Why the recent Peruvian renewable energy auction was significant for Latin America

Summary: Large foreign players made a bold presence in Peru last week and took home twenty-year deals at unheard of prices. This article briefly analyzes the possible strategies involved in the bidding process and looks at how this might affect other markets in the region.

Carlos St James closeupAbout the AuthorCarlos St. James is an advisor to energy investors and developers in emerging markets. He founded the Argentine Renewable Energies Chamber in 2005; has been a board member of the Latin American & Caribbean Council on Renewable Energy since 2010; founded the Middle East-Americas Energy Council in 2014; and publishes the Latin American Energy Review in his free time.

He was recently named Summit Chairman of the upcoming LAC-CORE Finance Summit in Miami, Florida in September 2016.


Last week the Peruvian investment regulatory authority announced* the results of their fourth government energy auction since 2009, and the results surprised many: projects totaling 162 megawatts (MW) of wind energy will get 20-year PPAs at an average $37.49 per megawatt-hour (MWh), and another 184.5 MW of solar photovoltaic (PV) will do the same at an average $48.39/MWh.

There were also winners in biomass (4 MW at $77/MWh) and mini-hydro (80 MW at $46.48/MWh). Peru has a particularly strong comparative advantage in mini-hydro energy, as was pointed out in an article written for The Review that can be found here.


The fourth auction has been the most successful to date. The first one in 2009 closed solar PV deals at $220/MWh; the second one in 2011 managed to cut the price in half, to $110/MWh; the third one had no renewables because the natural gas industry used all its lobbying power to make it about fossil fuels; and now the 2015 tenders announced this week attracted average winning solar PV pricing of $48.39/MWh. Slow clap for Peru.

There were a total of 48 solar PV bids with a combined average price of $60.65/MWh in the first round last week. Seventeen of them were from Italy’s ENEL Green Power: it represented more than a third of all solar offerings. The average pricing on ENEL’s 17 bids was $55.00/MWh. The next largest players included Korea’s Hanwa with four bids averaging $61.37/MWh, and Spain’s FV with three bids averaging $61.46/MWh. The five highest solar bids from various companies were well into the $70s/MWh.

ENEL’s 144.5 MW Rubi project (the third largest in MW of the 48) won with the lowest overall offer of $47.98/MWh. In fact, the ten lowest bids in the first round were all from just two firms: ENEL and GDF Suez, and all ten were below $50/MWh.

There was a brief recess to allow for changes in bids and the second round; thirteen of the participants returned for this, lowering pricing or other terms. This resulted in a 6.4% drop in the average price to $56.79/MWh (from the first round’s $60.65). Spain’s FV lowered its pricing by more than 7%, Canadian Solar by more than 3%, and France’s Neoen cut its offered price by more than 13%. But the sole winner of the second round was GDF Suez’s 40 MW offer at $48.50/MWh, who won without having to cut pricing further.


The drop in wind prices from the first Peruvian wind auctions was equally dramatic. The 2009 auctions were won at $89/MWh; the 2011 at $87/MWh — but last week’s winning offers were all under $38/MWh.

The fourth wind auction last week had 34 proposals, and here is where ENEL brought out the big guns, making 24 of the 34 offers – more than two-thirds of all first-round bids. The ten lowest bids in the first round were all under $44/MWh; ENEL had nine of them and GDF Suez the other. But the ten highest bids were all from ENEL, too. The average pricing of all 48 bids was $53.91/MWh.

ENEL’s largest project, Nazca, at 126 MW, came in with the lowest overall bid of $37.83/MWh and was the sole winner of the first round.

The second round allowed for some noteworthy pricing adjustments. Seven participants lowered the overall price by 13.6% to a new average price of $46.60/MWh (from $53.91 in the first round). Interestingly, ENEL only dropped the price on two of its bids — and among the higher-priced ones — by some 28% to $48.98, perhaps thinking its first round of shock & awe would make others shy away from more punishment. But the bidders were made of sturdier stuff and where possible, adjustments were made. US-based Invenergy made a small downward adjustment to its offer but it wasn’t enough. GDF left its original price unchanged on its only proposal of the 128.6 MW Twister project at $39.45/MWh and it too missed the mark.

The surprise came from Spain’s Grenergy Renovables, with two 18 MW projects, who lowered their original bids by 21% and 27%, resulting in new offers of $36.84/MWh and $37.79/MWh. These were the only winners of the second round.


A total 27 participants in the one and only round offered an average price $49.95/MWh. There were six winners from this group awarded a combined total of just under 80 MW at an average price $46.48/MWh. ENEL was the only winning foreigner with 20 MW at $43.98/MWh.


The pricing on both wind and solar is remarkable. Peru’s sovereign debt rating is A3 – the same as Mexico’s but still below Chile, and its law offers minimalist tax breaks on renewables. The PPAs will be in USD and minimize currency risk but increase foreign exchange risk. (These are, after all, twenty-year contracts being offered.) But it is significant in that the investment recipient club comprised of Brazil-Mexico-Chile-Uruguay now has a fifth member and the region will be stronger for it.

The winners must begin to deliver energy by December 2018. That gives some credence to the theories that the extremely aggressive pricing seen here will buy a little time to allow for further reductions in solar technology costs, and that ENEL had surplus wind towers it needed to place. The winners can also count on well-priced financing from development banks – proving once again they have strayed from their true mission in the region. But ENEL’s prominence in the auctions has caused rumors and instilled fears that the goal is to scare off investors to the fifth auctions to be held in 2017. A possible but unlikely strategy.

In conclusion, we may have seen a glimpse of a major player further committing to the region, guns ablazin’ and letting everyone know there’s a new sheriff in town. No doubt the mistakes made by the once-aggressive SunEdison will be avoided, and there may be the benefit of the development of yieldcos and greater M&A activity in the region.

All this will probably make the re-nascent Argentine renewables market that much more interesting. Argentina has merely 150 MW of installed wind and 7 MW of solar. Our database shows over 3 gigawatts of wind projects and another 170 MW of solar PV projects seeking investors, technology and partners in the country. To say nothing of the less sexy but more lucrative biomass, geothermal, waste-to-energy and mini-hydro sectors in the country.

* The complete results as seen on the Peruvian government website can be found here.

© Latin American Energy Review 2016

About the Author:

Carlos St. James is the founder of the Argentine Renewable Energies Chamber (CADER, by its initials in Spanish); board member and was elected the first President of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE); founder and chairman of the Middle East-Americas Energy Council (MEAMEC); and founder and publisher of The Latin American Energy Review. His private sector background is focused primarily on finance and bringing together stakeholders so that deals get done. He advises governments on renewable energy policy, counsels private equity firms seeking to enter the region; and brings together stakeholders, including investors, for new energy projects.

He obtained his undergraduate degree in international economics from DePaul University and his masters in international relations from the Fletcher School at Tufts University.



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