Sustainable and Renewable Business Model to Achieve

100% Rural Electrification in Perú by 2021

Erick Somocurcio Holguín Rafael Flores Chacón Pedro Sanchez Gamarra
Engie Energía Perú – Member, IEEE Engie Energía Perú - Senior Member, IEEE The World Bank
Lima - Perú Lima – Perú Washington D.C. - USA
Erick.Somocurcio@engie.com Rafael.Flores@engie.com psanchez2@worldbank.org

Abstract— This paper proposes a new sustainable business

renewable model that targets the 100% rural electrification of
the end consumers in Perú. The sustainable business renewable
model assumes that the private electric companies have access to
the capital markets, quick implementation and access to
competitive markets in which disruptive technologies have
reached significant levels of maturity that are reflected in lower
production costs and a high equipment reliability. Strengths that
the private sector possess and could not be obtein from the
government for the development of rural electrification projects.

The proposal allows an optimal selection of the best technology

to produce electricity that matches the energy resources
available in the geographical region studied and the target
population will be selected using geospatial tools. This selection
is made based on a comparative analysis of the Levelized Cost of
Energy (LCOE) applied to Peruvian reality and takes into
account technical, economic and financial criteria. Fig. 1. Coverage of electrification access in America.

Keywords—Business model, LCOE, geospatial tools, renewable To overcome this lag, the Ministry of Energy and Mines
generation, rural electrification. carried out the National Plan for Rural Electrification 2016-
2025 (PNER 16-25) [2]. Within the framework of the PNER
I. INTRODUCTION 16-25, photovoltaic solar generation projects were
implemented to provide electricity to homes and public
The expansion of the electric frontier of the National institutions all over the country with solar home systems
Interconnected Electricity Grid of Perú is one of the main (SHS).
national objectives. Achieving the energy supply for rural
areas, the country's borders and villages is a great challenge The massive use of the solar generation did not have good
from the economic point of view due to the low profitability results because of the different levels of solar radiation and
generated for private investors and inability of the weather conditions in the same concession area and along the
Government to cover those areas. country. This shows the lack of knowledge of the potential of
the primary energy resources available in the target rural
The proposed business model aims to achieve, over a areas.
three-year horizon, the electrification of five percent of the
population that, according to the Ministry of Energy and Despite the fact that the government provides almost 80%
Mines, does not have access to electricity power supply yet. of the cost of supply, the management and remunerative
To achieve this objective, an active participation of the Private policy of activities of operation, maintenance,
Sector in the development of rural electrification projects is commercialization, billing and collection that companies must
necessary. carry out has shown problems of execution that impact on the
cash flows that remunerate investments. This problem has its
In Latin America, Peru has an important lag in terms of the origin in the lack of local knowledge of geographic,
level of rural electrification. According to the World Bank, demographic and infrastructure access to rural concession
Peru registers 94.85% coverage of access to electricity [1] (see areas therefore impacting directly in CAPEX and OPEX and
Fig. 1). resulting in expensive and unsuitable solutions.

978-1-5386-8218-0/19/$31.00 ©2019 IEEE

 The high levels of non-payment show that the The business model defines as a maximum term of three
remuneration mechanisms have not considered the cycles of years to develop the project and to achieve this requirement
economic activities developed in the concession areas. The the investor is allowed to use a technology of rapid
economic cycles of consumers during a year show surplus and implementation whose primary energy resource is abundant in
deficit levels of income, for example, during the sowing and the area. This allows to supply electrical energy with a good
harvesting season. These economic characteristics have a load factor and recover the capital invested in the shortest time
negative impact on the cash flows during the project period, possible. Also, obtain a fair return for the risk assumed.
this risk was not adequately assessed by the government plan.
A community-driven approach will be applied for the
On the other hand, the implemented projects have not implementation of the initiative in order to reduce transaction
trained and familiarized the beneficiary population with the costs and economies of scale (see Fig. 2). By including end
technologies, and as a result SHS have broken down earlier users from the communities in the installation, operation and
than expected and maintenance costs are higher than expected, maintenance activities overall cost are reduced, by transferring
for example adding expenses of technicians travel to remote the responsibility to the community and also bringing
areas. additional revenues for the population. The monitoring
activities of the implemented micro-networks can be assigned
The business model considered by the Peruvian to public electricity distribution utilities of the region since
government in the public tender for the supply of electric they will be carried out remotely and paid as a specific
power in unconnected areas [3], [4], [5] shows problems to service. These activities cannot be carried out by the investing
carry out the activities of preventive maintenance, company since those would be very expensive.
disconnection of supply and reconnection. Due to the
dispersion of consumers in the concession areas, lack of One of the fundamental pieces of the business model is the
proper access roads and time travel of technicians has mechanism of remuneration of investments. This is achieved
increased with the consequent economic impact. Likewise, the through guaranteed government revenues collected through
dispersion of users makes it difficult to install administrative billing to the benefited consumers and state funds like “Fondo
and operational offices. As a result of these issues, only de Compensación Social Eléctrica” (FOSE). The collection
216,555 connections have been developed, which is a fraction activities are developed through end consumers mobile phone
of the proposed 500,000 awarded under the auctions. and are paid directly to the investors. This allows to reduce
commercial costs such as invoicing and collection.
Based on the facts presented, it is concluded that the
business model that is being applied by the Peruvian State
through the Ministry of Energy and Mines will not achieve the
goal of satisfying the total electricity demand of the country
by 2021.

II. NEW SUSTAINABLE BUSINESS MODEL FOR RURAL

ELECTRIFICATION
The proposed business model seeks to correct the
problems identified through the methodology described
below:
Precise identification of potential beneficiaries and their
economic, geographical, demographic, infrastructure and
telecommunication access characteristics must be carried out.
This is done through geospatial tools and confirmed with a
population census that provides actual statistical data.
Stratification matrixes are constructed from the statistical Fig. 2. Business Model.
information. These matrixes contain information of the
Electric energy will be provided with renewable
projected demand areas and consider infrastructure and
technologies such as hydroelectric, solar, wind, or biomass
telecommunication access and the potential of the available
power generation. The main criterion for selecting the best
primary energy resource.
technology or combination of technologies to be applied in the
The selection procedure considers market segmentation geographical area to be electrified will be the availability of
based on distance, access roads, existence of a the primary energy resource.
telecommunications network in the area and conditions for the
The selection of the most competitive production
development of operation and maintenance activities. Priority
technology for a specific geographical region will be
is given to public institutions such as hospitals, medical developed based on a comparative LCOE methodology [6],
centers, community halls and schools during the selection of [7]. The LCOE allows to determine the cost of unit energy for
users to be served. Consumers that will be served through the a specific region under specific energetic conditions [8]. The
conventional electric network in a period of two years will be LCOE is a methodology that allows to compare unit costs for
excluded. energy produced from a specific portfolio of production
technologies. This indicator allows comparing projects with Finally, a sensitivity analysis is developed to consider the
different life periods, size, capital costs and risks [9]. The variability of the primary energy resource and the capital
LCOE takes into account the investment, operation and costs. The energy produced, which allows obtaining a net
maintenance costs, tropicalized for the geographical area, of balance.
certain production technology throughout the project's life
cycle. Table I shows indicators of Levelized Energy Costs for III. RESULTS AND DISCUSSION
different production technologies prepared by the United In order to apply the proposed methodology to the
States Department of Energy of the Energy Information conditions that characterize the Peruvian territory this was
Administration for the year 2017 [10]. divided into nine geographical quadrants as shown in Table II.

TABLE I. TABLE II.

LCOE FOR MINI-NETWORK TECHNOLOGIES DIVISION IN GEOGRAFICAL QUADRANTS
LCOE – low LCOE – high
Resource
($/MWh) ($/MWh) North North North
Hydropower 57 70 Coast Mountain Jungle
Solar 58 143 Center Center Center
Wind 43 76 Coast Mountain Jungle
Biomass 85 125 South South South
Coast Mountain Jungle
From a financial point of view, the LCOE represents the
necessary payments for each energy production technology The LCOE was calculated for each geographic quadrant
that allow recovering the investment or the lower sale value of for evaluation of the alternative solutions for electrification
from a financial point of view, the LCOE shows the necessary projects in rural areas. The assumptions for Total Capital Cost
payments for each energy production technology that allow (TCC) and Capacity Factor (CF), that represent the local
recovering the investment or the lower sale value of the conditions, used to calculate the low LCOE and high LCOE
energy produced, which allows obtaining a net balance. The for each geographic quadrant are presented in Fig. 3. and Fig.
model present in [11] which is shown in equation (1) was used 4. respectively.
to calculate de LCOE.

(1)

LCOE = Levelized Cost of Energy

TCC = Total Capital Cost ($/kW)
CRF = Capital Recovery Factor
described in equation (2)
= Fixed Operation and ($/kW-yr)
Maintenance cost
= Capacity Factor (%)
Fig. 3. Assumptions for Total Capital Cost.
= Fuel Cost ($/MMBtu)
HR = Heat Rate (Btu/kWh)
= Variable Operation and ($/kWh)
Maintenance cost

(2)

CRF = Capital Recovery

Factor
= Interest Rate (%)
= Number of annuities
Fig. 4. Assumptions for Capacity Factor.
 The results obtained were presented in Tables III, IV, V would be mini-hydro projects and the alternative technology
and VI. would be biomass projects.
The comparative analysis of the LCOE by technology
TABLE III. allowed to identify, among the four electric power production
LCOE FOR MINI HYDRO PROJECT technologies evaluated, the best technology to produce electric
power in a certain geographical region of the country. The
Mini Hydro Coast Mountain Jungle results are presented in Table VII.
($/MWh) Low - High Low - High Low - High
North 61 - 73 53 - 63 60 - 72 TABLE VII.
Center 59 - 71 52 - 62 58 - 70 LCOE AND OPTIMAL PROJECT

South 61 - 72 53 - 63 60 - 71
LCOE
Coast Mountain Jungle
$/MWh
TABLE IV.
LCOE FOR SOLAR PV ROOFTOP - PROJECT
North 60.0 53.1 60.1
Wind (On Shore) Mini Hydro Mini Hydro
Rooftop Coast Mountain Jungle
Low - High Low - High Low - High Center 51.2 51.6 58.4
($/MWh)
Wind (On Shore) Mini Hydro Mini Hydro
North 126 - 198 137 - 215 188 - 296 39.3 52.8 59.6
South
Center 130 - 204 152 - 239 167 - 262 Wind (On Shore) Mini Hydro Mini Hydro
South 105 - 165 136 - 213 158 - 248

From the results shown in Table VII we conclude

TABLE V. that the best technology to produced energy in the rural areas
LCOE FOR WIND PROJECT of Perú could not be generalized as it has been promoted by
Coast Mountain Jungle the Government with the massive use of the solar generation.
Wind
($/MWh) Low - High Low - High Low - High
IV. CONCLUSIONS
North 60 - 84 80 - 113 129 - 181
The business model currently used in Perú will not allow
Center 51 - 72 78 - 109 105 - 147
the country to be electrified by 2021. The proposed business
South 39 - 55 106 - 149 107 - 150 model is attractive to the private sector and will allow to
achieve the total coverage of rural electricity demand in a
period of three years. The proposed business model uses the
TABLE VI. available energy resources and takes into account the needs of
LCOE FOR BIOMASS PROJECT
rural areas. Private investors recover their capital and
Biomass Coast Mountain Jungle implements the project with their experience and track record
($/MWh) Low - High Low - High Low - High of successful projects.
North 64 - 130 71 - 147 65 - 132 There are different energy realities that may arise in the
Peruvian territory and that must be considered in order to
Center 63 - 127 70 - 143 64 - 129 achieve the goal of achieving total electrification can be
South 64 - 129 71 - 146 65 - 132 adequately evaluated by the proposed methodology.

From the results presented in tables III, IV, V and VI we Based on the results and the number of communities to be
concluded that the cost for developing mini hydro projects in electrified, the total investment required for this initiative is
the country can vary between 52 and 73 $/MWh, Rooftop about USD 200 million, which is equivalent to two-year
projects vary between 105 y 296 $/MWh, wind projects vary budget of the Ministry of Energy for electricity access.
between 39 y 181 $/MWh and Biomass projects can vary The community-driven approach allows to reduce costs of
between 63 and 147 $/MWh. operation and maintenance and to ensure supply. In this
The results of the tropicalization of the levelized costs of management model the community members are owners or
energy show in Tables III, IV, V and VI allowed to represent custodians of the assets; this allows to watch over the integrity
the diverse technical, economic and financial conditions that of the assets.
affect the selection of the best technology to produce electric
V. REFERENCES
power in the different rural areas of Perú. So, the best
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mini-hydro projects or biomass projects. For the mountain and from: https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS
the jungle regions the best technology to produce electricity
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