,444 159 CONDF10 7.5 306.4 19.2 125.8 176.7 16.49 7,669 274.3 25.59 11,906 160 LLAU10 8.4 332.9 23.2 174.5 345.4 23.22 12,407 536.2 36.04 19,260 161 YAUCA40 7.4 197.8 12.2 35.3 41.2 13.69 2,814 64.0 21.25 4,369 162 PARA10 3.5 1030.9 30.4 71.3 110.4 18.15 3,026 171.4 28.18 4,698 163 YAUCA10 5.4 507.3 22.8 73.7 182.7 28.41 6,678 283.6 44.10 10,367 Total 8,377.5 51,084.8 Ave 32.9 359.9 51.4 313.4 141.7 5.44 2,460 220.0 8.44 3,819 Min 3.5 26.7 8.1 35.3 14.4 1.03 408 22.4 1.60 634 Max 259.7 1879.0 99.6 861.6 2,717.3 28.41 12,407 4,218.4 44.10 19,260 Source: Lahmeyer-Salzgitter-MEM [1979], “Evaluación del Potencial Hidroeléctrico Nacional,” Vol II (Metodología y Resultados), Tabla 6.6. Notes: PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT 1. Investment costs include: • Engineering and administration (developer’s own costs), • Contingencies, • In the case of multipurpose projects, deduction of present value of net benefits other than from electricity (mainly irrigation). Investment costs do not include: • Transmission costs, • Interest during construction, approximated in the Hydropower Potential study IDC = T + DR/2, where T = construction period and DR = discount rate. For the above table IDC has been deducted from the investment cost assuming a four-year construction period and 10 percent discount rate. 2. In the original Table 6.6 the projects are listed according to increasing specific energy costs (sum of i) annualized investment costs (over the project useful/economic life) and ii) annual operation, maintenance and repair (OM&R) costs, divided by the average annual energy production.) whereby the specific energy cost was computed using a weighting factor of 0.5 on secondary energy. The order of listing is maintained in the above table, but the indicated specific energy cost has been recomputed on the basis of total energy production (without weighting of secondary energy). 3. Investment costs include have been updated from January 1979 to 2007 price level using the manufactures unit value (MUV) index prepared by the Development Prospects Group (DECPG) of the World Bank [2007c]. Annex Specific Capacity Costs of 5 Projects with Concessions and Authorizations Table A5.1 Concessions Specific Installed Investment Capacity Capacity Cost Cost No. Project (MW) (US$ Mio.) (US$/kW) Definitive Concession 1 Centauro I y III 25.0 14.0 560 2 Cheves 158.0 160.4 1,015 3 G1 El Platanal 220.0 155.0 705 4 Huanza 86.0 56.2 653 5 La Virgen 64.0 54.9 858 6 Marañón 96.0 78.0 813 7 Macchu Picchu (Extension) 71.0 85.0 1,197 8 Morro de Arica 50.0 128.0 2,560 9 Pías 1 11.0 13.4 1,218 10 Poechos (2nd powerhouse) 10.0 9.0 900 11 Pucará 130.0 136.4 1,049 12 Quitaracsa I 112.0 78.5 701 13 San Gabán I 120.0 132.2 1,102 14 Santa Rita 173.5 134.1 773 15 Tarucani 49.0 46.9 957 Average 91.7 1,004 Minimum 10.0 560 Maximum 220.0 2,560 (continued) 103 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table A5.1 continued Specific Installed Investment Capacity Capacity Cost Cost No. Project (MW) (US$ Mio.) (US$/kW) Temporary Concession 1 Copa 92.0 — — 2 Chaglla (Variante) 240.0 — — 3 Cheves II 75.0 — — 4 Cheves III 123.5 — — 5 El Caño 100.0 119.0 1,190 6 La Guitarra 220.0 235.0 1,068 7 Llaclla 2 71.0 — — 8 Napo-Mazan 154.1 — — 9 Quiroz-Vilcazán 18.0 — — 10 Rapay 90.0 — — 11 San Gabán II (Refurbishment) — — — 12 San Gabán III — 153.0 — 13 Santa Teresa 108.8 103.0 947 14 Tablachaca 2 200.0 — — 15 Uchuhuerta 30.0 36.0 1,200 Average 117.1 1,101 Minimum 18.0 947 Maximum 240.0 1,200 104 Specific Capacity Costs of Projects with Concessions and Authorizations Table A5.2 Authorizations and Studies Specific Installed Investment Capacity Capacity Cost Cost No. Project (MW) (US$ Mio.) (US$/kW) Authorizations 1 Caña Brava 5.7 6.1 1,071 2 Carhuaquero IV 9.7 5.4 554 3 Gratón 5.0 4.7 944 4 Ispana-Huaca 9.6 — — 5 La Joya 9.6 9.6 997 6 Pátapo 1.0 0.8 755 7 Roncador 3.8 2.5 658 8 San Diego 3.2 2.9 904 9 Salí 9.0 8.1 905 Average 6.3 849 Minimum 1.0 554 Maximum 9.7 1,071 With Studies Only 1 Aricota III 19.0 21.0 1,105 2 Ayapata 80.0 183.0 2,288 3 Camana 2.8 8.0 2,857 4 Chaglla 420.0 586.0 1,395 5 Culqui 20.0 54.0 2,700 6 Cumba 825.0 974.0 1,181 7 El Chorro 150.0 48.0 320 8 Huascarán 55.0 56.0 1,018 9 La Guitarra 220.0 235.0 1,068 10 Lluclla II 90.0 112.0 1,244 11 Lluta 280.0 417.0 1,489 12 Mayús 100.0 207.0 2,070 13 Molloco I 200.0 235.0 1,175 14 Molloco II 110.0 95.0 864 15 Olmos I 300.0 239.0 797 16 Pampa Blanca 66.0 60.0 909 17 Paquitzapango 1,379.0 1775.0 1,287 18 Puerto Prado 620.0 1250.0 2,016 19 Quishuarani I 90.0 125.0 1,389 20 Rentema 1,500.0 750.0 500 21 San Gabán IV 130.0 183.0 1,408 Average 317.0 1,384.8 Minimum 2.8 320.0 Maximum 1,500.0 2,857.1 All (Concessions, Authorizations and Studies) Average 179.8 1,157.5 Minimum 1.0 320.0 Maximum 1,500.0 2,857.1 Source: Authors’ calculations, 2008. 105 Annex A General Guide to 6 Scope and Accuracy of Hydropower Project Studies Table A6.1 A General Guide to Scope and Accuracy of Hydropower Project Studies Level: Inventory Level: Prefeasibility Level: Feasability Objective: Establish a comprehensive Objective: Determine provisional Objective: Demonstrate technical, catalog of project options for the ranking of options taking into environmental, economic and candidate reach or site(s). account optimal integrated financial feasibility of project. development of river reach. Topography: Minimum requirement Topography: Photogrammetric Topography: Field surveys at aerial photography at least 1:60,000, survey of reservoir area, altimetric structure sites and compilation of preferably 1:25,000, for stereoscopic precision corresponding to 1:5,000 1:2,000 maps with 2 m contours. interpretation (geometric, geologic, up to 1:25,000 scales with 2 or Surrounding areas at 1:5,000 with and agronomic). Vertical control and 5 m contours. Verification of 2 or 5 m contours. Verification of river profiles by surveying altimeter. 1:5,000 topography at sites by profiles, reservoir area/volume Contour maps by photogrammetric additional cross-sections. Linkage curves and maps prepared during interpretation covering possible dam of surveys (and water level gauges) earlier studies. sites and reservoir areas (for elevation/ with regional or national geodetic area/volume curves). Field surveys of network. cross-sections at dam, powerhouse, and other hydraulic works for topographic maps at 1:5,000 with 5 or 10 m contours. Hydrology: Historical discharge series Hydrology: Verification of Hydrology: Updating of of about 30 years, either recorded stream flow series established previously derived stream flow at (or near) site or reconstituted by at inventory level. Derivation and meteorological series, flood regression with records at nearby of design flood hydrographs at hydrographs and sediment locations and/or by catchment various probabilities for spillway deposition rates by incorporating model. Probabilistic assessment of and diversion works. Detailed any further data obtained since severity of stream flow deficiency analysis of any sediment load previous study. periods included in series. Estimated measurements made since probability curves of flood peaks inventory, for better estimation and volumes, possibly from regional of deposition rates and design analysis. Evaluation of regionally of any trapping and separating available data on sediment transport structures. Determination of stage for estimation of accumulation rates in discharge relationship at dam sites reservoir. Approximate assessment of and powerhouses based on staff precipitation/evaporation balances in gauge readings and discharge reservoir area. measurements. (continued) 107 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table A6.1 continued Level: Inventory Level: Prefeasibility Level: Feasability Geology: Surface reconnaissance Geology: Sub-surface investigation Geology: Comprehensive to enable inferences to be made on by geophysical methods (seismic subsurface investigations by depth of alluviums, tectonic features, and/or electrical resistivity) to mechanical drilling at sites of availability of construction materials, yield more accurate interpretation major surface structures and pervious formations, and slope of foundation conditions for major underground works (tunnels, stability at dam site and reservoir area. hydraulic structures. Verification caverns), supplemented by Possibly some subsurface investigation of previous assessments of trenches and exploration by geophysical methods for larger slope stability and perviousness audits at dam abutments, along project after preliminary screening of formations in reservoir area and at tunnel alignments and in area options. dam site. In special circumstances, of underground powerhouse. limited mechanical drilling at Complementary investigations by specific sites of larger projects. geophysical methods if necessary. Detailed verification of previous evaluations of slope stability, perviousness of formations and availability of construction materials. Socioenvironment: Sufficient Socioenvironment: Field Socioenvironment: Verification agronomic and demographic surveys to improve inventory of prefeasibility estimates of information to quantify loss of level estimates of resettlement resettlement and inundation of agricultural land and commercial and inundation of agricultural agricultural lands and commercial enterprises, number of families lands and business enterprises. enterprises. Detailed evaluation or persons to be resettled, etc. Reassessment of potential social of socioenvironmental benefits Qualitative evaluation of impacts and environmental problems for and potential problems, with relating to biodiversity, erosion, forest IEE report to development bank recommendations for solutions. habitat, aquatic ecology, health, requirements. Preparation of detailed plans archaeology, legal aspects, etc. and costing for measures to be undertaken during construction and operation of project. EIA report to bank requirements. Design: Consideration of several Design: Consideration of various Design: Economic optimization project layouts, including variations project layouts (maximum of principal project features of dam axis location, waterway operating levels and powerhouse such as flood surcharge (trade- alignment and powerhouse location. locations), for optimum off spillway capacity and dam Use of generalized types of dam development of river reach or crest elevation), diversion works (earth fill, rock fill, concrete gravity site. Variations around pivotal size, waterway dimensions, etc. dam, etc.), hydraulic structures design (dam height/installed Preliminary stability analysis and electro-mechanical equipment, capacity) to permit optimization. of major structures. Particular avoiding nonconventional designs Use of specific solutions for major consideration of construction intended to reduce costs. Standard project features such as diversion methods and schedules and their criteria for selection of nominal works, dam, spillway, waterways, influence on project cost. Details installed capacities and reservoir powerhouse. of drawings sufficient for offtake operating levels. Presentation as single of volumes and costs, including drawing showing general layout and access roads and construction site sections through principal structures, installations. supplemented by technical data sheet. (continued) 108 A General Guide to Scope and Accuracy of Hydropower Project Studies Table A6.1 continued Level: Inventory Level: Prefeasibility Level: Feasability Costing: Consistent criteria and Costing: Standard cost estimating Costing: Use of standard standard procedures to obtain procedure similar to that used procedures applied during homogenous cost estimates of at inventory level, possibly with inventory and prefeasibility studies project components, indirect costs, greater desegregation into project as a basic reference for detailed and contingencies. Individual unit or components. cost estimate. Determination total costs represented as functions of unit cost composition of of specific project variables, on basis main construction items, taking of information from suppliers and into consideration capability actual civil works costs incurred on of local labor, performance of completed projects. Estimates of construction equipment, costs of operation and maintenance costs supply and handling of materials, based on experience in existing meteorological conditions, access, projects. Breakdown of costs into labor, etc. Combination of cost estimates equipment and materials, foreign and with construction schedule to yield local currency. investment schedule. Evaluation: Computation of energy Evaluation: Assessment of energy Evaluation: Demonstration of production and capacity availability production, capacity availability, technical feasibility of constructing over period of recorded or and power and other benefits for project. Economic evaluation and reconstituted streamflow series, taking project variants (range of dam detailed financial analysis based into account reservoir elevation area/ heights and installed capacities), on estimated investment schedule volume relationships, evaporation applying procedures similar to and possible sources of finance. and seepage, turbine performance those used during inventory All assumptions to be stated and characteristics, existing and planned study, possibly incorporating sensitivity testing of plausible river basin developments and other in some form an optimization adverse outcomes included. uses (irrigation, water supply, flood model, to arrive at a development Benefits, risks and returns control), using simplified i.e., system- of the river reach or site which for participants to be clearly independent operating policies. maximizes total net benefits. identified. Assessment of power and other Refinement of the scheme, benefits to yield estimates of net in particular more detailed benefits and unit values of kW and kWh assessment of installed capacity for projects and alternatives, applying based on system approach cost allocation procedure to multi- or assumed PPA terms and purpose projects. conditions. All three levels of investigation provide input data to the continuously on-going planning process, which in turn yields technical and economic bases for: (i) identifying river basis or reaches for study at prefeasibility level; (ii) selecting individual projects for study at feasability level; (iii) deciding to construct a project. Source: Oud, E. and Muir, T. C., 1997, “Engineering and Economics Aspects of Planning, Design, Construction and Operations of Large Dam Projects,” Proceedings of IUCN, World Bank Workshop, Glard, Switzerland, 1997. 109 Annex National Consulting 7 Engineering Companies Involved in Hydropower and Water Resources Projects Table A7.1 National Consulting Engineering Companies Involved in Hydropower and Water Resources Projects Company Services Example Hydropower Projects S&Z Consultores Studies, design and Feasibility study and tender design Asociados S.A. construction supervision. Quitaracsa (200 MW). Construction supervision Yuncán (130 MW). Detailed design and construction supervision Monzón (360 kW). CESEL Ingenierios. Studies, design and Feasibility study Mollepata (592 MW). construction supervision. Final design 36 mini-hydropower schemes (Prodeis Norte). Construction supervision Charcani IV (135 MW). Proyectos Especiales Studies, design and Studies, design and construction Pacífico S.A. (PEPSA). construction supervision. supervision Macchu Picchu (90 MW), Centauro (10 MW), Huanchór (15 MW). Julio Bustamante y Studies and design. Prefeasibility and feasibility studies Asociados. Copa (92 MW) and Rapay (90 MW). Prefeasibility study Cheves I (158 MW). GCZ Ingenieros S.A.C. EPC, operation and Turnkey projects Lucanas (250 kW), maintenance. Maca (2.5 MW), Santa Rosa (3 MW). Source: Authors’ compilation based on information available in the public domain (national professional and trade associations, companies’ websites, and others.), 2008. 111 Annex National Civil Engineering 8 Contractors Involved in Hydropower and Water Resources Projects Contractor Example Water Resources Development Projects G&M S.A. Cañón del Pato (50 MW)—dam, desander, tunnel, powerhouse. Yanango (40 MW—intake, tunnel, penstock. JJC Contratistas Generales S. A. El Platanal—15 km tunnel, vertical shaft. Chavomochic—river crossing siphon. Jachacuesta—7 km tunnel. Cosapi Mantaro (360 MW)—installation of electromechanical equipment. Río Chillón groundwater recharge—intake, wells, transmission line. San Gabán II (110 MW)—intake dam, desander. GCZ Ingenieros S.A.C. Turnkey projects Lucanas (250 kW), Maca (2.5 MW), Santa Rosa (3 MW). Source: Authors’ compilation based on information available in the public domain (national professional and trade associations, companies’ websites, and others), 2008. 113 Annex Hydropower Turbine 9 Manufacturers in Peru Total Capacity Turbines Manufactured Installed1 Max. Other Head Capacity Peru Countries Other Equipment Company Type (m) (kW) (kW) (kW) Services GCZ Ingenieros SAC Pelton 100–1,000 5,000 5,750 1,140 Control systems Francis 10–250 5,000 8,725 525 Valves Total : 16,140 kW EPC ITDG/Tepersac (Axial) 4–12 60 Pelton 600 Mitchell- 20 ca. 10,000 Banki Ing. Jorge Gutiérrez Mitchell- Banki SAMMYCO—S&Z Ing. Villanueva 3HC S.A.C. Mitchell- 10–320 0.5–150 ca. 750 Banki Hidrosatur S.A.C. Francis 300 1 For GCZ Ingenieros, principal installations since from 1995 to date. 115 Annex Agreement Between 10 InterAmerican Development Bank and Instituto Nacional de Electrificación, Guatemala, on Feasibility Studies of Small to Medium-Sized Hydropower Projects Anexo Único público-privada que movilicen recursos privados hacia proyectos impulsados por Estudios de Factibilidad para Apoyar el el sector público; y (d) llevar a cabo una Desarrollo de Pequeñas y Medianas Centrales evaluación de los resultados del Programa Hidroeléctricas. y los estudios llevados a cabo. I. Objeto II. Descripción 1.01 El Programa tiene por objeto coadyuvar 2.01 Para el logro del objeto anterior, el al proceso de desarrollo de proyectos Programa comprende los siguientes de pequeñas y medianas centrales componentes: hidroeléctricas (PMCH´s) en Guatemala, Componente 1. Analizar los proyectos de la específicamente para: (a) seleccionar un lista corta existente y escoger los proyectos que conjunto de proyectos elegibles para serán llevados a factibilidad. realizar estudios de factibilidad; (b) elaborar 2.02 Bajo este componente, se financiará la para algunos de los proyectos elegibles los contratación de servicios de consultoría estudios requeridos hasta completar la fase para integrar un equipo multidisciplinario de factibilidad; (c) identificar y plantear de consultores (Equipo de Consultores) al INDE un conjunto de estrategias para revisar los perfiles de proyecto de que permitan propiciar la participación la lista corta acordada con el Banco y municipal y/o privada en proyectos realizar labores de campo y gabinete para hidroeléctricos, entre otros, mediante el escoger, utilizando métodos de decisión uso de nuevos modelos de asociación multicriterio (tomando en consideración LEG/OPR/RGII/IDBDOCS#927659 Source: http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=927659 Date: 16 March 2007 117 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT factores técnicos, políticos, sociales y III. Costo del Programa y plan de ambientales, entre otros), cuales proyectos financiamiento de la lista serán sujetos de estudios hasta llevarlos a factibilidad. 3.01 El costo estimado del Programa es el Componente 2. Estudios de Factibilidad. equivalente de quinientos mil dólares 2.03 Bajo este componente, el Equipo de (US$500.000), según la siguiente Consultores llevará a cabo los estudios distribución por categorías de inversión y para los proyectos escogidos. Los estudios por fuentes de financiamiento: comprenderán para cada proyecto, entre otros aspectos: (a) análisis de la información IV. Ejecución disponible y visitas a los sitios; (b) estudios 4.01 El Equipo de Consultores trabajará en topográficos; (c) estudios hidrológicos; el INDE en estrecha coordinación con (d) estudios geológico-geotécnicos y de la Oficina de Promoción de Proyectos riesgo sísmico; (e) estudios socio-ambientales Hidroeléctricos (OPPH); oficina que será preliminares; (f) estudio de alternativas la encargada de administrar integralmente y proyecto recomendado en cada caso; el Programa y actuar como canal de (g) prediseños hidráulicos de las obras; comunicación formal con el Banco. Todos (h) análisis de costos y beneficios esperados; los movimientos de recursos que se y, (i) análisis económico-financiero. efectúen (desembolsos y pagos) serán Componente 3. Promoción de Proyectos. registrados conCuadromente por la 2.04 Bajo este componente se financiará la unidad correspondiente del INDE. contratación de servicios de consultoría 4.02 El Programa contará con un coordinador para desarrollar y proponer estrategias que será responsable de la ejecución para lograr la integración del sector técnica. El coordinador tendrá entre sus privado y municipal a los proyectos que principales actividades las siguientes: impulsa el INDE. Específicamente se (a) liderar el equipo multidisciplinario propondrán alternativas de asociación esCuadrociendo y velando por el público-privada que permitan movilizar cumplimiento de las metas y objetivos recursos del sector privado hacia proyectos del Programa; (b) trabajar en estrecha impulsados por el sector público. coordinación con el Director de la Oficina Costo y Financiamiento (en US$) Rubro Infrafondo Contraparte Total 1 Componente 1. Selección de proyectos candidatos 60.600 25.000 85.600 2 Componente 2. Estudios de factibilidad 279.500 75.000 354.500 3 Componente 3. Promoción de Proyectos 44.900 44.900 4 Evaluación final y revisión estudios de factibilidad 10.000 10.000 5 Auditoría Externa 5.000 5.000 TOTAL 400.000 100.000 500.000 Porcentaje 80% 20% 100% Source: http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docum=927659 118 Agreement Between InterAmerican Development Bank and Instituto Nacional de Electrificación, Guatemala de Promoción de Plantas Hidroeléctricas se realicen siguiendo un orden y secuencia (OPPH) del INDE, buscando por medio lógica y debidamente programada. de las actividades a realizar, reforzar la 4.03 El INDE tendrá además a su cargo capacidad de la OPPH, de modo que la coordinación interinstitucional del pueda seguir desarrollando estudios de Programa en particular con el Ministerio proyectos en PMCH´s una vez finalizado de Agricultura y Ganadería, el Ministerio el Programa; y (c) programar, coordinar de Energía y Minas, las municipalidades y velar porque las actividades necesarias en las que se sitúan los proyectos a ser para llevar a cabo los estudios, tanto a estudiados y el sector privado. nivel de oficina como a nivel de campo, 119 Annex Requirements to Obtain 11 an Authorization or Concession for Hydropower Development Requirements and Procedure a temporary for studies and a definitive (or final) for construction and operation. to Obtain an Authorization The requirements and procedure to obtain a for Hydropower Generation temporary concession for hydro power generation are established in article 23 of the ECL, articles The Decree of May 2008, described in Chapter 6, 30 and 33 of its regulations and in item CE02 included several articles modifying the of Annex N° 1 of the Consolidated Text for existing electricity law, among them changes Administrative Procedures of MEM (the TUPA). to the modified authorization and concession Main requirements are: requirements for hydropower generation, eliminating in practice Authorizations for a) Presentation of project documentation with plants larger than 500 kW of installed capacity. a general description and main design So, now hydroelectric plants with installed parameters of the project and a location map capacities larger than 500 kW will require a of main works and installations, and other concession. Although there is no disposition relevant project information. in this new legislation regarding requirements b) INRENA authorization to carry out studies for plants smaller than 500 kW, it follows from for the use of water resources for electricity the general electricity law that these type of generation. plants are unregulated (this does not prevent c) General description, schedule and budget compliance with environmental and other of project studies to be carried out; specific sectors’ regulations). requirement of possible rights of way on third party properties. Requirements and d) Security bond in favor of MEM, valid for the period of temporary concession requested, Procedure to Obtain a in an amount equivalent to 1 percent of the Temporary Concession for budget of proposed studies, up to 25 UIT. Hydropower Generation e) Legal documentation of public registration of sponsor/developer as a commercial Development and operation of hydropower company. Companies must be established in plants larger than 20 MW require a concession. Peru and register according to the Peruvian The concept is that the use or exploitation of law. a public property, like natural resources (river water in this case), should be permitted only MEM should verify compliance of all through a concession from government to the required paperwork and documentation within interested party. In the Peruvian electricity thirty (30) calendar days of submission. Then, regulatory framework, there are two stages or the request of temporary concession should be levels, in the concession process of hydro plants, published in the official newspaper “El Peruano” 121 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT during two consecutive days (the cost of this b) INRENA approval of the required studies for publication is paid by the interested party).82 hydropower generation. The study should MEM issues temporary concession for a be at pre-feasibility level and cover the maximum period of two years. During this project area relevant to the water retention period the project studies should be completed. and intake and the water return to the If the project sponsor/developer (the petitioner natural or artificial river water source, as of the temporary concession) is not able to applicable. complete the studies in time, it can request an c) General project description consolidated extension. If concession terms as outlined in the design and full set of engineering drawings application, with regard to the studies and the and maps of all project installations; relevant schedule, are not complied with during delimitation of the concession area, indicating the concession period (and any extensions), the UTM coordinates; project implementation temporary concession will cease and the guarantee schedule and project costs estimation and bond will be cashed. All ministerial resolutions budget. regarding granting, renewal and revocation of d) Specification of the required rights of way of temporary concessions are published in the official project facilities. newspaper “El Peruano.” e) Approval of the Environmental Impact Study of the project by the General Directorate for Energy Environmental Matters of MEM, or Requirements and receipt of the request for approval. Procedure to Obtain a f) Security bond in favor of the MEM, in Definitive Concession for an amount equivalent to 1 percent of the estimated project costs, up to an amount of Hydropower Generation 50 UITs. The requirements and procedure to obtain a g) INC certification of absence of archaeological definitive concession for hydro power generation (the CIRA). are established in articles 3, 6, 22, 25, 26 and h) Legal documentation of public registration 28 of the ECL, articles 37, 43, 53 and 54 of its of sponsor/developer as a commercial regulations and in item CE01 of Annex N° 1 of the company, according to the Peruvian law. Consolidated Text for Administrative Procedures of MEM (the TUPA). Main requirements are: MEM should verify compliance of all required paperwork and documentation within a) Submission of request, addressed to the ninety (90) calendar days of submission. MEM General Director for Electricity, and payment issues definitive concessions for an undefined of the corresponding right of one half of a period of time. UIT. 82 UIT: Unidad Impositiva Tributaria: a monetary amount to be paid for some rights or obligations. For example, if the UIT is S/.3,000, then 500UITs is S/.1,500,000. 122 Annex Process for CONAM 12 Approval of a CDM Project Figure A12.1 Process for CONAM Approval of a CDM Project Responsible Stage Registration CONAM Executive Letter of request for project Secretary 1. Reception of application approval. CONAM format 34.3, Clean Development Mechanism (CDM) Project Executive Secretary and Document. Chief of Climate Change CONAM format 34.1: Unit Guidelines for Facilitating 2. Opinion of sector 3. Call to meeting involved type of project, of Ad-hoc Project CDM Evaluation. Report of field visit Project and of FONAM Committee site. Executive Secretary Citation for meeting Contribution to Minutes of meeting of Ad- No Project hoc Committee. sustainable rejected development? Executive Secretary Yes 4. Opinion of Ad-hoc Committee Letter of Conformity Executive Secretary 5. Issuing of Letter of conditional conformity Letters to applicant and CDM Executive Committee (JE MDL) Executive Secretary 6. Communication to applicant and to JE MDL Letter communicating validation and receipt of payment 7. Return of validated project Executive Secretary and OAF Director documentation to CONAM Annual report of CDM Chief of Climate Change 8. Monitoring of project projects Unit Source: http://www.fonamperu.org/general/mdl/procedimientos.php 123 Annex Comparison of International 13 Renewable Energy Policies 125 126 Table A13.1 Hydropower Projects with Definitive Concession Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future Australia 2010: 9.500 Gwh Mandatory Renewable Renewable Energy Certificates No auctions. No technology The system was 2020: 20% Energy Target (MRET)— (RECs) are created by Registered RECs bands. extended until through a Renewable generators accredited by the are traded with 2020. Power Percentage Office of the Renewable Energy notification to the (RPP), which is updated Regulator (ORER), with each REC registry. yearly to ensure 2010 certificate equivalent to 1 MWh target is reached. of renewable generation. The RE generator is responsible for negotiating a price for those RECs. Brazil 3,300 MW capacity Proinfa (Incentives Maximum prices: Wind: 2 auctions Maximum Program has from RE (1,100 MW Program for Renewable 9.783—8.626$c/kwh, Small were held by tariffs for each encountered each of wind, SHP Sources of Energy) hydro: ( 30 MW) 5.602$c/kwh, Electrobras, technology (see some delays and biomass) under Bagasse: 4.489$c/kwh, Wood: with only those prices) so the deadline 20 year PPAs 4.852$c/kwh having a license of for contracting installation able to capacity participate. (3300 MW) has been extended. PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Chile 2010: 5% of NCRE Program (short Prices are determined by a 2 auctions were No. Program is the regulated laws 19-940, 20-018) payment mechanism based held in October ongoing, with final demand supplied on stable LT (marginal) costs 2006 and October objective for 2024. to come from and indexed to the input costs 2007. Non-Conventional of each bidder; capacity price Renewable Energy fixed and maximum price (NCRE) and hydro capped at 20% above prevailing 20 MW 2024: 8% free-market price (cap at 2006 auction was: USc6.27/kWh). Future prices are expected to be around US$c7/kwh. (continued) Table A13.1 continued Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future England 2010: 10% 1. UK non fossil fuel 1. Guaranteed price: function of 1. Competition 1. Renewable Multiple ROC 2020: 20% obligation (x-2000) power pool wholesale price plus for lowest bid for technologies approach 1 2. Renewables technology-specific premium each category are separated from 2009 with Obligation (2000 on) paid by electricity consumers. separately. into different 4 bands: (1) 2. The Obligation requires Each scheme technology technologies in suppliers to source an annually that passed a categories and the Established increasing percentage of “will-secure” competitive Band will receive their sales from renewables test submitted bidding 0.25 ROCs/MWh; (The current level is 7.9% a final bid and rounds are (2) technologies for 2007/08 rising to 15.4% the government organised for in the Reference by 2015/16). For each Mwh then selected the each category Band 1 ROC/MWh; of RE generated, a tradable cheapest schemes separately. (3) technologies certificate called a Renewables to secure the 2. From 2009, in the Post- Obligation Certificate (ROC) required capacity the Government Demonstration is issued. Suppliers can meet within each wants to include Band 1.5 ROCs/ their obligation by: (i) acquiring technology band. banding of the MWh; and ROCs, (ii) paying a buy-out price The renewables RO; the new (4) technologies equivalent to £34.30/Mwh in capacity was Renewable in the Emerging 2007/08 and rising each year secured through Obligations Technologies Band with retail price index; or (iii) contracts with 2007 (to be 2 ROCs/MWh. a combination of ROCs and generators at voted in 2008) Microgeneration paying a buy-out price. premium prices. introduced the projects will be 2. ROCs are traded. obligation to placed in the same amalgamate bands as large output by scale generation technology using the same groups. technology. (continued) 127 Comparison of International Renewable Energy Policies Table A13.1 continued 128 Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future France 2010: 21% Orientations of energy Feed-in tariffs by technology, Over 4.5 MW, Technology policy (2005). which covers capital and O&M the generator specific. costs and a premium-total needs to obtain a tariff cannot exceed a “normal concession, through rate of return,” taking into a bidding procedure account technology risks and which looks at: (i) guarantee for the generator to energetic content sell the whole production at a (investments, given tariff (Small hydro: 9.5 to operating 16.1USc/kwh based on season; modalities); (ii) PV: USc30/kWh +USc39/kWh proposed redevance construction premium; wind: rate that the USc12.9/kWh during 10 years concessionary will and then btw USc4.4-12.9/ pay to the State; kWh the five following years (iii) environmental depending on site). mitigation plan. Germany 2010: 12.5% Renewable Energy Law Feed-in tariff, depending on No Tariffs differ 2020: 20% (EEG) Erneuerbare the energy source, the size of according to Energien Gesetz the installation and the date technology. PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT of commissioning (the later an installation begins operation, the lower the tariff). The grid operators and energy supply companies can pass on the difference in costs for electricity from renewable energies to the final consumer. For 2005, fees under the new EEG range from 6.70$c/kWh for electricity from wind energy (basic payment) and 8.27$c/ kWh for electricity from hydropower, to 73.99$c/ kWh for solar electricity from small façade systems (see attached table). In principle the guaranteed payment period is 20 calendar years, for hydropower 15 or 30 years. (continued) Table A13.1 continued Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future Ireland 2010: 15% 1. Ireland Alternative1. The additional cost of 1. Winning bidders 1. For each 2020: 33% Energy Requirement electricity procured under the are entitled to a 15- competition a (AER):1995–2005. AER schemes is spread across year PPA whereby quota is set for 2. From 2006, all electricity consumers: the the ESB buys the the amount of Renewable Energy Feed Public Service Obligation (PSO) electricity output electricity to be In Tariff (REFIT) levy. of the winning sourced from 2. Under REFIT, project facility at the bid each technology, developers are free to negotiate price. e.g., wind, hydro, with any electricity suppliers 2. No auctions. biomass/waste. in the liberalised electricity 2. Price support market. The purchase price caps: Large is negotiated between the Scale Wind generator and supplier directly. category: Contracting suppliers will 7.78$c/kwh, be compensated for the net Small Scale additional costs incurred (up Wind category: to some price caps) from the $8.05c/kwh, PSO levy funded by electricity Hydro: $9.83c/ consumers. kwh, Biomass Landfill Gas: $7.0c/kwh, Other Biomass: $9.83c/kwh. (continued) 129 Comparison of International Renewable Energy Policies 130 Table A13.1 continued Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future Spain 2010: 29.4% Plan for renewable For RE ( 50 MW), choice No Tariffs and Plan for renewable 2020: 37% energy. between: selling energy at premiums by energy for 2011– a regulated rate, or selling technology. 2020 is currently the energy directly into the in elaboration to spot market/forward market/ help Spain reach bilaterally, receiving in this case 2020 target of the price on the market plus 37% electricity a premium. Recently cap and from RE. floor prices were introduced for certain technologies, and premium is eliminated if market price is too high vs. cost (for hydros, 2 groups of tariffs: 10 Mw, 10 to 50 MW). (continued) PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Table A13.1 continued Objective (RE as % of electricity Technology Country or MW) Program(s) Prices Auctions Bands Future USA Case study: Renewable Portfolio 1. When RE facilities are California’s three The Amended California Standard (24 States certified, they receive an large investor Scoping Ruling 2010: 20% D.C.) hydro: 30 MW IOU in their contract. Tariffs owned utilities are of the Assigned Example: California. are based on the Market Price required to issue Commissioner 2020: 33% Referents (MPRs), which are annual solicitations projects a the cost of a long-term contract for renewable proposed decision with a combined cycle gas energy, until they on whether turbine facility, levelized into a reach the 20% the CPUC will cent-per-kWh value. requirement. authorize Tradable 2. Since February 2008: Bid prices at or RECs for RPS Feed-in tariffs (for RE of below the MPR may compliance in the less then 1.5 MW): fixed base be accepted by the second quarter of rate determined by the MPR California Public 2008. table for a period of 10, 15, or Utilities Commission 20 years. The rates are set and (CPUC). adjusted by Time of Use (TOU) Bids priced above factors as authorized by the the MPR may Commission. face a stronger burden of proof in justifying the reasonableness of their contract price. Above market costs are then covered by Supplemental Energy Payments (SEPs). Sources: 1. DTI, Reform of the Renewables Obligation, May 2007. 2. Ministère de l’Industrie, France. (www.industrie.gouv.fr/energie/renou) 3. Comisión Nacional de Energía, Spain 4. California Public Utilities Commission. 5. Department of Communication, Energy and Natural Resources, Ireland. 6. Tokman, M. 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[2000]. “Assessment Methods for Small-Hydro.” World Bank [2008]. “Private Sector, Small-scale, Grid- Technical Report, International Energy Agency (IEA), connected Renewable Power Generation in Sri Lanka: April, 2000. A review of the experience of the past decade (1996 to World Bank [2003]. “Sri Lanka—Energy Services Delivery 2006).” January 2008. Project.” Implementation Completion Report, 2003. World Bank [2008b]. “URS, Study of Equipment Prices in World Bank [2004a]. “Republic of Turkey—Renewable Energy the Energy Sector.” Project.” Project Appraisal Document (PAD), Report 25497-TU, 26 February 2004. 135 List of Formal Reports Region/Country Activity/Report Title Date Number SUB-SAHARAN AFRICA (AFR) Africa Regional Anglophone Africa Household Energy Workshop (English) 07/88 085/88 Regional Power Seminar on Reducing Electric Power System Losses in Africa (English) 08/88 087/88 Institutional Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English) 05/89 —— Francophone Household Energy Workshop (French) 08/89 —— Interafrican Electrical Engineering College: Proposals for Short- and Long-Term Development (English) 03/90 112/90 Biomass Assessment and Mapping (English) 03/90 —— Symposium on Power Sector Reform and Efficiency Improvement in Sub-Saharan Africa (English) 06/96 182/96 Commercialization of Marginal Gas Fields (English) 12/97 201/97 Commercializing Natural Gas: Lessons from the Seminar in Nairobi for Sub-Saharan Africa and Beyond 01/00 225/00 Africa Gas Initiative—Main Report: Volume I 02/01 240/01 First World Bank Workshop on the Petroleum Products Sector in Sub-Saharan Africa 09/01 245/01 Ministerial Workshop on Women in Energy and Poverty Reduction: Proceedings from a Multi-Sector and Multi- Stakeholder Workshop Addis Ababa, Ethiopia, 10/01 250/01 October 23–25, 2002 03/03 266/03 Opportunities for Power Trade in the Nile Basin: Final Scoping Study 01/04 277/04 Energies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l’atelier régional. Dakar, Sénégal, du 4 au 6 février 2003 (French Only) 01/04 278/04 Énergies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l’atelier régional. Douala, Cameroun du 16-18 juillet 2003. (French Only) 09/04 286/04 137 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Africa Regional Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshops held in Africa 01/05 298/05 Power Sector Reform in Africa: Assessing the Impact on Poor People 08/05 306/05 The Vulnerability of African Countries to Oil Price Shocks: Major Factors and Policy Options. The Case of Oil Importing Countries 08/05 308/05 Maximizing the Productive Uses of Electricity to Increase the Impact of Rural Electrification Programs 03/08 332/08 Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91 Africa Gas Initiative—Angola: Volume II 02/01 240/01 Benin Energy Assessment (English and French) 06/85 5222-BEN Botswana Energy Assessment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Issues Study (English) 02/88 —— Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and French) 06/91 134/91 Burundi Energy Assessment (English) 06/82 3778-BU Petroleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five Year Plan (1983–1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Assessment (English and French) 01/92 9215-BU Cameroon Africa Gas Initiative—Cameroon: Volume III 02/01 240/01 Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Central African Republic Energy Assessment (French) 08/92 9898-CAR Chad Elements of Strategy for Urban Household Energy The Case of N’djamena (French) 12/93 160/94 Comoros Energy Assessment (English and French) 01/88 7104-COM In Search of Better Ways to Develop Solar Markets: The Case of Comoros 05/00 230/00 138 List of Formal Reports Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 Africa Gas Initiative—Congo: Volume IV 02/01 240/01 Côte d’Ivoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (English) 12/87 Power Sector Efficiency Study (French) 02/92 140/91 Project of Energy Efficiency in Buildings (English) 09/95 175/95 Africa Gas Initiative—Côte d’Ivoire: Volume V 02/01 240/01 Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 Energy Assessment (English) 02/96 179/96 Gabon Energy Assessment (English) 07/88 6915-GA Africa Gas Initiative—Gabon: Volume VI 02/01 240/01 The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02/85 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85 Ghana Energy Assessment (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Industrial Energy Efficiency (English) 11/92 148/92 Corporatization of Distribution Concessions through Capitalization 12/03 272/03 Guinea Energy Assessment (English) 11/86 6137-GUI Household Energy Strategy (English and French) 01/94 163/94 Guinea Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electric Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Institutional Restructuring (French) 04/91 118/91 Kenya Energy Assessment (English) 05/82 3800 KE Power System Efficiency Study (English) 03/84 014/84 139 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Kenya Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English) 02/87 —— Solar Water Heating Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English) 11/87 —— Power Loss Reduction Study (English) 09/96 186/96 Implementation Manual: Financing Mechanisms for Solar Electric Equipment 07/00 231/00 Lesotho Energy Assessment (English) 01/84 4676-LSO Liberia Energy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87 Madagascar Energy Assessment (English) 01/87 5700- Power System Efficiency Study (English and French) 12/87 075/87 Environmental Impact of Woodfuels (French) 10/95 176/95 Malawi Energy Assessment (English) 08/82 3903- Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92 Islamic Republic of Mauritania Energy Assessment (English and French) 04/85 5224- Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Energy Assessment (English) 12/81 3510- Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Energy Sector Review (English) 12/94 3643- Mozambique Energy Assessment (English) 01/87 6128- Household Electricity Utilization Study (English) 03/90 113/90 Electricity Tariffs Study (English) 06/96 181/96 Sample Survey of Low Voltage Electricity Customers 06/97 195/97 Namibia Energy Assessment (English) 03/93 11320- Niger Energy Assessment (French) 05/84 4642-NIR Status Report (English and French) 02/86 051/86 140 List of Formal Reports Niger Improved Stoves Project (English and French) 12/87 080/87 Household Energy Conservation and Substitution (English and French) 01/88 082/88 Nigeria Energy Assessment (English) 08/83 4440-UNI Energy Assessment (English) 07/93 11672- Strategic Gas Plan 02/04 279/04 Rwanda Energy Assessment (English) 06/82 3779-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and French) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 065/87 Energy Assessment (English and French) 07/91 8017-RW Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADC SADC Regional Power Interconnection Study, Vols. I–IV (English) 12/93 —— SADCC SADCC Regional Sector: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) 11/91 —— Sao Tome and Principe Energy Assessment (English) 10/85 5803-STP Senegal Energy Assessment (English) 07/83 4182-SE Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037/85 Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Industrial Energy Conservation Program (English) 05/94 165/94 Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Energy Assessment (English) 10/87 6597-SL Somalia Energy Assessment (English) 12/85 5796-SO Republic of Options for the Structure and Regulation of Natural South Africa Gas Industry (English) 05/95 172/95 Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83 Energy Assessment (English) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English) 07/87 073/87 141 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Swaziland Energy Assessment (English) 02/87 6262-SW Household Energy Strategy Study 10/97 198/97 Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 —— Industrial Energy Efficiency Technical Assistance (English) 08/90 122/90 Power Loss Reduction Volume 1: Transmission and Distribution System Technical Loss Reduction and Network Development (English) 06/98 204A/98 Power Loss Reduction Volume 2: Reduction of Non-Technical Losses (English) 06/98 204B/98 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency Improvement (English and French) 12/87 078/87 Uganda Energy Assessment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (English) 01/85 029/85 Energy Efficiency in Tobacco Curing Industry (English) 02/86 049/86 Fuelwood/Forestry Feasibility Study (English) 03/86 053/86 Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Improvement in the Brick and Tile Industry (English) 02/89 097/89 Tobacco Curing Pilot Project (English) 03/89 UNDP Terminal Report Energy Assessment (English) 12/96 193/96 Rural Electrification Strategy Study 09/99 221/99 Zaire Energy Assessment (English) 05/86 5837-ZR Zambia Energy Assessment (English) 01/83 4110-ZA Status Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90 Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Status Report (English) 08/84 019/84 142 List of Formal Reports Zimbabwe Power Sector Management Assistance Project (English) 04/85 034/85 Power Sector Management Institution Building (English) 09/89 —— Petroleum Management Assistance (English) 12/89 109/89 Charcoal Utilization Pre-feasibility Study (English) 06/90 119/90 Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM Energy Efficiency Technical Assistance Project: Strategic Framework for a National Energy Efficiency Improvement Program (English) 04/94 —— Capacity Building for the National Energy Efficiency Improvement Programme (NEEIP) (English) 12/94 —— Rural Electrification Study 03/00 228/00 Les réformes du secteur de l’électricite en Afrique: Evaluation de leurs conséquences pour les populations pauvres 11/06 306/06 EAST ASIA AND PACIFIC (EAP) Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 —— China County-Level Rural Energy Assessments (English) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Strategic Options for Power Sector Reform in China (English) 07/93 156/93 Energy Efficiency and Pollution Control in Township and Village Enterprises (TVE) Industry (English) 11/94 168/94 Energy for Rural Development in China: An Assessment Based on a Joint Chinese/ESMAP Study in Six Counties (English) 06/96 183/96 Improving the Technical Efficiency of Decentralized Power Companies 09/99 222/99 Air Pollution and Acid Rain Control: The Case of Shijiazhuang City and the Changsha Triangle Area 10/03 267/03 Toward a Sustainable Coal Sector In China 07/04 287/04 Demand Side Management in a Restructured Industry: How Regulation and Policy Can Deliver Demand-Side Management Benefits to a Growing Economy and a Changing Power System 12/05 314/05 A Strategy for CBM and CMM Development and Utilization in China 07/07 326/07 Development of National Heat Pricing and Billing Policy 03/08 330/08 Fiji Energy Assessment (English) 06/83 4462-FIJ Indonesia Energy Assessment (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries (English) 04/87 067/87 143 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Indonesia Diesel Generating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Strategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90 Prospects for Biomass Power Generation with Emphasis on Palm Oil, Sugar, Rubberwood and Plywood Residues (English) 11/94 167/94 Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93 Institutional Development for Off-Grid Electrification 06/99 215/99 Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA Mongolia Energy Efficiency in the Electricity and District Heating Sectors 10/01 247/01 Improved Space Heating Stoves for Ulaanbaatar 03/02 254/02 Impact of Improved Stoves on Indoor Air Quality in Ulaanbaatar, Mongolia 11/05 313/05 Myanmar Energy Assessment (English) 06/85 5416-BA Papua New Energy Assessment (English) 06/82 3882- Guinea (PNG) Status Report (English) 07/83 006/83 Institutional Review in the Energy Sector (English) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 Philippines Commercial Potential for Power Production from Agricultural Residues (English) 12/93 157/93 Energy Conservation Study (English) 08/94 —— Strengthening the Non-Conventional and Rural Energy Development Program in the Philippines: A Policy Framework and Action Plan 08/01 243/01 Rural Electrification and Development in the Philippines: Measuring the Social and Economic Benefits 05/02 255/02 Solomon Islands Energy Assessment (English) 06/83 4404-SOL Energy Assessment (English) 01/92 979-SOL South Pacific Petroleum Transport in the South Pacific (English) 05/86 —— Thailand Energy Assessment (English) 09/85 5793-TH Rural Energy Issues and Options (English) 09/85 044/85 Accelerated Dissemination of Improved Stoves and Charcoal Kilns (English) 09/87 079/87 Northeast Region Village Forestry and Woodfuels Preinvestment Study (English) 02/88 083/88 Impact of Lower Oil Prices (English) 08/88 —— Coal Development and Utilization Study (English) 10/89 —— 144 List of Formal Reports Thailand Why Liberalization May Stall in a Mature Power Market: A Review of the Technical and Political Economy Factors that Constrained the Electricity Sector Reform in Thailand 1998–2002 12/03 270/03 Reducing Emissions from Motorcycles in Bangkok 10/03 275/03 Tonga Energy Assessment (English) 06/85 5498- Vanuatu Energy Assessment (English) 06/85 5577-VA Vietnam Rural and Household Energy—Issues and Options (English) 01/94 161/94 Power Sector Reform and Restructuring in Vietnam: Final Report to the Steering Committee (English and Vietnamese) 09/95 174/95 Household Energy Technical Assistance: Improved Coal Briquetting and Commercialized Dissemination of Higher Efficiency Biomass and Coal Stoves (English) 01/96 178/96 Petroleum Fiscal Issues and Policies for Fluctuating Oil Prices In Vietnam 02/01 236/01 An Overnight Success: Vietnam’s Switch to Unleaded Gasoline 08/02 257/02 The Electricity Law for Vietnam—Status and Policy Issues—The Socialist Republic of Vietnam 08/02 259/02 Petroleum Sector Technical Assistance for the Revision of the Existing Legal and Regulatory Framework 12/03 269/03 Western Samoa Energy Assessment (English) 06/85 5497- SOUTH ASIA (SAR) SAR Regional Toward Cleaner Urban Air in South Asia: Tackling Transport Pollution, Understanding Sources 03/04 281/04 Potential and Prospects for Regional Energy Trade in the South Asia Region 08/08 334/08 Trading Arrangements and Risk Management in International Electricity Trade 09/08 336/08 Bangladesh Energy Assessment (English) 10/82 3873-BD Priority Investment Program (English) 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Pre-feasibility Study (English) 12/88 —— Reducing Emissions from Baby-Taxis in Dhaka 01/02 253/02 Improving Indoor Air Quality for Poor Families: A Controlled Experiment in Bangladesh 03/08 335/08 India Opportunities for Commercialization of Non-conventional Energy Systems (English) 11/88 091/88 Maharashtra Bagasse Energy Efficiency Project (English) 07/90 120/90 145 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT India Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Power Sector Reform Seminar (English) 04/94 166/94 Environmental Issues in the Power Sector (English) 06/98 205/98 Environmental Issues in the Power Sector: Manual for Environmental Decision Making (English) 06/99 213/99 Household Energy Strategies for Urban India: The Case of Hyderabad 06/99 214/99 Greenhouse Gas Mitigation In the Power Sector: Case Studies From India 02/01 237/01 Energy Strategies for Rural India: Evidence from Six States 08/02 258/02 Household Energy, Indoor Air Pollution, and Health 11/02 261/02 Access of the Poor to Clean Household Fuels 07/03 263/03 The Impact of Energy on Women’s Lives in Rural India 01/04 276/04 Environmental Issues in the Power Sector: Long-Term Impacts and Policy Options for Rajasthan 10/04 292/04 Environmental Issues in the Power Sector: Long-Term Impacts and Policy Options for Karnataka 10/04 293/04 Nepal Energy Assessment (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Energy Efficiency & Fuel Substitution in Industries (English) 06/93 158/93 Pakistan Household Energy Assessment (English) 05/88 —— Assessment of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 National Household Energy Survey and Strategy Formulation Study: Project Terminal Report (English) 03/94 —— Managing the Energy Transition (English) 10/94 —— Lighting Efficiency Improvement Program Phase 1: Commercial Buildings Five Year Plan (English) 10/94 —— Clean Fuels 10/01 246/01 Household Use of Commercial Energy 05/06 320/06 Sri Lanka Energy Assessment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Status Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86 Sustainable Transport Options for Sri Lanka: Vol. I 02/03 262/03 Greenhouse Gas Mitigation Options in the Sri Lanka Power Sector: Vol. II 02/03 262/03 146 List of Formal Reports Sri Lanka Sri Lanka Electric Power Technology Assessment (SLEPTA): Vol. III 02/03 262/03 Energy and Poverty Reduction: Proceedings from South Asia Practitioners Workshop How Can Modern Energy Services Contribute to Poverty Reduction? Colombo, Sri Lanka, June 2–4, 2003 11/03 268/03 EUROPE AND CENTRAL ASIA (ECA) Armenia Development of Heat Strategies for Urban Areas of Low-income Transition Economies. Urban Heating Strategy for the Republic of Armenia. Including a Summary of a Heating Strategy for the Kyrgyz Republic 04/04 282/04 Bulgaria Natural Gas Policies and Issues (English) 10/96 188/96 Energy Environment Review 10/02 260/02 Central Asia and The Caucasus Cleaner Transport Fuels in Central Asia and the Caucasus 08/01 242/01 Central and Eastern Europe Power Sector Reform in Selected Countries 07/97 196/97 Increasing the Efficiency of Heating Systems in Central and Eastern Europe and the Former Soviet Union (English and Russian) 08/00 234/00 The Future of Natural Gas in Eastern Europe (English) 08/92 149/92 Kazakhstan Natural Gas Investment Study, Volumes 1, 2 & 3 12/97 199/97 Kazakhstan & Kyrgyzstan Opportunities for Renewable Energy Development 11/97 16855- Poland Energy Sector Restructuring Program Vols. I–V (English) 01/93 153/93 Natural Gas Upstream Policy (English and Polish) 08/98 206/98 Energy Sector Restructuring Program: Establishing the Energy Regulation Authority 10/98 208/98 Portugal Energy Assessment (English) 04/84 4824-PO Romania Natural Gas Development Strategy (English) 12/96 192/96 Private Sector Participation in Market-Based Energy-Efficiency Financing Schemes: Lessons Learned from Romania and International Experiences. 11/03 274/03 Slovenia Workshop on Private Participation in the Power Sector (English) 02/99 211/99 Turkey Energy Assessment (English) 03/83 3877-TU Energy and the Environment: Issues and Options Paper 04/00 229/00 Energy and Environment Review: Synthesis Report 12/03 273/03 Turkey’s Experience with Greenfield Gas Distribution since 2003 03/07 325/05 147 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT MIDDLE EAST AND NORTH AFRICA (MNA) Arab Republic of Egypt Energy Assessment (English) 10/96 189/96 Energy Assessment (English and French) 03/84 4157- Status Report (English and French) 01/86 048/86 Morocco Energy Sector Institutional Development Study (English and French) 07/95 173/95 Natural Gas Pricing Study (French) 10/98 209/98 Gas Development Plan Phase II (French) 02/99 210/99 Syria Energy Assessment (English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 Energy Efficiency Improvement in the Fertilizer Sector (English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 —— Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92 Renewable Energy Strategy Study, Volume I (French) 11/96 190A/96 Renewable Energy Strategy Study, Volume II (French) 11/96 190B/96 Rural Electrification in Tunisia: National Commitment, Efficient Implementation and Sound Finances 08/05 307/05 Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03/91 126/91 Household Energy Supply and Use in Yemen. Volume I: Main Report and Volume II: Annexes 12/05 315/05 LATIN AMERICA AND THE CARIBBEAN REGION (LCR) LCR Regional Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) 07/89 —— Elimination of Lead in Gasoline in Latin America and the Caribbean (English and Spanish) 04/97 194/97 Elimination of Lead in Gasoline in Latin America and the Caribbean–Status Report (English and Spanish) 12/97 200/97 Harmonization of Fuels Specifications in Latin America and the Caribbean (English and Spanish) 06/98 203/98 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop held in Bolivia 06/05 202/05 148 List of Formal Reports LCR Regional Power Sector Reform and the Rural Poor in Central America 12/04 297/04 Estudio Comparativo Sobre la Distribución de la Renta Petrolera en Bolivia, Colombia, Ecuador y Perú 08/05 304/05 OECS Energy Sector Reform and Renewable Energy/Energy Efficiency Options 02/06 317/06 The Landfill Gas-to-Energy Initiative for Latin America and the Caribbean 02/06 318/06 Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 —— La Paz Private Power Technical Assistance (English) 11/90 111/90 Pre-feasibility Evaluation Rural Electrification and Demand Assessment (English and Spanish) 04/91 129/91 National Energy Plan (Spanish) 08/91 131/91 Private Power Generation and Transmission (English) 01/92 137/91 Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92 Natural Gas Sector Policies and Issues (English and Spanish) 12/93 164/93 Household Rural Energy Strategy (English and Spanish) 01/94 162/94 Preparation of Capitalization of the Hydrocarbon Sector 12/96 191/96 Introducing Competition into the Electricity Supply Industry in Developing Countries: Lessons from Bolivia 08/00 233/00 Final Report on Operational Activities Rural Energy and Energy Efficiency 08/00 235/00 Oil Industry Training for Indigenous People: The Bolivian Experience (English and Spanish) 09/01 244/01 Capacitación de Pueblos Indígenas en la Actividad Petrolera Fase II 07/04 290/04 Boliva-Brazil Best Practices in Mainstreaming Environmental & Social Safeguards Into Gas Pipeline Projects 07/06 322/06 Estudio Sobre Aplicaciones en Pequeña Escala de Gas Natural 07/04 291/04 Brazil Energy Efficiency & Conservation: Strategic Partnership for Energy Efficiency in Brazil (English) 01/95 170/95 Hydro and Thermal Power Sector Study 09/97 197/97 Rural Electrification with Renewable Energy Systems in the Northeast: A Preinvestment Study 07/00 232/00 Reducing Energy Costs in Municipal Water Supply Operations “Learning-while-doing” Energy M&T on the Brazilian Frontlines 07/03 265/03 Chile Energy Sector Review (English) 08/88 7129-CH Colombia Energy Strategy Paper (English) 12/86 —— Power Sector Restructuring (English) 11/94 169/94 149 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Colombia Energy Efficiency Report for the Commercial and Public Sector (English) 06/96 184/96 Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR Recommended Technical Assistance Projects (English) 11/84 027/84 Forest Residues Utilization Study (English and Spanish) 02/90 108/90 Dominican Republic Energy Assessment (English) 05/91 8234-DO Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 —— Energy Strategy (English) 04/91 —— Private Mini-hydropower Development Study (English) 11/92 —— Energy Pricing Subsidies and Interfuel Substitution (English) 08/94 11798-EC Energy Pricing, Poverty and Social Mitigation (English) 08/94 12831-EC Guatemala Issues and Options in the Energy Sector (English) 09/93 12160- Health Impacts of Traditional Fuel Use 08/04 284/04 Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and French) 12/91 143/91 Honduras Energy Assessment (English) 08/87 6476-HO Petroleum Supply Management (English) 03/91 128/91 Power Sector Issues and Options 03/08 333/08 Jamaica Energy Assessment (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study (English) 11/86 061/86 Energy Efficiency Building Code Phase I (English) 03/88 —— Energy Efficiency Standards and Labels Phase I (English) 03/88 —— Management Information System Phase I (English) 03/88 —— Charcoal Production Project (English) 09/88 090/88 FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 Energy Sector Strategy and Investment Planning Study (English) 07/92 135/92 Mexico Improved Charcoal Production within Forest Management for the State of Veracruz (English and Spanish) 08/91 138/91 Energy Efficiency Management Technical Assistance to the Comisión Nacional para el Ahorro de Energía (CONAE) (English) 04/96 180/96 Energy Environment Review 05/01 241/01 Proceedings of the International Grid-Connected Renewable Energy Policy Forum (with CD) 08/06 324/06 150 List of Formal Reports Mexico Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico 06/09 338/09 Nicaragua Modernizing the Fuelwood Sector in Managua and León 12/01 252/01 Policy & Strategy for the Promotion of RE Policies in Nicaragua. (Contains CD with 3 complementary reports) 01/06 316/06 Panama Power System Efficiency Study (English) 06/83 004/83 Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects (English) 09/85 Status Report (English and Spanish) 09/85 043/85 Reforma del Sector Hidrocarburos (Spanish Only) 03/06 319/06 Peru Energy Assessment (English) 01/84 4677-PE Status Report (English) 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra (English and Spanish) 02/87 064/87 Energy Strategy (English and Spanish) 12/90 —— Study of Energy Taxation and Liberalization of the Hydrocarbons Sector (English and Spanish) 120/93 159/93 Reform and Privatization in the Hydrocarbon Sector (English and Spanish) 07/99 216/99 Rural Electrification 02/01 238/01 Opportunities and Challenges of Small Hydropower Development (Spanish and English) 03/11 340/11 Saint Lucia Energy Assessment (English) 09/84 5111-SLU St. Vincent and the Grenadines Energy Assessment (English) 09/84 5103-STV Sub Andean Environmental and Social Regulation of Oil and Gas Operations in Sensitive Areas of the Sub-Andean Basin (English and Spanish) 07/99 217/99 Trinidad and Tobago Energy Assessment (English) 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy (English) Women and Energy—A Resource Guide 11/89 —— The International Network: Policies and Experience (English) 04/90 —— Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 —— Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) 10/91 —— Long-Term Gas Contracts Principles and Applications (English) 02/93 152/93 Comparative Behavior of Firms Under Public and Private Ownership (English) 05/93 155/93 151 PERU OPPORTUNITIES AND CHALLENGES OF SMALL HYDROPOWER DEVELOPMENT Development of Regional Electric Power Networks (English) 10/94 —— Round-table on Energy Efficiency (English) 02/95 171/95 Assessing Pollution Abatement Policies with a Case Study of Ankara (English) 11/95 177/95 A Synopsis of the Third Annual Round-table on Independent Power Projects: Rhetoric and Reality (English) 08/96 187/96 Rural Energy and Development Round-table (English) 05/98 202/98 A Synopsis of the Second Round-table on Energy Efficiency: Institutional and Financial Delivery Mechanisms (English) 09/98 207/98 The Effect of a Shadow Price on Carbon Emission in the Energy Portfolio of the World Bank: A Carbon Backcasting Exercise (English) 02/99 212/99 Increasing the Efficiency of Gas Distribution Phase 1: Case Studies and Thematic Data Sheets 07/99 218/99 Global Energy Sector Reform in Developing Countries: A Scorecard 07/99 219/99 Global Lighting Services for the Poor Phase II: Text Marketing of Small “Solar” Batteries for Rural Electrification Purposes 08/99 220/99 A Review of the Renewable Energy Activities of the UNDP/ World Bank Energy Sector Management Assistance Program 1993 to 1998 11/99 223/99 Energy, Transportation and Environment: Policy Options for Environmental Improvement 12/99 224/99 Privatization, Competition and Regulation in the British Electricity Industry, With Implications for Developing Countries 02/00 226/00 Reducing the Cost of Grid Extension for Rural Electrification 02/00 227/00 Undeveloped Oil and Gas Fields in the Industrializing World 02/01 239/01 Best Practice Manual: Promoting Decentralized Electrification Investment 10/01 248/01 Peri-Urban Electricity Consumers—A Forgotten but Important Group: What Can We Do to Electrify Them? 10/01 249/01 Village Power 2000: Empowering People and Transforming Markets 10/01 251/01 Private Financing for Community Infrastructure 05/02 256/02 Stakeholder Involvement in Options Assessment: Promoting Dialogue in Meeting Water and Energy Needs: A Sourcebook 07/03 264/03 A Review of ESMAP’s Energy Efficiency Portfolio 11/03 271/03 A Review of ESMAP’s Rural Energy and Renewable Energy Portfolio 04/04 280/04 ESMAP Renewable Energy and Energy Efficiency Reports 1998–2004 (CD Only) 05/04 283/04 152 List of Formal Reports Regulation of Associated Gas Flaring and Venting: A Global Overview and Lessons Learned from International Experience 08/04 285/04 ESMAP Gender in Energy Reports and Other related Information (CD Only) 11/04 288/04 ESMAP Indoor Air Pollution Reports and Other related Information (CD Only) 11/04 289/04 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop on the Pre-Investment Funding. Berlin, Germany, April 23–24, 2003. 11/04 294/04 Global Village Energy Partnership (GVEP) Annual Report 2003 12/04 295/04 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop on Consumer Lending and Microfinance to Expand Access to Energy Services, Manila, Philippines, May 19-21, 2004 12/04 296/04 The Impact of Higher Oil Prices on Low Income Countries and on the Poor 03/05 299/05 Advancing Bioenergy for Sustainable Development: Guideline For Policymakers and Investors 04/05 300/05 ESMAP Rural Energy Reports 1999–2005 03/05 301/05 Renewable Energy and Energy Efficiency Financing and Policy Network: Options Study and Proceedings of the International Forum 07/05 303/05 Implementing Power Rationing in a Sensible Way: Lessons Learned and International Best Practices 08/05 305/05 The Urban Household Energy Transition. Joint Report with RFF Press/ESMAP. ISBN 1-933115-07-6 08/05 309/05 Pioneering New Approaches in Support of Sustainable Development In the Extractive Sector: Community Development Toolkit, also Includes a CD containing Supporting Reports 10/05 310/05 Analysis of Power Projects with Private Participation Under Stress 10/05 311/05 Potential for Biofuels for Transport in Developing Countries 10/05 312/05 Experiences with Oil Funds: Institutional and Financial Aspects 06/06 321/06 Coping with Higher Oil Prices 06/06 323/06 Designing Strategies and Instruments to Address Power Projects Stress Situations 02/08 329/08 An Analytical Compendium of Institutional Frameworks for Energy Efficiency Implementation 03/08 331/08 Regulatory Review of Power Purchase Agreements: A Proposed Benchmarking Methodology 09/08 337/08 Source Apportionment of Particulate Matter for Air Quality Management: Review of Techniques and Applications in Developing Countries 10/10 339/10 153 Green Initiative Environmental Benefits Statement The Energy Sector Management Assistance Program, together with the World Bank, is committed to preserving endangered forests and natural resources. To this end, this publication has been printed on chlorine-free, recycled paper with 30 percent postconsumer fiber in accordance with recom- mended standards for paper usage set by the Green Press Initiative, a nonprofit program supporting publishers in using fiber that is not sourced from endangered forests. For more information, visit www.greenpressinitiative.org Energy Sector Management Assistance Program 1818 H Street, NW Washington, DC 20433 USA Tel: 1.202.458.2321 Fax: 1.202.522.3018 Internet: www.esmap.org E-mail: esmap@worldbank.org