Electricity costs rose 480% in September

In August, 230% more diesel fuel was used for electricity generation in Peru compared to the same month last year, according to the report Main indicators of the electricity sector at the national level – September 2023.

This, as a result of the water stress situation reported by the Economic Operation Committee of the National Interconnected System (COES), emergency that has caused hydroelectric plants to be unable to supply with its part the national demand.

When this occurs, the national electricity system resorts to burning fossil sources, such as natural gas and diesel, but the latter is the most expensive and can affect future contracts that involve domestic users.

According to the report, national generation, including isolated systems, registered the figure of 5,189 GWh in August, a value 3.7% above that recorded in the same month of 2022.

When we group the information, according to sources of generation, the hydraulic power plants They accumulated 1,745 GWh in July, a value 15% lower than that registered in August 2022. However, thermal plants accumulated a peak of 3,176 GWh, 17% above what was produced in the comparison month.

Something similar happens with him natural gas, whose use for generation rose 11% in August, with a transportation capacity that is not enough. Rafael Laca, energy expert at the consulting firm Enerkory, also anticipates that Marginal electricity costs exceeded 180 KWh in September, when a year ago they did not exceed 32 KWh. That gives us “an increase of 480% compared to a year ago,” he warns.

But why are those scarce 249 KWh (see infographic) generated in August with diesel so dangerous compared to the 1,745 KWh from hydroelectric plants? Well, because the costs of the first are the ones that rule.

Not everyone loses

In Peru the so-called ‘marginal rate’ works. What does it mean? That all customers pay the cost of the last plant that enters the system to dispatch. In order of efficiency, wind power comes first, followed by hydroelectric power, and last comes thermoelectric to meet national demand.

If the last one to ship is gas, we all pay that rate. But if the last one dispatched to cover demand is diesel (because there is a drought, for example), we all pay the diesel rate, even though we may be consuming the energy of a hydroelectric plant, which does not even pay for water.

“This explains why the electricians have opposed the Southern Gas Pipeline all their lives, inventing that there is no gas or demand, because it is in their best interest for even a diesel plant to always come into operation. Thus, everyone who uses gas or water wins,” says Gustavo Navarro, energy expert.

He explains that, although domestic rates are protected by long-term contracts, the increase in prices – which will increase with El Niño – will affect families when these are renewed.

However, this does occur with free users (large industries such as Gloria, Alicorp and Unacem, which due to their high consumption buy electricity at wholesale prices, but with short-term contracts), which end up passing the extra costs on to the final consumer, thus contributing to inflation.

Wind, solar and gas waiting

A decree is being prepared to use more natural gas than contracted (fossil, but cheaper than diesel) for generation. But gas exporters do not agree, as it affects their business.

The Peruvian Renewable Energy Association (SPR) called for streamlining laws that promote wind competition and solar versus hydroelectric.

Reactions

Gustavo Navarro, energy expert

“The cost of energy has risen and that is already affecting users today free. But since the rates are reviewed from time to time, when there is renewal of contracts it will affect us, the domestic workers, due to these tremendous peaks.”

Rafael Laca, Enerkory expert

“Although it seems that, overall, this increase in diesel use is small [frente a lo que aún producen las hidroeléctricas]the problem is that this source is the last to enter the system and causes costs to skyrocket.