Peru’s electricity market has been shaken by a sudden spike in wholesale power prices after a disruption in natural gas supply from the Camisea gas fields, the country’s main energy source for power generation.
Following an incident in a pipeline operated by Transportadora de Gas del Perú (TGP), the Ministry of Energy and Mines (MINEM) declared a 14-day emergency in natural gas supply from March 1 to March 14, after the accident at kilometer 43 of the pipeline significantly reduced fuel availability for the national energy system.
The impact on the electricity market was immediate. Spot power prices exceeded $250/MWh, compared to an average of around $30/MWh recorded in February, according to data analyzed by Moody’s Local Perú.
The sharp increase reflects the operational stress on the power system, which was forced to replace natural gas–fired generation with more expensive liquid fuels such as diesel, significantly raising marginal generation costs.
According to Eduardo Ramos Arechaga, director of Optima Energy Perú, the episode highlights structural weaknesses in the country’s energy system and underscores the need to strengthen its resilience.
“We moved from operating with low costs and stability to an emergency regime where every molecule of gas is rationed and prices skyrocket,” Ramos Arechaga said.
“The dependency is not only quantitative — the share gas represents in the matrix — but qualitative. Natural gas is the backup for renewable energy and the balancing fuel of the entire system. Without it, the economic dispatch model essentially collapses.”
Renewables and storage return to the policy debate
The disruption has also reignited discussions about the diversification of Peru’s electricity mix, particularly the role that renewable energy and energy storage could play in reducing the system’s exposure to fuel supply shocks.
According to Ramos Arechaga, the debate should not be framed as a competition between natural gas and renewable energy technologies.
“The discussion cannot be gas versus renewables, but rather how to integrate renewable energy with energy storage and flexible backup so that the system remains robust under all scenarios,” he said.
In that context, the expansion of solar PV and wind power could help moderate system costs, particularly during periods of fuel price volatility.
“Every renewable MWh entering the system is one MWh that does not need to be generated with diesel at 300 or 400 soles per MWh,” the executive noted.
Currently, Peru’s power mix shows strong seasonal dynamics. During the first half of the year, hydropower dominates generation, supported by higher river flows. In the second half — when water availability declines — natural gas–fired generation becomes more prominent, at times accounting for more than 50% of electricity supply.
Renewables are still playing a relatively modest role in the system.
“Today, solar and wind generation together contribute roughly 10% of electricity demand. That is valuable, but not enough to replace the roughly 40% share currently provided by natural gas,” Ramos Arechaga said.
“They are a complement that will become increasingly important, but they are not a substitute.”
In this context, energy storage technologies, particularly battery energy storage systems (BESS), are increasingly viewed as a potential tool to improve system resilience during supply disruptions.
However, replacing the firm capacity currently provided by gas-fired power plants would require extremely large storage deployments.
“To substitute the firm capacity that natural gas currently provides — roughly 3,000 MW during the dry season — we would need storage capacity that today is economically and technically unfeasible,” Ramos Arechaga explained.
Nevertheless, the renewable sector is closely watching the development of Law 32249, a recently approved regulation aimed at enabling energy and capacity arbitrage mechanisms that could create new business opportunities for energy storage projects.
The regulation will be key to defining how future electricity auctions for distribution companies operate, as well as the development of ancillary services markets within Peru’s power system.
For industry participants, clear regulatory signals will be critical to unlock new investment in both renewable energy generation and storage technologies.
“BESS auctions should be a priority, not a pilot project,” Ramos Arechaga stressed.
He also warned that the regulatory framework needed to support long-term investment remains incomplete.
“The regulation for distribution company auctions is still pending. Without it, there are no long-term signals for new capacity — whether renewable generation or firm power,” he concluded.
