Geothermal with lead role in economic development in Southern Peru

Geothermal with lead role in economic development in Southern Peru Viaje a Ayacucho, Peru (source: flickr/ Lorena Flores Agüero, creative commons)
Alexander Richter 13 Feb 2021

Geothermal energy could play a leading role in the economic recovery in Peru, particularly in the southern part of the country. This would though require better integration and support by the government.

Geothermal energy could play a leading role in the economic recovery in Southern Peru, according to economist and former Minister of Economy and Finance, David Tuesta.

Metal prices would lead to reactivating mining and energy projects in the south of the country, in a recovery scenario for the 2021-2022 period, based on stock markets of developed countries.  Driven by fiscal and monetary stimulus efforts, set up during the pandemic but also beyond and confidence in a  growing U.S. economy, favour this optimistic scenario.

“Global growth projections are around 5.3% and the context for metals prices will be positive. In this scenario, Peru can perfectly converge and grow by 4% in 2022, supported by the economies of China and the United States, where mining certainly plays an important role in helping to boost the electricity sector, ”he says.

Mining, electricity and renewable energy

In order to ignite the engines of productivity, in the context of the reactivation of mining, David Tuesta, recommends promoting other sectors such as electricity from new renewable energy sources present especially in the south of the country. Resources that could contribute to recovering the post-pandemic economy and social well-being in this area.

Based on indicators and estimates in other realities, Tuesta finds the alternative of generating electricity with geothermal energy relevant, particularly in provinces such as Arequipa, Moquegua and Tacna, an area that concentrates 50% of this natural resource, which is not used and It reduces our competitiveness as a country.

“Based on multiplier effects in investment projects for the US and Greece, we estimate two impact scenarios, for example in Arequipa. With a 300 MW geothermal plant, an additional increase in jobs between 43% and 25% can be generated each year. Of this increase, more than 50% would be direct”, he estimates.

Investing in geothermal has high costs at the beginning, like all energy, explains Tuesta, but working well and applying support practices and subsidiary schemes, there is room for improvement. Geothermal energy brings enormous benefits that we can anticipate, in terms of socioeconomic, investment, employment, and inclusive growth.

Geothermal energy in Peru

The Philippine-owned geothermal energy company Energy Development Corporation (EDC) is developing two geothermal power plants in Peru, the Achumani in Arequipa, and the Quello Apacheta, in Moquegua, both projects will require an investment higher than the US $1 billion.

From his experience in Peru, Franklin Acevedo, EDC’s Country Manager, sees the second phase of geothermal development as the riskiest phase, since it requires considerable investment, to which are added the obstacles that still persist and that prevent more projects geothermal plants are developed in Peru. “The biggest boost that private investment needs is the auction of renewable energy resources or RER to guarantee the return on investment,” he notes.

“The Ministry of Energy and Mines (MINEM) cannot understand” – Acevedo adds – “that a supply contract is needed to guarantee the return on the investment that demands between US $ 200 and US $ 250 million just in drilling. This hinders the arrival of more investors.”

It highlights that the obstacle is that in the four RER auctions (2009, 2011, 2013 and 2016) geometric energy has not been included, despite being recognized as renewable energy and having a lower price than that offered for other technologies.

“We need MINEM (the ministry) to include geothermal energy in the RER auctions,” concludes Acevedo.

Finally, he concluded, “The important thing is to understand that geothermal today constitutes the cheapest, most efficient alternative and with the least impact on the electricity tariff, it will provide a continuous supply of energy in the southern regions and will promote social and economic growth in said regions”.

Geothermal energy for Southern Peru

  • It is estimated that Peru has a geothermal potential of 3,000 Mv. mostly located in the southern part of the country.
  • According to studies, until 2019, the current electricity production in the south is 4.9 TWh while the demand is 13 TWh.
  • 100 MW of geothermal energy provides electricity to 385 thousand homes, which is equivalent to 90% of the homes in Arequipa or 100% of the homes in Moquegua.
  • 100% renewable technology without the problem of intermittency, which do have technologies such as solar or wind.
  • It emits 300% and 85% less CO2 than diesel and natural gas thermal plants respectively.
  • Economically reasonable alternative for the south of Peru, since it implies lower costs than the construction of a gas pipeline or than the production with diesel and thermosolar thermoelectric plants.
  • Rate impact manageable under the current RER subsidiary framework.
  • It promotes a better diversification of the portfolio and helps to face the reversal of the oversupply in the next 5 years.

Source: Gestión