Interdependence of the Peruvian Mining and Energy Sectors

Transcription

1 Interdependence of the Peruvian Mining and Energy Sectors EXPOMINA PERÚ 2014 Richard L.A. Marohn Ing. M.A. B.A.

2 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 2

3 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 3

4 Energy Market Privatized market since 1992 subdivided into three submarkets (generation, transmission and distribution). Most energy consumers (approx. 85%) as well as generation and distribution facilities are connected to the National Interconnected Transmission System (SEIN). Around 15% are not connected to the SEIN and have either no electricity or are connected to independent systems. 4

5 Energy Market Supply-side Generation, transmission and distribution. Demand-side unregulated consumers, regulated consumers and the spot market. Unregulated clients consumers above 1 MW that are free to negotiate terms and conditions of contracts. Mining Companies are important unregulated consumers. 5

6 Mining Market Free market, open for national and international investors. Major activities in the market are exploration, exploitation, processing and transportation. Largest producer of gold, zinc, tin and lead in Latin-America. Third largest producer of copper, silver, zinc and tin in the world. 65% of exports are metallic and nonmetallic minerals. Source: MINEM

7 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 7

8 Energy Market Generation % of Capacity Source: COES 2014 Total Installed capacity: 8,340 MW Total Energy Generation: 39, MWh 8

9 Energy Market Generation % of Energy Generation Source: COES

10 Energy Market Generation % of Energy Generation Source: COES

11 Energy Market Transmission Source: COES

12 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 12

13 Increase in Demand Source: COES

14 Maximum Demand 2013 HYDRO THERMAL SOLAR TOTAL Installed Capacity (MW) 3, , ,339.9 Effective Capacity (MW) 3, , ,813.1 Annual Production (GWh) 21, , ,669.4 Peak Demand by Dic.2013 (MW) 2, , ,575.2 Source: COES

15 Maximum Demand by Source of Energy Source: COES

16 Existing and Future Mining Projects Existing % of Export Tot: USD 25,921 MM Future % of Investment Tot: USD 54,680 MM Source: MINEM 2013 Source: MINEM

17 Growth Copper Source: MINEM 2013 and PWC

18 Copper Projects Source: MINEM

19 Growth Gold Source: MINEM 2013 and PWC

20 Gold Projects Source: MINEM

21 Growth Iron Source: MINEM 2013 and PWC

22 Iron Projects Source: MINEM

23 Mining Market Future Demand Source: MINEM

24 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 24

25 Supply and Demand Outlook Scenario 1 Source: COES 2013 Ideal Reserve Margin of 33.3% cannot not be met 25

26 Geographical Distribution of Supply and Demand Source: COES 2013 Source: MINEM

27 Geographical Differences in the Reserve Margin YEAR PEAK DEMAND MW EFFECTIVE CAPACITY MW FIRM CAPACITY MW RESERVE MARGIN OF GENERATION MW RESERVE MARGIN OF GENERATION % NORTHERN AREA ,4% ,4% ,2% ,1% CENTRAL AREA ,6% ,2% ,0% ,4% SOUTHERN A REA ,1% ,9% ,3% ,5% Source: COES

28 Supply and Demand Outlook Scenario 2 Source: COES 2013 Ideal Reserve Margin of 33.3% cannot not be met 28

29 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 29

30 Major Challenges Permitting Process Time Consuming Not integrated Not clear Time consuming permitting processes delay the start of construction and operation. Social Inclusion Information deficit Process and responsibilities unclear Only few specialists Social conflicts delay the start of construction and operation. 30

31 Major Challenges - Permitting Process Ministry of Agriculture Ministry of Culture Ministry of Health Ombudsman Office National Institute for the defense of Competition and Protection of Intellectual Property Proinversion Congress of the Republic of Peru Commission of Energy and Mines Regional and Local Governments Source: S-GE 2014 Peruvian Private Energy Market 31

32 Major Challenges - Social Inclusion Mining Projects Tia Maria (Moquegua) Rio Blanco (Piura) Conga (Cajamarca) Hydro Power Projects Santa Cruz (Ancash) Cerro del Aquila (Huancavelica) Chevez (Lima) Chadin 2 (Cajamarca) Inambari (Puno) Santa Teresa 2 (Cusco) Energy Projects Gasuducto (Cusco) Human suffering between 2006 and ,312 civilians and police wounded 195 people killed Conflicts mostly escalated from procedural actions (complaints lodged with companies, government or courts). Indication of potential conflicts often not taken into account by companies and authorities. Social conflicts in Peru rose 300% from 2008 to

33 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges to Cover Future Demand 6. Potential Solution 7. Conclusion 33

34 Solution to Streamline Permitting Process MEM Others MINAM Regions COFOPRI Central Coordinating Entity OSINERGMIN COES INDECOPI MINSA MINAG Standardize requirements for permitting, give information and assist during permitting process. 34

35 Solution to Avoid Social Conflicts Partnership Approach Open and honest consultation and cooperation. Involve the Communities in key project decisions. Ensure direct economic benefits to those most impacted by the project and align their interests with the project s interests. Ensure these benefits are administered together with the people. Participation in the projects. Incentives are completely aligned. Economic benefits flow directly from project. No incentive to delay project. Open and continuous communication. Respect for the impacted communities. 35

36 Partnership Approach IRL Minera Community relations and social responsibility are an integral part of business. In 2011 IRL Minera singed an unprecedented 30- year surface rights agreement with the Community of Ollachea, including 5% participating interest in the subsidiary that holds the assets of the Ollachea project. The community of Ollachea is Minera IRL s partner in the project. 36

37 Partnership Approach Inti Renewable Energy S.A.C. Total benefits correspond to approximately S/ ,000 during the lifetime of each project Inti Renewable Energy S.A.C. (Inti), company that invests into companies that develop hydropower projects, founded the Fundacion Valle Vilcanota (FVV) in December 2013 as part of the social inclusion program. FVV has been founded based on an Convenio de Compromiso signed on the 6th of November 2013 after more than 3 years of dialog and cooperation with 27 villages and 4 districts. FVV represents the legal and registered rights of the population of the 27 villages and the 4 districts located in the project area of the hydropower plants. The benefits include: Education and employment program funded by the projects Inti invests in. Installation and donation of small turbines. The FVV will sell the energy and use the income to execute social development projects for the population. Donation 20% of the income from Carbon Credits. 37

38 Agenda 1. Market Overview 2. Energy Supply 3. Energy Demand 4. Energy Market Outlook 5. Major Challenges 6. Potential Solution 7. Conclusion 38

39 Conclusions Energy sector and the mining sectors are highly interdependent. Energy supply is concentrated in the central part of the interconnected grid. Most future mining projects (energy demand) are located in the south and partly in the north of the interconnected grid. From 2017 onwards a gap between energy supply and demand is expected due to the lack of energy generation facilities. 39

40 Conclusions Gap will be stronger in the southern and in the northern part of the interconnected grid. Current pipeline of projects is not enough to close the gap. Reserve margin of 33.3% cannot be met even before Additional generation facilities and transmission capacity to transport energy from suppliers to consumers are required to close the gap and secure reserve margin. 40

41 Conclusions Several projects are delayed due to time consuming permitting processes and/or social conflicts. Without sufficient energy supply, mining projects simply cannot be implemented. Consequently export of minerals and economic growth would decreases. To accelerate the implementation of new projects the government should standardize and coordinate the permitting processes and assist companies throughout the process. 41

42 Conclusions To avoid social conflicts companies have to implement their projects in coordination with the local population and align the interests of the population with the interests of the project. The MINEM and other governmental agencies should support companies leading the way in social inclusion approaches and community development. 42

43 Conclusions The government needs to show that with the right community approach project development, construction and operation is not complicated. Companies such as Inti Renewable Energy and IRL Minera should be held up as shining beacons. 43

44 Interdependence of the Peruvian Mining and Energy Sectors??Questions?? Richard L.A. Marohn