Hydropower in the Pan Amazon: A look at the private energy sector in Peru

Peru has enjoyed historic levels of economic growth for more than two decades, mostly due to the expansion of the minerals sector, which is a large consumer of electrical energy. Peru has also made strides in providing affordable electrical energy to its citizens, including to small towns and rural areas via a national grid that now integrates most coastal and highland regions as well as the major colonization zones in the tropical lowlands. Iquitos remains the only large urban area unconnected to the national grid, and there are plans to make that link over the short-term.

The consolidation of the Peruvian electrical sector has been accompanied by robust growth in generation, which has increased by about 150% since 2005. Approximately 35% of the country’s electricity comes from hydropower, which is sourced approximately equally from the Pacific and Amazon watersheds. Projects on the western slope of the Cordillera Occidental often enjoy subsidies because of their irrigation potential, but those resources are inherently limited due to the rain shadow of the Andes. Consequently, most future expansion will take place on the eastern slope of the Andes.

In the early 1990s, the state-owned, vertically integrated electricity monopoly was broken into multiple units dedicated to generation, transmission and distribution. The role of the state was limited to developing policy, enforcing regulations and granting concessions. By 2017, 54 different corporate entities were supplying energy to the Peruvian grid; the largest of them supplies about twenty per cent of the country’s electrical energy. The build-out of Peru’s electricity sector occurred after the discovery of the Camisea gas field (see Chapter 5), which favored investment in thermal generation because it is less capital-intensive when compared to hydropower. Moving forward, however, the state intends to decrease its reliance on thermal energy and promote investment in renewable energy. The official plan includes small-scale hydropower but does not consider medium- and large-scale hydropower as a ‘renewable’ energy.

The exclusion of Peru’s traditional hydropower sector is ironic, because it can objectively be characterized as ‘sustainable’. Most existing power plants are D&T systems that exploit topographic drops located high in watersheds, which limits their environmental and social impact. Even projects with relatively large reservoirs have a much smaller spatial footprint when compared to D&R facilities located at lower elevations. As in Bolivia, they consist of two to three medium-scale units organized as a cascade, with water recycled from one power plant to another – for example, Mantoro I & II (1,000 MW), Santa Teresa I & II (500 MW) and San Gabín II & III (313 MW).

The opposition to conventional hydropower is the consequence of failed attempts to develop mega-scale D&R facilities in the foothills of the Andes, where large rivers pass through a narrow gorge (see Annex 2.2). In 2008, the governments of Alan García (Peru) and Lula da Silva (Brazil) signed a memorandum of understanding that sought to integrate the two countries’ electricity markets by developing Peruvian hydropower resources using Brazilian technology and capital.

The agreement was signed during the surge in investments in dams on the Tocantins, Xingu, and Madeira and involved the same corporate entities that were designing, financing, and building the hydrodams in Brazil. The initiative focused on localities in southern Peru, where the Corridor Interoceanico offered a right-of-way so transmission lines could connect with the HVDC line that services the dams on the Madeira River.

The first mega-project to be pursued was a D&R complex on the gorge where the Rio Inambari exits the Andes. The project was immediately embroiled in controversy as opponents coordinated actions at local, national and international forums. They successfully demonstrated that the project was seriously flawed and the national environmental agency (OSINERGMIN) declined to approve its EIA in 2011. The impact of that outcome reverberated through the business community, and none of the other proposed mega-scale projects was seriously considered for development. The Peruvian Congress shelved the agreement in 2014 and all of the concessions have subsequently expired. Although mega-scale projects have proven unviable, several medium- and large-scale investments have been completed successfully.

Prior to 2005, the Amazonian watersheds housed eleven power plants with about 1.7 GW of capacity; this was increased by six units and 1.3 GW by 2018 and is projected to grow by another nine plants and 2.7 GW by 2023. The sector’s largest operators are domestic companies, many of which have formed joint ventures with investors from Norway, Italy, Spain, France, Israel, Chile, and the United States.

Most of the development has taken place on the Marañon watershed, which has the greatest potential among the three major Amazonian tributaries. The large-scale facility at Chaglla on the Rio Huallaga (456 MW), which was inaugurated by Odebrecht of Brazil in 2016, was sold to the China Three Gorges Corporation in 2017 following the Lava Jato corruption scandal.

Although impacts from hydropower development have been limited to date, that may change if the industry starts exploiting the hydrological resources of the Rio Marañon. Following the demise of the project on the Rio Inambari, President Alan García issued an executive order declaring the development of hydropower and irrigation infrastructure on the Rio Marañon to be in the national interest, a designation that accelerates development by easing environmental reviews and facilitating access to public moneys. The configuration of that river basin makes it particularly attractive for conventional D&R facilities; unfortunately, its geochemistry and biodiversity make it particularly susceptible to environmental impacts.

As in southern Peru, the most problematic projects are located in a gorge where the Marañon transects the Andean foothills; this 200-kilometre-long section of the river is the site of three putative mega-scale projects. It is highly unlikely that any of the three D&R projects would ever pass an environmental review, because they would inundate land deeded to Awajún communities who are renowned for their opposition to projects that infringe upon their territorial rights. More likely is the development of the 25 D&R projects on the 500-kilometre section of the river above the regional capital of Jaen into the highlands of Central Peru.

This section is attractive to civil engineers because the river collects run-off from the mountains situated to the east and west, while the V-shaped valley provides multiple opportunities for deep reservoirs with significant storage capacity. In 2014, Odebrecht initiated feasibility studies on four potential dam sites; however, none had advanced beyond the EIA stage when the Lava Jato corruption scandal effectively ended that company’s ability to execute projects in Peru.

Only a single hydropower dam is being promoted for the non-Andean sections of the Peruvian Amazon: The Mazán R-o-R project would be located on a narrow isthmus separating the Napo and Amazon rivers 25 kilometers downstream from Iquitos and forty kilometers upstream from the mouth of the Río Napo. It would include an eleven-meter dam across the Napo that would divert a fraction of that river’s current through a canal across the three-kilometer isthmus to the main channel of the Amazon River. The power would satisfy energy demand from Iquitos and, potentially, supply a proposed transmission line between Yurimaguas and Iquitos.

There are numerous reasons to doubt the technical and financial viability of this project, but the governor of Loreto continues to insist it remains viable and important for the development of the region.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 2 here: