Peruvian Rural Electrification Project
In Peru more than six million people living in rural areas hadn't access to electricity in 2006. The country had one of the lowest coverage rates in Latin America at that time.(1) To improve life quality and commercial activities in those predominantly poor areas, the Peruvian government implemented a project with the help of the World Bank and the Global Environment Facility (GEF).
To serve efficient and sustainable energy access to new regions, both conventional grid electricity and renewable energy systems were utilized. The possibilities for productive gains of electricity were figured out in a pilot program. As Peru counts with a high potential for hydro power, a small hydro financing facility was introduced to provide "bridge financing" for small hydro projects.
To achieve its objects the project engaged the private and public sector. While electricity service providers held the responsibility of the construction and the long-term operation, local and regional governments coordinated the sub-projects.
The objective was the provision of rural areas with efficient and sustainable energy access.
Peruvian population living in rural areas.
- Electricity coverage in rural areas increased from 30% in 2007 to 55% by late 2010 (7).
Output: 2006 - December 2011:
- Grid extensions were realized to 92,000 households (400,000 people) (4).
- Ten electricity distribution companies participated in the project (4).
- Investments of service providers in rural electrification outside concession were realized for an amount of US$24 million (4).
- Electricity services were provided from electricity companies, while subsidies were financed from the Peruvian government or international donors. Together with a competitive model sustainability and efficiency was achieved.
- The project management was completely integrated into the regular operations of the Ministry. This facilitated processes like decision making and ensured sustainability and impact.
- Peru's electrification politic was based on grid extension in the past. Beside conventional grid electricity the project also implemented off-grid solutions based on renewable energies, which was a new experience for Peru.
- Innovative approach of the credit scheme based on a revolving fund for small hydro schemes.
- Additional promotion of productive uses of electricity.
- Cost-efficient decision rule: The project concentrated on cost-efficiency regarding the selection of areas for electrification and not on social grounds. The appraisal report showed that with the US$ 42.9 million subsidies 150,000 households can be covered, instead of 100,000 (1)
The Peruvian government pursues its goal of rural electrification. To establish a new concept with a sustainable impact the government could gain international donors in 2006. The International Bank for Reconstruction and Development (IBRD) contributed with a loan of 50US$ million and the Global Environmental Facility (GEF) with a grant of US$10 million in project financing. Their interests were the support to decentralization in Peru and the integration of renewable energy options in Peru's rural electrification. An Incremental Cost Annex prepared at the beginning showed the importance of the GEF fund for the integration of renewable energies in activities.
Electricity providers co-financed the sub-projects based on grid extension or PV-systems with an average share of 20%. Investments from companies were also expected for small hydro projects promoted by "bridge financing" from GEF funds.
The total cost of the project was 144 US$ million.
National grid expansion and rural development are integrated in the national policy of Peru. The Ministry of Energy and Mines (MEM) through the Executive Office for Projects (DEP) plans, designs and constructs rural electrification projects. In this sense the DEP formulated the National Plan of Rural Electrification (PNER), which contained also this project financed by the World Bank. In 2006 the National law of General Rural Electrification Nº28749 came into force and set an institutional framework for the promotion and development of rural electrification. In addition, a lot of NGOs are active in the establishment of renewable energies in the country.
The Directorate of Competitive Funds (DCF), responsible for the Rural Electrification project management, was completely integrated into the regular operations of the MEM in 2007. This had a lot of positive effects for the project implementation, like facilitating of decision-making processes, sustainability and impact. Beside the national government also provincial and local governments were integrated into project execution.
The project provided technical assistance for the development and implementation of rural electrification sub-projects. There was special training for local stakeholders. To promote renewable energies GEF offered technical data and capacity building for their application. The project was also a good experience for participants concerning the possible execution of further projects.
The project introduced a "bottom-up" approach for rural electrification with decentralized project development. Electrification process was driven by projects proposed and developed by service providers, which took responsibilities for the construction, financing and operation. Regional and local governments defined their proper needs and participated in the allocation of subsidies. Communities formed part of the planning and implementation of projects.
The project assisted in the promotion of sustainable development in rural areas with a pilot program for productive uses of electricity. The promotion and marketing of productive uses aimed at the generation of new commercial and agro-industrial activities. New installed electricity was used for the development of small businesses like the production of crafts, backed goods and dairy products. Until end of 2011 three contracts under the program were signed and assisted to more than 3,000 rural families in the provinces of Cuzco, Junin and Lima. Electricity consume for productive uses in target areas has raised by 1001 MWH per year (4).
The pilot program has shown that the promotion and capacity building of productive uses has potential to increase markedly incomes and productivity of rural businesses, as well as improving the electricity supply infrastructure.
To provide electricity access to the predominantly poor rural population with lower electricity consumption political intervention in the user tariff system is inevitable. In Peru there are capital cost subsidies, as well as subsidies for isolated generation and cross subsidies from large to small and from urban to rural customers. The last ones are provided from the Fondo Social de Electrificación (FOSE) to consumers with requirements less than 1,000 kW. The so called "free" users, with higher requirements contract their electricity service directly. The FOSE scheme was already implemented in Peru in 2001. Innovative of the project was the establishments of regulated tariffs for PV systems by make them eligible for cross subsidies.
The project is technology neutral, but it has an emphasis on the promotion of renewable energies. Economic options for rural areas in Peru are mainly system based on hydro or solar power and hybrid mini-grids.
The project was driven by the Peruvian government, as well as local distribution companies. The decision of companies to invest in rural electrification was important to create a sustainable rural energy market. One successful example is Distriluz, a state player consisting of four local companies. The company group spent $140 million in electrification projects and network maintenance in Peru only in 2009 (10).
The project had a fairly well-developed evaluation and monitoring system. A set of indicators were measured and reported by the Project Execution Unit (PEU) of the MEM, which also reported half-yearly to the World Bank. The M&E arrangements were made in accordance with Bank and GEF guidelines and requirements.
In preparation to the project a detailed survey of energy use in rural households was made in seven regions of the country. The socioeconomic and energy data carried out helped to design the project.
The project set a new framework for electrification in rural areas in Peru. It also implemented a regulation of solar power tariffs, something likely new in Latin America that can be an example for other countries. With the establishment of a Rural Electrification Fund the Peruvian government set the base for an expanded and sustained promotion of productive electricity use.
Regarding its national goals of rural electrification, the government applied for a second loan from the World Bank, which already has been accepted. The second project will continue and expand the activities of the first one and already started in 2012.
(1) World Bank (2006): Project Appraisal Document for a Rural Electrification Project. link
(2) Fundación Bariloche, GNESD (2011), Regional Analysis and Case Studies Report, RE based expansion of access to electricity in developing countries, the Peruvian Case Study, Argentina.
(3) Peter Meier, Voravate Tuntivate, Douglas F. Barnes, Susan V. Bogach, Daniel Farchy (2010), Energy and Poverty: Special Report August 2010, Peru: National Survey of Rural Household Energy Use, United States of America. link
(4) World Bank (2012), Implementation Status & Results Peru PE Rural Electrification. link
(6) World Bank (2010), Light and Hope: Rural Electrification. link
(8) Diario Oficial El Peruano el 03/05/2007, Reglamento de la ley N° 28749, Ley General de Electrificación Rural, Peru. link
(9) Republica del Perú (2008), Plan Nacional de Electrificación Rural (PNER) Periodo 2008-2017, Peru. link
(10) Power and Global Business Reports (2010), Power in Peru. link
(11) World Bank (2010): Addressing the Eleectricity Gap. link
(12) Ministerio de Energías y Minas, Banco Mundial (2005): Mejoramiento de la electrificación rural mediante la aplicación de fondos concursables, Estudios de Preinversión a nivel de Pre-factibilidad, Lima. link
(13) Ing. Eduardo Zolezzi (Consultor del Banco Mundial) (2010): Experencias Latino Americanos en el desarrollo de Proyectos de Electrificación Rural, Experencia del Banco Mundial en Electrificación en Perú, Lima 22 de April 2010. link
(14) IEG, World Bank (2008): The Welfare Impact of Rural Electrification: A Reassessment of the Costs and Benefits. link
Name:Peruvian Rural Electrification Project
The project was initiated by the Peruvian government. Its implementation included the establishment of a Project Directory Committee. Partnerships were made with private firms, banks and NGOs.
Technology:Multi Functional Platform
- Unspecified grid electricity
- Micro Hydro (5-100 kW)
- Small Hydro (0.1-10 MW)
- Productive uses
- National Grid
Project status:Completed project
Implementing approach:Public private partnership