Modifications in the Peruvian electricity sector

Changes in the Peruvian electricity sector

The dispatch of electricity in Peru is carried out in accordance with the principle of economic efficiency. In other words, only the necessary electricity is produced for the moment in which the demand requires it. The entity in charge of managing electricity dispatch is the Operation Committee of the National Interconnected System (COES).

For the dispatch of electricity to be efficient, the COES programs the order in which the electricity generators will turn on their plants and inject energy into the Electricity Electricity System (SEIN). This order is based on the variable operating costs of the generation units that each Generator sends to the COES: when the demand for electricity is low, the Generators with the lowest variable cost will inject electricity into the SEIN, and as the demand increases, COES will order Generators with higher variable costs to generate electricity. That is, the higher the demand, the higher the variable cost of electricity.

During the last few years, the provision that regulates the parameters of the declarations of variable costs of the Generators with natural gas had as a consequence that said costs are very low. For this reason, generators with natural gas had priority in the economic dispatch compared to other generators that declared higher variable costs.

In May 2021, these provisions were modified, so that, as of July 2021, the calculation that Generators with natural gas must carry out to determine their variable costs, will have the effect of increasing them. So, in the event that the Generators need to buy energy in the market to supply their customers, there is a possibility that the price paid for that energy will be higher.

This could have an impact on the supply contracts that Generators with natural gas have with their free Clients. Initially, the Constitution establishes that Contracts signed between private parties cannot be modified by regulations subsequent to their execution. However, there could be an exception: that the Contract contemplates the modification of the contractual terms, through clauses that prevent the modification of the price of the Contract, such as the clauses of economic balance or regulatory modification.

In the latter case, the Generator and its Client may follow the mechanisms established by the Contract to agree on new economic conditions. Lastly, if there are no such clauses, and the Contract does not establish otherwise, the energy price agreed upon by the parties will be maintained while the Contract is in force.