PERU: INCENTIVES AND PENALTIES FOR RENEWABLE ENERGY

Presented by:
Riquel E. Mitma Ramrez rmitma@osinerg.gob.pe

Per
Its located in South America Its population is about 29 millions of people Its electrical energy consumption is 30 TWh (2010) Its maximum demand is 4500 MW (2010)

Promotion of renewable energy for power generation

Regulatory Framework for Renewable Energy
(DL-1002) Law to promote renewable energy for power generation (may 2008) (DS-050-2008-EM) Regulation of DL-1002 (october 2008) (DS-012-2011-EM) New regulation of DL-1002 (february 2011)

Bid documentation (Basis) for the auction of electricity generated with renewable energy (Rules for each RE auction)
More information: www.osinerg.gob.pe

Main features of the RER Regulatory framework

Define as Renewable Energy Resources (RER) to:
Solar (Photovoltaic, thermal) Wind Geothermal Biomass Hydroelectric up to 20 MW (Hydro RER)

Establishes as national priority the promotion of renewable energy Promote the generation of RER electricity through AUCTIONS

Main features of the RER Regulatory framework

Main features of RER auctions
Every two years the Government will ask for auctions from generators producing electricity from renewable energy. The total energy purchased is the sum of the energy required for biomass, wind and solar (5% of annual electricity consumption) plus the energy required for hydro RER ( X = ??)
Annual electricity consumption 2010 5% Consumption For example: : : 30 000 GWh 1 500 GWh/year

2009: Requiered energy for 1st RER auction : 1314 GWh (Wind, Solar, Biomass) + 2800 GWh (Hydro) 2011: Requiered energy for 1st RER auction : 1300 GWh (Wind, Solar, Biomass) + 681 GWh (Hydro)

Main features of the RER Regulatory framework

Main features of RER auctions
Renewable energy has dispatch priority into the grid. Auctions are for 20 years and ensure a fixed price including cost indexation. The auctions are conducted by a committee (one member from the Ministry of Energy and Mines and two members from the Regulator -OSINERGMIN). The auctions will include a maximum tariff (reserved) for each technology based on estimated efficient costs (are determined by OSINERGMIN). The type of auction is a sealed envelope, where participants present their technical and economical bids. The economical bids (sealed envelopes reserved) are held in reserve by Public Notary until the day where these envelopes are opened together with the envelope containing the maximum tariff.

Main features of the RER Regulatory framework

Key players:
MINEM (Ministry of Energy and Mines): Develops and approves the Basis for the renewable auction OSINERGMIN (Regulatory Agency): Sets the maximum tariffs for each renewable auction. Determines the annual income review for every RER generator to ensure their income at the price offered. COMMITTEE: Drives the auction until the contract is signed by the winning bidder and the MINEM. Has full autonomy to conduct the auction. PARTICIPANT: is who buys the auction Basis and records his RER project in the data room. BIDDER: is the Participant that has submitted his bid and meets all technical requirements (It is certified by de Committee) WINNING BIDDER: is the Bidder whose bid has been awarded in the auction.

Main features of the RER Regulatory framework

Key players

Main features of the RER Regulatory framework

Main objectives of the RER Auction
Promote the entry of large-scale RER generation in the energy matrix Achieve efficiency of the auction process Maximize benefits for electric users (they pay prices)

Specific objectives:
Avoid the possibility of collusion Avoid possible barriers to entry Maintain the credibility of the rules

Main Incentives
Main Incentives offered:
1. Stable prices to 20 years (set by auction)
2. Dispatch priority into the grid 3. Priority access to T & D networks 4. Simple rules for participating in the auction

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Main Penalties
Penalties (defined in the Bid documentation of the auctions):
During the auction process:
Penalty: Execution of the Bid Guarantee (20 000 U.S. $ / MW installed)

During the construction process of the RER power plant:

Penalty: Execution of the Guarantee of compliance with the construction schedule (100 000 U.S. $ / MW installed)

During the operation of the RER power plant (20 years):

Penalty: Applying the correction factor for the price if it fails to deliver to the grid, the annual energy offered.
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1st Auction Results

Required energy = 4314 GWh/year (15% total energy consumption)

Deadline for the operation of the RER projects: December, 2012 Starting the process: August 21, 2009 Submission of bids: January 18, 2010
All information and documentation are confidential

Day of the bid adjudication: February 12, 2010

Opening of the offer and the maximum tariffs envelopes

Starting the process: April 28, 2011

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1st Auction Results

Deadline for the operation of the RER projects: December, 2012 Required Energy (amount of energy by tecnhology):
For Biomass, Solar and wind: 1314 GWh/year (500 MW with f.p.: 30%)
Biomass Wind Solar : 813 GWh/ao : 320 GWh/ao : 181 GWh/ao

For RER Hydro: 3000 Gwh/year (500 MW with con f.p.: 70%) Total auction requiriment total: 1000 MW ( 4314 GWh/ao)

MW

GWh/year

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1st Auction Results

Adjudicated energy:

The energies allocated through the auction were: 100% wind power, 96% solar PV, 25% biomass and 36% hydroelectric RER.

Number of projects adjudicated : (27 projects) 3 wind farms (142 MW) 2 Biomass Power (27 MW) 4 solar farms(80 MW) 18 small hydro (180 MW) MW Total allocated: 429 (43% of total) GWh Total allocated: 1972 (45% of total energy required) 14

The 1st Call was declared partially deserted, therefore, be called a 2nd Call to cover the remaining energy, it was declared desert.

1st Auction Results

Prices resulting from de auction:

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1st Auction Results

International expectations:
Number of web visits to the Data Room of the auction

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2nd Auction: In progress

Required energy: 1981 GWh/year (7% total energy consumption)

Deadline for the operation of the RER projects: December, 2014 Starting the process: April 28, 2011 Submission of bids: July 15, 2011
All information and documentation are confidential

Day of the bid adjudication: August 23, 2011

Opening of the offer and the maximum tariffs envelopes

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Conclusions
The auction results confirm the high credibility of the regulatory framework to promote Renewable Energy. Good results are expected in the current running and future RER auctions. Although, it was not covered 100% of the required energy, the main objective was achieved: to promote large-scale participation of electricity with RER in the energy matrix. Only at the end of 2012 (deadline for the 1st auction) will be known with certainty the efficiency of the auction, when all projects operate. The confidentiality of the maximum tariffs has allowed for bids with competitive prices, despite the limited number of Participants. The RER is a long-term commitment and correspond to an inevitable solution
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MORE INFORMATION

WWW.OSINERGMIN.GOB.PE

Thank you for your attention

rmitma@osinerg.gob.pe

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AUCTIONS OVERVIEW
FAQ Who conducts the auction? How often will be performed? What is going to auction? How much energy will be auctioned? Answers The committee (one member from the Ministry of Energy and Mines and two members from the Regulator OSINERGMIN) The auctions will be called at intervals of 2 years. The energy required will be auctioned in MWh / year plus an additional small hydro. The MINEM set a % target every 5 years. For the first 5 years is up to 5% of national consumption. This energy requirement is for all technologies RER. The MINEM is the competent authority and defined according to the policies of the country's energy development. The allocation of the energy required by each technology, represents the limit of penetration of this technology. The MINEM must approve the National Plan for Renewable Energy.

Who defines the allocation for the required energy by technology?

AUCTIONS OVERVIEW
FAQ
What is the validity of RER tariffs?

Answers
Tariffs that are adjudicated in the auctions will have a period of validity between 20 and 30 years. The term of validity be determined on the basis of the auction.
Is the tariff that is guaranteed to each successful bidder for the sale of its production of energy, expressed in cents. U.S. $ / kWh or $ / MWh. this tariff will be a result of the auction of RER projects, it is firm for the period of validity. It is paid in two ways: For the sale of energy at marginal cost (income 1) With a premium (income 2) if the first does not cover the adjudication tariff. The premium is paid ex-post (1 year rate later, after the annual settlement).

What is the adjudication Tariff?

How to pay the generators RER?

AUCTION OF RENEWABLE ENERGY

Stages of the auction

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Previous notice (MINEM) Approval of Basis (MINEM) Convocation (OSINERGMIN) Registration and basis sale (OSINERGMIN) Questions and comments to the basis (Participants) Publication of Consolidated Basis (MINEM) Submission of Bids (Participants) Evaluation of technical proposals (Committee) Publication of List of Bidders (Committee) Adjudication and Awarding (Committee) Signing of Agreement (MINEM + winning bids)