Energy inefficiencies jeopardizing Peru’s mining future

Lack of investment and long-term planning in the Peruvian electrical system are threatening to wreck billionaire mining projects, considered key to the economic growth of the country, reports today local newspaper El Comercio.

Together with the uncertain regulations, an excessive reliance on the nascent natural gas industry and the fierce environmental opposition to new transmission lines, the looming energy problem is making of Peru-based mining industry a extremely vulnerable one.

Based on the current energy needs, the second world producer of silver and copper would need to invest at least US$1 billion a year to be able to ensure sufficient power supply for the new mines, planned mainly by private investors.

“The economic development that the country expects to have could really be slowed down by a lack of electricity and, fundamentally, planning,” said former Mines and Energy Minister Carlos Herrera to El Comercio newspaper.

In the next ten years mining companies are expected to spend over US$50 billion in both exploration and production in Peru, but the country could miss out on that investments if it is not prepared to provide miners with basic energetic needs.

Without urgent actions, analysts believe Peru could suffer the same problem that affected South Africa in 2008 and Chile three years later, when different energy crises halted operations making metals prices soar.

“Five years may seem long, but not when it comes to a hydroelectric dam or a pipeline,” Herrera added.

Last year, demand for power rose by nearly 10% while installed capacity only increased by 1%. Current demand stands at 5GW, while effective capacity only offers a small buffer at 6.4GW.

Mines in northern and southern Peru, which mostly lack nearby generation plants and rely on transmission lines, could face a serious nip in a worst-case scenario.