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Circuit breakers: how policy entrepreneurs interrupted the electric flow with Peru’s first renewable energy legislation for the grid

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Circuit breakers: how policy entrepreneurs interrupted the electric flow with Peru’s first renewable energy legislation for the grid

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Content Circuit Breakers: How Policy Entrepreneurs Interrupted the Electric Flow with Peru’s First Renewable Energy Legislation for the Grid By Hai-Vu Phan A Dissertation Presented to the Faculty of the Graduate School of the University of Southern California In Partial Fulfillment of the Requirement for the Degree Doctor of Philosophy Political Science and International Relations May 2019 ii Dedication To all the advocates who put society’s future well-being before present gains. Abstract All countries face entrenched interests when political leaders seek a significant policy change, and nowhere is this more obvious than in the quest to embrace renewable energy (solar, wind, geothermal, etc.). Despite powerful domestic opposition, Peru recently passed its first policy for large-scale electricity production using renewable energy, Legislative Decree (LD) 1002, in 2008. What created this policy window despite vehement objection? This research finds that in order for Peru to pass its first major renewable energy policy, the confluence of increasing information, available technological solution, changing international political norms, and shifting international economic norms planted interest within the minds of domestic actors (political willingness). The opportunity came when a bilateral trade deal with the United States required rapid policy accommodations from Peru’s central government. This need for speed shifted legislative power from Peru’s Congress to a few hands within Peru’s Executive Branch, some of whom were renewable energy enthusiasts. Prepared domestic actors seized this opportunity to open a policy window. Understanding this policy-making process offers invaluable insights on those conditions most conducive for passing difficult but necessary laws, some of which could be transferable to other developing countries trying to contribute to the global effort on mitigating climate change. Theoretically, this dissertation draws on models of political decision-making and institutions to explain how local actors attain what they want. Globally, we are in an epic transition toward renewable energy use. This research aims to promote this necessary changeover within developing countries as quickly and seamlessly as possible. iii Table of Contents Dedication ...................................................................................................................................... ii Abstract .......................................................................................................................................... ii Table of Contents .......................................................................................................................... iii Tables ............................................................................................................................................ iv Figures ........................................................................................................................................... iv Abbreviations ................................................................................................................................. v Acknowledgements ....................................................................................................................... ix Chapter 1. Preserving Artifacts and Progressing Cautiously .......................................................... 1 Chapter 2. Institutions and Policy Windows: Opportunities for Major Policy Change ................. 34 Chapter 3. Status Quo Bias: Peru’s Pathways to Renewable Electric Energy ............................... 64 Chapter 4. Domestic Political Willingness: International Challenges Incite Strong Peruvian Interest in Renewable Energy (1990s-2000s) ............................................................................... 90 Chapter 5. Circuit Breaking with a Policy Window – U.S.-Peru Trade Deal and the Legislative Decree ........................................................................................................................................ 122 Chapter 6. Rural Electrification: Refining Past Efforts ................................................................ 151 Chapter 7. Looking at the Potentials and Challenges Ahead ...................................................... 180 Appendix 1: Legislative Decree 1002 (English) ........................................................................... 215 Appendix 2: Legislative Decree 1002 (Spanish) .......................................................................... 227 Interviews and Correspondences ............................................................................................... 240 Works Cited ................................................................................................................................ 242 iv Tables Table 1: Top 10 Electricity Producers in Peru in 2016 (% of Market Total) .................................. 78 Figures Figure 1: Marginal Reserve of Electricity in Peru ............................................................................ 5 Figure 2: Political Willingness and Policy Window ....................................................................... 22 Figure 3: Frequency with which “renewable energy” is used in English texts ........................... 105 Figure 4: Frequency with which “energía renovable” is used in Spanish texts .......................... 106 Figure 5: Global New Investment in Renewable Energy – World, Developed, and Developing Countries .................................................................................................................................... 111 Figure 6: Installed Capacity of Renewable Energy (World Total) ............................................... 112 Figure 7: Electricity Generation from Renewable Energy (World Total) .................................... 113 Figure 8: Rural and Urban Electrification Rate of Latin American Countries (2016) .................. 156 Figure 9: Electricity Production from Renewable Energy ........................................................... 191 Figure 10: Peru's Renewable Energy Auction Results: Average Prices of Bids ........................... 192 Figure 11: Global Renewable Energy Policy Landscape .............................................................. 207 Figure 12: RISE Overall Scores .................................................................................................... 208 Figure 13: RISE Overall Scores and Average Scores by Region ................................................... 209 Figure 14: RISE Overall and Average Scores by Income Group .................................................. 210 Figure 15: Renewable Power Generation and Capacity as a Share of Global Power ................. 211 Figure 16: Asset Finance in Renewable Energy in Selected Latin American Countries, 2015 .... 212 v Abbreviations Abbreviation English Native Language APEGER Peruvian Association of Renewable Energies Asociación Peruana de Energías Renovables APES Peruvian Association of Solar Energy Asociación Peruana de Energía Solar y del Ambiente ARIAE Iberoamerican Association of Regulatory Entities of Energy Asociación Iberoamericana de Entidades Reguladoras de la Energía ATPA Andean Trade Preference Act ATPDEA Andean Trade Promotion and Drug Eradication Act CDM Clean Development Mechanism CENERGIA Center of Energy and Environmental Conservation Centro de Conservación de Energía y del Medio Ambiente CEPLAN National Center of Strategic Planning Centro Nacional de Planeamiento Estratégico CER Certified Emissions Reduction CER-UNI Center of Renewable Energies at the National University of Engineering Centro de Energías Renovables de la Universidad Nacional de Ingeniería CIPENC Center of Research and Promotion of Non-Conventional Energies Centro de Investigación y Promoción de Energías No-Convencionales CNCC National Commission on Climate Change Comisión Nacional de Cambio Climático COES Committee of the Economic Operation of the National Interconnected System Comité de Operación Económica del Sistema Interconectado Nacional CONAM National Council of the Environment Consejo Nacional del Ambiente CONASUPO National Staple Products Company (Mexico) Compañía Nacional de Subsistencias Populares (México) CONCYTEC National Council of Science, Technology, and Technological Innovation Consejo Nacional de Ciencia, Tecnología, e Innovación Tecnológica COP Conference of the Parties Conferencia de las Partes CSP Concentrated Solar Power DGER General Directorate of Rural Electrification Dirección General de Electrificación Rural Endev Energizing Development vi EUR Euro FDI Foreign Direct Investment FISE Fund for Social Inclusion in Energy Fondo de Incusión Social Energético FONER National Fund of Rural Electrification Fondo Nacional de Electrificación Rural FOSE Electrical Social Compensation Fund Fondo Social de Compensación Eléctrica FTA Foreign Trade Agreement GDP Gross Domestic Product GEF Global Environmental Facility GHG Greenhouse Gas GIS Geographic Information System GIZ German Society for International Cooperation Gesellschaft für Internationale Zusammenarbeit GoP Government of Peru GPAE Office of Policies and Economic Analysis Gerencia de Políticas y Análisis Económico GTZ German Organization for Technical Cooperation Gesellschaft für Technische Zusammenarbeit IADB Interamerican Development Bank IEA International Energy Agency INAEN Research Institute on the Applications of Natural Energies Instituto de investigaciones de Aplicaciones de las Energías Naturales INAES Institute of Applications of Solar Energy Instituto de Aplicaciones de la Energía Solar INDC Intended Nationally Determined Contributions INDECOPI National Institute for the Defense of Free Competition and the Protection of Intellectual Property Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual IPE International Political Economy IRENA International Renewable Energy Agency KfW Reconstruction Credit Institute Kreditanstalt für Wiederaufbau kV Kilovolt kW Kilowatt kWh Kilowatt hour vii LD Legisltive Decree Decreto Legislativo LUTW Light Up the World MAS Movement for Socialism Movimiento al Socialismo MINAM Ministry of the Environment Ministerio del Ambiente MINEM Ministry of Energy and Mining Ministerio de Energía y Minas MS Multiple Streams Mtoe Million Tons of Oil Equivalent MW Megawatt MWh Megawatt Hour NAFTA North America Free Trade Agreement NAMA Nationally Appropriate Mitigation Actions NGO Non-Governmental Organization NTP Peruvian Technical Standards Normas Técnicas Peruanas OAS Organization of American States OECD Organization for Economic Cooperation and Development Organización para la Cooperación y el Desarrollo Económicos OEFA Agency of Environmental Evaluation and Enforcement Organismo de Evaluación y Fiscalización Ambiental OPEC Organization of the Petroleum Exporting Countries OSINERGMIN Supervisory Agency of Investment in Energy and Mining Organismo Supervisor de la Inversión en Energía y Minería OSINFOR Supervisory Agency of Forestry and Wildlife Organismo de Supervisión de los Recursos Forestales y de Fauna Silvestre OW Opportunity and Willingness PEFoDo National Photovoltaic Household Electrification Program Programa de Electrificación Fotovoltaica Domicilaria PHEP National Photovoltaic Household Electrification Program Programa de Electrificación Fotovoltaica Domicilaria PNER National Rural Electrification Plan Plan Nacional de Electrificación Rural PPA Purchase Power Agreement PTPA Peru Trade Promotion Agreement PV Photovoltaic R&D Research and Development viii REN21 Renewable Energy Policy Network for the 21st Century RISE Regulatory Indicators for Sustainable Energy RPS Renewable Portfolio Standard SBI Subsidiary Body for Implementation SD Supreme Decree Decreto Supremo SE4All Sustainable Energy for All SEIN National Electric Interconnection System Sistema Eléctrico Interconectado Nacional SERVIR National Authority of Civil Service Autoridad Nacional del Servicio Civil SHS Solar Home System SME Small and Medium Enterprises SNV Netherlands Development Organization SPR Peruvian Society of Renewable Energy Sociedad Peruana de Energías Renovables SUNARP National Superintendent of Public Registries Superintendencia Nacional de los Registros Públicos TTN Technological Transfer Network UN United Nations Organización Naciones Unidas UNDP United Nations Development Program Programa de las Naciones Unidas para el Desarrollo UNEP UN Environment Program UNESCO United Nations Educational, Scientific and Cultural Organization Organización de las Naciones Unidas para la Educación, la Ciencia, y la Cultura UNFCCC United Nations Framework Convention for Climate Change Convención Marco de las Naciones Unidas sobre el Cambio Climático US United States USAID United States Agency for International Development USD United States Dollars VAT Value Added Tax Wp Watt Peak ix Acknowledgements This dissertation received the helpful contribution from a village of people. While it is not possible to name them all, I would like to pause here to highlight a few noteworthy contributors. I owe an enormous amount of gratitude to: My dissertation committee members. Patrick James, my dissertation co-chair and advisor. Pat helped me navigate the labyrinth of graduate school, ensuring that I was prepared to meet all challenges, requirements, and deadlines. Once I entered the research stage, Pat encouraged me to pursue topics and use methods that I was most comfortable with, allowing me to discover myself as a researcher. I am grateful for the freedom he entrusted in me while always being present and available to guide. Carol Wise, my dissertation co-chair and mentor. Carol encouraged me to apply for the Fulbright, research Peru, and actually go there. What crazy ideas! A Latin American expert, she provided the substantive advice that I needed to successfully conduct research in and present my findings on Peru. Amy Below, my dissertation committee member. I am grateful to Amy for being a strong and supportive role model who breaks academic norms. Conversations with Amy always helped affirm that I was on the right track. Each committee member is an exemplary scholar whom I aspire to emulate. Political Science and International Relations (POIR) friends for providing me with a community of support. One of the highlights of my Ph.D. career was when ten of my colleagues came to visit me in Peru during my field research year. Our many hiking trips, camping trips, study sessions, drink sessions, movie nights, dinner parties, and conversations – all of these experiences helped make the Ph.D. process feel less lonely. I want to especially thank Güez Salinas for x constantly supporting and pushing me to continue. Güez also served as a tireless sounding board, helping me think through and bring clarity to nebulous ideas. The various institutions that made this possible. I owe so much to the University of Southern California for all the resources and support that made this Ph.D. worthwhile. While there were many obstacles during my Ph.D. path, administrative issues were not one of them, thanks to the attentiveness of the very capable Veri Chavarin, POIR leadership, and faculty. The Fulbright Public Policy Fellowship, for funding my year in Peru and all the connections it afforded to ease my work in the field. The Supervisory Agency of Investment in Energy and Mining (OSINERGMIN), coworkers, and friends in Peru, for creating a home away from home. I am astounded by everyone’s generosity to help me in my pursuit, such as allowing me to accompany official agency visits, interviewing with me, and steering me towards helpful resources. My family and friends. I cannot thank my parents, Trang Phan and Huyen Tran, enough for their constant encouragement. I am very fortunate to have parents who have always supported and helped me pursue all of my dreams. My brother, Hai-Lam Phan, for being a great role model, always. He understood my internal struggles and provided sound advice to help me overcome them. My extended family, constantly providing a community of love and where I go to seek comfort. My best friend, Alexis Yu, who sat through many difficult phone calls, patiently listening to my grievances and never wavering as my cheerleader. My friends, Simone Barclay and Nicholas Kole, for pointing out my moments of silliness and keeping me grounded. So many more people offered words of encouragement or guidance throughout the process, every little bit of which were building blocks that I used to construct this dissertation. Chapter 1 | 1 Chapter 1. Preserving Artifacts and Progressing Cautiously The Nazca region in southern Peru is an endless expanse of desert covered in beige sand and spotted with prickly tumble bushes. The region is most famous for the Nazca Lines, giant figures drawn into the desert floor by removing the top layer of gravel to reveal the underlying bedrock. No other geoglyph exceeds the impressive figures in size, quantity, nature, or continuity anywhere in the world. They are believed to have been created between 500 B.C. and 500 A.D. and depict various figures including a tree, spider, and monkey (UNESCO, 2018). Extremely surprising to sightseers is how these lines have been well preserved for thousands of years despite natural elements, especially because Nazca is one of Peru’s windiest regions and the site of its newest wind farm. One day in April of 2017, a team of four engineers on behalf of the Supervisory Agency of Investment in Energy and Mining (OSINERGMIN), Peru’s energy regulator, drove seven hours from Lima to conduct a regulatory visit of a wind farm under construction. After driving for hours through nothing but desert wasteland, they turned right onto a nondescript dirt road. After more time passed, bungalows emerged in the distance, and holes several meters across appeared sporadically on the horizon. The wind farm was being built by Enel, an Italian energy company, and would produce a total of 132 megawatts (MW) of electricity, making it the largest wind farm in Peru. Needless to say, completing this farm would be a logistical feat. Peru does not have the technical capability to manufacture every part of a wind turbine. Parts of the turbine came from Spain, India, Vietnam, and Germany, among other countries. The parts were then shipped to the ports in Callao (near Lima) or Pisco. Then they rode on trucks for hours to reach the construction site in Nazca. Chapter 1 | 2 Impressive photos show turbines with arms three meters wide on the back of a truck, driving slowly through Nazca’s narrow roads. Enel had to go through many labor-intensive steps to reach the point of building the farm. About two years before it received construction rights, Enel began to conduct studies to find the ideal location for the farm. It collaborated with geologists to find the best wind patterns and with archeologists to ensure that construction would not destroy any archaeological sites. After it located a suitable site, ENEL applied for a land concession from the Ministry of Culture and the Ministry of the Environment (MINAM). Once it got the concession, it waited for the Ministry of Energy and Mining (MINEM) to open the biannual competition for renewable energy contracts, in which Enel competed with many other companies with the hope of winning construction tenders. Enel won three projects during the 2015 auction, and this Nazca farm was one of them. Construction started in early 2016. Enel engineers gratefully acknowledge that the terrain was adequately windy and cooperative, the ground was soft enough to install foundations for the wind towers, and they have not found too many fossils that would interrupt their construction. They continued to work with geologists and archaeologists to make sure that their project met the standards laid out in the state contract. Seeing that the construction project was progressing rapidly and according to plan, the OSINERGMIN regulators left reassured. As Enel’s experience shows, building a renewable energy plant in Peru is no easy task, but companies all over the world are vying to be able to enter this virgin market. In 2015, Peru’s last renewable energy auction, 111 applications were submitted, out of which only 13 applications were selected (OSINERGMIN, 2016a). This interest exists because Peru has many natural resources suitable for renewable energy, including strong solar radiation, winds, rivers, and Chapter 1 | 3 geothermal vents. Peru is also an upper-middle-income country with a stable economy. To top it off, the Peruvian government guarantees companies a fixed return rate for twenty years, regardless of the market price. Given these conditions and an untapped market, many investors look upon the Peruvian market with lusty eyes. Misalignment between Intention and Action: A Policy Puzzle At first glance, Peru looks like a dream country for renewable energy enthusiasts. Aside from great natural conditions that are necessary for renewable energy production, Peru appears to be one of the most supportive countries of the environment and renewable energy. It is part of the United Nations Framework Convention for Climate Change (UNFCCC), it was an early signatory of the Kyoto Protocol, and it even hosted the 20th Conference of the Parties (COP). All of these international efforts aimed to mitigate climate change, in large part through promoting renewable energy. In Lima, there is even a national theme park dedicated to educating citizens about climate change, the only one of its kind in Latin America. But upon closer look at policies, one is struck by the dearth of policy support for renewable energy providers. The auction that Enel won to build the Nazca wind farm is the only way that renewable energy producers can sell electricity on the electric grid. Outside of these official auctions that happen every two years, renewable energy producers are prohibited from signing long-term purchase power agreements (PPA) with electricity transmitters and distributors. As a result, renewable energy can exist on a small scale but cannot be commercialized for the general public without going through the auction channel. Given how internationally vocal Peru has been on the climate change front, the imbalance between expressed intent versus political action is especially glaring. Chapter 1 | 4 The juxtaposition of the ancient Nazca lines with the technologically advanced Nazca wind farm is an apt analogy for the political debate over renewable energy in Peru. On the one hand, people want to preserve Peru’s culture, heritage, and existing institutions. In the energy field, this means a reliance on large hydroelectric plants and natural gas recently extracted from Peru’s abundant fields. This also means maintaining the existing organization of the electrical system and current players. On the other hand, the global wave toward renewable energy places pressure on Peru to use more renewable energy sources, but doing so carries the risk of destroying long-established institutions. Although Peru realizes that change is coming, it is proceeding cautiously. In 2008, Legislative Decree (LD) 1002 created the auction system so that renewable energy could be sold on the electrical grid. Peru was in an especially surprising position to pass such a groundbreaking policy at this time. In the early 2000s, Peru was in a position of electricity surplus. Figure 1 shows the marginal reserve of electricity that producers maintain each year. In 2007, while the maximum electricity demand was about 4,000 MW, the effective capacity of production was 5,500 MW. In 2008, the demand was 4,200 MW, while production capacity was 5,400 MW (See Figure 1). The effective production capacity has consistently been higher than the maximum demand, ensuring that consumers would not be left without electricity for the present day. Before the passage of LD 1002, there was no immediate energy crisis to make this issue urgent. The last energy crisis occurred in 2004, when a major drought revealed the many shortcomings of relying heavily on hydroelectricity, even though the 2004 drought did not shut down the system (Comisión MEM-OSINERG, 2005). Once the Camisea gas fields started Chapter 1 | 5 producing in 2004, Peruvians were assured that they would have enough reserve for domestic consumption for thirty or forty years without fear of shortage (Merco Press: South Atlantic News Agency, 2008). In other words, Peru did not have an “energy security” problem, which is a driving force for other countries, such as Brazil and Chile (see Bonilla, 2012; Forero, 2013; Hoffman, 2010; Jagger, 2013; Murphy, 2011), to explore renewable energy. Beyond the capacity surplus, Peru’s electricity was already “green" in the sense that hydroelectricity constituted 80% of Peru’s electricity production. This mix changed when the natural gas fields in Camisea began production in 2004, but in 2008, hydroelectricity was still Figure 1: Marginal Reserve of Electricity in Peru 3305 3580 3966 4199 4322 4579 4961 5291 5575 5737 6275 6565 4799 5064 5533 5444 6246 6875 6868 7755 8680 9083 10088 12078 0 2000 4000 6000 8000 10000 12000 14000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Megawatt Year Marginal Reserve of Electricity in Peru Maximum Demand Effective Production Capacity Source: BNAmericas, 2018 Chapter 1 | 6 producing 61% of Peru’s electricity (COES, 2008, p. 10). Compared to other countries, Peru was already taking advantage of renewable, clean energy. In addition, renewable energy was several times more expensive than the energy sources that Peru was already using, and introducing it would force consumers to pay higher electric bills. In 2008, solar energy cost over United States dollars (USD) 200 per megawatt hour (MWh), compared to market price for fossil fuel energy, which was around USD 50 per MWh (Quintanilla, 2016). Consuming energy from solar would have made consumers pay higher electric prices when there were cheaper options available. Finally, the major players in Peru’s energy market — generators, transmitters, and distributors — already had an established natural monopoly, and they opposed renewable energy for fear that it would disrupt the current functioning electrical system. A report by Ernst & Young (2016) writes, “In both developed and developing countries, utilities have clung to outdated business models and have been on the wrong end of the spectrum with respect to renewable energy growth, suffering as a consequence” (p. 6). Utility companies resist the entry of renewable energy because it disrupts their traditional way of doing business. Suddenly, they have new competitors and must adjust their pricing calculation if renewable energy is allowed to enter into the grid. There was also the fear that renewable energy producers would not be able to produce stable energy over time, and thermal electric producers would have to work harder to compensate. Peru did not have any immediate need to introduce a renewable energy policy at this time. In fact, it had strong reasons to oppose it, which many people did. Economically, politically, and environmentally, Peru appeared to have no urgency to push for renewable energy. Despite Chapter 1 | 7 the opposition and a calm year for the status quo of energy operations, Peru passed its first law to allow renewable energy to feed into its national electric grid in 2008. What allowed Peru to make this policy decision despite a disagreeable political context? Peru is an optimal case to study this question as it is a signatory to numerous international agreements related to climate change and renewable energy. This suggests the government’s awareness of the benefits and need for alternative fuels. Yet domestic policies to support the actual implementation of renewable energy practices are scarce. To date, LD 1002 is the only formal renewable energy legislation that supports large-scale production. Peru is also an interesting case because of the level of opposition that it received in the national level as well as the unlikely context within which it was passed. This makes for a useful case to study how an environment highly unfavorable to the passage of a certain type of policy can still provide such opportunities. Renewable Energy Patterns in Latin America and the World According to the International Energy Agency (IEA), “Renewable energy is energy derived from natural processes (e.g. sunlight and wind) that are replenished at a higher rate than they are consumed. Solar, wind, geothermal, hydropower, bioenergy and ocean power are sources of renewable energy. The role of renewables continues to increase in the electricity, heating and cooling and transport sectors” (2017a). The International Renewable Energy Agency’s (IRENA) 2016 report on renewable energy writes, “The analysis of regional and sub-regional dynamics clearly demonstrates the crucial role of renewable energy policies at the center of deployments” (p. 16). There is much potential for renewable energy in Latin America that is yet to be tapped. Chapter 1 | 8 Oil and natural gas have traditionally played a large role in Latin America’s energy mix. Mexico, Venezuela, Colombia, and Ecuador comprise the region’s main oil-exporting countries, with the region as a whole holding about 20% of the world’s reserve for oil. Latin America does not have a large reserve of natural gas, accounting for about only 4% of the world’s reserve, but this fuel does play a major role for some countries, especially Bolivia and Argentina, and increasingly Peru. Natural gas is the main source of electricity generation in Bolivia, and the second source of electricity generation in Venezuela, Colombia, and Peru. Coal reserves are concentrated in Colombia and Brazil, with Colombia being one of the world’s top five net exporter of coal (IRENA, 2016, p. 29-30). The Sustainable Energy for All (SE4All) objectives show that electrification, especially from renewable sources, is a priority for many political actors in the world (2017). The President of France, Emmanuel Macron, has an initiative called “Make Our Planet Great Again,” which focuses on climate change, sustainability, and energy transition issues (Mufson, 2017). Germany has Energiewende, its program for energy transition that focus heavily on promoting wind, solar, and hydroelectricity (Energiewende, 2018). Sweden is racing to be the first country in the world to use only renewable energy (Climate Reality, 2016). Aside from developed countries, renewable energy targets are being adopted in many developing countries. In 2015, 99% of Costa Rica’s electricity came from renewable sources, and it plans to be carbon-neutral by 2021. Nicaragua’s president, Daniel Ortega, began setting the country on a different path by investing heavily in renewable energy starting in 2007. After less than ten years of heavy investment, Uruguay now produces 95% of its energy consumption from renewable sources. In another part of the world, Kenya produced 13% of its energy using Chapter 1 | 9 geothermal in 2010, but geothermal accounts for 51% of its energy mix in 2015 (Climate Reality, 2016). There is an international trend — an unofficial international competition, even — to see who can be the cleanest energy producer. Renewable energy is increasing in importance in Latin America and other regions due to several factors. First is the realization that traditional fossil fuels — oil, natural gas, and coal — will soon be completely depleted. Because fossil fuels are a finite resource, the competition for access to them will grow fiercer as they grow scarcer. Indeed, we have already seen some geopolitical conflicts break out due to fossil fuels, including the Organization of the Petroleum Exporting Countries (OPEC) oil embargo in the 1970s (Mann, 2013), Gulf War (Aarts & Renner, 1991), Russia-Ukraine gas dispute (BBC News, 2009), and international oil sanctions on Russia when it annexed Crimea (Makortoff, 2016). Second, renewable energy is believed to help mitigate climate change. In COP 21, which took place in Paris, attending countries agreed to limit global warming by two degrees Celsius by scaling up their renewable energy consumption through Intended Nationally Determined Contributions (INDC) (REN21, 2016, p. 27). Third, since renewable energy is a relatively new market and growing rapidly in demand, these factors are drawing an increasing amount of investment each year (ibid, p. 25). Finally, some forms of renewable energy function well as small-scale standalone systems, which are ideal for remote areas distant from the grid. This characteristic makes it an increasingly used method of bringing electricity to rural areas (ibid, p. 24). China has been the world leader in renewable energy, and it continues to do so to meet energy demand, combat severe pollution problem, and support domestic manufacturing industries (ibid, p. 60). Brazil has traditionally been the largest investor in renewable energy in Latin America. Between 2005 and 2009, Brazil accounted for 70% of Chapter 1 | 10 investments in renewable energy in this region (IRENA, 2016, p. 10). While Latin America is not a world leader in renewable energy, it is increasingly consuming and investing in renewable energy. Challenges to Renewables in the Free Market Without government policy to support renewable energy investment, it is highly difficult for renewable energy companies to compete in the free market. There are three main general barriers to renewable energy investment: macroeconomic factors, structure and organization of the energy sector, and finance sector. Most renewable energy investors in Peru are foreign companies, which are discouraged by several macroeconomic factors that increase the risk of doing business in other countries. These factors can be a history of investments with bad outcomes in the past. This could come from policy changes that changed the profitability of a project. Inflation rates have at times run wild in Latin American countries. A lack of history of investments in certain technologies in the past can also intimidate investors as they do not want to be the first. Latin Americans have also had higher economic growth rates than other regions of the world, but their high dependence on commodities make for a volatile market. Overall, the macroeconomic economic conditions of Latin American countries have in the past proven volatile, which can discourage investors. Energy subsidies for traditional fuels embedded in the structure of the energy sector can decrease the competitiveness of renewable energy. Administrative procedures that are unclear or lengthy can discourage private players from entering the market. Some structures have certain companies already serving as monopolies in the area, and there is little market space for private investors. Unclear contract terms can make it difficult for investors to invest. Countries have counteracted this issue by issuing PPAs for periods of twenty years so that investors can feel Chapter 1 | 11 assured that their investment will have long-term returns. Latin American countries also face the issue of lack of human capital and expertise as many renewable energy technologies are technologically advanced. Especially prevalent in the African continent is the shortage of skilled labor for the installation, operation, and maintenance of solar energy systems. In addition to this factor, the issue of not having the right standards and certification of equipment makes buyers unsure of products, which makes investors unsure of their future buyer’s market. There are also issues with high cost of capital, diversification of capital sources, and limited finance knowledge and capacity (IRENA, 2016). Thus, the existing structure of the energy market, and lack of structure for renewable energy, can be barriers that make market penetration difficult. Renewable energy, as a nascent market, faces some of the same financial challenges of any new industry. There is a high cost of entry. There is the difficulty with attracting investors and high rates of failure. The high rates of failure make it difficult to access financing. Finance conditions differ from country to country, with some offering plentiful options and others few options (FS-UNEP & BNEF, 2016, p. 19). Indeed, historically, finance in renewable energy technology has come from government assistance (direct investments or subsidies) or from development banks. As the market, companies, and technologies mature, the failure rate declines and accessing credit is much easier. Finance players in the renewable sector have become more diverse. Commercial banks play the biggest role in financing wind and solar farms in 2015. Bonds are used but to a lesser extent in the U.S., Germany, Japan, Brazil, and Mexico. Development banks continue to provide funding for many projects. In 2015, the International Finance Corporation loaned money to support the 36MW Malvern wind farm in Jamaica, and the Kreditanstalt für Wiederaufbau (KfW) Chapter 1 | 12 loaned USD 125 million to Tunisia for solar and other clean power projects. KfW reported lending euro (EUR) 4.5 billion in 2015, up from the EUR 4.1 billion in 2014. The most active development banks for renewable energy, broadly defined to also include efficiency projects, transmission and distribution projects, and reporting, are KfW of Germany, providing USD 28.3 billion, the European Investment Bank with USD 11.7 billion, the World Bank Group at USD 9.4 billion, the Brazilian Development Bank at USD 6.3 billion, and the China Development Bank at USD 6 billion in 2015. Other notable banks include the Asian Development Bank, European Bank for Reconstruction and Development, African Development Bank, Japan Bank for International Cooperation, and Export-Import Bank of China (FS-UNEP & BNEF, 2016, p. 44-45). Many governments have tried to assist the renewable energy market, but many investors want more supportive policies. While the U.S. has standard regulations for renewable energy technologies sold on the market, Peru, for example, still has yet to pass industry standards. Without proper standards and regulations, it is difficult for investors to know whom to trust, and concerns arise whether investors’ technology can be incorporated into the existing power grid to expand their consumer base. Governments are also testing out various policies to see which work. Fiscal incentives such as subsidies, tax relief, and grants have long been a part of the government’s package to help the young market. Other policies include auctions, passing standard regulations, incorporating net metering, and giving preference to renewable energy for certain times of the day in auction processes. To increase consumption from renewable energy, some governments like Japan, Germany, and states in the U.S. have enacted laws that require utility companies to incorporate renewable energy (FS-UNEP & BNEF, 2016, p. 19). However, policy makers do not know exactly how much these policies will help the sector, and there is Chapter 1 | 13 constantly a trial-and-error process, learning how to improve policies as time passes. Now, with some solar and wind markets reaching the same cost of production as traditional fuels, people are starting to question the need for continued government support of renewable energy, since this creates a disadvantage for traditional fuels. These advocates make a fair point, but with the ongoing predominant concern over climate change, it appears that support to grow the renewable energy market will continue. The variability of renewable energy production makes it a less desirable alternative than traditional fuels. Consumers’ energy consumption pattern is relatively predictable. Electricity is used throughout the day, but there is a general drop during the daytime while most people are at work or school and increase in the early mornings and night times when people are at home. Renewable energy is more unpredictable. People are at home in the nighttime when solar energy systems cannot produce electricity. Sometimes the wind blows and sometimes it does not. Seasonality also plays a role. People use more air conditioning in the summer time and more heating in the winter time, but rivers are usually fuller in the winter time and drier in the summer time. This creates a mismatch between supply and demand as renewable energy producers cannot control when there will be sunlight or wind to meet the demands of their customers. Because of this unpredictability, there is a growing corollary market in making better batteries. The idea is to make batteries that can store excess power when the natural processes are strong and which can be tapped into when they are weak, which would help power generators to meet the demands of customers at all times. Better batteries can also help with the issue of grid variability. Chapter 1 | 14 Currently, many areas still face difficulty with grid integration. Most countries deliver electricity to their customers using a complex grid system that consists of power lines and poles. Some of these wires are only able to transport a certain amount of energy at its maximum capacity. When there is a storm, wind turbines spin wildly and generate a lot of electricity, overloading the power lines. This situation places stress on power lines, and some may explode or malfunction after a certain limit. China and India are two countries whose grid congestion poses a problem for investments in renewable energy (REN21, 2016, p. 60). Because of this issue, many grid operators are reluctant to connect power from renewable sources to the grid. A proper battery system would cut down on this concern and allow energy producers to control how much electricity they feed into the grid. However, energy storage technology at an affordable price is still in want, and until then, grid systems that are not properly constructed with a large power capacity are still unable to integrate renewable energy into its mix. The current situation is still difficult for renewable energy producers, with some finding that they cannot sell the electricity that they produce because they have no way of transporting it to their consumers without the help of the grid system. Some areas are working around this issue by looking toward distributed systems. These range from single systems that produce electricity for a single appliance or household, or they can be connected to a mini electricity grid. The main characteristic of the distributed systems is that it is not connected to the larger national or regional electricity grid. There are several reasons to prefer these distributed systems. First, as mentioned above, there are difficulties with connecting with the main grid. Since reliable and cost-effective batteries are still not available on the market, electricity producers still run into difficulty when they try to connect to the grid. Chapter 1 | 15 Some places still lack the proper policies, such as the ability to net meter, without which producers cannot keep track of how much of their electricity versus electricity from other sources is consumed. Second, policy makers realize that some places are too remote to make grid extension to these areas an economically worthwhile option. In order to decrease the time it takes for these areas to have electricity, policy makers and private investors look toward smaller systems that do not need to be connected to the grid because they are cheaper. Lee, et al., (2016), in an experiment in Western Kenya, estimated that the cost to connect to the grid there was about USD 1,000 per connection, while distributed systems can start as low as USD 10 for smaller systems. The problem with these distributed systems, usually using solar energy, is their capacity and reliability. These systems usually have smaller capacities. However, people living in remote areas generally have smaller energy demands and these systems can serve at least their basic needs. These distributed systems at least provide rural families with some access to electricity. Small-scale projects received USD 67.4 billion in finance in 2015, representing about a quarter of all new investment in renewable energy (FS-UNEP & BNEF, 2016, p. 54). Countries that are likely to incorporate more renewable energy are those with markets that are not monopolistic and in which consumers already have a choice of suppliers. Other promising markets are those that already have a high level of participation from renewable energy companies, and countries that have regulators and policymakers who see the value of renewable energy and are champions of it (Ernst & Young, 2016, p. 6). Wise (2007) argues that the reason that explains Peru’s natural gas consumption pattern, despite how much natural gas they can produce, is the high politicization of the energy sector policymaking and that “the Chapter 1 | 16 interaction of domestic politics with the technological complexities and socioenvironmental sensitive intrinsic to the exploitation of this resource also accounts for the long gestation period in bringing gas to the Peruvian market” (p. 305). Similar technological challenges face the exploitation of renewable energy technologies. Institutions and Levels of Analysis The above-mentioned developments in the renewable energy sector are embedded in domestic and international institutions that give context to renewable energy as an option for the future of electricity production. Douglass North defines “institutions” as “the humanly devised constraints that structure political, economic and social interaction” (1991, p. 97). These can be both formal or informal, explicit or implicit. The basic idea is that human interactions need to be constrained because doing so facilitates cooperation. Traditionally, institutions are generally restrictive, but depending on institutional design, institutions can be enablers of desired behavior. One way that institutions constrain behavior is through the status quo bias. Because actors prefer stability and predictability of future outcomes, they prefer the status quo. The status quo bias exists in the field of energy policy as well because conventional energy sources are the safer and more certain choice. By coupling climate change with energy security, there is the potential to redefine the energy security problem and find solutions that are more environmentally friendly. However, change can only come as a compromise of various actors and politicians who are in charge of voting, and they will only put this issue high on the agenda if they are convinced that it is an important issue. Chapter 1 | 17 Bang (2010) notes the status quo bias in the U.S. Congress and how attention to energy security and climate change issues helped to pave the way for a more environmentally conscious vote in the 110th Congress. Bang argues that several elements are important to explaining policy change in the U.S.: the design and structure of the U.S. political system, where change can only come if members of the Senate and the House compromise and agree on a specific course of action; and agenda setting and the number of feasible alternatives considered. The “oil-, coal-, utility-, and auto industries are strong interest groups that continue to support the use of fossil fuels, and they have the advantage of infrastructure that is readily available to provide energy products to consumers. As a consequence, politicians are faced with traditional, well-known alternatives when they consider climate and energy policies for the future” (ibid, p. 1649). This quote argues that the status quo bias is strong because it is the safer choice. Also, when the issue of climate change is coupled with traditional national concerns such as national security and energy dependence, it leads to greater attention to newer issues on the agenda. Policies can change from the status quo but only incrementally because of the need to compromise in a democracy. Jacobsson and Lauber (2006) argue that the policy outcome of policies to promote wind and solar energy is due to growing coalitions of advocates pushing against the opposition of entrenched coal and nuclear interests to change the status quo. The process starts with institutional change, then creation of markets, and next the formation of advocacy groups comprising firms, industry associations, and other entities such as universities and non- governmental organizations (NGO). Fourth is the entry of new firms to solidify the market and Chapter 1 | 18 proliferate the technology. Using process tracing, the authors provide a description of Germany’s policy change tracing its various steps. International participation appears to be encouraging more participation. Perhaps it is because with international commitment, countries are thinking that international and development banks will back this kind of effort. This was what occurred in the 1980s with the Washington Consensus, and countries committed to develop in certain ways because doing so would guarantee a loan from the development bank. Perhaps as more countries are moving in this direction, countries feel more confident that if they pass policies that support the trend, they will be able to attract more investment and develop. The COP21 Paris Agreement has changed the renewable energy market even more. Countries that have signed the Paris Agreement indicate that they are committed to mitigating climate change, and part of this process involves investing in and supporting renewable energy. When the political intention is clear, investors feel more assured to invest as the risk that the government will likely change its political support is decreased. Furthermore, the Paris Agreement extended the commitment of USD 100 billion a year by 2020 to 2025. The Paris Agreement made it clear that there was government and world commitment to making cash available to investors. While most studies of international political economy recognize that there is an interaction between the international and domestic levels (Frieden & Martin, 2003), the individual level is also important. And with policy windows, usually there are one or a few individuals who can be singled out to show their agency and impact on the outcome. The issue with the individual level is that individuals are highly idiosyncratic, and it is difficult to make any Chapter 1 | 19 predictions when one considers the individual level. This is why most scholars skip over the individual level all together. Some authors (for example, Harvey, 2011) believe that the individual does not matter; structural constraints would make the rational decision apparent to any actor in the same situation. However, ideology of individuals has been shown to be important in decision-making (Pastor & Wise, 1994), so individuals cannot be eliminated from the analysis matrix. Steinberg (2003) observes that international influence on domestic environmental politics and institutions is great, but this is not highly recognized in the literature, and that there is a lack of information about international influence on institutional change (p. 16). Indeed, this dissertation finds that while Peru’s institutions have historically allowed the opposition to successfully block renewable energy policies from moving forward, its design also allowed the opening of a policy window where this groundbreaking policy was able to pass through. This dissertation also traces the chain of how international influences started the motion at the domestic level, and then the domestic level picks up this momentum, enacting changes that no one could have predicted would stem from the international impetus. What is most surprising is that this policy resulted from a trade deal with the U.S., and it was not even required as a piece of compliance in the final deal. Yet domestic actors took liberties with the opportunity that presented itself and framed the issue to their preference. Methodology This dissertation process traces LD 1002, the renewable energy policy that people thought could not pass and is still strongly opposed today. This research relies on historical primary resources such as government documents, news articles, and market data on electricity Chapter 1 | 20 production in order to construct a profile of the pre-existing landscape that enshrouds this highly controversial policy in Peru. Next, the study draws on interviews with relevant players who were directly involved with this policy, including personnel within MINEM and MINAM; Peru’s energy regulator, OSINERGMIN; local electricity companies; and key protagonists within Peruvian academia and NGOs. Finally, it traces and triangulates the steps and strategies that players used to circumvent the opposition and pass policies that favor renewable energy practices. An inductive study has been proven helpful for theory generation in the past. Kingdon’s (1984) groundbreaking book was also inductive, wherein he started with a set of questions and used in-depth interviews and empirical observations to build a theory. It was not until after the interviews were conducted that he came up with his theories about how the U.S. political system works. Hermansen (2015) uses inductive research by carefully analyzing the case of Norway’s REDD+ initiative to learn about policy windows and entrepreneurs. Dudley (2013) did an inductive study on the London Congestion Charge to understand how narratives played a role in opening and closing policy windows for this policy to pass. Given that the topic of passing the first, controversial renewable energy policy is a topic that has been under-theorized thus far in the literature, this study generates many new ideas for further exploration. A single case study has also bred benefits for the rest of the field. Merilee Grindle’s (1977) book focused only on one Mexican bureaucracy, the National Staple Products Company (CONASUPO). From her study, readers are able to consider the many contextual considerations — including international trends, institutional constraints, and resource availability — that actors had to face that compelled them to take the actions that they took. Such details would be lost in broader studies that do not dig as deep. One can also take better Chapter 1 | 21 note of how institutions can produce similar behavior across very different actors. Yet within those similarities, small idiosyncrasies can also be observed. These observations are possible with a small-n, in-depth study. Brief Sketch of the Argument To explain how Peru was able to pass its first major renewable energy policy, theories of institutionalism must be combined with the opportunity window model. Figure 2 illustrates the relationships and connections between different events that brought about LD 1002. There is political willingness on the part of domestic society, but it must wait for the right opportunity with influential actors in place to pass this policy. However, for a developing country, there is a clear international influence on domestic politics. Much of the international political economy (IPE) literature tends to hold the international level constant and look at the domestic level or vice versa (Frieden & Martin, 2003). This study holds the international sphere constant because it is interested in how international influences affect domestic policy change. There is also a dearth of studies that can explain how international influence affects institutional change (Steinberg, 2003). Furthermore, developing countries are generally viewed as adopters of international norms once they develop (Braveboy-Wagner, 2009; Thakur, 2001). 1 Thus, this study examines the international influence on domestic institutions. 1 However, some scholars are beginning to study the role that developing countries have on shaping international norms. See, for example, Brzezinski (2010) and Jinnah (2017). Chapter 1 | 22 Breaking away from IPE tradition, however, this study disaggregates the domestic level by also looking at the individual level in addition to the state level. Studies about institutions typically recognize the importance of ideas in the proceedings of institutions. Ideas, as we know, come from people. By looking at individuals, this is not too far of a departure from current institutional analysis. This inclination is also aligned with the opportunity windows scholarship. As is commonly recognized in the literature of opportunity windows, the policy entrepreneur is an important individual and can usually be identified as key to bringing about policy change. Studying the three levels of interaction provides a more complete picture of the different forces at play. This is in line with Buzan (1995), James (1988), and Mabee (2007), who argue that multiple levels should be studied simultaneously to better understand interactions. Although there could be a multitude of ways to categorize the different levels (Buzan, 1995), the Peruvian case lends itself to be easily divided into three levels. Figure 2: Political Willingness and Policy Window Chapter 1 | 23 The willingness to advocate for a policy, or the preparation that actors put towards advocating for their policy, starts at the international level. This was the source of both the ideas for a renewable energy policy and the science to explain its need. The international sphere provided Peru with technology options that use renewable energy sources. Simultaneously, there was more information about energy issues around the world and at the country level. Globally, there was a political norm change, in which many countries began to concern themselves with climate change issues and signed on to these international agreements. There was, further, an economic global norm change, because many companies began to invest in renewable energy technology. These international trends were not lost on the Peruvian domestic audience. International trends led the Peruvian state to create many new institutions that focused on research and training and on implementing international agreements into which Peru had entered. Aside from state institutions, universities also created new programs to research various aspects of renewable energy as it relates to society. Finally, international trends also likely inspired individuals in society to begin involvement in studying renewable energy. These can be seen in the researchers, conference attendees, and writers about issues of renewable energy and climate change in Peru. People began to speak more about the benefits of renewable energy and the need for Peru to use more of it. Once these international ideas enter the domestic sphere (which includes both state institutions level and the individual level), a synergistic energy is created, whereby more institutions attract more individuals. More individuals also fortify existing institutions and even energize some to start new initiatives, such as form new institutions, conferences, or writings about this topic. The state and individual levels reinforce each other. The momentum for more Chapter 1 | 24 renewable energy continues to build in the international sphere, which in turn fuels activities within Peru’s domestic sphere. However, despite the brewing and growing interest, and the desire for the state to take concrete policy steps to promote and use more renewable energy domestically, the institutions, structures, and interests that were in place were such that there was much built-in opposition that succeeded in stopping such policies from moving forward. Although there was political willingness, it had to wait for an opportunity to appear. The opportunity also began at the international level, but this had to be filtered through state-level response and then taken up by domestic elites. For Peru, this international impetus came in the form of a trade deal with the U.S. This served as an exogenous “shock” to the system that required domestic actors to change institutions in major ways. The trade deal required Peru to make many institutional changes and also included a term on environmental protection. Policy entrepreneurs took advantage of this criterion and were able to successfully frame the issue of renewable energy as falling under environmental protection. This trade deal started a chain of events within the state system. Here is where institutions and the free spaces that the state system allows to individual actors once again plays an important role. Usually, the Peruvian legislation process requires proposal and then debate within the entire Peruvian unicameral congress, which has 130 members. In extraordinary circumstances, the Peruvian system allows for congress to delegate legislative power to the executive branch whenever it deems necessary, usually in situations that require swift action; the hierarchical nature of the Executive branch allows for faster action than congress’ democratic structure. Because Peru wanted to complete the terms of the trade deal quickly so that it could Chapter 1 | 25 start to take effect, the Peruvian congress delegated legislative authority to the executive branch to complete the terms of the trade deal. Individuals who were interested in renewable energy and saw its value were well positioned within the Peruvian government to influence policy. The Vice Minister of Energy at the time, Pedro Gamio, was a big advocate for renewable energy. Even before this opportunity came along, he had already assembled a task force to study the feasibility and benefits of renewable energy for Peru. The legal language for this policy was already written and ready to go by the time legislative power was granted. This policy entrepreneur did not know when for sure the opportunity would come, but he was prepared to act whenever an opportunity looked promising. Once the executive branch was given legislative power, the vice minister proposed the policy, which the minister and the president approved by legislative decree. Another fortuitous institutional design is that once a legislative decree passes the executive branch, it requires open debate and vote within congress. This difference of 130 decision-makers versus the, at the extreme, 3 decision-makers within the executive branch, meant that it would be much more difficult to repeal this policy than to have the executive branch pass it. Furthermore, given the international trend, few politicians wanted to spearhead the oppositional force and stand as an opponent of renewable energy. Because of this, this policy stands today. For Peru, this shock came from the international system. But one can imagine that these shocks can come from domestic sources as well, such as a natural disaster or an economic crash that originated from national sources. For developed countries, because they tend to set international norms and lead in economic and political proceedings, exogenous shocks for them are more likely to come from within their economy and then have rippling effects on other Chapter 1 | 26 countries. This is not to say that Peru does not have its own influence. This particular case, however, is a good demonstration of an instance in which international influence greatly impacted domestic institutions of a developing country with lasting effect. This framework follows the idea that for any outcome, both structure and agency are simultaneously at work. As Karl Marx (1963 [1869]) has argued about history, “Men make their own history, but they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered, given and transmitted from the past” (p. 15). Cameron (1997), in trying to explain how Alberto Fujimori, one of Peru’s former presidents, could have staged a coup and disband the Peruvian Congress in 1992 with impunity, also notes that Fujimori was able to do so because of structural factors and human agency. The Peruvian electoral system, economic decline, and growing insurgency movements came together that created a political climate that allowed for an outsider to be elected. Once in power, Fujimori had the agency to decide what he wanted to do. He could have decided to form coalitions within Congress, despite not having many allies, but Cameron argues that Fujimori did not try or even want to form political coalitions. Similarly, this event that allowed the Peruvian government to pass a law major law about renewable energy worked within the institutional confines, but actors within this space were able to exercise some agency and creativity in order to pass the policy that they wanted. Contributions of the Study This dissertation adds to the body of literature on policy change by looking specifically at one policy that represents a game-changer in a given sector and therefore invokes high levels of opposition. This policy is transformative for Peru’s energy market because it was allowed for Chapter 1 | 27 renewable energy’s first entry into the grid. Furthermore, this decree has radically changed the mindset of political elites about renewable energy. Unlike before, political elites now have evidence that renewable energy can contribute to national energy security without hurting the market. Yet many people are unaware of the origin of this policy and how it came to pass. An explanation of this process will allow for more recognition of this policy as a benefit for the Peruvian government, and more awareness will let the public and political elites hold ministries accountable for completing the mandates stipulated in this policy. This study also elucidates the strategies that political elites have used in a politically challenging setting and identifies those factors deemed most salient for passing renewable energy policies within developing countries. Understanding this policy-making process offers invaluable insights on those conditions most conducive for passing difficult but necessary laws, some of which could be transferable to other developing countries trying to contribute to the global effort on mitigating climate change. Although no two countries are the same, understanding the specific issues that Peru faced and the political dynamics of overcoming them brings researchers a step closer to theorizing about and enacting renewable energy and climate change policies. Peru’s situation is also not entirely unique. Despite much verbal support for mitigating climate change, countries have been slow to act. Many face entrenched domestic opposition when they try to enact necessary policies. Even countries that have passed many renewable energy policies in the past still face opposition when they try to pass new policies because the interests at risk of losing — fossil fuel companies — continue to fight to keep their market share. Chapter 1 | 28 The case of Peru is even more complex as it represents a developing country setting, where political institutions can be weaker. While renewable energy is important for the entire world, it is more important for developing countries because their energy demand is growing faster than developed countries. However, with concerns over climate change and shrinking fossil fuel supplies, developing countries are harder pressed to look for ways to meet their energy demand using renewable energy. Thus, understanding how developing countries can pass difficult climate-related policies is even more urgent. Despite the need, there have been few studies on policy change in developing countries. Many past studies on the policy process have focused on conditions in the Western Hemisphere (for example, Baumgartner & Jones, 2009; Kingdon, 2011; and Sabatier & Jenkins-Smith, 1993). But Peru’s institutions are vastly different from those in the U.S., for example. The comparative strengths of developing countries’ various ministries, political tools available, and rules that are in place all pose different challenges that should be studied so that theories about policy change can be more complete. Government support through supportive policies is still recognized as a necessary action. Deshmukh, et al. (2012) conclude that while prices of solar energy are decreasing, there is still a need for government support by passing policies to support research and development (R&D) and policies that would optimize the country’s energy objective while taking advantage of the global drop in price. It is acknowledged that government involvement is needed for more deployment of renewable energy. This study looks to see how certain actors can make their governments more involved and supportive of renewable energy. The findings in this study are not applicable only to the field of renewable energy. Renewable energy is studied because it is a growing topic of importance internationally. But Chapter 1 | 29 this finding can be applicable to any policy that society deems necessary but is still highly opposed. One can imagine that there are a host of policies that, upon review, look beneficial to society at large yet cannot be passed because a small, powerful group successfully block them. Those issues can draw from the analysis in this study. Finally, though Peru’s idiosyncrasies cannot be perfectly replicated in other countries’ contexts, there are still some key takeaways by looking at Peru alone. Peru’s opportunity window opened because of a power shift within the major branches of government. Power shifts happen regularly in politics, such as when there is a change of leaders, a branch is delegated certain powers, or a branch may be experiencing some kind of dysfunction. It is important to recognize that these are windows of opportunities so that actors can align their resources to act immediately. Theoretically, this dissertation draws on models of political decision-making and institutional design to explain how local actors attain what they want. Globally, the world is in an epic transition toward renewable energy use. This research aims to promote this necessary changeover within developing countries as quickly and seamlessly as possible. Areas not Covered in this Study There are several questions that this study is not designed to answer. First, it cannot fully explain how important but highly opposed policies passed in other countries. This is a single study on Peru meant to understand the context, constraints, and dynamics that took place for this policy to pass. Its generalizability has not been tested in other contexts, but one can imagine that there are similarities to be drawn to contexts of other developing countries as well, such as the powerful influence that international developments can have on changing domestic views, the Chapter 1 | 30 impact of trade deals on institutional changes, and domestic interests and institutional constraints that are similar across many countries. This study also does not focus as much on rural electrification policies that use renewable energy. Rural electrification is also a very important topic, but given the significant impact of policies promoting mass use of renewable energy, the political calculus for rural electrification is best left for another study. However, briefly discussed in one chapter, Peruvian rural policies that use renewable energy were also passed with high influence from international activities. Peru relies heavily on international loans, especially from the World Bank, to fund its rural electrification policies. It sets up programs and management offices to follow stipulations of these international loans. These loans also give the Peruvian government flexibility in how it wants to implement its programs. The policies that are passed, however, must closely follow the loan terms, so there is less liberty to discuss how programs should be designed than policies that are not tied to international loans. This study also does not speak about implementation. Grindle (1980) looks closely at policy implementation in the developing world. The authors in that edited book find that while it is difficult enough to pass a policy, let alone a controversial policy, the implementation stage is another issue. In particular, McClintock’s chapter (Ch. 3) notes that Peru’s agrarian policy reform under General Velasco (1968-1975) was frustrated during the implementation phase for many reasons. Initially, leaders were not united in the direction that they wanted to take these reforms, which led to unclear directions. The implementors, many of whom were young university graduates, had their own ideas of how they wanted the reforms to look. Subsequently, different governmental departments did not communicate with each other and actually Chapter 1 | 31 undermined each other’s work in some instances. Finally, people who lived on these farms had their own idea of how they wanted to organize the reform. While Velasco had an idea about how the policy should be reformed, this communication changed down the implementation chain because messaging was unclear and members at different hierarchical levels also had different ideologies about what they wanted to see. LD 1002 also faced similar challenges during its implementation. Passing it was difficult, but the implementation process has also been sluggish. Because within the government, only a few political elites supported mass-scale renewable energy at that time, they dragged their feet during implementation. For example, the quota for renewable energy has not been increased since it was passed, and the auction that should have taken place in 2017 was completely cancelled. This study, though, does not touch upon the politics of implementation; it only focuses on policy passage. Finally, this study does not continue the story of how Peru’s actions have had broader regional and international impact. Some scholars are beginning to study the role that developing countries have on shaping international norms (see, for example, Brzezinski, 2010, and Jinnah, 2017). The literature on norms talks about the norm cascade, whereby once a norm starts to pick up speed, there is a tipping point and then everyone else quickly jumps on board (Finnemore & Sikkink, 1998; Hadden & Seybert, 2016; Krook & True, 2012). Peru passing policies and increasing efforts to promote more renewable energy also contributes to an international tide that pushes a norm towards its tipping point and/or cascade. Furthermore, developing countries, in their actions, can also alter the international norm. In the past, for example, policies such as tax incentives were major mechanisms to promote renewable energy investment. Peru passing a Chapter 1 | 32 policy that creates an auction mechanism is adding to the alternative trend of using this particular policy to encourage more competitive, private financing of renewable energy. This mechanism also removes the government from financial obligations and retains only administrative duties. It also signals to other countries, especially those in the region, that they should feel pressured to adopt these policies as well if they are one of the few remaining countries without strong renewable energy policies. These considerations, though, are not covered in depth in this study. Outline of Dissertation The story behind Peru’s first mass-scale renewable energy policy will unfold in the following manner. Chapter 2 provides a literature review of policy change in developing countries. It finds that past theories — crisis, special interest groups, and leadership change — are not applicable in Peru’s context at this time. The institutional framework provides the best starting point, and connecting it with policy windows gives some traction to understanding the Peruvian case. Chapter 3 traces Peru’s energy history and the framework of the energy market to demonstrate the entrenched and powerful interests that wanted to maintain the status quo. Chapter 4 discusses political willingness, which began at the international level but then incited interested players at the state and individual levels. However, despite much enthusiasm, these actors were hindered by institutional constraints, like informal lobbying and well-organized traditional players in the electricity sector, and they were not able to make any significant change. Chapter 5 shows how the policy window was able to open, which was a trade deal with the U.S. that started at the international level, causing a delegation of legislative power at the state level. Individual actors took advantage of this power shift to pass LD 1002. Chapter 6 provides a quick snapshot of renewable energy as it has been used for rural electrification. Following a similar Chapter 1 | 33 trend, rural electrification in Peru was highly influenced by international efforts. Peru, once it received international loans, began with projects that were grid extensions, then free giveaway distributive systems, and now, in a third phase, highly assisted distributive technologies. It has learned from past lessons to create a more sustainable model of rural electrification. Finally, Chapter 7 concludes with a few takeaways and ideas for future research that this study generates. Before moving too far ahead, however, the next chapter provides some literature background on the study of institutions and policy windows. Chapter 2| 34 Chapter 2. Institutions and Policy Windows: Opportunities for Major Policy Change Social science scholars have long been fascinated by the policy process, especially during periods of radical policy change. They note that there are long spans of time where policies remain largely the same, interrupted by short spurts where policies change drastically (for example, the Punctuated Equilibrium Model, see Baumgartner and Jones, 2009). Given that LD 1002 was the first policy that supported mass generation of electricity using renewable energy in Peru, it falls under the category of major policy change. 2 This chapter provides a background to understand why such radical changes are rare in routine politics and what scholars have found to explain these critical moments. Several of the explanations — crisis, interest group politics, and leadership change — are applicable to many instances in the politics of developing countries but are inadequate to explain the dynamics that took place when this renewable energy policy passed. The institutional explanation appears most suitable for understanding the constraints on actors’ behavior but also the liberty that they were able to take when a window of opportunity appeared. This review is divided into four sections. The first section discusses routine politics. 2 “Major policy change” here is used in accordance with Hermann’s (1990) classification. He holds that, more than a mere adjustment change, a major policy change is either a change in means (program), ends (goal/problem), or overall orientation. LD 1002 is arguably all three. It is a change in means because it created a new auction program for renewable energy. It is a change in ends because it establishes increasing clean energy as a national goal. Finally, it is a change in orientation because it opens up the market to renewable energy producers for the first time. Although Hermann used this system to describe foreign policy change, the same scheme is also a useful way to categorize domestic policy change. Chapter 2| 35 Section two talks about possible explanations for major policy change. Section three discusses institutionalism and the policy window, and section four concludes. Routine Politics Major policy change does not happen every day. The daily proceeding of the policy process is necessary but humdrum. Some days a few policies pass, but only to adjust an existing law with a problematic section, extend a policy, or adjust an earlier measurement. Some days a resolution is passed to make a public declaration, but it does not change how society operates. Some days no new policy passes at all. Policy adjustments generally follow along the same path that has been set and can be largely expected, causing no major upsets. This section discusses why, during the normal course of the policy process, policies tend to stay the same. It also focuses on if and when they do change, why they tend to do so slowly and incrementally. Scholars theorize that it is difficult to change policies in a major way because of the status quo bias. Status quo bias is the tendency to resist change, i.e. preference for the status quo. Samuelson and Zeckhauser (1988) identify three mechanisms for why this bias exists: rational decision-making, cognitive misperceptions, and psychological commitment. In thinking about the evolution of policies, the status quo bias explains why most policy areas tend to remain stable, even when they produce an inefficient outcome or process. Most policies passed in government are likely to be small adjustments to existing procedures rather than structural overhauls. Policy- makers like to stick to the policies that they know work. Passing policies that are radically different or new compared to existing policies can lead to unintended consequences. The fear of the unknown and possible future loss lead people to strongly oppose drastic changes. For these reasons, major policy changes in politically stable countries occur infrequently. Chapter 2| 36 One illustrative case shows the prevalence of the status quo bias. Huang and James find evidence for status quo bias in explaining the constancy of Taiwan’s precarious relationship with China. They write, “Any proposal to alter what effectively is a non-policy contains great risk of rejection because an attempt to change any one aspect could open a Pandora’s Box of issues and bring the adversaries to the brink of war or even beyond” (2014, p. 677). Because pushing for de jure sovereignty carries great risks, while the status quo at least is a secure position, China and Taiwan accept the unclear status of the other. This situation can be analogized to other instances of policy-making, where shaking up the current political arrangement can lead to unexpected, adverse consequences that actors are unprepared to confront. The same can be seen in the politics of many developing countries. After the 1940s, many Latin American countries followed the policy of import-substitution and export promotion. The idea follows Modernization Theory, which believes that all countries follow the same development path. First, countries start out as an agrarian culture, then they industrialize, and finally they “modernize” when they reach a society characterized by sophisticated technology, mass production of goods, and a strong service industry. Because Latin American countries were largely still agrarian at the time, they believed that they should focus on the second step by industrializing their industries. This, they believed, could be achieved by passing policies that substituted the importation of goods so that domestic industries could be encouraged to develop. Such policies included high tariffs, price controls, and state ownership of leading industries (Grindle, 1986). By the 1980s, these import-substitution policies led many countries to experience absurdly high inflation rates. Bolivia had an annual inflation rate of 23,455%, Mexico had an annual rate of 159%, Argentina had a rate of 1,344%, Peru had a rate of 12,378%, and Chapter 2| 37 Brazil had a rate of 2,103% (Rodrik, 1996, p. 26). It took about forty years of failing development policies and uncontrollable inflation for countries to finally decide to change their policy. Even though it was clear much earlier that these policies were not working, the status quo of policies managed to prevail for a long time. The status quo bias has kept business running as usual — meaning to keep renewable energy producers out — for many years in the Peruvian electricity market. Many politicians pushed against renewable energy because they did not know how introducing this new source into the grid would affect prices, fearing that it would cause prices to increase (Espinoza, Interview: 4 March 2017). Local governments, especially in the Amazonian regions, were familiar with hydrocarbons, hydropower, and gold because these have brought them money in the past, but these leaders do not fully understand the benefits that renewable energy can bring them (Cady, Interview: 6 March 2017). This lack of knowledge makes decision-makers reluctant to take steps towards change, and the status quo remains. Despite the status quo bias, we know that policies do change. The public elects legislators and governments hire public servants to revise and devise policies that better meet public interest goals. Borrowing from economics, political scientists have tried to apply the Rational Choice Model to explain political occurrences. Political actors, in the ideal sense, should make decisions rationally by calculating and choosing the course of action that would maximize expected payoffs (Green & Shapiro, 1994; Riker, 1995; Simon, 1995). Under these perfect conditions, policies are thought to change incrementally after thorough assessment. Incrementalism posits that policies change as a result of coalition building among various rational actors who have differing interests in society. The policy is then tried, altered as interests change, Chapter 2| 38 and then tried again in altered form (Lindblom & Woodhouse, 1993). Kaimowitz (1996) sees such coalition building and identifies seven groups that promote environmental policies in Latin America: organizations from developed countries, local environmental organizations, entrepreneurs involved in “green” businesses, farmers and communities affected by pollution, indigenous communities, professional environmentalists, and political parties and social movements concerned with social justice. Kaimowitz finds that some societies allow some of these groups to have more bargaining power than others. For example, in countries where no one industry dominates the economy, different environmental groups can push their agenda and the government is more likely to listen because it is not afraid of backlash from one powerful group. In society, many of these groups work together and form coalitions to change policies in their favor. Because they have to take the interests of other members of their coalition into consideration, and some interests may be different from their own, the change that they can make is a compromise and is generally more moderate than their original proposal. Because of this, policies change incrementally. The Bureaucratic Model theorizes that policy change results from politicking and bargaining among top leaders, and these leaders act based on their own set of preferences, abilities, and position of power (Allison & Zelikow, 1999). In the Peruvian government, sometimes there are tensions between the different public institutions in Peru. For example, MINAM wants to minimize carbon emissions, but MINEM wants to expand natural gas production. These two ministries must talk to each other and try to respect each other’s goal. But in Peru, MINEM is clearly stronger, so gas exploitation continues. Chapter 2| 39 The Organizational Process Model states that the policy process is guided by people who work within organizations. They are guided by protocols and their organization’s mission. Grindle’s (1977) in-depth case study of CONASUPO traces how it fulfills its goal of rural development strategy. It follows the relationship between personnel and the method they use to devise a policy and decide about the best way to implement it. This model holds that personnel within organizations follow protocols and further the goals of their immediate organization, though not necessarily looking at the larger picture. These three rational models have been shown applicable in different instances in the Latin American context. They also explain why, generally speaking, politics in stable Latin American countries change slowly and with much deliberation. There are systems and institutions in place to safeguard rapid and radical changes until the policy idea has been vetted by relevant entities. Still, dissatisfaction with the Rational Choice Model continue to brew because a purely rational model is not applicable in any empirical setting (McCarthy-Jones & Turner, 2011). These unsatisfied scholars see that the policy process is complicated and non-linear – not rational at all. Jacobsson and Lauber write, “Policy-making is, however, not a ‘rational’ technocratic process but rather one that appears to be based on such things as visions and values, the relative strengths of various pressure groups, perhaps on beliefs of ‘how things work’ and on deeper historical and cultural influences” (2006, p. 257). Scholars observe that policies do not always change incrementally through thorough deliberation, as these above-mentioned models suggest. Rather, they can sometimes change drastically, rapidly, and unexpectedly. What allows for major policy change despite the status quo bias and the deliberate design of public institutions to be Chapter 2| 40 measured and democratic? It is to these moments, when we are likely to see major policy changes, that we now turn. Major Policy Reform Major policy reform is where politics become exciting. It is no surprise that this is where scholars have given much attention as they attempt to explain why policies and politics are thrown off their usual course. Several explanations could explain why major policy reforms occur. However, as will be explained, these explanations fall short when applied to why Peru passed a large-scale renewable energy policy in 2008. Crisis and Policy Change Policies do not always change incrementally, and crises have been found to be especially fertile ground for new policies. Some researchers believe that a crisis is a requirement for policy change. Norhrstedt (2005) writes, “...external perturbations are a necessary condition for major policy change” (p. 1041). Sabatier and Jenkins-Smith (1993) echo the same sentiment, stating that major policy change will not occur in the absence of “significant perturbations external to the system” (p. 34). Grossman’s book, US Energy Policy and the Pursuit of Failure (2013), traces how the U.S.’s energy policies have tended to be reactions to perceived energy crises, starting with the 1973 oil embargo by OPEC. Why do crises lead to policy change? A number of propositions have been made. The Advocacy Coalition Framework argues that shocks and crises can affect policy in three different ways: it can redistribute political resources; minority members can exploit the situation to further their own beliefs; and members of the dominant group might reconsider their position in light of new events (Nohrstedt & Weible, 2010). The Punctuated Equilibrium Model observes that there Chapter 2| 41 are long periods of time when a policy attracts little attention, and then occasional bursts that lead to dramatic policy changes. These bursts occur because an event, like a crisis, draws attention to a specific issue. The media plays an important role by continuing to spotlight the situation. Also important during these times are changes in ideas and the effects on agenda setting (Baumgartner & Jones, 2009). The Ambivalent Majoritarian Model states that a crisis creates a condition where a larger coalition is likely to form. This coalition is composed of members who are ambivalent about the correctness or feasibility of a policy but only vote for it as a response to a crisis. This provides opportunity for policies that have failed during non-crisis periods to pass during a crisis (Ahrari, 1987). Finally, Grossman (2012) proposes the Do Something Dilemma, which is when a threat leads to public demand for action. Politicians who do not respond will encounter disgruntled voters who can jeopardize their chance of reelection. Aside from these models about crises, there is a whole body of literature about crisis and policy change. But the idea that crisis is necessary for major policy change has its problems. It is natural that policy reform should follow policy failure, and a crisis is a severe form of policy failure. Therefore, it seems natural that policy reform should occur when it is undeniable that it is failing. Furthermore, this idea is practically non-falsifiable when one considers that when reform does not happen, one can argue that the crisis is not perceived as severe enough. This leads to the third problem, which is that of predictability — it is hard to tell when a crisis will or will not lead to reform. Finally, this also leads to difficulty in predicting what kinds of policy will follow a crisis, and some countries have been found to complicate macroeconomic stability with the policies that they passed after a crisis (Rodrik, 1996). Chapter 2| 42 Indeed, Peru does have a history of passing major policy reforms during times of crisis. In 1992, when the country was experiencing great hyperinflation, insurgency, and natural disasters, there was a constitutional overhaul and a new constitution with new institutions was developed. However, the crisis explanation cannot explain why Peru passed a major policy in favor of renewable energy in 2008. At this time, Peru had an energy surplus. Macroeconomically, it was stable. The president at that time, Alan Garcia, was in his second term and had a stable presidency. There was no crisis to draw attention to this issue, or increase its urgency, or to show that the current policy was failing. There was no natural disaster to foment any kind of national crisis. A crisis cannot explain why LD 1002 passed when it did. Special Interest Groups Special interest groups are any collection of individuals in society who have concerns in common. People may come together because they share the same factor endowment; preserving this as a continuing profitable resource is a reason to come together and protect their economic activities. Another reason could be that actors work in the same sector, which gives them an incentive to cooperate to protect their economic activity. Finally, a third reason they may come together is because they have a special social interest in common, such as the desire to increase education funding (Frieden & Martin, 2003; Pastor & Wise, 1994). The effectiveness and influence that these groups have on policies depends on their ability to organize. These special interest groups can alter policies through two main mechanisms. The first is through lobbying, which, in Latin America, can be formal lobby groups but usually occurs informally (Thomas & Klimovich, 2014). Lobbying by special interest groups is most influential when the country has a few key industries that dominate the economy. Because these Chapter 2| 43 industries’ economic output greatly influences gross domestic product, and assuming that they pay taxes to the central government (thus affecting the amount of revenue the government gets), the government has an incentive to make sure that these companies remain profitable. Furthermore, these key industries are likely major employers in the country, so their economic well-being can influence the livelihood of their many employees. Finally, these industries likely have many connections to political elites, either professionally or personally. This can also play a role in how much they can sway political opinions to pass policies in their favor. This theory would make sense to explain LD 1002 if renewable energy was a large and influential industry in Peru in 2008. On the contrary, it did not have any of the clout that special interest groups should have if they are to be politically influential. Renewable energy companies had basically no presence in Peru at this time. They were not large, domestic employers, and they did not have many advocates that are close to decision-making leaders. Their opposition, traditional electricity companies, in contrast, had all of these qualities in their favor. The electricity sector was a well-organized and oligopolistic sector that was under the principal coordination of the Committee of the Economic Operation of the National Interconnected System (COES). COES coordinates the supply of electricity to all consumers connected to the grid, so it has a very influential presence within the Peruvian economy. Electricity generators using traditional sources were COES members, and they worked to discourage the entrance of renewable energy into the grid system. Therefore, there was no strong industry representation for renewable energy to lobby for this policy to pass. Another way that special interest groups can influence policy is through mass movements. This has been especially prominent in Latin America over social issues, especially for Chapter 2| 44 underprivileged groups. Indigenous mobilization has been successful at stopping policies and projects that would hurt their livelihood, such as Chevron’s (operating as Texaco at the time) oil pollution of forests in Ecuador (UDAPT, 2015), stopping the construction of the Belo Monte hydroelectric dam in Brazil (Hall & Branford, 2012), and overthrows of presidents Jamil Mahuad in 2000 in Ecuador and Bolivian president Gonzalo Sánchez de Lozada in 2003 (Cevallos, 2007). Although indigenous identity has been shown to be a powerful unification factor in Latin America, groups have also coalesced around other issues and/or characteristics, such as concern for the environment, perception of social injustice, and religion. Around the time that LD 1002 passed, the government of Peru was dealing with some brewing social unrest arising from oil exploitation in the north of Peru between several indigenous and oil companies in Bagua. This clash culminated in 2009 (Albán, 2015). However, although these protests were against oil production that harmed the environment, there was no such large movement by special interest groups to demand more renewable energy. Even though the protesters did not want more drilling for oil as far as energy was concerned, they did not have any demands for an alternative. They just wanted this activity to be removed from their land. Therefore, this was not how LD 1002 was able to pass. Perhaps special interest groups interested in promoting renewable energy were involved with the policy passage, but there was no strong social movement to pressure the government to pass a policy in their favor. Special interest groups may have been involved, but their strategy was not successful through lobbying or mass movements. Other forces are at play in this story. Chapter 2| 45 Leadership Change In states with weak institutions, as with many Latin American countries in the past that were politically unstable, country leaders can have a lot of power, and can be almost dictatorial even, when the country is supposedly a democracy. Diamint and Tedesco (2015) find that in a study comparing Argentina, Colombia, Ecuador, Venezuela, and Uruguay, countries with weak political party institutions allow leaders with more freedom to exert their preferences. In such circumstances, leaders’ arbitrary political desires are more likely to be honored, personalism becomes influential, and populism emerges. As a result, policy can change drastically with each leadership change depending on the leader’s ideology. For example, Hugo Chavez was elected president of Venezuela in 1998, and helped to destroy the party system dominated by Democratic Action and the Independent Political Electoral Organization Committee for four decades (Cyr, 2013). Chavez instituted a new constitution in 1999, a year after his election, and placed the country on a decidedly leftist path through policies such as nationalization of important economic sectors and expanding programs related to health care, education, and housing (Pantelimon, 2016). Chavez took the country from a neoliberal orientation and made it leftist. Latin America has several such notable leaders. Evo Morales, elected president of Bolivia in 2006, also moved the country away from its neoliberal tendency of the previous two administrations — Gonzalo Sánchez de Lozada, which ended in 2003, and Carlos Mesa, in 2005. Morales, similar to Chavez, nationalized many sectors in the country and ran on the platform of supporting the rights of peasants and indigenous groups (Webber, 2016). Rafael Correa, the president of Ecuador who was also elected in 2006, took the country away from its neoliberal Chapter 2| 46 tendencies and joined Chavez’s camp to make the country more left-leaning (Polga-Hecimovich, 2013). Peru also saw many major policy changes following different leadership changes. Fernando Belaúnde’s (1963-1968) policies can be described as import-substitution industrialization. Once Juan Velasco took power (1968-75), the country was on the road of state capitalism. Francisco Morales Bermúdez, who succeeded Velasco (1975-1980), altered many of Velasco’s policies and focused more on international relations. Belaúnde was reelected in 1980, and his policies this time were neoliberal and populist. When Alan Garcia became president in 1985, his policies could be described as neostructuralist, marked by expansionary fiscal and monetary policies, wage and price controls, and a consumer-led economy. When Alberto Fujimori came into power in 1990, the country was on a path of stabilization and liberalization (Wise, 1997). When these leaders carry institutional clout, depending on the organization of the country and the strength of the institutions to check the leadership’s power, some individuals can have the power to change the course of policies and politics in the country. In this sense, a leader’s ideology is important for analyzing major policy change. But this explanation cannot explain why Peru passed a major renewable energy policy. Alan Garcia, president at the time that LD 1002 passed, was elected to his second term in 2006, so he was already president for two years before this major policy change. Additionally, his cabinet and ministers remained largely the same during this period as well. If there were people interested in a renewable energy policy, they were already in place but could not pass anything in their favor. Ideology and leadership cannot explain why a policy was passed two years after these leaders took office. Furthermore, Chapter 2| 47 leaders’ ideology tend to stay steady over time, and it is difficult for them to make policy major changes once a course is already in place (Hermann, 2012). Additionally, Pastor and Wise (1994) rightly criticize that such ideological explanations cannot systematize how ideas influence policy. However, ideas are essential for change to take place, and ideas come from the individual. Therefore, leaders and their ideologies cannot be eliminated when trying to understand how major policy change happens. It just so happens that leadership change cannot explain how LD 1002 was able to pass because there was no such change at this time. To be clear, this dissertation does not discredit any of these theories. They have been shown to be applicable in a variety of contexts, including those in Latin America. However, they are not adequate for explaining the particular circumstance of LD 1002. A close study of this renewable energy case can reveal other dynamics at work that allows for major policy change. Institutions and Policy Windows A fourth explanation for major policy change provides some explanatory leverage. Institutions, whether formal or informal, provide rules for human behavior. Institutions can constrain by creating various veto points that may make major reforms difficult (Béland, 2009). Although they constrain and refract politics, they are never the sole “cause” of outcomes (Thelen & Steinmo, 1992). Because of this, studying institutions alone can only suggest, at best, an intervening variable (Pastor & Wise, 1994). However, institutions, especially strong ones that can implement the rewards and punishments that they are set out to do, can be important for economic growth. This is because institutions allow people to feel confident about their expectations of what others will do (Rodrik, 2007). Depending on the incentive structure that they impose, they can guide actors towards certain actions over others. Strong institutions and a Chapter 2| 48 respect for them allow people to pursue different endeavors in society because they believe that their actions can lead to expected, desirable results. In fact, the idea of uncertainty is used to explain the large role that institutions play in the current political economy. It has been argued that in a world of perfect information, states would not need institutions and institutions would have no impact on the outcome (Frieden & Martin, 2003). Because of uncertainties, people set up institutions to create more certainty in their lives. Institutions are generally seen as generating constraints, but they can also provide opportunities (Béland, 2009). Even within certain limitations, not all actions are controlled for, and actors still have some liberty to be creative. It is within these unregulated, open spaces of freedom where the linkage between structure and agency is found. In order to understand how, despite the constraints that institutions impose on actors, creative policy ideas are able to be passed, one must look at the critical point where structure meets agency. This is also where one should look for the catalyst of policy change. Béland (2009) attempts to do this by introducing the concept of ideas and their role in bringing about policy change. Béland notes that institutionalism, specifically historical institutionalism, cannot explain agenda-setting and the construction of problems, the policy choices that occur within the political opportunity structure, and the strategies that political actors develop to convince interest groups to support their policy alternatives. Béland concludes that although institutions constrain, ideas allow for some creativity. Ideas have their limits, though. Ideas only become influential when powerful actors decide to promote them; mobilization of major groups, such as business organizations, can jeopardize the advancement of those ideas; and fragmentation of political power and the Chapter 2| 49 presence of enduring policy legacies can become obstacles for reform. Although Béland does not explicitly state it, ideas come from people, and it is how people choose to act around these ideas, particularly by using framing strategies, that can mobilize or deescalate the support for an idea. In addition to the enabling nature of institutions and the role of ideas, another area that lacks theorizing is the effect of the international level on the domestic level, and vice versa. The mechanisms for these influences lacks documentation (Frieden & Martin, 2003). There is still little understanding and close survey of how this change occurs. This is where the study of institutionalism can be ameliorated. Steinberg (2003) has noted that in developing countries’ environmental movements, the international and domestic levels create Spheres of Influence, the name he calls his framework. Strategic actors, which he calls “bilateral activists,” are instrumental in bringing about these movements. Science, finance, and policy ideas originate from the international sphere, while political resources and policy culture come from the domestic sphere. Bilateral activists are people who are comfortable moving between the international and domestic spheres. They bring all of these pieces together to mobilize domestic political interest and pass policies. Steinberg writes, “Political resources also include the capacity to take advantage of rare windows of opportunity for agenda setting, by developing policy proposals over many years and then moving quickly in response to fortuitous changes in political circumstances” (2003, p. 21). The literature skirts around various institutional and structural factors that need to be in place when a major policy change occurs, but zeroing in even more on the moment of pivotal policy change, it seems that the window of opportunity is the moment at which this sharp break from previous policy occurs. It is to the literature on policy windows of opportunity that this review now turns, to see if it can provide any clue about how LD 1002 was Chapter 2| 50 able to pass. Institutions are important because depending on the type of institution in place, some windows of opportunity are able to occur while others are not. Institutions also influence the kinds of actions that actors can take within these policy windows. Unlike most studies on institutions, which examine how institutions constrain certain behavior by creating structure for behavior, this study looks at the spaces that institutions open or leave open to provide opportunities for actors to behave freely. Without these, actors would be constrained and have little space to exercise their policy preference, and policies would change incrementally. But major policies change in the spaces where institutions allow for some flexibility, the focus of this study. Additionally, this study also tries to better understand the dynamics of international influence on domestic activities because it helps open up these spaces of freedom. Combining two models of the opportunity window helps to explain both the agency that actors have within institutional constraints and the connection between macro and micro processes, two necessary factors for explaining how Peru passed this major renewable energy policy. Creating Windows of Opportunities In everyday language, a “window of opportunity” is a discrete period of time during which a normally unlikely event is rendered possible, and even probable. This mundane figure of speech is used to describe moments when people sense that the alignment of events are in their favor and they are able to realize a particular goal that would have been difficult otherwise. For example, getting a job offer is a window of opportunity to learn new skills, move to a new location, and/or advance one’s career. It is a window of opportunity because, similar to actual windows of a house, it can open but it can also close. The job offer will not last forever. If the person decides Chapter 2| 51 to not take the offer while it is still valid, then the window closes, and the offer becomes a missed opportunity. There is a sense that these opportunity windows occur outside of a person’s control. When they do occur, though, the person must take advantage of this chance before the window closes. Emerging from this conventional concept are two theoretical models, one influencing the field of American Politics and the other shaping International Relations. John Kingdon introduced the ideas of “multiple streams” and the "policy window" in his groundbreaking book, Agendas, Alternatives, and Public Policies, first published in 1984 (this review uses citations from his 2011 edition). Kingdon calls it a policy window because it is the period when many policies have the opportunity to be on the governmental agenda, and later the decision agenda, to be decided upon and possibly enacted. An alternative and also quite influential idea is from Harvey Starr, called “opportunity and willingness,” first introduced in 1978 to be ordering concepts in the study of International Relations. Unlike Kingdon’s model, which focuses solely on the possibility for policy consideration, Starr’s model is used to explain the occurrence of any political event. Despite this difference in focus, both models capture the idea that specific circumstantial alignment of conditions makes certain events possible where they may not have been otherwise. In this way, Kingdon’s “policy window” and Starr's “opportunity and willingness” both look at opportunity windows during which unlikely political events occur. Therefore, both models are useful for understanding how major policy change happens, as this is a specific type of rare political behavior. The Multiple Streams (MS) Model posits that there are three process streams that shape policy outcomes, looking specifically at the U.S.: problem, policy, and politics (see Brasil & Capella, Chapter 2| 52 2017; Kingdon, 2011; and Farley, et al., 2007). In this model, a policy window is “an opportunity for advocates of proposals to push their pet solutions, or to push attention to their special problems” (Kingdon, 2011, p. 165), and is the point where multiple of these independent streams converge. Policy windows may open because of indicators, which are pieces of information that are used to note the magnitude of and the change in a problem, but these are usually not a straightforward assessment of facts. Focusing events include disasters, crises, personal experience, and symbols. Finally, feedback provides assessment about current performance that may not meet prior expectations and now necessitate attention (ibid, p. 113). Policy windows may close because participants feel they have addressed the problem through decision or enactment, participants failed to elicit their desired action and decide not to pursue the policy, events that opened the window (like a disaster) have passed, the personnel changed, or there is no available solution (ibid., p. 169-70). Institutions render some of these windows predictable and others unpredictable. Predictable windows occur because of structures in the legislative process, such as the beginning and ending of a legislative session, the budget period, or policy renewal — all of which are points where debate surrounding an issue can arise (Kingdon, 2011). De Figueiredo (2004) calls these structural policy windows, which are those that open because of procedures and occurrences due to the nature of the political system. Howlett (1998), through his interpretation of Kingdon, divides policy windows into four types. Routine political windows are institutionalized changes in the political system and occur most frequently. Spillover problem windows are those related to issues of an already open window, and they open less frequently than routine political windows. Discretionary political Chapter 2| 53 windows open because of the behavior of individual political leaders, so they are even less predictable and frequent. All of these types of policy windows work within the confines of institutions. However, some windows are unpredictable due to unforeseen circumstances like a natural disaster (Kingdon, 2011). De Figueiredo (2004) calls these random problem window, while Howlett (1998) calls them exogenous policy windows. These types of windows work most outside of institutional constraints because it is when a random event like a crisis opens an opportunity. Although these events are generally outside of both institutional and actors’ control, the actions that actors can take when these events occur are still subject to those allowed by the existing institutions. Some institutions may be more permissive while others are less so, and actors must find where the boundaries are. Exogenous shocks, then, can tap into spaces of opportunity that exist within institutions but are not accessible during routine politics. In extraordinary instances, spaces emerge within which actors are able to produce great change. Institutions are generally designed with regularly occurring and predictable policy windows. For windows that occur outside of routine politics, institutional design renders some actions acceptable and others inacceptable. The second model concerning the policy window is the Opportunity and Willingness (OW) Model. In the field of International Relations, the OW Model is used to explain when major political events occur (see Cioffi-Revilla & Starr, 1995; Gartzke, 1998; Most & Starr, 1989; Siverson & Starr, 1990; Siverson & Starr, 1991; Starr, 2002). Opportunity, in this model, is "the possibilities that are available to any entity within any environment, representing the total set of environmental constraints and possibilities” and the “degree of interaction” between two Chapter 2| 54 entities (Siverson & Starr, 1990, p. 48). Whether there exists opportunity depends on possibility (can the entity do something) and distribution of capabilities (the entity technically can but lacks the means to do it well) (ibid, p. 31). The OW model also adds the concept of willingness, which is "the choice processes that occur on the micro level, that is, the selection of some behavioral option from a range of alternatives” (ibid, p. 48). In this model, political behavior always results from (1) a will to act (willingness) and (2) external circumstances that somehow permit the action to occur, although not necessarily to succeed (opportunity) (Cioffi-Revilla and Starr, 1995, p. 448). Therefore, the OW Model extracts the human element and sets it as a separate factor, calling it “willingness”. Political events cannot occur unless there is both opportunity and willingness occurring together. This is a useful framework that will be used in this dissertation to analyze the processes that occurred during this policy window. Opportunity is viewed as the macro-level, structural influence on actors. These structures can allow or inhibit actions, making some possible and rendering others impossible. Willingness is the micro-factors that are involved in the decision-making process, usually falling within the realm of actors. In this model, the connection between macro- and micro-factors are apparent and necessary for political events to occur. It also links structure with agent, claiming that both must be in the proper conditions in order to induce political events (Most & Starr, 1989). For a political event to occur, there are many modes of opportunity and many modes of willingness that are substitutable with each other. The policy window opens when one of these modes of opportunity is able to meet with one of these modes of willingness, which brings about Chapter 2| 55 a political event. This model connects the macro with micro level, and can be used as an analogy to connect the international and domestic levels in the study of institutions. Cioffi-Revilla and Starr (1995) were one of the first people to theorize about the relationship between political willingness, opportunity windows, and political behavior. Political behavior is caused by the joint occurrence of opportunity and willingness. Because both are necessary conditions, any specific political behavior is rare. However, there are many possible modes of opportunity and willingness, so individually these occurrences are more common. Opportunity, willingness, and political behavior all occur probabilistically, so there is a high level of uncertainty. But increasing the probability of opportunity and willingness will increase the probability that a political event will occur. Though they recognize that the conjoined occurrence of willingness and opportunity is only analytical, opportunity windows and willingness are both operational and observable. However, their theory stops there, and does not elaborate on how one would go about recognizing behavior that would feed into windows or willingness. In other words, they did not identify the characteristics of the many modes of opportunities and willingness that they theorized about. These opportunity windows are possible in part because the institutions allow for spaces of flexibility where actors can exercise some freedom and agency. Without these opportunities that exist within the institutional design, even if these events occur, actors may not have the institutional power to make the change that they want. Therefore, operating within the confines of institutional design, actors still have some freedom, and this is where they must take advantage. Institutions can allow for regular or sporadic windows of opportunity where actors can exercise their will and make major changes to the political system. Institutions, however, can Chapter 2| 56 also stop actors from making these impacts if there are many factors in place to stop radical changes from happening. Human Agency within Windows of Opportunity Both the MS and OW models view human agency as important for bringing about political outcomes, but they emphasize its importance in different areas. The MS Model more thoroughly elaborates on this critical player. Central to the initiation and outcome of any policy change is the policy entrepreneur. Policy entrepreneurs are people willing to “invest their resources — time, energy, reputation, money, and political capital — in the hope of a future return” (Kingdon, 2011, p. 122). Sometimes they do not solve problems, but “they become advocates for solutions and look for current problems to attach their pet solution” (ibid, p. 123). They do so because they want to advocate for policies that they support, feel satisfaction from participation, enjoy personal benefits such as job security or promotion, and/or have a deep concern for the issue (ibid; Hermansen, 2015). Impactful policy entrepreneurs are acknowledged by decision-makers because they have expertise, can represent others, hold an authoritative decision-making position, are known as a person with political connections or negotiation skill, and are persistent. Additionally, they must be ready to ride whatever opportunity comes along, and when doing so, be able to link policy, problem, and politics (Kingdon, 2011, p. 180-182). No one area dominates the production of policy entrepreneurs; they can be found anywhere within or outside of the government, including elected officials, bureaucrats, academics, or special interest groups. Policy entrepreneurs are also skilled at using frames and manipulation strategies to get what they want (Saetren, 2016). Therefore, in addition to skill, there is a component of creativity on the part of successful policy entrepreneurs. Chapter 2| 57 Although the policy entrepreneur is not the only person involved with the passage of any policy, it is usually possible to identify one or a few key persons who are instrumental and without whom the policy would not have been pushed to the top of the agenda. To note a few examples from the literature, Denmark’s Foreign Minister, Uffe Ellemann-Jensen, was noted for taking charge of pushing Denmark to engage in military operations outside of its immediate vicinity during the Gulf War. Prime Minister John Howard and Foreign Minister Alexander Downer compelled Australia to change from a hands-off to a hands-on approach by sending military intervention into the Solomon Islands in the early 2000s (Doeser & Eidenfalk, 2013). Minister Luiz Carlos Bresser Pereira pushed for the idea of “administrative reform” in the early 1990s in Brazil (Brasil & Capella, 2017). In each of these major policy changes, the policy entrepreneurs are easily identifiable for their early advocacy of a policy and involvement during critical decision-making moments. The OW model also sees the policy entrepreneur as essential to policy change as well. Political willingness encapsulates the process that an actor undergoes to calculate, decide, and act. It notes that actors must "recognize opportunities, and then translate those opportunities into alternatives that are weighed in some manner,” and also that "willingness means the decision to choose among those alternatives and accept the costs and benefits accompanying that option” (Most & Starr, 1989, p. 35). This actor in policy-making would be the policy entrepreneur, the entity who decides based on cost-benefit analysis whether a policy is worth promoting. Without a policy entrepreneur, there would be no willingness, and without this necessary factor, there would be no political event. Chapter 2| 58 Studying the literature of policy windows within the institutional framework provides several advantages. First, institutions explain why certain policy windows are regular and predictable while others are not. Second, institutions provide reasons why actors are generally constrained and cannot always do whatever they want but must wait for policy windows to open in order to enact radical changes. Third, policy windows allow us to analyze institutional gaps where actors are provided with freedom to act beyond routine politics. These spaces are where structure meets agency and radical change is able to take place. It also provides a framework to think about policy change by separating the policy entrepreneur’s action as political willingness and the structure’s influence as opportunity. Fourth, policy windows also fill in the gap within the institutional literature, which is the relationship between the international and domestic sphere. By thinking of opportunity as the macro-influences while the willingness as the micro-influences, one can begin to see how the macro and micro processes can meet and elicit radical change. These benefits provide a great starting point to examine the processes that allowed for Peru to pass its first major renewable energy policy. This policy is a clear break from past policy tendencies, which is to exploit hydrocarbons within the country for energy generally and building hydroelectric plants and natural gas infrastructure for electricity production in particular. It needed a policy window, some kind of political break, to pass such a radical policy for the time. This took individual ingenuity. Given that Peru’s institutions have been stable and strengthening since the 1990s, agents must also work within institutional confines and exert their freedom but within limits, so structure was also an important piece of the puzzle. Finally, Peru also receives many international influences because it is a developing country, which more generally takes Chapter 2| 59 rather than makes norms, so the analysis of the macro processes on Peru’s micro industries is also important to look at. Gaps in the Literature This literature review is interested in understanding how major policy change happens even though it usually faces strong, entrenched opposition. It has found that policy windows provide the opportunity that strongly opposed policies need to be finally passed. The original interest in policy windows is because of its ability to engender surprising policy changes. However, it is still unclear what it is about policy windows that create this opportunity. What do policy windows make easier so that difficult policies can pass? The literature still leaves unanswered the question: Why do policy windows permit major policy change? One key difference between the two models is that the MS model sees the entrepreneur as playing a key role in all three process streams, while the OW sees the entrepreneur as being significant for willingness but less so for opportunity. In the MS Model, there needs to be an entrepreneur to recognize and aggrandize a problem, to devise a policy solution, and to be in a position of power in order to use political clout and force a decision. The policy entrepreneur is the mastermind who draws the connection between problem, policy, and politics so that the three streams interact with each other. The entrepreneur can shape the three streams, but the streams exist as a separate entity from the entrepreneur. The OW model, in contrast, sees the entrepreneur as generating the willingness for a policy to pass and is an equally important piece of the puzzle as opportunity. The policy entrepreneur is a constitutive part of willingness, but she is not a part of opportunity. For policy change to occur, actors must be prepared and cognizant of opportunity changes in the political environment in order to use those events to Chapter 2| 60 their advantage. Thus, in the OW Model, the role of the policy entrepreneur is seen as separate and discrete from occurrences that occur within opportunity, while in the MS model, the entrepreneur is seen as an active player constantly shaping the understanding of the three streams to create opportunity for herself. This disparity leads us to our second question: What role does the policy entrepreneur play before, during, and after a policy window? Separating the policy window analysis into different levels has its tangles. The MS Model suggests just one level, the OW Model says there are two, while Bakir and Jarvis (2017) see three levels. Looking specifically at the MS Model, Bakir and Jarvis argue that policy entrepreneurs can play multiple roles and operate throughout the different levels of analysis: macro-, meso-, and individual. They find that policy entrepreneurs are most successful and influential when the three levels complement each other and reinforce the same incentives. How do these levels interact with each other? The most satisfying description of the dynamic between agent and structure is likely best stated by Buzan (1995, p. 213), who says that units and structures are mutually constitutive — that units make the structure and structure makes the unit. James (1988) also urges an evaluation of several of the levels at once because they can all be informative for the outcome. Thus, it still has not been fully reconciled: Does a policy window open because of structural changes, or can policy entrepreneurs engineer them? Studies about institutions have begun to look at those in developing countries. Institutions of developing countries have been seen to vary in strength between different countries and are generally weaker than those in developed countries (Diamint & Tedesco, 2015). The literature, however, has strongly focused on developed nations. The literature on policy windows is even more negligent of developing countries. Looking specifically at the policy Chapter 2| 61 window literature, some studies have applied the window of opportunity concept to other settings besides the U.S. The OW model assumes to be universally applicable, but it has only been applied at the international level. The MS model has been researched in the United Kingdom (Dudley, 2013), Denmark (Doeser and Eidenfalk, 2013), Norway (Hermansen, 2015; Saetren, 2016), the Netherlands (Duijn & Van Buuren, 2017), Australia (Bakir & Jarvis, 2017; Doeser and Eidenfalk, 2013), Brazil (Basil and Capella, 2017), and Turkey (Bakir & Jarvis, 2017). The literature has been overwhelmingly focused on studying policy windows in developed countries, with a few studying this topic in developing countries. Basil and Capella (2017) make this call to arms. Looking at recent studies done in or on Brazil, Basil and Capella find that the policy entrepreneur model as introduced by Kingdon (1984) and Baumgartner and Jones (2009) are applicable in the Brazilian context. They urge that these models be used to study more Latin American cases because they have been shown to be applicable and fruitful in past studies that have utilized these models about Brazil. There may be differences in how policy windows operate in developing countries where institutions are weaker and may allow for actors to play a larger role in shaping their structure. This dissertation takes up this task. While many theories explain the policy process generally, the MS and the OW Models – only two models among many – look specifically at the point at which major policy change occurs. This is a critical moment where policy can drastically alter its course and put society on a different trajectory than its previous one. Because of its potential for impact, the policy window and the political willingness necessary to push policies through these windows deserve more scholarly attention. Institutions play a role because it provides the types of opportunities and space for Chapter 2| 62 actors to act. Actors must act within the constraints of these institutional rules, while maximizing their freedom as much as they can, which is something that the promoters of LD 1002 did. Conclusion This chapter provides the theoretical background to begin understanding how Peru was able to pass its first major renewable energy policy. It begins with explaining routine politics, and how built-in mechanisms within the political system and the status quo bias make drastic changes difficult and uncommon. Thus, during routine politics, changes generally come incrementally. The review then looks at several explanations that could possibly explain how major policy change occurs. The crisis argument is inadequate because Peru was not undergoing any energy crisis at this time that could have focused political attention on this issue. A leadership change has been shown to precede major policy change in Peru in the past as each administration thinks it has a better recipe to fix Peru’s various problems, but Peru was not going through any political administration change. In fact, its president at that time was elected two years before this policy. Although his administration was dealing with other socioeconomic issues, the energy sector and its leadership were largely stable. Special interest groups may possibly explain the power of traditional electricity sectors at influencing politics and maintaining their monopoly, but the renewable energy sector did not have much political clout in politics or society. It barely had a presence in Peru. Therefore, this explanation also could not explain how this policy came about. The institutional argument may show how institutional design may normally constrain actors’ behavior but can sometime provide them with much freedom to implement changes when an opportune moment arises. Especially insightful is how institutions can sometimes create windows of opportunity, or instances where problem, policy, and politics align so that major Chapter 2| 63 policy change can occur. The literature speaks of structural and random policy windows, but they do not explain why these windows of opportunity allow for major policy change. Combining aspects of the OW Model and the MS Model provides some mileage towards progress. In explaining this major policy change, the OW Model helps us to analyze the issue as two separate processes, one which is political willingness and the second which is the opportunity. The MS Model offers many ideas about the policy entrepreneur, which helps to connect the institutional literature about ideas and how ideas can change institutions and policies, which is that the individual actor and his or her action puts the idea into motion and can lead to actual changes. The next chapter delves into the history of Peru’s electricity sector to understand the established institutions and entrenched interests who were keen on maintaining the status quo by keeping renewable energy players out. Chapter 3| 64 Chapter 3. Status Quo Bias: Peru’s Pathways to Renewable Electric Energy At first glance, countries around the world appear to share many similarities in terms of energy practices. Every country consumes primarily oil, natural gas, coal, nuclear power, and hydroelectricity. To a smaller extent, they also use biomass and renewable sources. People utilize these natural resources to power vehicles or everyday appliances. Electricity grids composed of power lines are familiar sights as they crisscross the country to deliver electricity to consumers. The consumption of energy appears to be a commonality between every country. The purpose of this chapter is to give a brief historical overview to understand the status quo and the entrenched bias against renewable energy. It also describes the current landscape of Peru's electricity market, particularly the small space that actors were able to create for renewable energy. The organization of this chapter starts with the past and moves forward chronologically to arrive at the present, allowing for the appreciation of historical developments that have led to the current system. This background knowledge will set the stage and help in understanding players’ logic to include or exclude renewable energy in policy decisions. From this information, one can begin to grasp Peru’s current and future political outlook as it pertains to the renewable energy market, but those topics will be covered in later chapters. Despite these cursory similarities, each country has a particular energy mix that is unique and results from its many policies, reforms, and resource endowments. Peru’s particular blend is similarly idiosyncratic because of the political choices that its government and society made in the past. This chapter will explain Peru's path through 2016 and begins with a brief overview of electricity production in general. The next section explains the history of Peru’s electricity sector, Chapter 3| 65 which is broken up into four parts: before 1992, the 1992 reform, important players that have emerged due to the reform, and the changes that have taken place after 1992. The year 1992 is a pivotal year because Peru changed from a nationalized to a privatized system. The succeeding two sections highlight certain subtopics that are important to the story of Peru’s path to renewable energy: rural electrification efforts and renewable energy considerations. The final section concludes and introduces the agenda of Chapter 4. Electricity Production People sometimes use the word energy and electricity interchangeably, but it is important to start by clarifying the meaning of both and understanding the electricity system. The broad, all-encompassing definition of energy is “the ability to do work.” As such, there are many sources that can help us work, including oil, natural gas, coal, solar energy, wind energy, and geothermal energy. However, we cannot directly use these sources to power the things that we need, so we have to convert them into another form of energy — electricity —- which we can then use in our electrical appliances. Electricity occurs naturally in nature. When lightning strikes, it is electricity that flows across the sky. But we need to harness and store electricity and direct it to gadgets that we want to use in everyday life. Therefore, to power electronics, we take a primary source of energy, convert it to electricity, and then consume it in our appliances. The electricity grid aids in the delivery of electricity to where it is needed. The conventional system is a vast network of poles and power lines. Electricity generators produce electricity. Then, transmission lines transport it across vast distances to general locations of consumers. Finally, distribution lines parcel out electricity to individual users. The grid, which is the totality of generators, transmission lines, distribution lines, and their subsidiary components, typically Chapter 3| 66 spans and fulfills the electricity need of an entire country. For areas that still do not have access to electricity, the typical plan is to extend the grid to these remote areas (Bhattacharyya, 2013). Many sources of energy can be used to produce electricity. In 2016, the U.S. produced 33.8% of its electricity from natural gas, 30.4% from coal, 19.7% from nuclear, and 14.9% from renewable sources (hydropower, biomass, wind, solar, and geothermal), and 0.6% from petroleum (EIA, 2017). In contrast, Ecuador in 2015 produced 56% of its electricity from thermal power, 33% from large hydropower, and 11% from renewable sources (Climatescope, 2017). Other countries also use these same sources but in different ratios. So why does not every country use the same ratio of sources in its energy mix? This is due to several factors. First, a country’s energy decision-making depends in large part on its resource endowment. Second, depending on a country’s facilities and infrastructure, some options may prove to be cheaper for electricity production than others, regardless of how much resource endowment a country has. (For now, let it suffice to say that depending on the source of energy, the conversion-to-electricity process is different.) Third, the country’s political climate can make a transition to new forms of energy easier or harder. The following chapters will explore how these three factors have influenced Peru’s decision surrounding renewable energy. However, we first begin with a background on Peru. Peru’s Energy Mix Peru’s energy portfolio has changed over time. Its primary sources of energy are oil, natural gas, and hydroelectricity; coal has never played a large role due to Peru’s small reserve (Spencer, 2010). In 2014, Peru produced 9.4 million tons of oil equivalent (Mtoe) of oil, 13.1 Mtoe of natural gas, 2.6 Mtoe of biofuels and waste products, and 1.9 Mtoe of hydroelectricity. Oil production Chapter 3| 67 peaked in 1985 at 9.7 Mtoe. Hydroelectricity has historically played a subsidiary but important role in Peru’s energy matrix. Gas production began to play a large role in Peru’s energy matrix starting in 2004, when Peru began exploiting the Camisea fields near Cusco. While petroleum used to be Peru’s most important energy source, natural gas has overtaken it as the predominant source of energy in Peru ("IEA Sankey Diagram", 2016). This shift in primary energy production has led to a shift in the national focus. While policies and politicians used to be concerned with aiding the oil sector, they now concern themselves with expanding the natural gas market. Gas producers suddenly became important societal players in influencing the market and policies. Infrastructure, such as pipelines to deliver natural gas from one region to another and domestic connections to bring natural gas into homes, had to be installed because the government wanted to promote consumption domestically and export it internationally. Much of Peruvian politics today is still concerned with prioritizing the natural gas sector, although this is slowly changing. Peru’s selection of sources for electricity production, in particular, have also shifted over the years. In 1995, hydroelectricity produced 88.1% of Peru’s electricity while 11.9% came from thermal electricity (a category that includes oil, natural gas, and coal sources, and for Peru this was mainly oil at that time). By 2015, the make-up had changed, and 50.6% of Peru’s electricity came from hydroelectricity while 47.6% came from thermal electricity (at the time coming mainly from natural gas) (Tamayo, et al., 2016, p. 239). 3 3 Oil is an important form of energy in the world, but it plays a less significant role when we consider the electricity market because countries generally do not use oil for electricity production. Oil is mainly used in the transportation sector to power cars, trucks, planes, and boats as it has a much higher concentration of energy that these vehicles need to operate. Oil is also important for producing goods, collectively called petrochemical products, which we Chapter 3| 68 While Peru’s electricity consumption emitted a comparatively low amount of greenhouse gases in the past, Peru began to move towards a source that does pollute with its decision to use natural gas for electricity production. This goes against the international norm of switching to cleaner sources. This decision also raises a long-term issue: Given that natural gas is not renewable, Peru will have to think of how to meet its energy demand when its natural gas reserve runs out. Because politics tend to be short-sighted, politicians are currently not very worried about the depletion of natural gas but are still focused on expanding the market demand. However, some actors in society are concerned and are thinking about alternatives. Before the 1992 Reform In order to talk about developments in Peru’s electricity sector, it is important to understand the context of Peru’s entire energy environment. Peru historically was a centralized country with heavy state intervention in all sectors of society, including energy. PetroPeru oversaw the hydrocarbon sector (oil, natural gas, and coal), AeroPerú was the national airline, Hierroperu took charge of mineral extraction, and Pescaperu managed fishing. All of these companies were state-owned. For nearly 25 years, Petroperu controlled all aspects of Peru’s oil and gas industries (Spencer, 2010). In the 1970s and 1980s, petroleum was Peru’s primary energy source, meeting 70% of its commercial requirements in 1981. It also accounted for 24% of its total exports. Further investment was directed toward exploration, but these proved unsuccessful (UNDP/World Bank, 1984, p. iv). The government also had little ability to invest its own money use every day, such as plastics, lubricants, and rubber. Because this dissertation focuses on electricity production, and oil producers are not involved with much electricity production, less attention is paid to this otherwise important energy source. Chapter 3| 69 as it was tied down by international debt, slow economic growth, hyperinflation, and insurgency (Wise, 1986). In the 1980s, focus switched to natural gas, which Shell had discovered in the fields of Camisea, near Cusco. However, the consortium that Shell led and the Peruvian government could not come to an agreement. The issue was further complicated with social protests from environmentalists and people living on the land. The government persisted despite challenges, and the Camisea pipeline finally came online in 2004 (Wise, 2007). Much of the government’s efforts today are focused on expanding this market to capitalize on the discovered reserve. Peru has been unevenly successful in this respect. To date, the government has been able to build a pipeline system that connects the production site in Camisea to the coast and Lima, Peru’s capital city. There are plans to build pipelines to the southern tip of Peru, but corruption scandals with Odebrecht, one of the largest construction companies in South America, have stalled many large infrastructure projects for Peru and all of South America (OSINERGMIN, 2017a). The existing gas pipes mainly feed electricity production plants, also located in the south of Peru. Much of the rest of the country does not have access to natural gas because of the lack of means to transport it. The government has also attempted to encourage households to cook with natural gas, but again there is a lack of pipeline infrastructure to make the supply of natural gas continuous. Households that have gas stoves must buy gas tanks and refill them when they are empty. The government subsidizes these tanks, especially for people with low income. It also subsidizes the cost of installing pipelines in the home (FISE, 2017). However, the Lima region is the only region that has access to natural gas delivered through pipelines. The rest of Peru uses natural gas transported in tanks that came from the gas fields. Chapter 3| 70 As can be seen from these various efforts, the government devoted most of the resources that it allocated to energy investment in expanding the natural gas sector. However, not only did it promote natural gas, it also hindered expansion of other technologies. Jorge Alvarez, Program Officer of Energy and the Environment in the United Nations Development Program (UNDP) in Peru laments, “Sadly, there was a period of 10 or 15 years where other forms of energy were completely paralyzed. There was not authorization to develop other energy projects. It was extremely complicated; there was no financing mechanism, so there was no possibility of accessing it” (Interview: 8 August 2017). The government’s strategy focused on encouraging private investment, if it existed, in the natural gas market as well. Although the discovery of oil and natural gas brought Peru certain benefits, it also tended to divert the government’s attention and finance away from investment in other markets. Oil, and then natural gas, were clearly the government’s priorities since the two resources brought the government more immediate and larger revenues. Because of this political decision, hydroelectricity investment stalled, and development in the market and technology of other resources remained nascent. The electricity sector, though always a priority, developed in the shadows of oil and natural gas exploration. The first public street lights in Peru were installed in 1886. At this time, the market was still unregulated. Electricity plants, either thermal or hydroelectric, began to pop up in cities around Peru, but mainly to feed a specific city or company. These systems usually served local users and were not connected to each other. As more production plants and microgrids appeared, the government began to pass policies to govern the industry. In 1956, the first law was passed to regulate this market: Law 12378, Law of the Electric Industry. This law established for the first time that the production of electricity was a public good and created standards for Chapter 3| 71 issuing concessions, permits, and licenses. It also regulated the relationship between producers and consumers to protect the rights of each (Tamayo, et al., 2016, p. 89). In 1962, Law 13979, Law of National Electric Services, was passed. This created the National Electric Services, which took charge of connecting existing power plants and routing this supply to locations where private investment had not reached. It also built new, small power plants in remote areas (ibid, p. 94). Then, in 1972, the electric sector was nationalized under LD 19521. This decree created Electroperu, a state-owned company that took charge of all electricity-related entities in the state (ibid, p. 98-99). By the end of the 1960s, Peru’s electricity market was composed of eight isolated grids (ibid, p. 96). The electricity system remained under this organization until the 1980s, when Peru passed the 1982 General Electricity Law (Law 23406). This law sought to decentralize power into the hands of regional and municipal offices due to the national government’s inability to maintain the system. This law created ten regional offices that were subsidiaries of Electroperu but operated largely independently. They were in charge of expanding distribution lines and allowed for more participation from local governments in the finance and planning stages. However, a major issue during this time was a lack of qualified professionals to work in the sector because of general migration to Lima for work and the sector’s relatively low pay (UNDP/World Bank, 1984, p. ix). Still, this arrangement worked to alleviate the national government of some finance and administrative responsibilities while maintaining its power and profit in the sector by keeping the electricity industry a national enterprise. However, after some time, this organization also proved unsustainable. Because the electricity sector was still public at this time and private entities could not invest in the sector, Chapter 3| 72 disruptions in the macroeconomy greatly impacted the government’s ability to invest in this market. In the 1980s, Peru suffered many macroeconomic blows at once. One shock was high inflation, which reached a staggering 72% in 1982 and greatly distorted the market. Another was widespread un- and underemployment. A drop in gross domestic product (GDP) growth, to only 0.3%, was caused by a world commodity price decline, which caused a 23% reduction in Peru’s trade volume. Public debt was 8% of GDP and increasing. There were also several natural disasters: heavy rainfalls and floods in the north, a severe drought in the south, landslides in the central region, and reduction in fish catch along the coast. Finally, Maoist groups who used terrorist tactics systematically destroyed existing public projects. A rough estimate calculated that Peru would have needed to invest USD 400 million to fix its infrastructure, or the equivalent of 2% of its GDP (UNDP/World Bank, 1984, p. 2), an amount that the government did not have at this time. The state also did not position itself well to respond to these issues. Hyperinflation, unemployment, macroeconomic stagnation, drying up of international funds, natural disasters, and terrorism caused poverty to grow in the whole country except in some populations in Lima. This population in Lima was exempted because the president at the end of the 1980s, Alan Garcia, adopted a system of populism and anti-imperialism. The size of the public sector and public servants’ wages grew exponentially under his administration due to clientelism. However, as the economic situation continued down the road of deterioration, the state saw itself unable to pay its burgeoning public personnel the high wages that it had promised. The state was on the brink of collapse (Abusada, et al., 2000). In the midst of the various disasters befalling the country, the electricity sector especially Chapter 3| 73 suffered. Investment in public companies fell drastically between 1986 and 1990 to only 1.13% of GDP. Investment in Electroperu, in particular, dropped by 66% from previous levels. The company also had high debts due to large investment projects, especially hydroelectric dams, in the five years preceding. Maoist groups, such as the Shining Path, systematically destroyed the electricity infrastructure as part of their resistance movement. But with the overall economic crisis, the company was not making a profit from these investments and lacked credit (Campodónico Sánchez, 1999). This arrangement eventually led to a great deficit, insufficient investments, a low national electrification rate, outages, and rationing of service (Dammert, et al., 2011, p. 19). In all, Electroperu was caught in huge debts with few financial recourses. Fujimori and the 1992 Reform Like a pendulum that swings too far in one direction and thus tends to swing far back in the opposite direction, Peruvians wanted a big change from the ongoing trajectory of politics. Peruvians were tired of macroeconomic crises and populism — hyperinflation, stagnant economy, high unemployment, growing poverty, suffering from natural disasters, terrorist attacks, and rampant nepotism within the government. This mentality resulted in the election of an unknown outsider, Alberto Fujimori, to the presidency, who promised to change Peruvian politics. And he delivered. Peruvians knew they did not want Garcia again, but the field was crowded with new and unknown competitors. Many thought that the notable writer Mario Vargas Llosa would become president, but Llosa allied himself with a traditional party and people turned away in disgust. This created room for Fujimori to be elected in 1990. A complete outsider in terms of his politics and with little political experience, Fujimori worked as a professor at an obscure university. His slogan Chapter 3| 74 was “Work, Honesty, and Technology,” qualities that harked back to his Japanese descent. The mass public connected with him because he, like themselves, were not from the mainly European-descent circle of elites that historically controlled Peruvian politics (Robinson, 1997). He was unknown, inexperienced, and a newcomer, which people believed would bring the change that they desperately wanted. Fujimori turned dictatorial soon after coming into office. As an outsider in politics, he found himself without allies and support in Congress. He needed to consolidate his power, and fast, in order to get what he wanted done. He bonded closely with the military, one of the few remaining functioning institutions in Peru, under the pretext of eradicating terrorist movements. He drew upon his charisma and identity to appeal to marginalized social groups, such as poor urban dwellers and Andean and indigenous groups (Crabtree, 2000, p. 58-63). Appealing to his identity worked to amass support. Now, Fujimori found himself with much public support but still little power within a Congress that largely did not support him. In 1992, with the help of the military, Fujimori staged a political coup, dissolved Congress, and held elections to vote in a new Congress (Atwood, 2001). Because of his popularity within the country, he took a political gamble that he would be able to carry out a coup and get away with impunity. He was correct. Seventy-one of the 120 new Congress members were Fujimori supporters, who rewrote the constitution according to his suggestions to give him more power (Robinson, 1997). With this newly magnified power focused in his hands, Fujimori made sweeping reforms to the entire Peruvian society. He fixed prices and the currency to stop inflation, liberalized the market, and reintegrated Peru into the international financial market. He instituted labor reforms, social security, tax reforms, and banking reforms. Chapter 3| 75 Notably, he redefined the role of the state in the economy, changing it from a controlled economy to a liberal economy, where the state promotes the market but is not an active competitor in the market (Abusada, et al., 2000). In its new role of promoter, the state passes laws to assist a certain sector, such as through subsidies or tax breaks, and setting standards. However, it no longer directly invests in the market except for some specified markets where few investors exist, such as rural electrification, where there are not many interested and active investors. This also entails privatizing almost all of the previously state-owned companies. 4 The electricity sector, along with other sectors, began its process of privatization. The purpose of privatization was to decrease the debt of state enterprises and increase competition and efficiency in the sector (Campodónico Sánchez, 1999, p. 15). In 1992, the Law of Electric Concessions was passed, which provided the framework for the new electricity system. To recall, Electroperu was a publicly owned monopoly that controlled the entire electricity sector. All electricity services were previously vertically integrated, with generation, transmission, and distribution managed under the same company. The new law unbundled electricity services into 4 Alberto Fujimori’s reforms brought Peru the stability that it craved, but corrupt activities that surfaced in the late 1990s and early 2000s, during Fujimori’s second and third terms in office, have tarnished his reputation. Along with his closest advisor and head of the secret police, Vladimiro Montesinos, the two have been accused of such charges as infiltrating opposition political parties, bribery, muzzling the media, embezzlement, and human rights abuses. Internationally, Fujimori is viewed as a corrupt dictator and his sentence of 25 years in prison for human rights abuses is believed to be much deserved. Domestically, Fujimori still receives large support from some groups in society who praise him for eliminating the two leading Maoist guerrilla groups at the time, the Shining Path and the Tupac Amaru Revolutionary Movement, and stabilizing the macroeconomy. Whether one is a “Fujimorista” or not, Fujimori played an impactful role in laying the groundwork for Peru’s current socioeconomic structure. To learn more about Fujimori’s presidency, see Bowen (2000), Cameron and Mauceri (1997), Kenney (2004), and Schulte-Bockholt (2013). Chapter 3| 76 separate companies and began to privatize them. In 1994, electricity distribution companies began to be privatized, and in 1995, the electricity generation companies. Transmission companies were the last to be privatized because, given its more monopolistic nature compared to electricity generation and distribution, the state spent more time debating whether it should be privatized (ibid, p. 32). This process of privatization continues into the present. These reforms were necessary because Peru did not have the financial resources to pay off public debt and invest to improve infrastructure at this time. In 1999, privatization of the electricity sector earned the state more than USD 2 billion. Since this reform, the electricity sector has improved in quality, service has increased in supply and coverage, and prices have remained stable (Torero & Pascó- Font, 2001, p. 21-22). Important players The new electric system recognizes five important sets of entities involved in Peru’s electricity sector. First are the users, which include large consumers, those who have a power output greater than 2.5 MW and who can contract directly with generators. The other group of users are regulated users, who are households and small businesses and require power output of less than 2.5 MW (OSINGERMIN, 2018). The second set of actors is electricity companies, composed of electricity generators, transmitters, and distributors. The third player is COES, which is a private organization responsible for making sure that the electricity grid runs smoothly and plans the future expansion of the grid. An additional player, OSINERGMIN, regulates the industry and sets electricity prices. Finally, there is the government, represented by MINEM. MINEM is the most powerful player in the sense that it issues laws that all entities must Chapter 3| 77 follow. Osinergmin is in charge of making sure that companies and consumers follow the laws. COES, subject to Osinergmin’s regulation, is in charge of making sure that the grid functions smoothly; it has the power to punish electricity companies if they do not meet standards. Electricity companies provide to consumers, but both are at the bottom of the regulatory hierarchy and do not regulate any entity except themselves. Each group of actors shares some common interests. They all want the electricity sector to function smoothly. This means that supply meets demands, the service is reliable with few blackouts, and that prices are reasonable to keep electricity companies afloat without being an undue burden on consumers. All actors want the electricity market to grow in a sustainable way. Apart from their similarities, each group of actors also has its own interests that are at least somewhat different from the others. Consumers want to have electricity supplied to them that is sufficient, reliable, and cheap. Utility companies’ interest is to supply electricity to these consumers. Similar to any business, they want to maximize their profit by minimizing cost and maximizing the price that they can charge their customers while still maintaining a large customer base. Although the government wanted to make the sector more competitive, the electricity sector is basically an oligopoly, dominated by a few large companies that have been around for decades and have worked with each other for decades. The electricity market in Peru tends towards an oligopoly because the cost to build facilities for providing electricity is very expensive, so there are not many competitors in the electricity sector. The administrators (the government and other supervisory organizations), whose job is to satisfy the populace, pass policies that facilitate the market so that supply meets demand. For electricity, the government passes such policies to regulate price and service provision and to arbitrate when there is a dispute. It can Chapter 3| 78 also set standards, such as requiring certain business practices. Even though the electricity market is oligopolistic in Peru, privatization and opening up of the market have allowed some new players to enter the market, most notably foreign companies. In 1997, Chilean companies had 37% of the market share, U.S. companies had 26%, Peruvian 12%, Spanish 10%, Canadian 9%, and Argentinean 2% of the market (Campodónico Sánchez, 1999, p. 36). In 2016, MINEM registered 48 electricity generators, 13 transmitters, and 21 distributors. Seventy-eight companies produced their own electricity (MINEM, 2016). Table 1: Top 10 Electricity Producers in Peru in 2016 (% of Market Total) Rank Name % of Market Country 1 ENGIE ENERGÍA PERÚ S.A (EX ENERSUR S.A) 19.62% France 2 ENEL GENERACIÓN PERU S.A. (EX EDEGEL S.A.A) 16.06% Italy 3 ELECTRICIDAD DEL PERÚ S.A - ELECTROPERÚ S.A 11.63% Peru 4 KALLPA GENERACIÓN S.A 8.84% Peru 5 FÉNIX POWER PERÚ S.A. 5.50% Peru 6 STATKRAFT PERÚ SA 3.84% Norway 7 EGENOR 3.68% Peru 8 EMPRESA DE GENERACIÓN ELÉCTRICA AREQUIPA S.A - EGASA 2.56% Peru 9 TERMOCHILCA S.A 2.40% Peru 10 CHINANGO S.A.C 2.18% Peru Source: OSINERGMIN, 2016 Ownership has changed hands since the start of privatization. The top ten electricity generators in Peru in 2016 are listed in Figure 3. These ten companies produce 76.31% of all electricity in Peru. Engie, a company from France, has the largest share of electricity production at close to 20%. Next is Enel, an Italian company that produces about 16% of Peru’s electricity. EletroPeru, Kallpa, and Fenix Power are the next top generators and are all Peruvian companies. The sixth largest electricity generator in Peru is Statkraft, a Norwegian company. The remaining Chapter 3| 79 four companies are Peruvian. The top two companies alone, which are French and Italian, produce almost 36% of Peru’s electricity. Counting only the top ten companies, foreign companies produce 39.52% of Peru’s electricity (OSINERGMIN, 2016b). As can be seen, since privatization, foreign companies play a large and growing role in Peru’s electricity sector. This is significant because foreign companies are larger and more powerful. If they cannot operate in Peru, they can withdraw from Peru and continue their operations in other countries. Although these multinational companies must abide by Peruvian laws when they operate within Peru, the Peruvian government must also consider their preferences and the possibility that they can leave Peru if they find policies too disadvantageous. Foreign companies also have slightly different preferences from Peruvian companies because their headquarters require them to meet standards that originate from another country. They may have more stringent environmental standards, for example, than what the Peruvian government requires. Because of these different preferences, they may pressure the Peruvian government to pass policies that are aligned with their own preferences. Furthermore, Peru sees a benefit in having foreign companies in its sector. It may want to attract more foreign companies, which would compel it to pass policies that align with international norms so that foreign companies can enter to invest in the economy. Opening up the market to more foreign investors adds a new set of preferences into the electricity market that policy-makers must consider when passing new policies. These international changes, though not a sole cause, placed pressure on Peru to reform its policies. Changes to Peru’s Electricity Sector Since Fujimori’s reforms, the electricity sector has changed dramatically in terms of its Chapter 3| 80 physical structure, ownership, pricing scheme, and mix of sources. First, the isolated networks of Peru’s electricity grid have connected to form one extensive electrical grid called the National Electric Interconnection System (SEIN), which spans about 3,000 kilometers. Not only has its length increased, it has also been reinforced to be able to handle more electric load than in the past. As mentioned above, reforms in the 1990s have unbundled and privatized the electricity industry. Currently, the generation, transmission, and distribution processes reside in separate companies that are both public and private. Some generation and distribution companies are still publicly owned, while all transmission companies have been privatized (Campodónico Sánchez, 1999). The way that prices are set has also changed. In the past, pricing was fixed, and there were different prices depending on the type of consumer, such as industrial, commercial, residential, public lighting, general use, and farming. These prices were fixed without readjustments or appreciation for as long as 15 years (Campodónico Sánchez, 1999, p. 14). When unexpected costs occurred, the prices that consumer paid did not increase to cover these costs for producers. Given that electric companies were state-owned companies, the state incurred these costs, and electricity companies’ debt grew. Because of this, the state reformed the way that electricity is priced. For the regulated market, meaning for small-scale consumers, OSINERGMIN sets electricity prices. OSINERGMIN does so by adding together the cost to generate, transmit, and distribute electricity. Each year, OSINERGMIN calculates the price for generation and transmission. Additionally, every four year it calculates the cost for distribution, which does not change as much. Combining all of these costs, OSINERGMIN then calculates the cost of electricity that users should pay for a unit of Chapter 3| 81 consumption. Furthermore, it is required to review this calculation every month for minor adjustments in the case that new generators, transmitters, or distributors enter the grid; agreed- upon prices in old contracts among generators, transmitters, and distributors are updated; or macroeconomic changes may affect the electricity market (OSINERGMIN, 2017b). Wholesale consumers, the largest consumers in the market, can contract directly with electricity generators. This new system has led to more adequate market pricing so that consumers pay enough to cover the costs for providers. Peru’s energy portfolio has also changed dramatically since the 1980s. While in the past, hydroelectricity constituted a high percentage of overall electricity production, it has since dropped in percentage. In 2001, hydroelectricity reached its peak production, producing 84.7% of Peru’s total electricity. In 2014, it was the source of only 48.7%. Coal never was a large part of Peru’s electricity source, reaching its peak in 2004 at 3.78%, but it has now been largely phased out completely. The largest growth is in hydrocarbons (excluding coal), mainly from natural gas. While hydrocarbons constituted 14.5% of total production in 2001, it is now at 47.8% of electricity production (World Bank, 2017). After the reform of the electricity sector and quelling terrorism from insurgency groups, electrification was able to grow rapidly because power lines were no longer being destroyed. Peru’s electricity sector underwent major changes in the past three decades. It has reformed the players in the market from a state monopoly to a private and competitive market. 5 It changed the way the industry was regulated and how prices were set. Even its energy mix 5 One of the goals of privatization was to make the electricity sector more competitive, but as mentioned above, in practice, the sector functions as an oligopoly. Chapter 3| 82 changed dramatically from primarily hydroelectricity and a bit of petroleum to mainly hydroelectricity and natural gas, with natural gas even superseding hydroelectricity as the most significant source for electricity production. The electricity market has expanded drastically since these reforms, with many more producers and consumers. Part of the country’s future challenge is adapting to these rapid changes. Current Renewable Energy Governance in Peru Another important topic in Peru’s electricity sector is the use of renewable energy. Peru is a signatory to numerous international agreements related to climate change and renewable energy. This suggests the government’s awareness of the benefits and need for renewable energy. Yet domestic policies to support the actual implementation of renewable energy practices are scarce. To date, there is only one formal renewable energy policy for urban electrification in Peru and four policies pertaining to rural electrification. This section provides a history of the use of renewable energy use in Peru and briefly discusses the few policies that it has passed to promote renewable energy. Sources are considered renewable when they can be regenerated during a human’s lifespan. “Renewables are now the first-choice option for expanding, upgrading and modernizing power systems around the world,” according to IRENA (2017, p. 9). In 2015, 61% of all new energy generating capacity added worldwide came from renewable sources (ibid, p. 9), showing its growing presence and importance in the global electricity matrix. Because renewable energy still has much untapped but growing potential, it can contribute greatly to the future of Peru’s energy matrix. Given that hydroelectricity has always been a major part of Peru’s energy mix, Peru’s energy production is relatively clean. Only in the past two Chapter 3| 83 decades has Peru’s energy mix moved toward natural gas as an important primary source of electricity. It is estimated that Peru has 69,445 MW of untapped hydroelectric power (Vasquez, et al., 2017, p. 102). Therefore, for some time, people considered Peru already to be a clean country (Quintanilla, Interview: 1 June 2017), which partly explains why there has been less urgency to explore other renewable sources compared to other countries. Although hydroelectricity is a clean energy, large dams have largely fallen out of favor because of the environmental and social destruction that they can cause. 6 In Latin America, because hydroelectricity has been highly exploited in the past, large hydroelectric plants are now considered conventional sources of energy, which differentiates it from new efforts to promote non-conventional renewable energy. Note that small hydroelectric plants are still considered to be non-conventional renewable energy, but the exact size of what qualifies as “micro-hydro” differs by country. Policy pursuits now mainly aim to promote non-conventional renewable energy. Other parts of the world also make this distinction, recognizing that the aim now is to pass policies to promote renewable energy sources excluding large hydroelectric plants (IRENA, 2017). This exclusion of large hydroelectric plants exists because it differs from other sources of renewable energy in several ways. Large hydroelectric plants are a more established and well- understood form of technology. Because the hydroelectric market is already well established, it 6 However, large hydroelectric dams are rebounding due to strong Chinese efforts to build in Latin America and other parts of the world. In 2014, Chinese firms had 22 hydropower projects in Latin America, of which three were completed, seven were under construction, and twelve were in the proposal stage (Davis, 2014). This strong Chinese influence is resulting in a resurgence of dam- building in some parts of Latin America. Chapter 3| 84 does not need as much policy support to promote its use as do newer technologies. Finally, large hydroelectric plants have received a lot of pushback in recent years because they tend to require displacement of the local population and harm the ecosystem, so they have been discouraged. Smaller hydroelectric plants do not cause as much damage or change, so they are still considered to be a viable source of renewable energy for the future. Therefore, when referring to renewable energy in this dissertation, this category does not include large hydroelectric plants. Four different institutions oversee and promote renewable energy use in Peru. The first is the MINEM. It promotes projects that use renewable energy, passes policies, approves auction terms, and signs contracts with renewable energy companies. It is the most powerful policy- making institution on issues related to energy in Peru. Renewable energy policies and projects are promoted through its Energy Efficiency Office. In order to change how the market is regulated, MINEM passes policies for this to occur. The second institution is OSINERGMIN, which conducts renewable energy auctions and ensures that companies are performing their responsibilities as stated in the contracts. Thus far, OSINERGMIN has conducted four auctions for renewable energy companies to enter the grid, one every two years. Its engineers oversee and regulate projects, making occasional visits to renewable energy plants to make sure that companies are producing electricity according to contract terms, that their safety and health conditions are up to standard, and that the construction of these plants is going as planned. OSINERGMIN also publishes reports, books, and data about renewable energy production and consumption in the country. COES, the third institution, is in charge of making sure that any new producer that enters the electricity grid will be able to integrate seamlessly and not disturb electricity delivery. COES Chapter 3| 85 ensures that, at all times, there are enough suppliers to meet demands. Because renewable energy production can be intermittent, occurring, for instance, only when the sun shines or the wind blows, COES ensures that when renewable energy companies do not produce, there are other plants who can fill the supply gap. They also make sure that surges of electricity production do not overcharge and cause cables to explode. Although some of this monitoring has been automated, some of the process is still manually managed. Finally, the National Council of Science, Technology, and Technological Innovation (CONCYTEC) provides funding for and oversees research projects related to renewable energy. It receives funding from the Peruvian government to fund research projects related to science and technology. It especially funds university research programs members find interesting for the benefit of the nation. Occasionally, it also funds NGOs that have compelling projects. It is the bridge between the government and academia. To a lesser extent, MINAM is involved with promoting renewable energy. MINAM manages issues related to climate change, land use, and forests. It is concerned with energy issues insofar as energy consumption is connected to carbon emissions and climate change. MINAM helps counsel MINEM on renewable energy targets because they relate to carbon emissions, but it is completely under MINEM’s authority to pass any policy related to electricity (Ibarra, Interview: 4 August 2017). As can be seen from the different organizations described above, renewable energy concerns many decision-making institutions within Peru’s political system. However, renewable energy is still seen as a corollary of other energy strategies. For example, it falls under the jurisdiction of the Energy Efficiency Department within MINEM, and there is no specialist in Chapter 3| 86 renewable energy within OSINERGMIN’s Policy and Economic Analysis Department. This diffusion can cause problems if no one entity sees renewable energy as solely its responsibility and takes the lead in monitoring and promoting the sector. Peru supports the expansion of renewable energy through several main policies. LD 1002, Promotion of Investment for Electricity Generation with the Use of Renewable Energy, outlines the auction system that allows renewable energy producers to supply their electricity into the grid. The law also says that the national goal is to have 5% of renewable energy from nonconventional sources (i.e. excluding large hydroelectric plants). Supreme Decree (SD) 012- 2011-EM elaborates the requirements set out under LD 1002, specifying the rules and regulations involved with renewable energy auctions, contracts, qualifications, and standards. SD 020-2013-EM provides rules and regulations for using renewable energy in rural areas not connected to the electricity grid. Finally, Ministerial Resolution 203-2013-MEM/DM outlines the Universal Access to Energy Plan. The Peruvian Technical Standards (NTP) outlines standards for solar equipment and technical standards for biofuels. The biofuel standards set minimum quality products and the scope and functions of various institutions that are involved in the biofuel market. Other policies distantly related to renewable energy exist to support these policies, but the ones listed above are the main ones. OSINERGMIN calls and conducts public auctions that are required by LD 1002. MINEM then awards these contracts to private investors. COES then reviews the contract to make sure that the pre-operating conditions meet grid standards. Upon approval, the contract goes back to MINEM for final approval (IRENA, 2014). By overseeing the auction and assessing the bids, the Peruvian government tries to ensure that the approved renewable energy projects will Chapter 3| 87 successfully integrate into the existing electricity system. Currently, these biannual auctions that the government organizes are the only way that large-scale electricity production from renewable energy can be sold on the electricity grid. Aside from auctions, the government provides fiscal incentives to promote the renewable energy market. Fiscal incentives are monetary actions that the government takes to encourage investment. Many different mechanisms exist, but these measures usually reduce the tax liability of the producers or give money to producers, either directly or indirectly. Overall, these measures generally reduce the total cost that developers must pay. Peru allows a tax relief for income tax purposes. LD 1058 allows for accelerated depreciation of up to 20% of investments in machinery, equipment, and civil construction for renewable energy generation for income tax purposes. Renewable energy generators are also entitled to an early value added tax (VAT) recovery for their sale of electricity. The Electrical Social Compensation Fund (FOSE) provides a subsidy for renewable energy investment in rural areas in order to include traditionally marginalized groups in the electricity market. Peru is a recipient of foreign direct investment (FDI), such as Italy’s Enel Green Power and Korea’s Hanwa, which are both contracted to build solar plants throughout Peru (IEA, 2017b). Conclusion This chapter has given a broad overview of Peru’s electricity sector. While historically it was a state-owned market, the deterioration of the infrastructure due to low investment, purposeful destruction from terrorist groups, and macroeconomic catastrophes led to the decision to overhaul the system. The industry was privatized and unbundled, with the responsibility for generation, transmission, and distribution residing in separate companies. Peru’s electricity Chapter 3| 88 sector today is a mixture of both privately and publicly owned companies. While hydroelectricity and, to a small extent, petroleum were important sources of electricity in the past, natural gas has surged since its first production in 2004 to be the dominant electricity source. The main players in the sector are the consumers, electricity companies, and institutional overseers. The important institutional overseers of renewable energy are MINEM, which passes policies for the sector; OSINERGMIN, an independent regulatory organization that regulates and sets prices for the sector; COES, a private organization that operates the grid; and CONCYTEC, a public institution that funds research and development. Peru has different strategies for general electrification and rural electrification, and it has some policies that promote the use of renewable energy. As can be seen from the organization of the sector, renewable energy is a topic that is now pervasive throughout institutions and markets in Peru. However, renewable energy still does not have a strong presence because its oversight is divided among many different actors in the political economy, and it is still deemed a subsidiary of other existing programs, not a focus in and of itself. MINEM, being the policy maker, is the most powerful institution to promote renewable energy, but as we will see in later chapters, it has to deal with all the relevant players mentioned above, and with its own internal conflicts, to pass policies that promote renewable energy use for general and rural electrification. However, it is recognized the world over that renewable energy is an important strategy for the future, so learning how Peru was able to make the first steps to pass such policies can provide clues about how such policies can pass more easily in the future. Understanding the history of Peru’s energy sector provides an understanding about who Chapter 3| 89 the main players are and the opinion about the different types of energy that Peru finds accessible. Oil, natural gas, and hydroelectric producers are the most established and powerful generation companies in Peru. This is because they have been around the longest. Producers from any other source are seen as new competition and viewed with animosity. This quality will reveal its importance in the next chapter, when it will be seen that renewable energy generators do not have much support and its supporters must wait for a policy window and use special political instruments to sneak through a policy that will help this sector. Peru’s history of changing from a nationalized to a privatized market will also explain why the government has not done much investment in the energy sector but has chosen to pass policies that support market participation. Basically, the cards were stacked against renewable energy, which made a policy passage that strongly supports it even more surprising and curious. Chapter 4| 90 Chapter 4. Domestic Political Willingness: International Challenges Incite Strong Peruvian Interest in Renewable Energy (1990s-2000s) How did Peru, a country that had little support for renewable energy, pass a major policy in its favor? Furthermore, how did Peru do so when domestic energy players have historically strongly opposed market entry from renewables? This chapter sets up the scene by arguing that international developments created interest within Peru’s civil society, and these players wanted to promote renewable energy but could not, given the political climate. Policy entrepreneurs were finally able to pass a major piece of legislation to support renewable energy in 2008, so the rest of this chapter will discuss international and domestic developments leading up to that year. International developments fomented political interest and willingness within Peru. The international developments are technology solutions, increasing information, and strong justification through a global political norm change and a global economic norm change. Technology advancements led local actors to believe that a viable solution to energy shortages and climate change was available. Increasing information allowed more people to become familiar with renewable energy technology, its positive effects, and its desirability. International political norms changed to be more accepting of and aggressive toward encouraging rapid renewable energy adoption. This was due to the realization that resources such as oil and natural gas were finite and rapidly decreasing. There was also much environmental damage stemming from the dependence on coal, gas, and oil. International economic norms evolved to be friendlier to renewable energy investment, which encouraged even more research, development, and investment. These changes created groups of interested parties within Peru, but they were still Chapter 4| 91 not politically powerful or coordinated enough to pass a major policy in its support. However, a few key decision-makers in the government were starting to pay attention. This chapter walks through this explanation in the following order. First, it describes the Peruvian renewable energy market before 2008, the year that LD 1002 passed. Next, it explains the types of renewable energy technology that were globally available and accessible to Peruvian policy makers. It then shows the increase in information from academic and non-academic sources available about renewable energy. Next, it outlines the global trends and favorable views of renewable energy at this time, which attracted the attention of Peruvian policymakers who wanted to make Peru a more global player. Following this, it discusses the favorable tendencies within the global market for renewable energy technology. Next, it explains the various groups of interested actors operating within Peru’s society. Finally, the chapter concludes that interest existed in Peru but actors lacked the opportunity to coordinate major political changes. The major event that opened a policy window was a trade deal with the U.S., which is to be explained in the next chapter. The Peruvian Renewable Energy Political Economy before 2008 The renewable energy market is a recent development in Peru’s economy. The Peruvian electricity market before the year 2008 was characterized by very little economic and political presence from renewable energy supporters. The most powerful market players were oil, natural gas, and hydroelectric companies, and their market presence translated into real political power through unofficial lobbying channels. The market had become entrenched and built up strong opposition to renewable energy, making it a difficult environment to pass policies or attract investors. Chapter 4| 92 Economically, renewable energy had close to no presence in Peru’s market before the 2000s. According to COES, electricity generation historically came only from hydroelectricity and thermal electricity, the latter group primarily composed of gas and diesel. There was zero renewable energy electricity generator selling to the grid. It was not until 2011 that renewable energy sources started to feed into the grid for the first time (COES, 2006, 2007, 2008, 2009, 2010, 2011, 2012). Hydroelectric and thermal electric companies were the dominant players in the Peruvian electricity market. They saw new entry into the market by renewable energy producers as unnecessary competition and worked hard to stop this from happening. Utility companies also opposed renewable energy, but for different reasons than generators. Max Christian, a solar energy consultant in Peru, explains, “Utilities are not the bad guys. They want to maintain a tight balance between supply and demand. And they have laws that require them to meet demands, and they keep reserves for this purpose. But with renewable, it is much harder for grid operators to predict and control the supply” (Christian, Interview: 13 March 2017). Because utility companies, by law, had to ensure that supply met demand at all times, the introduction of renewable energy would have made this more difficult. Interruptions in the delivery of electricity, or price increases in the supply of energy, would have adverse effects on their customers and their ability to operate effectively. Renewable energy’s presence was but a shadow in the market. It was an investment interest for some electricity companies because a few, especially international ones, had branches that promoted renewable energy generation. For example, the energy company Enel founded Enel Green Power in 2008, which is dedicated to the development and management of energy production using renewable energy worldwide (Enel Green Power, 2017). However, these Chapter 4| 93 specialty branches did not operate in Peru because Peru lacked strong policies and institutions to regulate the mass selling of electricity from renewable energy sources to the grid in the early 2000s. Given its poor institutional support for renewable energy, Peru was still not a lucrative market for large energy companies to direct their renewable energy investment, while a lack of presence made it difficult for smaller producers to compete in the market. The only other renewable energy players were small NGOs or social enterprises that tried to promote these technologies to rural residents. The Netherlands Development Organization (SNV) is an NGO that has been operating in Peru since 1966 and offers consultation and advice to firms interested in sustainable, local development. It also offers capacity development services to local institutions and organizations. One service that it offers is consultation about renewable energy projects (SNV, 2018). Acciona is one of the oldest and longest running social enterprise in Peru, operating since 1974. It strives to improve the lives of rural citizens, also through renewable energy technologies such as electric water pumps and solar lights (ACCIONA, 2018). Help in Action helps impoverished people improve their education, health, and response to climate change and has been operating in Peru since 1987 (Ayuda en Acción, 2018). The state of the market was that NGOs or social enterprises operated on a small scale and served mainly rural residents. There was still no mechanism for large-scale electricity production using renewable energy to feed into the grid. Politically, the Peruvian government’s support went to the oil and natural gas industries. Says Alfredo Novoa, President of the Peruvian Association of Renewable Energies (APEGER), “The number one enemy, and I want you to record this well, the worst enemy of renewable energy in the last years has been the Ministry of Energy and Mining in Peru” (Interview: 4 August 2017). Chapter 4| 94 Between 2004 and 2008, the government passed a total of 1,162 laws. Of these, eight laws supported the petroleum industry, seven laws supported natural gas, one law supported the hydrocarbon sector (which covers both oil and natural gas), ten laws dealt with the electricity sector in general, two laws supported the hydroelectric sector, and one law supported rural electrification (Congreso Perú, 2017). There was also little political support by functionaries for renewable energy. Says Cesar Butron, the President of COES, “I think the current minister [Gonzalo Tamayo Flores] is interested, but before him, the past five ministers and vice ministers that I knew, no one wanted to give renewables the same powers granted to other electricity sources, such as the ability to impose a capacity charge” (Interview: 16 May 2017). As can be seen from this record, promoting the oil and natural gas markets were the government’s two highest priorities in regard to its energy strategy. Oil and natural gas companies’ market power translates into political power, but it is unclear exactly how. Unlike in the U.S., where lobbyists must register officially and politicians must disclose the source of their campaign donations, Peru has limited disclosure laws. The topic of lobbying in Peru is highly slippery and usually carries a negative connotation, suggesting illicit activities to benefit private parties at the detriment of the state or the public. A fine line separates lobbying from corruption. Because of this mentality, even talking about lobbying is difficult. Some change in this field, however limited, is apparent. In 2003, Peru passed a lobbying law, mirrored after laws in the U.S., to make lobbying more transparent. Called the Law that Regulates the Behavior of Interests in Public Administration (Law 28024), this was the first law to regulate lobbying in Latin America. The National Superintendent of Public Registries (SUNARP) keeps an official record of registered lobbyists, and in 2014 there were 15 registered lobbyists Chapter 4| 95 (Lobby: ¿Qué es?, 2014). However, it is clear from this number that that this registry falls short of covering all individuals involved with lobbying in Peru. Some experts have argued that the law itself presents a barrier to the formalization of the lobby sector because of its complexity (Dos Santos, 2017). As a result, much of lobbying in Peru is done informally. Some insight into Peru’s informal lobbying practices can be surmised by looking at how it is done in other countries. Latin America has had a tradition of strong personalities becoming leaders who often interact with power groups in society, particularly due to these groups’ access to the leadership. This is coupled with a weak civil society and low public participation. Thomas and Klimovich note, “It has been the activities of elite power groups, interests, and, more recently, formal interest groups that have shaped Latin American politics together with leaders and ruling elites” (2014, p. 173). In Japan, there is a practice called amakudari, which is when public functionaries are guaranteed high positions in large Japanese companies when they leave office. This practice incentivizes public officials to act favorably towards companies that they wish to work for after they serve their public term (Ramseyer & Rosenbluth, 1993, p. 107-108). Access, and perhaps a revolving door between high-ranking public-private positions, may explain how informal lobbying works in Peru. The closest evidence that one can come to showing that certain civil actors lobby is through the registry that ministries are required to keep. This log records entry, purpose, and exits of all visits to government buildings. From this information, one can divine who had face contact with functionaries from each ministry. However, not all ministries and public institutions are required to publish this information. Some ministries provide this information online, but the information is not well updated. Even if this information were available, it is still not possible to Chapter 4| 96 conclude what exactly occurs during these meetings and whether these conversations actually sway politics. Although lobbying in Peru occurs mainly through unofficial channels, many elites suspect that lobbying does occur, although they cannot say how (Interviews: LaGatta, 1 March 2017; Gamio, 20 March 2017; Winkel, 20 March 2017; Butron, 16 May 2017; Quintanilla, 1 June 2017; Novoa, 4 August 2017; Alvarez, 8 August 2017; Luque, 7 September 2017). Leaders in society recognize that lobbying occurs, and that the gas and oil industries have a lot of power to sway political decisions. Exactly how they do so is up to the imagination. In Peru, then, the power groups were gas, petroleum, and hydroelectric companies, while renewable energy companies had no strong, influential lobbyists on their side. Whether gas, petroleum, and hydroelectric companies actively lobbied against renewable energy is unclear. Even without lobbying influences, however, politicians had justifications for not supporting renewable energy. Renewable energy development at this time in Peru was several times more expensive than conventional energy. Peru had no need to install new renewable energy plants because it had an energy surplus. It had less urgency to reduce carbon emissions because more than half of its electricity came from hydroelectricity, which does not produce greenhouse gases during production. Furthermore, renewable energy production was unreliable, which could cause blackouts and stresses on the electricity infrastructure. Since additional costs to production would be passed onto consumers, incorporating more renewable energy would have likely increased electricity rates. From a consumer protection standpoint, there were reasons to look at renewable energy unfavorably based on its own technical merits, regardless of any effort from opposition groups. Chapter 4| 97 Existing law at this time did allow for regional governments to pass their own policies to promote renewable energy in their regions, but they were not using it. They were not using it because of “lack of expertise, lack of career politicians, lack of a team, and lack of capacity. There is a complete turnover every five years for elections of all the bureaucrats. National governments also suffer from these issues — to a lesser degree but they also suffer,” says Pedro Gamio, former Vice Minister of Energy (Interview: 20 March 2017). Even regional governments that supported renewable energy did not know how to start doing so. They, like the national government, suffered from lack of expertise, political will, and high turnover, all of which make policy continuation difficult. On the whole, the Peruvian market looked bleak for renewable energy investors before 2008. The sector was basically nonexistent. Its few players worked in small markets that served mainly rural residents. The dominant players in the energy sector — oil, natural gas, and hydroelectricity generators — saw renewable energy as competition and opposed them if the topic ever came up. The Peruvian market was not friendly to renewable energy generators in the past. Renewable Energy Technology Options Although Peru kept its market largely closed off to renewable energy, investments and technological advancements were happening elsewhere. Technologies have been developed to harness seven main types of renewable energy sources. These sources are biomass, geothermal, hydrogen, hydropower, ocean, solar energy, and wind. This section briefly explains the types of technologies for each of these sources, which will provide an idea of the types of companies LD 1002 drafters thought they could attract to the Peruvian market when they wrote the decree. Chapter 4| 98 Biomass is any organic material that can be burned to produce heat. This form of energy has been around for thousands of years and has been used mainly for cooking. Typical forms of biomass are wood, animal residue, and agricultural waste products. For electricity generation, biomass plants burn these materials to heat up water or another liquid. This liquid then turns into steam, which spins a turbine that makes electricity (U.S. Department of Energy, 2016). Biomass is considered renewable energy because society produces much waste, and much of this can be burned to produce electricity. However, the use of biomass is controversial in some places because, unlike other forms of renewable energy, burning biomass releases carbon dioxide and other toxins into the air, which is unhealthy for the environment. Newer plants have installed chemical- and gas-trapping technologies to deal with this issue. In Peru, biomass has been turned into fuel to power transportation. The northern region of Peru is excellent for growing sugar cane, which can sometimes yield two to three harvests per year. When the price and demand for sugar dropped globally in the last decades, some sugar cane growers began transforming sugar cane juice into ethanol, which has a market because the Peruvian government requires that all gasoline mixtures contain 7.8% ethanol. In the Amazonian region, some growers sell palm oil to the biodiesel industry (Verastegui, Interview: 21 March 2017). Thus, biomass can come from sources of waste or from thriving plants that are purposely cultivated for fuel. Because Peru has an abundance of both sources of biomass, biomass is a viable renewable energy option in Peru. Geothermal power takes advantage of heat within the Earth to warm different fluids. Temperatures from these vents can range from 225o to 600o Fahrenheit (107o to 315o Celsius). Depending on the type of geothermal energy found in an area, the heat from the Earth can be Chapter 4| 99 used to directly turn a turbine or to heat another liquid into steam, which then spins turbines to power a generator (U.S. Office of Energy Efficiency and Renewable Energy, 2013a). Geothermal electricity production is limited to areas that have active geothermal activity, so its viability is limited since not every country has geothermal vents. Hydrogen power takes advantage of the energy of a hydrogen atom. Hydrogen is the most abundant element in the universe. In fuel cells, pure hydrogen is mixed with oxygen, which generates a chemical reaction that emits electrons and water. The electrons can be siphoned off as electricity. The issue with this energy is that pure hydrogen is hard to find as hydrogen is usually found reacted with other elements. Currently, hydrogen is obtained by separating it from other fuels such as oil, natural gas, biomass, or water. Depending on the source that the hydrogen comes from, this could vary the degree to which it is renewable. For example, if the hydrogen is obtained from natural gas, which many laboratories currently use, then the hydrogen fuel would be derived from a nonrenewable source. However, once the hydrogen is obtained, its only exhaust in the combustion process is water (U.S. Office of Energy Efficiency and Renewable Energy, 2013b). Hydropower is the oldest and cheapest form of renewable energy. Hydroelectricity plants are built over running bodies of water such as large rivers. As the water flows, it flows through turbines and spins them. These turbines are connected to generators, which then create electricity. In some areas where there are no rivers, water pumps have been used. In this kind of technology, one reservoir is built on high ground and another on low ground. Water is stored in the high reservoir, and this is released to flow into the lower reservoir. As it falls, it spins turbines and generates electricity. At night, when demand for electricity is lower and price is cheaper, Chapter 4| 100 electricity that has already been produced is used to pump the water that has flowed into the lower reservoir back up to the higher reservoir to be reused. Ocean energy technologies take advantage of the ocean in two ways. The first is through thermal conversion. This means that it takes advantage of the hotter surface water and colder deep water to convert ocean water or another fluid to steam, which then turns turbines and generates electricity. The second is through taking advantage of the movement of tides and currents that are pushed through turbines, which then spins a generator to produce electricity (U.S. Office of Energy Efficiency and Renewable Energy, 2013c). This technology is currently not very well developed because it requires a lot of capital and initial investment. However, because oceans make up such a big part of the Earth, they have the immense potential to produce electricity for the future. Solar energy uses radiation from the sun to generate electricity. There are two main types of solar energy technology. The first is concentrated solar power (CSP), which are mirrors that reflect sunlight onto a central focal tower, which heats up water to make steam that then turn turbines to generate electricity. The second type is the photovoltaic (PV) panel that directly converts sunlight into electricity. In order to generate electricity on a mass scale, the most ideal conditions are sunny areas that receive the most radiation, such as deserts. Deserts are also the best locations because there is a lot of land area to install many of these systems to create more electricity. One can also install individual-sized systems on rooftops. The last form of energy is wind energy. As the wind blows, it passes through turbines that spin and power a generator to produce electricity. These are ideal in windy areas, naturally. Turbines are installed on top of high poles to access the flows of the wind. This technology is well Chapter 4| 101 developed, and currently advancements have been made in reducing the costs of building a turbine, the length of the fins, and how much electricity can be generated with each rotation of the turbines (U.S. Office of Energy Efficiency and Renewable Energy, 2013d). Currently, wind energy is the most widely used source of renewable energy in the world after hydroelectricity. Renewable energy advocates in Peru chose among these options of technologies as they pondered introducing renewable energy into the Peruvian market. Peru is considered to be a country with high potential for wind, solar, hydro, and geothermal, and a high-medium potential for biomass (Currie, 2016). Of the seven sources, the most accessible renewable energy technologies for Peru are biomass, solar, wind, hydropower, and geothermal (Mendoza Gacon, 2012). Ocean energy and hydrogen power are still not very well developed globally. Peru has limited geothermal vents, but these lie in remote areas in the mountains. The country has exploited large hydropower plants in the past, and there is a lot of biomass from forests and waste. About two-thirds of Peru receives an average level of radiation of more than 5.0 kilowatt hour per square meter (kWh/m2), and radiation levels are even higher along the coasts. It receives, on average, twice as much radiation as Germany does (DGER, 2017). In all, Peru is a country that has many natural resources available that can be used to produce electricity. The availability of a technology solution to energy security issues compelled many actors to think about how to expand its use and take advantage of its many benefits. In the 1990s, these actors were further motivated to use more renewable energy because of a growing understanding about climate change. Chapter 4| 102 Information Increase The study of renewable energy surged as a result of increased interest and concern over climate change in the late 1990s and early 2000s. It is widely viewed as one of the solutions to mitigating climate change. As a result, more think tanks were founded, a greater variety of information became available, and more books were written about the subjects of renewable energy and climate change. The proliferation of information made people all over the world more aware of the benefits, urgency, and potential profits from investing in renewable energy technologies. While in the past, people were interested in renewable energy largely to diversify the energy mix and increase energy security, it has more recently been closely associated with mitigating climate change. Climate scientists see that while there are natural geological processes that cause the Earth’s climate to change, this change is currently happening more rapidly than would naturally occur due to human injection of greenhouse gases into the atmosphere. A large source of greenhouse gas emissions comes from human conversion of primary sources into usable energy sources, including using oil for transportation and coal and natural gas to produce electricity. Therefore, in order to mitigate greenhouse gas emissions and climate change, one solution is to look for alternative sources of energy that emit fewer greenhouse gases, and renewable does just this. The promotion of renewable energy has developed hand-in-hand with concerns over climate change because it is seen as a possible solution to mitigating climate change. The connection that many countries feel exists between mitigating climate change and renewable energy is best expressed by a joint statement made at the World Summit on Chapter 4| 103 Sustainable Development in 2002. This statement was signed by The European Union, Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Iceland, Latvia, Lithuania, Malta, New Zealand, Norway, Poland, Romania, Slovaki, Slovenia, The Alliance of Small Island States, Switzerland, and Turkey: 2. Increasing the use of renewable energy is an essential element to achieve sustainable development at national and global level. Renewable energy can provide important new ways to reduce pollution, diversify and secure energy supply and help provide access to energy in support of poverty eradication. Furthermore, the burning of fossil fuels is the biggest source of greenhouse gas emissions and these emissions need to be reduced to mitigate the adverse effects of climate change in order to achieve the ultimate objective of the United Nations Framework Convention on Climate Change to prevent dangerous climate change. (Joint Declaration, 2002) For a long time, renewable energy has been seen as a part of the solution to mitigating climate change. It is widely recognized that the burning of fossil fuels exacerbates climate change because it releases greenhouse gases into the atmosphere, so reducing its use and finding its replacement is essential. As a result of this pressing realization, many think tanks were founded to study issues related to climate change and renewable energy. According to the Think Tank Map, which was founded in 2011 and aims to provide an exhaustive list of think tanks around the world that work on climate change economics and policy, there are 324 of such active think tanks (2018). Of these, 42 were founded in the 1980s; 71 were founded in the 1990s; 118 were founded in the 2000s; and 38 were founded between 2010 and 2015, for which is the latest that the data go. Between 1995 and 2005, 94 new think tanks were founded that studied climate change. Of these, 45 new think tanks were founded that conducted research related to renewable energy. These think tanks produced hundreds of reports each year on the topic. There was an explosion in the Chapter 4| 104 scholarly community of interest in researching climate change and renewable energy in the late 1990s and early 2000s. More information about this topic was available than ever before. Additionally, more precise information about renewable energy became available. The Renewable Energy Policy Networks for the 21st Century (REN21) began publishing the Renewables Global Status Report annually starting in 2005. This report looks at the global market trend, investment flows, policy landscape, rural energy access, and technology developments in markets around the world (2018). The International Energy Agency (IEA) began to publish its biannual World Energy Outlook reports in 2005, showing actual and predicted energy consumption for all energy sources in the world. It also publishes statistics on world energy consumption balance in a Sankey Diagram, showing the total production input, output, and consumption across time, with data spanning as far back as the 1970s (2018). There were better estimates available about the total energy reserves that each country had, and this information became publicly available through databases maintained by international organizations such as the World Bank. This allowed countries to predict, given their current consumption behavior, how much longer they had to use their fossil fuels, with some realizing that they do not have much time left. As more actors began conducting research about this topic, more information became available to the wider public rather than just industry leaders. Scholars also started publishing more books about renewable energy. The Google Books Ngram Viewer records the percentage that a particular word or phrase is used within Google’s corpus of books. Although Google’s corpus of books is skewed towards scientific writings and therefore does a weak job at showing cultural trends in word usage, its record suffices in showing in this case the growing interest in renewable energy, especially among scholars. Looking at its Chapter 4| 105 record, one can see that there was a growing trend of using the word “renewable energy”, as shown in Figure 3. For example, in 2002, 0.0000939% of two-word phrases written in all of the books that Google had on file was the phrase “renewable energy”. There was a dip in 2003, but from 2003 onwards, the use of renewable energy as a percentage of all word phrases grew. Figure 4 shows the frequency that “energía renovable” was written about in Google’s corpus of Spanish books. It, too, shows a growing trend of interest in renewable energy among books written in Spanish since 1995 (Google Ngram Viewer, 2018). This evidence shows that more books were written about renewable energy, or touched upon the topic of renewable energy, toward the end of the 1990s and 2000s. Although these numbers are miniscule, as they measure Figure 3: Frequency with which “renewable energy” is used in English texts 0 0.00002 0.00004 0.00006 0.00008 0.0001 0.00012 0.00014 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 % of Corpus Year Frequency with which “renewable energy” is used in English texts Source: Google Ngram Viewer, 2018 Chapter 4| 106 only a fraction of a percent, they still serve to demonstrate that the interest in renewable energy was increasing in English- and Spanish-speaking countries. The late 1990s and early 2000s saw a tremendous increase in interest in researching the issues of climate change and renewable energy. Many new think tanks were created during this period. Some of these were affiliated with universities while others were independent. These think tanks began to publish an immense amount of information about renewable energy. There was more understanding about climate change, greenhouse gas emissions, and how renewable energy could help to mitigate future emissions. The issue itself began to gain in momentum and sense of urgency. These think tanks and research institutions produced more information than Figure 4: Frequency with which “energía renovable” is used in Spanish texts 0 0.000005 0.00001 0.000015 0.00002 0.000025 0.00003 0.000035 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 % of Corpus Year Frequency with which “energía renovable” is used in Spanish texts Source: Google Ngram Viewer, 2018 Chapter 4| 107 ever and began publishing reports with more accurate information about these issues. More accurate information became available and more books were written about these topics. This information came to Peru’s domestic audience. Some Peruvians who went abroad also gained knowledge about this issue and brought it back with them when they returned to Peru. Slowly, renewed interest in bringing renewable energy to Peru began to grow. There were domestic actors interested in the issue but who, at this time, had little ability to develop the market in a major way. Global Norm Change – International Agreements in the 1990s and 2000s Internationally, concern over climate change and the momentum to do something about it began to increase. The environmental movement in the U.S. reached a height in 1970, when Earth Day was established to celebrate the environment. The Montreal Protocol was a major international agreement aimed at reducing harmful substances found to deplete the Earth’s ozone layer. It was agreed to in 1987 and went into effect in 1989. The Earth’s atmosphere remained a big international concern, and the Intergovernmental Panel on Climate Change was founded in 1988 to measure changes in atmospheric composition, temperatures, and weather patterns. These efforts were also not lost on Peru, who were participants in and signatories of many of these international agreements. The most significant and large-scale international effort to deal with climate change is that coordinated by the United Nations (UN). The first major international action taken on climate change was at the UN Conference on Environment and Development, also known as the Earth Summit, in Rio de Janeiro, Brazil, which took place in 1992. At this conference, participants signed onto the UNFCCC. The goal of the UNFCCC is the Chapter 4| 108 “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent anthropogenic interference with the climate system” (UN Climate Change, 2014a). This was a non-binding agreement among 154 signatories that they will participate and work to limit greenhouse gas emissions to preserve the Earth’s climate system. This provides a basic framework that forms the foundational principles guiding countries’ actions as they work toward dealing with climate change in the future. In 1994, the UNFCCC went into effect with 50 ratifications (EESI, 2013). Peru participated in the Earth Summit in 1992 and signed the UNFCCC that same year. Its congress ratified it in 1993, and the UNFCCC entered into force in Peru in 1994 (UN Climate Change, 2014b). From the beginning, Peru was already an active participant in international global climate agreements. The first COP of the UNFCCC took place in 1995. The parties have met once every year since to discuss further developments and initiatives surrounding climate change. At COP 1, it was agreed that there needed to be a mechanism to accelerate actions toward mitigating climate change. This idea culminated in a signed document when in 1997, at COP 3 in Kyoto, Japan, more than 150 nation participants signed the Kyoto Protocol. It keeps track of emission reduction through national measures. It also creates three market-based mechanisms to help countries meet their targets. First, there is international emissions trading, which is the concept that countries who do not use all of their emissions allowance can trade with other countries who overspent their allowance. Second, the CDM allows countries to develop an emission-reduction project in a developing country. This project can earn the initiating country a certified emissions reduction (CER) credit, and each is an addition ton of carbon dioxide emission. Third, the joint implementation mechanism allows a developed country to implement an emission-reduction or Chapter 4| 109 emission-removal project in another developed country, and each project earns one emission reduction unit, also equivalent to one ton of carbon dioxide emission. The Protocol called for binding limits on emissions for developed, but not for developing, countries. Because developing countries were not required to act, although the U.S. signed the Protocol, it never ratified it and ultimately pulled out. Other countries did ratify it and the Protocol went into force in 2005 (EESI, 2013). Peru is an early signatory of the Kyoto Protocol, having signed it in 1998 and ratified it in 2002 (UN Climate Change, 2014c). Although the Kyoto Protocol is seen as not very effective because only 83 of 192 parties have signed onto it, it created several new mechanisms to combat climate change, such as an emission trading scheme and setting emission reduction targets. The Protocol was originally set to expire in 2012, so in 2012 at COP 18 in Doha, Qatar, countries agreed to extend its life until 2020. However, more large economies dropped out, including Russia, Japan, and New Zealand. It was obvious by this time that the Kyoto Protocol was faltering, and intermediate plans were made. Finally, in 2015 at COP 21 in Paris, the Paris Agreement was reached, which had binding procedural commitments but nonbinding INDC through which each country can determine its goals for itself (C2ES, 2018). These international meetings and agreements show that the global community since the early 1990s has seen the importance of dealing with climate change issues. The most pressing concern has been to stabilize greenhouse gas emissions and then to reduce them. The agreements have grown progressively more aggressive as time went on. It started with the UNFCCC, which had no binding terms but set the principles for climate change mitigation and developed procedures for future, more obligatory agreements. The Kyoto Protocol made the Chapter 4| 110 actions more stringent but was only binding for developed and not for developing countries. The Paris Agreement is the most comprehensive and stringent of the climate agreements that aim to make both developed and developing countries more accountable in their greenhouse gas emissions. Although the U.S. did not ratify the Kyoto Protocol or the Paris Agreement, the global momentum is now strong enough such that countries that have signed will continue to move forward with the Agreement, even without the U.S. As of 2017, 172 of 197 Parties to the Convention have ratified the Agreement. These agreements, in discussing curbing emissions, also discuss using renewable energy technology and reducing fossil fuel consumption as ways to reduce emissions. Through all of these meetings, Peru has been an active participant and observer of the changes taking place in the international dialogue. It served in the Subsidiary Body for Implementation (SBI) within the conferences in the role of rapporteur from 1995 to 1998, with the help of Ms. Patricia Iturregui Byrne. At COP 19 in Poland, Jorge Voto-Bernales of Peru was one of the vice-presidents of the conference. Its leadership culminated in 2014, when Peru hosted COP 20 in Lima, where the then-Prime Minister of the Environment, Manuel Pulgar-Vidal, was president of the conference. Peruvians have also continued to serve in other roles; between 2013 and 2016, Tania Zamora Ramos served as an expert in the Consultative Group for the Latin America and Carribean region (UN Climate Change, 2017). Not only was Peru aware of the dialogue surrounding climate change and its mitigation, its leadership position gave it the capacity to even shape this dialogue. Peru has been an active member and leader in these international conferences from the start. Global norm change - Market changes in the 1990s and 2000s Chapter 4| 111 As renewable energy technologies became more advanced and well-known, more investment poured in to expand the sector. Globally, investment in renewable energy technologies has increased every year. Figure 5 shows global new investment in renewable energy, separated by world total, developed, and developing countries. The top line shows the world total. There has been an overall steady increase with a few dips. The second line shows investment for developed countries. Finally, the third and lowest line represents new investments in developing countries. Overall, there has been an increasing trend in both developing and developed countries to invest more in renewable energy. As can be seen from Figure 5, in the years preceding 2008, there was Figure 5: Global New Investment in Renewable Energy – World, Developed, and Developing Countries 0 50 100 150 200 250 300 350 Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $BN Year Global New Investment in Renewable Energy – World, Developed, and Developing Countries World Developed Developing Sources: FS-UNEP & BNEF, 2017, p. 12: REN21, 2016, p. 99 Chapter 4| 112 a large trend toward investing in renewable energy technology. Peru, like the rest of the world, was aware of this trend, and some players in society wanted to jump on this bandwagon. Figure 5 also shows that the years preceding 2008 saw heavy growth in investment for renewable energy. From 2004 to 2005, there was a 55% growth in new investments. From 2005 to 2006, there was a 55% growth in new investment. From 2006 to 2007, there was a 41% increase in new investments. These were heavy investment years for renewable energy, and it gave the appearance that there was a strong, global trend in investment. Although the growth in new investment has gone up and down over the years, there have been new investments every year. Figure 6: Installed Capacity of Renewable Energy (World Total) 500000 700000 900000 1100000 1300000 1500000 1700000 1900000 2100000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 MW Year Installed Capacity of Renewable Energy (World Total) Source: IRENA, 2018 Chapter 4| 113 Figure 6 shows the total installed capacity of renewable energy in the world. It shows that since the year 2000, the installed capacity has been increasing exponentially every year. Figure 7 shows the electricity generation from renewable energy in the world (IRENA, 2018). Aside from 2000 to 2001, renewable energy has been increasing in presence within the electricity sector. All of these graphs show that there is a growing market interest in renewable energy. In 2008, of course, Peruvians did not know for sure that the renewable energy phenomenon would keep growing. However, some actors in society saw the investment pattern in the years prior to 2008 and decided to pursue this trend as well. If Peru did not begin to use renewable energy, it would be left behind other countries that were able to make the transition. It faced Figure 7: Electricity Generation from Renewable Energy (World Total) 2500000 3000000 3500000 4000000 4500000 5000000 5500000 6000000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GWh Year Electricity Generation from Renewable Energy (World Total) Source: IRENA, 2018 Chapter 4| 114 market pressure, as it risked missing out on a lucrative new market. It also faced political pressure, as more countries around the world and in the more immediate Latin American region began to concern themselves with climate change and signed onto agreements that would help mitigate its effects, including by using more renewable energy. Interested Domestic Actors “So then, this arose as part of a wave, a trend, that was taking place in the world, that extended over all countries that had problems with energy but did not extend to the United States nor China. Peru did not need it, but Peru entered [the renewable energy trend] because of a few interested players, not because it was a national consensus or anything like that” (Butron, Interview: 16 May 2017). Although still not a national consensus, the few interested parties in Peru were growing in numbers. These international developments had real institutional changes within Peru. After the Earth Summit and signing of the UNFCCC, Peru created the National Commission on Climate Change (CNCC) in 1993. Its purpose was to implement the goals of the UNFCCC. In 2009, Peru created MINAM, and the CNCC was subsumed under the authority of MINAM (Observatorio de Cambio Climático, 2012). Additionally, Peru created the National Council of the Environment (CONAM) in 1994 (Law 26410). CONAM was established to be the premier institutional authority on national policies related to the environment. Its responsibility is to plan, promote, coordinate, control, and oversee the environment in Peru. It was to work with the legislature to pass binding policies about the environment. After Peru ratified the Kyoto Protocol in 2002, it created the National Strategy of Climate Change in 2003. In this plan, Strategy Objective Seven speaks of technologies that will alleviate Chapter 4| 115 the effects of climate change and adequately promote those. Objective 7.3 is to promote the utilization of clean, appropriate, and adequate technologies that will help to mitigate and adapt to the adverse effects of climate change. Objective 7.4 is to promote the use of renewable sources of energy (SD 086-2003-PCM). This shows that at this time, the Peruvian government already views technologies that use renewable sources of energy as an important part of the package of strategies necessary in responding to climate change. Given that Peru is a signatory to many international agreements on climate change, and had agreed to reduce its greenhouse gas emissions, using more renewable energy technologies was aligned with these international commitments. CONCYTEC is another public institution whose responsibilities expanded to include renewable energy issues. CONCYTEC works to promote the state’s goals in science and technology. In the early 2000s, it collaborated with universities, NGOs, governmental agencies, and international organizations to promote the use of cleaner technologies in small and medium enterprises (SMEs). It collaborated with the UN Environment Program (UNEP) in the implementation of the Technological Transfer Network (TTN) and the Horizontal Cooperation Program on Cleaner Technology and Renewable Energy. It also facilitated projects of other international organizations, such as the Organization of American States (OAS) and the Global Environmental Facility (GEF) to help SMEs adopt cleaner technologies (Castro Aponte, 2013, p. 174). The Center of Energy and Environmental Conservation (CENERGIA) was created in 1985 as an association between companies and institutions in both public and private sectors interested in improving energy efficiency in Peru. In 1994, after the UNFCCC, its mission expanded to include environmental conservation and promote renewable energy technologies (CENERGIA, 2018). Chapter 4| 116 Domestic institutions were working on projects to promote renewable energy technology use in the public and private sectors. Universities in Peru had long recognized the importance of renewable energy and formed programs to study it and its corresponding technologies. Interest in Peru in alternative energies began in the 1970s, largely driven by the OPEC oil crisis in 1973. This event caused Peru to realize that it needed to diversify its energy sources. As a result, several universities created research programs designed to investigate alternative energies. The Institute of Applications of Solar Energy (INAES) was created in 1972 at the National University of Huamanga in Ayacucho (later renamed Research Institute on the Applications of Natural Energies, INAEN). Around the same time, the Center of Research and Promotion of Non-Conventional Energies (CIPENC) was formed at the National University of Cajamarca. The National University of Engineering in Lima had various groups within its Institute of Energy, which was created in 1962 and began to research renewable energy in 1970s. In 1980, the National University of Engineering created a minor degree in solar energy. The Institute of Technologic, Industrial, and Policy Research was created in 1970 as an independent institute by the Ministry of Industry and Commerce, and its function was to help develop tools so that the country could benefit from renewable energies (this group was dissolved in 1980) (Horn, 2017). All of these existing institutions experienced renewed interest as the climate change debate became more heated. While before the purpose for this research was energy diversification, it was now to mitigate climate change. After the UNFCCC, the National University of Engineering created the Center of Renewable Energies (CER-UNI). The Pontifical Catholic University of Peru has the Support Group to the Rural Sector, which develops projects for sustainable development related to energy, Chapter 4| 117 water, agriculture, and housing since 1992. It focuses on technologies that use renewable energy sources such as biomass, wind, water, and solar (Grupo Rural, 2018). This group continued its operation within the Institute of Sciences on Nature, Land, and Renewable Energy when this institute was formed in 2011 (INTE-PUCP, 2018). Aside from university-affiliated organizations, professional and private organizations related to renewable energy also emerged during this time. The Peruvian Association of Solar Energy (APES) was created in 1981. APES began organizing a biannual symposium on solar energy, called the Peruvian Symposium on Solar Energy, since 1986 (Horn, 2017). APEGER, mentioned earlier, began to become politically involved in the 1990s and 2000s. NGOs began to crop up in Peru that worked to promote sustainable development using renewable energy technologies. Energizing Development (Endev) facilitates rural lighting and electrification through solar energy, grid connections, improved cookstoves, and ovens. It first started operations in Peru in 2007 (Endev | Peru, 2017). Practical Action, which uses many types of renewable energy technologies with the intent to eradicate poverty in rural areas, opened an office in Peru in 1985 (Soluciones Practicas, 2017). Light up the World (LUTW) works to bring electricity to rural communities using renewable energy technology. It started operation in Peru in 2004 and opened an official office there in 2010 (LUTW, 2018). Social enterprises also arose, but similar to NGOs, these mainly tackled rural electrification issues. In 2009, PowerMundo, which aims to bring electricity to rural citizens, began its operation in Peru (CNN, 2009). Although their efforts are necessary and helpful, their efforts were still limited without government support. Chapter 4| 118 With so much academic and professional interest, the First National Reunion of Researchers on Solar Energy took place in 1976, organized by INAEN in Ayacucho. Finally, the First Annual Peruvian-Italian Seminar on New Sources of Energy and Energy Development took place in 1981. Information about renewable energy circulated worldwide, reaching academic and social circles in Peru. Peruvians from within Peru also sought out more information. Some also traveled abroad to learn more about renewable energy (Novoa, Interview: 4 August 2017). International organizations in which Peru participates were also media through which Peru received information about best practices in other countries. For example, the Iberoamerican Association of Regulatory Entities of Energy (ARIAE) is an organization comprising Spain, Portugal, and most Latin American countries and convenes energy regulators of these countries in annual conferences and other events to share best practices and concerns (2018). The countries that Peruvians most looked to in terms of renewable energy policy were Germany, Spain, and Brazil, and to a smaller degree, the U.S. Seeing that Peru was highly dependent on oil and natural gas, some domestic actors began to see renewable energy as a viable option for Peru’s future to safeguard it from energy collapse. Overall, Peru had small splinters of groups within political institutions and civil society that were interested in renewable energy throughout the 1970s and 80s. Universities began to create programs to study it, especially after the 1973 oil crisis. There were also various conferences related to renewable energy taking place throughout the country. However, these efforts remained small. Participation in international climate talks reinvigorated the domestic interest in renewable energy in Peru. There was a growing group of people, especially educated Chapter 4| 119 elites, in Peru that became more interested in the question of renewable energy use. Some of these people worked within Peru’s ministries or had access to political elites to influence politics. However, before 2008, there was still not enough political will and opportunity to pass a major policy for renewable energy. Conclusion International developments regarding climate change and renewable energy had a huge influence on Peru’s civil society. While market considerations remained important, environmental issues also rose in prominence for Peruvian political and civil society (Tamayo, Interview: 30 March 2017). Its effect was to foment interest within Peru’s civil society and political institutions for renewable energy, even though the general feeling among those who work in the energy, especially the electricity sector, was hostility towards it. Interest increased because there were many renewable energy technology options available, some of which were appropriate to work within Peru’s geography and climate. Information about renewable energy and its possible positive effect on climate change also increased, making people more aware of the issue. There were also global norm changes. Politically, more and more countries began to believe that climate change was a real and important future problem, and they signed international agreements such as the UNFCCC and the Kyoto Protocol and participated in annual COPs to coordinate efforts. These international agreements compelled many countries to pass domestic policies that helped advance investment. Economically, private-sector investors also began to invest more in renewable energy companies and projects all over the world, in part due to favorable policies worldwide, leading to its wider use and familiarity. As these international Chapter 4| 120 developments were taking place, Peruvians also took interest and created political institutions to encourage more renewable energy technology use, research programs within universities, professional organizations, foundations, NGOs, social enterprises, and informational conferences. However, despite broad attention across the country, these interested parties were not able to sway enough political support to pass any major policy on renewable energy use. They were too divided. Gamio, former Vice Minister of Energy in Peru, explains that the issue then was “the lack of political will — because people live frozen in time. People are more reactive. To be human is to reject change and keep at what is going on” (Interview: 20 March 2017). Producers using renewable energy could still not sell on the electricity grid, which is the way that the vast majority of Peruvians receive their electricity. Therefore, a large and highly lucrative market was inaccessible to renewable energy producers. The political situation was still too unfavorable to renewable energy, and renewable energy supporters were there but not united and strong enough to induce any major policy change. Many negative judgments against renewable energy still existed. “First, I think there are many prejudices against renewable energy. There's a lot of ignorance, people who believe that it is very expensive, that it doesn’t work very well, that it is difficult. On the other side there’s a lot of economic interest. The gas lobby here is very powerful, they have a lot of money, and they have opposed tenaciously against any expansion of renewable energy in Peru” (Novoa, Interview: 4 August 2017). These misperceptions keep political elites from seriously considering renewable energy options. But all of this changed with LD1002, which is the first and, to date, only policy that allows renewable energy consumption in the mainstream market. What factor within Peru changed that Chapter 4| 121 allowed for this policy to pass? What created this policy window? These are the topics that will be discussed in the following chapter. Chapter 5| 122 Chapter 5. Circuit Breaking with a Policy Window – U.S.-Peru Trade Deal and the Legislative Decree “The story of why Peru began to invest in nonconventional renewable energy, that is to say wind, solar, and all of those, was not because of a rational decision, or an energy strategy, or because Peru needed energy or energy security; it was because of a particular interest.” (Butron, Interview: 16 May 2017) As noted in the previous chapter, Peru was a signatory to many international agreements on climate change. Domestic interest in promoting renewable energy existed because of the availability of more information, technological solutions, and global norm changes in politics and the market in favor of renewable energy. However, although Peru professed much support, there was little concrete action. “There are conversations, but there is no action. This is because in the world there is so much support for renewable energy that it [the Peruvian government] wants to have the appearance of supporting it” (Gamio, Interview: 20 March 2017). This demonstrative support belies the government’s own internal divisions. “This leadership of ‘pro’ came from the Ministry of the Environment, and the leadership of ‘against’ came from the Ministry of Energy. And between the two they do not talk to each other. Between the two they fight. Openly” (Novoa, Interview: 4 August 2017). Peru was at an impasse, with the opposition to renewable energy having the upper hand. The policy window that renewable energy supporters long awaited came in the form of a trade deal with the U.S., which shifted the prevailing balance of power. In order to more quickly meet the legal requirements of the trade deal, the Peruvian congress gave the executive branch legislative authority. The trade deal, among other topics, pushed for better environmental Chapter 5| 123 protection. Actors within the executive branch who were supportive of renewable energy took advantage of power newly concentrated in their hands to pass Peru’s first significant policy that helps large-scale renewable energy production. By tracing the process of how this law came to pass despite entrenched opposition, this chapter shows that an opportunity window is really a shift in the balance of power, in this case caused by an exogenous factor. Domestic actors who were prepared took advantage of this window of opportunity and pushed a controversial policy through the legislative system. The chapter explains this development in the following manner. First, it discusses the Peru Trade Promotion Agreement with the U.S., which coerced Peru to take environmental protection more seriously and compelled the congress to delegate legislative power to the executive branch in order to quickly comply with the PTPA terms. After explaining the importance of this trade deal for Peru, section two explains Peru’s legislative process to show how congress’ decision allocated power into the executive branch’s hands. The third section explains the shift in power that occurred with this decision. Section four details how key actors within MINEM and civil society were prepared to strike and took advantage of this window of opportunity to pass LD 1002 without much notice or opposition. Section five explains how this maneuver left opponents with too little time and recourse to eliminate the policy after it passed. These discussions set up the chapter for the second half, which analyzes LD 1002. The sixth section begins by discussing the terms of LD 1002 and its justification. The seventh section talks about its critiques. The final section concludes with some remarks about how this analysis adds to knowledge about political strategies and policy windows. Chapter 5| 124 Peru Trade Promotion Agreement (PTPA) with the U.S. While global developments were happening rapidly in the renewable energy sector, Peru had more immediate economic concerns: it was negotiating its first permanent trade deal with the U.S. This deal required Peru to make many institutional changes quickly. The trade agreement would not enter into force until both parties “have completed their legal requirements or on such other date as the Parties may agree” (USTR, 2006, Article 23.4). Once both parties have notified the other that they have completed their obligations, the PTPA would enter into force 60 days from the receipt of notice. Among many other issues, the PTPA required Peru to improve its institutions for environmental protection. As will be seen later, renewable energy supporters took advantage of this trade deal to advance their own policy agenda. Before moving to that discussion, however, this section explains the PTPA and why it was important for both the U.S. and Peru. Although the U.S. and Peru did not have a formal trade agreement prior to 1991, the U.S. has long been an important trade partner. In the 1980s, the U.S. was Peru’s most valuable market. 33.5% of Peru’s exports went to the U.S., while 39.7% of Peru’s imports came from the U.S. (Lengyel & Ventura-Dias, 2004, p. 170). During the 1980s, a left-wing government governed Peru and held ownership of many companies. This, along with clear hostility for foreign firms and domestic economic decline, kept foreign direct investment into the country low. The U.S. was one of the few countries that maintained a steady trade relationship with Peru and accepted the risk of doing business there despite not having any formal trade protection agreement. 7 7 The US did not sign free trade agreements (FTA) until after the North American Free Trade Agreement (NAFTA) was signed in 1994. It signed onto more FTAs after that. Chapter 5| 125 In 1991, the U.S. signed the Andean Trade Preference Act (ATPA) with Peru, Bolivia, Ecuador, and Colombia, which gave these countries tariff privileges for certain Andean products. The U.S.’s justification was that an increase in trade with these countries would allow their governments to better resist drug trafficking and strengthen domestic industries. In 2002, this preferential treatment was expanded under the Andean Trade Promotion and Drug Eradication Act (ATPDEA), enlarging the list of duty-free products sold in the U.S. from Andean countries to about 5,600 (USTR, 2005; USCBP, 2017). The ATPDEA was set to expire on December 31, 2006. Both the ATPA and the ATPDEA were available for renewal, but this would have required both the U.S. Congress’ and the president’s approval each time, which was inconvenient (OAS, 2017). In November of 2003, rather than seeking to renew the ATPDEA, the U.S. announced its intention to negotiate permanent trade deals with each of the Andean countries (Ministerio de Comercio Exterior y Turismo, 2011). 8 This was likely because the U.S. saw that since 1991, when the first trade agreement was signed with Andean countries, U.S. exports grew from USD 3.8 billion to reach USD 11.6 billion in 2006. Imports grew from USD 5.0 billion in 1991 to USD 22.5 billion in 2006 (USTR, 2007a, p.7). The trade agreement with Andean countries was clearly 8 Bolivia was the only Andean country that did not seek to sign a bilateral trade agreement with the U.S. This was due, in part, to growing resentment toward neoliberalism and a developing indigenous identity in people who saw themselves deprived of their rights because of neoliberalism. This sentiment came to a head when, in 2003, large protests broke out when the then-president, Gonzalo “Goni” Sanchez de Lozada, issued plans to privatize and sell Bolivia’s natural gas to foreign markets, much of which would be to the U.S. Bolivians argued that the president was selling gas at a below-market price, too much of the profit would go to private companies, and that Bolivians would not see much of the profit. Sanchez de Lozada was forced to resign in 2003, ushering in the presidency of Evo Morales and his socialist party, the Movement for Socialism (MAS) in 2005. Morales nationalized many of Bolivia’s largest sectors, including water and hydrocarbons. In 2006, Bolivia signed the Bolivarian Alternative for the Americas, a pact with Venezuela and Cuba to reject U.S.-backed free trade and to form a separate version of regional commerce and cooperation based on socialism (Smith & Obiko Pearson, 2006). Chapter 5| 126 beneficial to the U.S. and something that it wanted to continue. By passing a permanent trade agreement, the U.S. would not have to go through the onerous process of renewing the ATPA or the ATPDEA again. 9 Peru was also eager for a successful negotiation since the U.S. was one of Peru’s most important trade allies. Both the U.S. and Peru wanted to come to an agreement with the PTPA because it would have benefited trade for both countries, albeit in different ways. The PTPA was beneficial to U.S. commerce because it made the Peruvian market duty-free for many American products. It would have made it especially easier for U.S. agricultural and textile products to be sold in Peru. Additionally, it would have provided more protection for U.S. investors, protected intellectual property rights, safeguarded labor rights, facilitated e-commerce, and provided a mechanism to settle disputes (USTR, 2007b). Peru sought this trade agreement because it would open up the U.S. market to many Peruvian goods, duty-free. Peru wanted to maintain access to one of the largest economies in the world as it had under the ATPDEA and to maintain this preferential status permanently. The U.S. has long been one of Peru’s primary export destinations, especially for minerals, metals, textiles, fishery and related products, crude oil, coffee, cocoa, craftwork, paprika, artichoke, grapes, mango, oranges, and asparagus. Peru also wanted to attract more foreign and domestic 9 Although they were effective in increasing trade, the ATPA and the ATPDEA failed to halt drug flows. In its seventh report to the U.S. Congress on the progress of the ATPA, the Office of the United States Trade Representative writes, “This report also found that the ATPA/ATPDEA continues to have a positive (albeit small and indirect) effect on drug-crop eradication and crop substitution, as well as job growth in export-oriented industries, in the Andean region” (USTR, 2013, p. 5). Although the trade deal was limited in its effectiveness in reducing drug trafficking, it allowed the U.S. and its partners to realize the benefits of promoting bilateral trade for other reasons, especially increasing market access and growth. Chapter 5| 127 investment. This agreement was believed to bring better, cheaper products into Peru. The PTPA also guaranteed Peruvian investor rights and protection in the U.S. and created clear procedures should a dispute arise (Ministerio de Comercio Exterior y Turismo, 2011). Overall, both countries would have freer access to each other’s markets, with clearer, broader, and more permanent terms than the agreements that had existed between the two countries. Of the issues that were discussed during the numerous rounds of negotiations, one of the enduring topics was that of environmental protection. One of the declarations in the PTPA’s Preamble is to “IMPLEMENT [sic] this Agreement in a manner consistent with environmental protection and conservation, promote sustainable development, and strengthen their cooperation on environmental matters” (USTR, 2006). Gina Cady, Deputy Director for Bilateral Environment Program of the United States Agency for International Development (USAID), explains, “This was the first time the U.S. put stringent environmental requirements in a trade agreement, so it is a litmus test to see if trade agreements actually work in promoting environmental terms” (Cady, Interview: 6 March 2017). In this respect, the U.S. requested that Peru enact laws to protect its environmental endowments, especially its forests and biodiversity. Although exact laws and enforcement procedures would be up to Peru’s discretion, once these laws were established, neither Peru nor the U.S. would lower their environmental standards to increase trade. Furthermore, the PTPA listed international agreements that both countries are obligated to uphold. If one country violated environmental terms within the PTPA or its other international agreements, that country would be subject to investigation and further repercussions (USTR, 2006, Ch. 18). During the negotiation rounds, the Andean countries raised concerns that it would be unfair if the U.S. imposed its own environmental standards on them, Chapter 5| 128 considering that they are at a different level of development. To this matter, the U.S. replied that these standards would be such that they would not be trade barriers in disguise (Ministerio de Comercio Exterior y Turismo, 2004, Round 2, p. 31). The environmental negotiations did not talk about renewable energy but mainly focused on protecting the existing forests and wildlife to make sure that these would not be harmed due to future trade. Negotiations began in 2004. The purpose of the early negotiation rounds was to exchange information, clarify tasks to accomplish and set a timetable for them, and to discuss a few roundtable topics more specifically. The roundtables included market access, rules of commerce, agriculture, health codes, services, financial sector, investment, public sector purchases, intellectual property, market competition, labor rights, environment, procedures to resolve disputes, and capacity building. The later rounds sought to agree on the trade text that the U.S. proposed, agree on a list of export and import products and their tariff rates, and finalize the terms for each of the roundtable topics. Negotiations took place almost every month between May 2004 and December 2005 in large cities that alternated between the U.S., Ecuador, Peru, and Colombia. Each round lasted between two to nine days (Ministerio de Comercio Exterior y Turismo, 2004). After thirteen rounds of negotiations, the PTPA was signed in Washington, D.C. in 2006 (Ministerio de Comercio Exterior y Turismo, 2011). The period after its signing, Peru went into a frenzy to implement the many requirements that the PTPA demanded since the agreement would not go into effect until both the U.S. and Peru had completed their legal obligations as stated in the agreement. Given the desire to fulfill these requirements quickly, the Peruvian congress delegated some of its legislative power to the executive branch in order to more quickly Chapter 5| 129 pass laws and make the necessary changes. The rationale for why congress would want to delegate its legislative power is explained in the next section. Legislative Process in Peru Immediately after signing the PTPA, the Peruvian government entered into a crucial period during which it was required to make many institutional and policy changes if it wanted the PTPA to take effect. Because of the need to maneuver quickly, the Peruvian congress called upon a special power that it has when fast action is necessary: It delegated legislative power to the executive branch. Most notably, it was the LD that allowed for Peru’s first major renewable energy policy to pass. This section explains the regular policy-making process and other, extraordinary policy instruments that are allowed within the Peruvian system. Passing a national law in Peru is a multi-step and time-consuming procedure. Laws generally start when congress members or the president propose a bill. Certain citizens or institutions can propose a bill as well, but this is rare. Once legal language is received, the proposal is screened to make sure it is in the correct format, registered, and given a number. Within thirty days of registration, policy committees must submit an analysis of the bill with a favorable or unfavorable judgment. If unfavorable, the bill is archived and “dies” there. If favorable, the bill moves onto the congress floor to be debated openly by all 130 congress members. If congress disapproves, the bill is archived and dies. If congress approves, the bill passes onto the desk of the president (Congreso Perú, 2018). Once the president receives the approved bill, he or she has 15 business days from receipt of the bill to sign it. If the president signs it, the bill becomes law. The president can also return the bill with comments, at which point congress reviews them, makes amendments if it deems Chapter 5| 130 fitting, and again passes the bill to the president. If the president does not sign or provide any comments within 15 days of receipt, then the president of congress passes and signs the bill into law. Once the law is passed, it is published in the newspaper El Peruano. 10 The law takes effect the day after publication or the start date specified in the law (Congreso Perú, 2018). This multi-step process is designed to allow for policies to be deliberated and passed as democratically as possible. The various check points — policy committee, budget committee, congress floor, and the president’s desk — allow different political elites to review and voice their concerns about each policy. Debates on the congress floor become public record. At each stage of deliberation, the bill may be subjected to amendments before it can move forward in the process. Butron criticizes Peru’s legislative process, stating that, “when a bill enters, it leaves the congress completely different because they [congress] do not understand anything” (Interview: 16 May 2017). This is a risk for any bill in any congress. The reason for this meticulous vetting is so that the bill that becomes a policy can be the best designed that it can be. However, with so many cooks in the kitchen, the original supporters are many times left unsatisfied because of how different the final policy looks compared to its first introduction. This policy procedure serves Peru well enough for its everyday, non-urgent issues, but it was not going to be adequate in meeting the PTPA’s hundreds of demands quickly. When voluminous, fast policy-making is needed, congress can delegate legislative power to the executive branch, whose hierarchical structure can make decisions more quickly compared to 10 El Peruano is Peru’s official national daily newspaper. It was founded in 1825 by the Latin American revolutionist Simon Bolivar. Aside from publishing daily interesting news stories of national interest, it is also where all state institutions, including congress, ministries, and industry regulators, are required to publish all national-level laws and regulations. It focuses on political and economic reporting. Chapter 5| 131 congress’ egalitarian and deliberative nature. Congress entrusts its powers to the executive branch by passing a law to authorize this. Congress must specify in this law the specific subject matter of the laws that the executive branch can pass and the length of time that the executive branch has this power. Congress cannot delegate legislative power to the executive branch related to constitutional reforms, international treaties, organic laws, budgetary laws, and laws affecting the National Account. Once granted this authority, the president can pass what are called LDs, which have the same power as any other law. The decree takes effect immediately or according to its stipulated start date. This kind of decree does not require prior debate in congress. The president is required to notify congress within three days of each LD he or she passes (Republica del Peru, 2016, Constitution, Article 104). The decree is reviewed by the Commission of the Constitution and Regulations within congress, which certifies that it does not violate rights given in the Peruvian Constitution or the mandate granted by congress. Within ten days, this commission is required to give a recommendation — whether the decree aligns with or violates existing constitutional laws and/or the authorizing legislation (Congreso Perú, 2014). If the decree is deemed legal, then it remains enforceable law. If the commission recommends repealing the decree, then congress must hold a vote where the repeal or possible amendments can be debated upon by the whole congress (Gurmendi, Email: 7 February 2018). As can be seen, the process of passing LDs is much easier and faster than repealing a decree. Congress can also delegate power to the executive branch by allowing it to pass other “special” legislative instruments called the urgent decree and the supreme decree. When the state is deemed to be in an extraordinary period where the economy needs fast fixes, congress allows the president to pass urgent decrees related to the economy and finance, which have the Chapter 5| 132 effect of law. The president must then notify the congress of this action, and congress can modify or repeal the urgent decree (Republica del Peru, 2016, Constitution, Article 118, Section 19). The president can also pass supreme decrees, which modifies the procedural rules for sectors within the government, such as ministries or supervisory bodies (Laura Ortiz, 2010). Among the various ways that laws can be made in Peru, the most democratic way of passing a law is through the regular legislative process. This process requires that laws be analyzed by committees, debated on the congress floor, and approved by the president. This debate is kept as part of public record. The drawback is that this process is lengthy since the bill must go through several rounds of review and may be revised in the meantime. Committees or congress can reject the bill at any stage of analysis, relegating it to the archives. In comparison, LDs, urgent decrees, and supreme decrees are faster policy-making tools. Urgent decrees are powerful, but they are narrowed to only economics or finance-related issues and are subjected to revisions by congress. Supreme decrees are also narrow because they are only for changing how ministries and public-sector institutions function. Legislative decrees are political vehicles that put the most power into the president’s hands because they allow the executive branch to pass policies that fall under congress’s authorization, and this decree becomes law. Although the LD is also narrow because the allowed policies must fall under those that have congress’ authorization, sometimes these can be broadly interpreted. In the late 2000s, amidst negotiations of the PTPA, renewable energy supporters found the LD to be the exact policy instrument that they needed. Policy Window Opens for Renewable Energy Needless to say, the PTPA with the U.S. was highly important and became the Peruvian Chapter 5| 133 government’s priority. The whole government was frantic to meet the U.S.’s demands. The sooner Peru met its legal requirements, the sooner the PTPA would enter into force and both parties could enjoy the trade benefit that the PTPA affords. Because of this time pressure, congress, calling upon Article 104 of the Constitution that speaks of the LD, delegated some of its power to the executive branch so that it could pass policies quickly. Law 29157, Law that delegates to the Executive Power the power to legislate about various topics related to the implementation of the PTPA, including laws related to commerce; regulatory and institutional improvements; judicial administration; private investment; technological innovation; the promotion of employment and small- and medium-sized enterprises; strengthening of institutions related to the environment; and improving the competitiveness of agriculture. This law was to be in effect for 180 days starting January 1, 2008 — a window of six months. As stated above, Law 29157 put legislative power into the hands of the executive branch. Renewable energy proponents married renewable energy promotion with the PTPA requirement for environmental protection. This is not an unusual claim because this is also a connection generally made internationally. The idea is that countries can take on the issues of environmental protection and climate change by switching from fossil fuels to renewable energy. Therefore, a renewable energy policy would technically be an LD that was permissible under this law because it falls under encouraging commerce, private investment, technological innovation, employment, and environmental protection — areas that congress gave the executive branch the power to legislate through Law 29157 as they relate to the PTPA. Through a little bit of creative framing, renewable energy supporters within the executive branch took advantage of LDs related to the Chapter 5| 134 PTPA to pass a policy that they supported. Political Will Was Prepared The opportunity window may have opened, but what allowed policy opportunists to successfully seize the moment? It is a mixture of luck and preparation. It was fortuitous that renewable energy supporters were in a position of power at the right time. But more importantly, these actors had long prepared themselves should the opportunity present itself. To understand policy direction within MINEM, one must look past the minister and at the vice ministers. In Peru, the minister is a politician. He or she is great at political maneuverings but not as knowledgeable about technical aspects of policies. It is the vice ministers who are the most knowledgeable about their sector. Many past vice ministers of energy in Peru have served within OSINERGMIN, the energy regulator of Peru. For example, Edwin Quintanilla Acosta, who is the current Adviser to the Presidency of OSINERGMIN, worked in OSINERGMIN before he became vice minister; Arturo Vasquez Cordona was the manager for the Office of Policies and Economic Analysis (GPAE) in OSINERGMIN; and Raul Garcia Carpio, the current vice minister of energy in Peru, used to work in GPAE and later became an adviser to the leadership in MINEM. The vice minister at the time of LD 1002 was Pedro Gamio. Gamio had a long history working with development, climate, and energy issues. In addition to having served as the Vice Minister of Energy, he had also served as the Director of the Latin America Region within the Global Village Energy Partnership. He was the principal consultant for the Energy and Environment Fund for the Andean region. He had consulted for the World Bank, SNV, the Inter-American Development Bank (IADP), the UNDP, German Society for International Cooperation (GIZ), World Wildlife Fund, the Agency of Environmental Evaluation Chapter 5| 135 and Enforcement (OEFA), and the National Center of Strategic Planning (CEPLAN) on materials related to energy and the environment. He also teaches at the Pontifical Catholic University in Peru (PUCP, 2018). He has had a long interest in promoting renewable energy and protecting the environment. The Minister of Energy at this time was Juan Valdivia Romero. Gamio served as his vice minister from 2006 to 2008. Immediately prior to his appointment as vice minister, Gamio was a policy analyst in the Committee on Energy and Mines within the Peruvian congress (El Comercio, 2008). In 2007, Gamio was given authority to sign an inter-institutional cooperation agreement with CONAM in order to plan how to best manage the Global Environment Fund that Peru received from the UN under the UNFCCC (Ministerial Resolution 195-2007-MEM/DM). With this authority, Gamio created a task force to study how renewable energy could help Peru. The task force studied the experiences of other countries, including those of Germany (Gamio, Email: 11 December 2017), and included the participation of CONAM and other relevant groups in society. One of these groups was APEGER, whose president was Alfredo Novoa. The goal, among others, was to study how renewable energy could be given a presence in Peru’s energy market. “The principal motivation was energy security within the concept of capacity building and resilience against climate change. Peru is a very vulnerable country. With renewable energy, we gain diverse clean energy sources and attain new, decentralized infrastructure. This is with costs that grow increasingly more competitive and without polluting,” writes Gamio (Email: 11 December 2017). Novoa himself had worked in Peru’s embassy in Germany and served on various boards in Germany, so he was very familiar with Germany’s experiences and its Chapter 5| 136 intentions for an energy transition program, Energiewende (Novoa, Interview: 4 August 2017). 11 Gamio, Novoa, and others involved in this legislation also had extensive experience abroad. They knew that there were many international companies who would be interested in investing in Peru, if only they had the opportunity. “There are many companies, such as manufacturers, energy operators in other countries, above all in the United States and Europe, who are always interested in expanding their markets…companies such as Siemens, multinationals, General Electric, these types of companies, and I have contact with these companies, and they were interested in coming to Peru and bringing their investment and generating through wind parks or solar parks. There was a business interest that we had to take advantage of” (Novoa, Interview: 4 August 2017). Novoa and others in APEGER ultimately helped draft the language of what would eventually become LD 1002. The circumstances surrounding what happened is best explained by Gamio himself: “At first we tried to propose a bill through congress, but we did not receive an adequate response. We ran the risk that the bill would be changed without technical support in the various instances of deliberation.” Supposedly, there was a lobby that tried to stop the advancement of renewable energy. Gamio goes on to comment, “The country had just signed a treaty of free trade 11 Energiewende is Germany’s program to transform its entire energy sector to using only renewable energy sources and be more energy efficient by 2050. Its purpose is to make Germany more energy independent, create jobs, boost the economy, and respond to climate change. Even before this program was implemented in 2010, Germany was already involved with many renewable energy efforts. For example, its first wind farm, which had 30 turbines, was built in 1987; it launched a thousand-roof program to help PV installations in 1990; and the Electricity Grid Feed Act was passed in 1991 that required all suppliers to purchase electricity from renewable sources and sell it on the electricity grid. Energiewende itself encompasses a span of policy plans that range from energy efficiency to storage and heating (Energiewende, 2018). Chapter 5| 137 agreement with the United States, and the executive branch had requested delegated powers from congress in order to modernize our polices and improve the competitiveness of the country. [Using this delegated power], the second LD that we passed is this promotional framework for renewable energy” (Email: 11 December 2017). Basically, with his task force, Gamio and his team learned about the benefits that renewable energy had brought to other countries. It also made sense for Peru because of its abundance of natural resources that are appropriate for renewable energy. “A consideration to pass this LD was the enormous potential that Peru had for renewable energy,” says Novoa (Interview: 4 August 2017). The task force initially tried to go through the formal policy channel, but doing so met with too much opposition. This method also ran the risk that the policy would be changed to something completely different or not substantiated by technical studies. However, like surfers in wait of a suitable wave, the players were prepared. They had drafted the policy with the language all ready to go. They were just waiting for the right wave to come that could push them all the way to shore. It is important to note, again, that the U.S. did not require Peru to pass such a law. The U.S. would have still signed the PTPA with Peru even if Peru did not pass a renewable energy policy. Renewable energy was not a required, hard ask in the negotiations with the U.S. “There was no demand, like the Paris Agreement, to reduce emission. You have to remember that at that time, the United States was not a signatory of the Kyoto Protocol, or Paris, or anything, so in itself it was not demanding of itself, so it did not demand this for the Free Trade Agreement either” (Butron, Interview: 16 May 2017). Renewable energy proponents, however, used this trade deal and the legislative power that it received as a window of opportunity to pass a policy Chapter 5| 138 that some people supported. Too Late to Oppose This policy window came when congress delegated legislative power to the executive branch. At this point, the relevant actors were already prepared and swiftly passed LD 1002. It was so fast that the opposition had little time to realize or react. It could not be debated upon in congress in the same way that other policies traveling through the formal channel of politics would have had to. It was the second LD that MINEM issued and passed once the executive branch received legislative power from congress. “Furthermore, it did not need the votes of congress. It was just something that the vice minister suggested to the minister, the minister thought it was a good idea and presented it to the president, and the president said OK, it looks good, it sounds good to have renewables in Peru. And there were groups of their friends who wanted to develop this, so they did not need more than an intervention of, in the extreme, three people: vice minister, minister, and the president…. There is not a mechanism to discuss a LD. There was also a rush to sign it so they can sign the treaty with the United States. And there is a post hoc control, where if congress does not like it, it can repeal it. But in the congress, no one was going to repeal something that sounded so nice like renewable energy” (Butron, Interview: 16 May 2017). The repeal process of a LD requires the participation of all of congress, open discussion, and a final vote. It is a much more burdensome process to repeal a decree than to pass one. Also, no politician at this time wanted to say that they did not support a policy that boosted the presence of renewable energy. There was one congressional session to decide on the final form of the text. Novoa took part in this session, which lasted five hours and the supporters of LD 1002 had to present Chapter 5| 139 evidence that this was a good and important decree in the scheme of the PTPA with the U.S. This was where they decided on the details and on the final text. But not all of congress was involved (Interview: 4 August 2017). With the power to pass LDs, the process of passing laws became lightning fast. In 2004, twelve LDs were passed. In 2005, zero decrees were passed. In 2006, the year that the PTPA was signed, ten LDs were passed. In 2007, 21 LDs were passed. In 2008, the executive branch passed 99 LDs under the power given to accommodate to the PTPA (Congreso Perú, 2017). These other LDs dealt with issues ranging from agriculture, finance, public projects, and private investment. Peru also took advantage of the PTPA to engage in a fever of institution building. Institutions were created, including MINAM, the National Authority of Civil Service (SERVIR), and the Supervisory Agency of Forestry and Wildlife (OSINFOR). The National Institute for the Defense of Free Competition and Protection of Intellectual Property, Ministry of Agriculture, Ministry of Economy and Finance, and the Ministry of Production were drastically reformed using LDs. The flurry ended in at the end of June 2008. In 2009, only one LD was passed (Congreso Perú, 2017). Around the time that LD 1002 was passed, 14 other LDs were also passed within a number of days (Congreso Perú, 2017). As Novoa says, "And on the other side there is also the element of surprise. That is to say, internally there is no enemy because no one expected it. This came out as an LD among many others, so this was not a very visible decree” (Interview: 4 August 2017). The supporters of LD 1002 took advantage of the fact that people were not paying attention to pass a policy that they supported that would not have been able to pass at any other time. LD 1002 slipped through the cracks among many other LDs, when opponents were not Chapter 5| 140 paying especial attention or expecting it. After LD 1002 was signed, the executive branch had to notify congress of the decree, but by that time it was already signed and would make its way to be implemented by the respected involved institutions as stipulated in the decree. “There is no politician in the world who would say they are against the environment, renewables, anti-pollution… So then all the politicians immediately accepted the law because they could not say no” (Butron, Interview: 16 May 2017). It is now permanently on Peru’s political agenda. There are many parties who want to abolish this law, but for the foreseeable future, this is not likely to happen. Legislative Decree 1002 – Framework Policy to Promote Investment in Renewable Energy Using these two authorities — legislative power and environmental protection — the executive branch passed LD 1002, Legislative decree to promote investment in electricity generation with the use of renewable energies, in 2008. The promoters of LD 1002 cite several reasons for its need. Peru was experiencing high growth in recent electricity demand. In 2006, demand grew by 8.3%, and in 2007, it grew by 10.8%. The trade agreement with the U.S. is expected to increase electricity demand even more. Because the need is high, it is better to meet future demands with clean energy sources rather than oil or natural gas, which pollute the environment. Renewable energy diversifies the energy matrix, increases energy security, and protects the environment, so it serves the public interest to pass policies that promote the proliferation of their use and the modification of policies that obstruct these incentives. Other cited benefits of this decree are that it encourages private investment, eliminates barriers to renewable energy investment, protects the environment, helps with global climate change efforts, and improves the Peruvian economy through investment and energy security. For these Chapter 5| 141 reasons, says supporters, it is necessary to enact incentives to promote investment in electricity generation, incentivize research and technology advancement, implement projects that qualify as Mechanisms of Clean Development, and obtain certification of carbon credits to be traded with industrialized countries that want to fulfill their Kyoto Protocol terms. In a memo to the president of the Council of Ministers explaining the motives of LD 1002, drafters also note that the global price for oil is high, which makes using oil for electricity production costly. Furthermore, they argue that the breakdown of natural gas pipelines and the resulting disruption of electricity production that occurred in January of 2008 are examples of future disruptions to the sector. As the national grid becomes more dependent on natural gas, these types of breakdowns show that it is necessary for the country to diversify its generation sources (Oficio No. 650-2008-DP/SCM sent on 24 of November 2008). In the policy design, the team chose an auction system to promote renewable energy because since 1993, the Peruvian government has wanted to take a back seat in the economy (Gamio, Interview: 20 March 2017). This tendency is in reaction to the previous nationalized system wherein the government owned many companies that ultimately ended up with high levels of debt. Since privatization began in 1992 under Fujimori, the Peruvian government has taken the stance that it would be a market promoter, but not a large market investor. 12 The 12 A promoter plays the role of facilitating the activities within a certain market, passing policies or regulations that will encourage growth. This entity tries to “change the rules of the game” to make it easier for a certain sector to develop. An investor actually devotes her money, capital, or other resources to an industry and largely plays within the given market. Using an analogy of a game, a promoter would be a game-maker who facilitates the game, while an investor is a player within the game. In the real market, one can be simultaneously a promoter and an investor. Chapter 5| 142 Peruvian government, after its experience of owning many industries in Peru and having to shoulder major losses, decided to take part in the market only in the role of promoter. An auction system, therefore, would allow for a competitive entry of private investors into the market but still permit the government to facilitate the process and vet companies that want to enter. The 5% goal was merely a number to open the door and get started. “Well, the 5% was just a number. It could have been 8%, or 3% or 10%. It was merely a figure that was not scientific but merely political. The idea was to begin. It was just to give a message… We open a tiny door so that in the future we can pass through a bigger door. But if we had said 20%, or 30%, there would have been major opposition. But with 5%, no one gave it much importance” (Novoa, Interview: 4 August 2017). The task force’s mentality was to start small. This strategy worked. After the decree was signed, the opposition did not take the law too seriously because the effects were thought to be minimal. The opposition could not have imagined everything that would follow afterward. LD 1002 does several things. First, LD 1002 establishes that the law will promote renewable energy for electricity production, not considering large hydroelectric plants. Qualified renewable energy sources include biomass, wind, solar, geothermal, tidal energy, and hydroelectric plants that are less than 20 MW. 13 Second, it establishes that the state will have as 13 In the memo to the Council of Ministers, drafters of LD 1002 explain that the decree chooses 20 MW as the limit for hydroelectric plants because the German Organization for Technical Cooperation (GTZ), now the Gesellschaft für Internationale Zusammenarbeit (GIZ), conducted a study in 1979 and found that there were about 90 possible projects of 20 MW in Peru. There would be fewer projects available if this limit were lower (President of the Council of Ministers, 2008). This justification to include 20 MW — a report by GTZ in 1979 — appears to be flimsy and was a haphazard allusion to any report just to back up this number. However, drafters needed to have a limit in their renewable energy definition for hydropower. Chapter 5| 143 its goal to produce 5% of its electricity from these renewable energy sources. Third, it charges MINEM with the task of updating this percentage every five years as it sees fit. MINEM is the entity in charge of promoting renewable energy sources, while regional governments are also allowed to promote its use within their own territories. Renewable energy producers have priority of dispatch. This means that if they feed into the grid, COES is required to use the electricity that they produced before resorting to the electricity that is produced from diesel, natural gas, or other nonrenewable sources. COES must also consider that the variable cost for renewable energy sources is USD 0. Generators are guaranteed a premium. They can sell their electricity at the current market price, but if the market price is below the contract price, then OSINERGMIN can readjust the cost for users so that these generators can receive their contracted price. They only have to pay the incremental incurred cost to use distribution lines (while other electricity producers pay a maintenance fee to use these lines). MINEM is in charge of setting the terms of the auction while OSINERGMIN conducts the auction. The difference between the contracted price and the market price is charged to the customers, and COES is in charge of collecting this amount and transferring it to renewable energy generators. OSINERGMIN is in charge of calculating and readjusting the costs of electricity prices for users due to renewable energy connection as well as the cost to connect to the grid. Renewable energy companies also have priority in connecting to transmission and distribution lines. LD 1002 also charges CONCYTEC with the responsibility of creating research programs and providing funding for the study of renewable energy technology. CONCYTEC is allowed to fund universities, technical institutions, and development organizations that specialize in this field. LD Chapter 5| 144 1002 also requires MINEM to develop a National Plan of Renewable Energy, which would outline the strategies, programs, and projects that it plans to develop. Apart from the language written in the policy, the memo from the president of the Council of Ministers further justifies the usefulness of this law. LD 1002 helps the renewable energy market in three major ways that would allow for this industry to grow. First, it allows for priority of dispatch, meaning that renewable energy companies have first access to the grid before oil or natural gas companies. Second, it guarantees a premium price paid to renewable energy companies, which means that companies will not have to fear that their investment will not be profitable because they will receive the same amount every year. Third, LD 1002 allows for rapid depreciation of equipment, which would help companies recoup their investment faster by paying lower taxes on their systems. The memo also calculated how much this law would affect costs for users, and it was deemed to be minimal. At USD 55 per megawatt hour (MWh), USD 60, and USD 65, it would have increased users’ bills by 0.72%, 0.96%, and 1.20%, respectively (President of the Council of Ministers, 2008). Basically, the impact on consumer bills was calculated to be small. To sum up, LD 1002 was groundbreaking in several ways. First, it was the first law in Peru to create a mechanism for electricity generators who use a renewable energy source to sell on the national electricity grid. Second, it does so by creating an auction system in which generators using renewable energy can all enter, bid, and sell their electricity. This auction also guarantees an annual income to generators if they produce the amount of electricity that they promised to the state. Third, it codifies a goal that Peru will produce 5% of its electricity from nonconventional renewable energy sources, a rate that should be updated every five years. Chapter 5| 145 Fourth, it gives renewable energy companies priority to dispatch their electricity before other producers can dispatch theirs, guaranteeing that they can always sell their electricity. Overall, this is the most supportive policy of renewable energy on a commercial scale that Peru had passed thus far. Critiques of LD 1002 LD 1002 slipped under the radar when it passed, but once various members in the electricity sector realized that they would have to start implementing this law, critiques began to surface. The first and most vocal opposition came from established electricity generators, who now found themselves with new and direct competitors. From their point of view, it was unfair that renewable energy competitors had market advantages that they did not have. For example, renewable energy generators had priority of dispatch. This means that they can always sell the electricity that they produce. Natural gas and hydroelectric plants, on the other hand, will sometimes have to shut down their plants if there is an overproduction. Currently in Peru, there is an oversupply of electricity, so this situation is a reality for some generators. Second, renewable energy generators who win the auction get to sign a twenty-year contract with the state during which the price that they receive for the electricity that they produce is fixed for this period, regardless of the market price. 14 The drafters of LD 1002 wrote this provision so that investors in renewable energy could feel secure in their investment. It was an incentive to attract more investors. In contrast, other producers sign contracts that last only ten years. They also have to sign separate contracts with transmitters and distributors to use 14 Originally, LD 1002 provided for renewable energy contracts that lasted only 15 years. This provision was modified by LD 1041, approved on 26 June 2008, to extend this period to 20 years. This period is still the prevailing law today. Chapter 5| 146 their services. Therefore, conventional energy generators must actually update themselves to keep costs down and remain competitive. Renewable energy companies, in contrast, have guaranteed business for twenty years, without needing to worry about competing in the market. Third, renewable energy generators do not have to pay a fee for maintaining the electricity grid. Electricity transmitters and distributors usually include this fee in the contracts that they sign with electricity generators, and these contracts last for ten years. This price can increase or decrease with each new contract. Ultimately, all of these costs are transferred to electricity consumers in their monthly bills, but at least it is accounted for and each company is responsible for paying their share of maintenance of the electricity grid. Renewable energy generators do not have to worry about this fee. Therefore, some nonrenewable energy generators feel that renewable energy generators are free-riding on the grid system that everyone else contributes to maintain. Fourth, the entire sector argues that this law increases electricity prices for consumers unnecessarily. Because the premium to pay for renewable energy generators is paid by an increase in electricity bill from each consumer, if the market price is lower than the price that the government had agreed to pay renewable energy consumers, consumers will have to pay this difference so that renewable energy producers receive the price that they were guaranteed. In the first auction that occurred in 2009, the average production price of the winners for solar energy was USD 221 per MWh and for wind was USD 80 per MWh, while the average market price was USD 50-55 per MWh (Quintanilla Acosta, 2016, p. 14; OSINERGMIN, 2013). Therefore, because of renewable energy, electricity consumers have to pay a higher price than they would have if prices were set by the market alone. Chapter 5| 147 Overall, the point of view of electricity generators is that renewable energy generators can compete in the market if they like. The transmission and distribution lines in Peru are now strong enough to accommodate the entry of electricity surges that renewable energy producers create. However, these companies should compete on the same footing as any other company. LD 1002 gives them an unfair advantage and raises prices for everyone, and it is this inequality that they most complain about (Guerra, Interview: 8 May 2017). One pro argument to keep in mind that was not brought up by any party is the moral aspect of this decree. Aside from the benefits of renewable energy that supporters of LD 1002 previously discussed — diversification of energy sources, energy security, renewability, cleanliness, responding to climate change, and conformability with international norms — another argument for particularly helping the renewable energy sector is the morality of using energy from a renewable source. Sometimes, certain sectors are especially promoted because it serves the public interest to do so. This is the argument made for government protection of national parks and green spaces. There are countless subsidies or tax incentives for certain sectors because the government and the public view that this sector is in the best interest of society in the long term and therefore should be promoted, even if it distorts the market and carries some additional costs today. The same argument can be made for renewable energy: There are wide, public future benefits that justify the costs currently incurred. Luckily, the price for renewable energy is decreasing, so future contracts with renewable energy producers will not be much higher than market price and consumers will not have to pay more to subsidize the premium that these producers were guaranteed. In the latest auction that occurred in 2015, the price for solar was USD 48.10 per MWh and wind was USD Chapter 5| 148 37.70 per MWh, so prices are reaching parity with conventional sources. Opponents of renewable energy counter, though, that since renewable energy prices are reaching grid prices, they no longer need the special treatment that LD 1002 provides. Rather, renewable energy companies should compete and be subjected to the same rules that all other companies must follow. There are strong arguments to be made for and against LD 1002, and, in consequence, for or against renewable energy generation in Peru. Whichever side one falls on the argument, this law is currently in place and has changed the electricity market in the country. Looking Forward Congress’ delegation of legislative power to the executive branch worked to expedite the policy-making process. By 2009, both Peru and the U.S. had completed their obligations as stipulated in the PTPA, and the agreement went into effect (Ministerio de Comercio Exterior y Turismo, 2011). After the signing of the PTPA, many institutions in Peru changed in significant ways. To recall, MINAM was established by LD 1013 in order to fulfill the PTPA’s term that Peru strengthen institutions to better manage the environment. CONAM, which had existed before, was absorbed into the Ministry. The PTPA left lasting institutional changes in the Peruvian political domain, including creating market space for renewable energy. The analysis of how a difficult policy like LD 1002 came to pass shows that information, technology solution, and global trends created interest in promoting renewable energy. However, interest was still too divided, albeit growing. The PTPA’s external influence created an opportunity window by shifting the existing balance of power within Peru’s government. With the right actors in the position of power, renewable energy supporters were able to take Chapter 5| 149 advantage of this opportunity window to pass a policy that would have been highly opposed otherwise. Novoa remains optimistic for the future. His next challenge is to set as the national objective of “100% of electricity production, using 100% renewable energy, for 100% of Peruvians” (Interview: 4 August 2017). More international forces continue to push Peru down the path of a clean economy. “There is a series of exogenous events that is pushing multinational companies, all the mining companies, and all the companies that have a high level of contamination to lessen their carbon footprint, on one side. On the other side is the Paris Accord. I was part of the Peru delegation to the Paris Accord at COP 21 where this is a very important topic. And then joining the OECD. The OECD demands from their member countries and from countries that want to be part of the OECD — which is a club of very high level — have a sustainable economy, have a clean economy” (ibid). And he believes that opposition is decreasing because the opposition sees it as a “lost battle.” It is like the Spanish saying goes, “to cover the sun with one finger,” meaning that the rays go in all direction. It is a hopeless effort now to try to stop renewable energy from spreading. Butron expresses a similar sentiment about external pressure. “I have the sense that Europe does not understand why Peru does not want to increase its renewable energy because Europe lives to increase its renewable energy. So then they, too, lobby. And those that make the equipment also lobby… People who make the equipment come and try to sell the product and meet with people in the ministry, and talk to the Minister of the Environment. They say, look, according to the Paris Accord, Peru needs to lower its emission, and this is the solution, in the lobby. And since Europe is no longer growing its electric sector, where are they going to sell their Chapter 5| 150 equipment? They have to sell it here. And since Chile is doing a lot, and Argentina woke up and is installing a lot, they think that Peru also must do so” (Butron, Interview: 16 May 2017). Conventional producers also lobby aggressively to retain their market space. “It is a power struggle to see who wins” (Ibid). Conventional producers seem to recognize that renewable energy will ultimately win over, and some are investing in renewable energy and making the switch as well. The question is no longer whether there will be a switch to renewable energy. The question now is, how long can conventional producers hang onto their market presence? Until the transition settles down more, the struggle between conventional and renewable energy producers in Peru continues. Chapter 6| 151 Chapter 6. Rural Electrification: Refining Past Efforts “To contribute with inclusive and sustainable energy is a satisfaction. It’s a commitment of all to contribute with the planet and be part of the solution.” (Pacheco, Email: 17 September 2018) This dissertation has analyzed the political process of LD 1002, Peru’s first major policy for renewable energy. But this is not Peru’s first policy for renewable energy generally speaking. Peru has for several decades been promoting the use of renewable energy for the purpose of rural electrification. Since the 1992 energy market reform, Peru passed several laws that show its interest in using more renewable energy, even though the policies fell short of deploying renewable energy on a large scale. The first mention of renewable energy was in 2000, when the Legislature passed Law 27345, Law to promote the efficient use of energy, which stipulated that it is in the national interest to use energy efficiently and charges MINEM with the responsibility to promote this interest. This efficient use included the use of renewable sources of energy where available. In 2002, it passed Law 27744, Law of electrification of rural, isolated, and frontier regions. This law declares that rural electrification is a national necessity and public utility because it contributes to sustainable socioeconomic development, improves quality of life, fights poverty, and limits migration from rural areas to cities. This law creates the Fund for Rural Electrification. This law also includes a provision to use more renewable energy for rural electrification, and MINEM is in charge of overseeing the development of such projects. Why was a renewable energy policy for rural electrification able to pass eight years before the one for larger consumption? The next section discusses motives for rural electrification and people’s belief of the role that renewable energy technology should play in meeting this goal. The second section discusses Chapter 6| 152 the differing politics surrounding renewable energy use between mass consumption and rural consumption. The third section discusses past efforts that Peru has made in this respect. The fourth section explains its current efforts. Finally, the last section concludes by arguing that Peru should continue to exploit renewable energy and devise programs that involve more community involvement. In this way, rural areas may be able to leapfrog conventional technology and go straight to renewable energy technology for their development. Rural Electrification Aside from concerns about the general electricity market, rural electrification remains a major challenge for Peru. In recent years, the international community has increasingly viewed universal electrification as a need and a priority. People are interested in rural electrification because they believe it improves people’s lives. Yadoo (2012) writes matter-of-factly, “Access to affordable, reliable and clean energy is fundamental for poverty reduction and sustainable development” (p. 3). The former United Nations Secretary General, Ban Ki Moon, began his initiative, Sustainable Energy for All, in 2011. Its three objectives are: “Ensure universal access to modern energy services; double the global rate of improvement in energy efficiency; and double the share of renewable energy in the global energy mix” (SE4All, 2017). Peru also adopted these international goals by approving its own national plan to reach universal electrification. Even as new technologies arise, the plan has typically been to integrate the electricity produced by these new systems into the existing power grid. Increasingly, however, as more areas become connected to the grid, only the really difficult areas remain unelectrified. Approximately 1.2 billion people, or 17% of the global population, live without electricity, and 2.7 billion people, or 38% of the global population, do not have clean cooking Chapter 6| 153 facilities (REN21, 2016, p. 87). These areas are typically rural areas that are far from urban centers. Their remoteness makes it costlier to transport materials and extend the grid there. In addition to the higher cost to electrify, these areas are also usually sparsely populated, meaning that there is low consumption and low monetary returns (World Bank Group, 1995). Longer feeder lines and poor maintenance mean that the quality of power delivered to rural residents is low (Zerriffi, 2011, p. 6). Thus, it costs more to provide electricity to rural than to urban communities. Because it poses a different set of challenges than conventional electrification, rural electrification has become its own small but important field of study. A wealth of off-grid solutions has sprung up to confront the challenge of rural electrification. These off-grid systems (Urpelainen, 2014), also known as distributed systems (Zerriffi, 2011), are ideal for areas that are hard for the grid to reach. In these remote areas, solar electricity is the most popular source of energy for rural electrification. Much research is being done to improve solar technology. The main issue right now is the cost of producing solar panels, which, for the most part, means solar panels are still out of reach for rural residents. Solar energy is the most popular source for rural electrification. It is appropriate because Peru’s average solar radiation levels can reach six kilowatts per meter square per day (kW/m 2 /day) in some southern mountain ranges, which is among the highest rates in the world (Lieber, 2013). Second, this resource is reliable. There is solar radiation every day, even on cloudy days, that can reach these panels and power the systems. Wind energy is less reliable because, depending on the area, the wind may not blow. Third, solar technology is portable and adaptable for almost any kind of environment. Unlike a micro hydroelectric system, for example, which needs to be installed where there is a water source, solar energy technology can be made smaller Chapter 6| 154 or bigger, so that it can be installed on rooftops or poles, and can be a permanent installation or mobile device. Its versatility makes it a convenient technology to apply to the highly diverse conditions of rural areas. Three types of solar energy technology have been effective in bringing electricity to individual homes. They are classified by size. The first category is the commercial system, which is typically above 150 Wp. 15 These systems are generally installed on community buildings, such as schools, hospitals, and factories. The price to install these systems depends on the size and the number of panels installed. The second type is typically installed on single homes, called solar home systems (SHS). These are standalone systems where solar panels are generally installed on rooftops. Wirings extend from these systems and provide electricity to the household. These range from 10-150 Wp, costing from $200 to $1,500 per system (Lysen, 2013, p. 6). Several of these standalone systems can join one network to form micro-grids, which are small networks of power lines that have their own generator and serve a small area (O’Neill, 2016). The third classification is called the Pico PV system, which simply means small PV systems. These range from 0.3 Wp to 10 Wp, and they are small, portable systems that are enough to power small electrical appliances, such as a lamp, phone, or radio (Lysen, 2013, p. 6). They typically comprise three parts: the solar panel, battery, and lamp(s) (Endev | Peru, 2016). These range from about $10 to $250 (Lysen, 2013, p. 21). An average pico PV system that Endev works with for their projects in Peru costs about USD 75 (Moreno, Interview: 22 December 2016). All of these systems have the possibility of being connected to the larger national energy grid if technological support 15 A watt peak (Wp) is the maximum number of watts that a solar panel can produce under ideal conditions. Chapter 6| 155 is provided. Technology, therefore, is a major factor in the process of bringing electricity to rural areas. For rural families, the most appropriate technology in terms of cost and power provided are the pico PV systems and SHS, since they have a low demand for electricity compared to urban homes. Research currently focuses on increasing the efficiency and lowering the cost of solar panels. Silicon solar panels dominate about 90% of the solar energy market, with 30-40% of the cost of the panel coming from the silicon material itself. Cutting-edge research is looking at other materials, such as organic compounds, that will diversify solar panels (Töfflinger, 2016a). The most cutting-edge research falls into the fields that include silicon PV; concentrator PV; dye, organic, and novel solar cells; and PV modules and power plants. Perovskite is one of the leading panel materials because it is cheap and has a high efficiency. The issue with this material is that it is unstable (Töfflinger, 2016b). 16 Physics is helping to make solar panels a more desirable product for consumers to purchase, such as by reducing the cost and increasing the efficiency, which has the secondary effect of reducing the cost if consumers can buy fewer panels to attain the same level of efficiency. Producers are trying to make the product more consumer-friendly, 16 Photovoltaic (PV) is a term used to describe any product that can convert light directly into electricity. The cells where this process takes place are usually displayed on a flat panel to capture sunlight. Silicon is the most popular material used to make PV panels because it is an abundant resource and can absorb a large swath of sunlight’s wavelength. Concentrator PV uses moveable lenses and mirrors to direct sunlight to a few PV cells that are highly efficient. Dye solar cells use a special type of liquid to stain textile, and this liquid can get excited and release electrons when sunlight passes through it. Organic solar cells are those made from any material that contains carbon atoms in its molecular structure. Novel solar cells use materials not yet widely explored for solar energy. Perovskite is a material composed of calcium, titanium, and oxygen. This material is highly attractive as the next solar panel material, but it currently suffers from long- term stability issues because it tends to change its form after a certain time. PV modules and power plant research looks at how to best design the layout of cells and panels to produce the most electricity (Töfflinger, 2016b). Chapter 6| 156 yet in many places the product is still not selling itself without government support through policies and subsidies. Figure 8: Rural and Urban Electrification Rate of Latin American Countries (2016) Following international trends, Peru also has put effort into rural electrification, first by grid extension and now more by isolated solar systems. Despite Peru’s strong economic performance, about eight million people, or 29% of its population, live in rural areas, with 53% of rural residents living in poverty. It has one of the lowest rural electrification rates in Latin America. Figure 8 shows Peru’s electrification urban and rural electrification rate in 2016 compared to other Latin American countries. While its urban electrification rate is high, it has one of the lowest rural electrification rates in the region. In 1990, Peru’s national electrification 100 100 100 100 99.8 98.8 96.4 96.1 95.7 86.4 81.3 79.1 75.6 72.2 56.6 0 10 20 30 40 50 60 70 80 90 100 Argentina Brazil Costa Rica Uruguay Ecuador El Salvador Venezuela Paraguay Colombia Guatemala Panama Bolivia Peru Honduras Nicaragua Rural and Urban Electrification Rate of Latin American Countries (2016) Urban Electrification Rate Rural Electrification Rate Chapter 6| 157 rate was 60.29%. In 2007, its urban electrification rate was 90%, but its rural electrification rate was only 30%, creating a combined national electrification rate of 74%. Peru has made much progress in rural electrification in the last two decades. At the end of 2013, Peru estimated that it had a national electrification rate of 90% and rural electrification rate of 70% (DGER, 2013). The latest estimate from 2014 reports a national electrification rate of 93%. Its urban electrification rate was 98.9%, while its rural electrification rate was 74.5% (World Bank, 2017). Although in Latin America, Peru still has one of the lowest rural electrification rates, this is not to say that Peru is not putting in effort. Rural electrification is especially difficult for Peru because Peru’s terrain is extremely diverse and remote, with some communities living in dense jungles, high mountains, and distant islands. These areas tend to be underdeveloped with little existing infrastructure for connecting the various communities to existing electrical grids. It is also an architectural challenge to build standalone electrical grids in these locations. One must also remember that much of its energy infrastructure, especially in rural areas, was destroyed in the 1970s and 1980s by Maoist terrorist groups. In order to catch up with other Latin American countries, it has a lot of distance left to cover. But Peru started much farther behind other Latin American countries in the 1980s because of this destruction, and Peru has had to make huge progress to recover. Peru more than doubled its rate of rural electrification over the span of a decade, which is a great accomplishment, but much work remains to be done. Recognizing this challenge, in 2007 the government created within MINEM the General Directorate of Rural Electrification (DGER) through Law 28749, the “General Law of Rural Electrification,” specifically to oversee rural electrification. The law also codified Peru’s intention to provide universal electrification. Because rural electrification has been viewed as unprofitable Chapter 6| 158 and therefore unappealing to private investors, much of the investment so far has come from public funding. However, the state recognizes the social capital that rural electrification can generate, so it wants to encourage more private cooperation. The government has the goal to electrify 98% of rural areas by 2023, and it hopes that this development will contribute to reducing poverty and improving quality of life by allowing rural residents in isolated and frontier regions to form small, local industries, such as baking, welding, and running sawmills (DGER, 2013). Although rural electrification receives wide support, studies have found mixed results on electricity’s efficacy in improving people’s lives, especially its actual impact on rural populations. Regarding industry, researchers disagree how much impact it has on productive activity. Winther (2008) found that bringing electricity to a small village in Tanzania increased tourism to the village. Other studies have noted changes in agricultural behavior, such as more irrigated farming leading to agricultural growth, with access to electricity (World Bank, 1995; Kale, 2014). However, other studies did not find evidence for industrial growth. Bhattacharyya (2012) actually argues that electricity is used mainly for entertainment and lighting, rather than for productive activity, so its connection to development is dubious. Bhattacharyya concludes that there is little evidence that electrification actually helps rural development. Economically speaking, rural electrification has not been found to directly reduce poverty, especially for the poorest rural residents. Rural electrification reduces rural poverty only through a general rise in rural income obtained by productive uses, but this seems to happen when other factors are also present and are already helping the rise (World Bank, 1995). Overall, electricity has had limited direct impact on income (Winther, 2008). Bhattacharyya writes, “Clearly, poor Chapter 6| 159 electricity access inhibits economic development by denying the population the opportunity to develop their human capital and by restraining economic activities. The quality of life is adversely affected and the economies get locked-in to a perpetual low level development path” (2013, p. 41). Therefore, most of these studies find correlation between electricity and the general rise in income, but it is unclear whether electrification or other intervening factors actually causes the rise. Although its direct impact on income is questionable, rural electrification does seem to improve people’s quality of life. Electricity facilitates community development in some places (Winther, 2008). There are more light hours in a day, which can be used for a variety of social activities if residents so choose. They can also power their radios and televisions (World Bank, 1995). Electricity has been used to improve health-related activities, such as sterilizing medical instruments and refrigerating medicine. Electric water pumps can reduce the incidence of diarrhea, and emergencies can be treated around the clock since electric lights are available. Less time spent on fetching water can be used for other beneficial activities, such as education, especially for women (Winther, 2008). Aside from these uses, Peru’s terrain also includes the Andes Mountains, which are very high and have a severe climate. Many people suffer and die from frost because they cannot access heating. Electricity could provide them with access to heating. Additionally, it can provide people with the power for cooking technologies (Rough, 2017). A sobering note to the positive benefits of rural electrification is that most of the direct benefits from rural electricity go to wealthier people because they have to means to buy electrical appliances to use electricity (World Bank, 1995; Bhattacharyya, 2012). It can also be a source of Chapter 6| 160 social conflict and exacerbate inequality between rural citizens (Winther, 2008; Kale, 2014). It makes people dependent on an external entity, the energy supplier, if they do not own the means of generation themselves. The process of electrification, whether grid-connected or off-grid, has led to ecological crises. Connecting off-grid systems to the grid can destabilize the grid if the technologies do not align. Despite these issues, there is a positive view of electrification overall. Winther claims, “Poverty appears to be linked to people's limited access to electricity,” and that accessing this resource “at affordable prices is a vital condition for increasing poor people's well- being and producing national economic growth” (2008, p.1). Questions remain as to whether electrification brings an overall net benefit or cost to new customers, but most studies on electrification take it for granted that electrification is a desirable commodity and proceed to explain what can hasten the electrification process. The Peruvian government, through the financial assistance of the World Bank, foreign governments, NGOs, and social enterprises, has made great strides with its rural electrification effort. In the past, it tried to connect rural areas to the existing electricity grid. As these peri- urban areas become connected, only the most remote areas remain, and it was no longer practical to extend the grid. The government currently pushes for isolated systems that use innovative technologies to bring electricity to the remaining homes. Relying on funding mainly from the World Bank, the government plays the role of administrator and overseer, while allowing private companies to find creative ways to sustainably provide electricity to these rural homes. Chapter 6| 161 Motives for Using Renewable Energy Studies have demonstrated that there is a recognition that the involvement of the state, in its capacity as infrastructure provider, financier, planner, or other capacity, is important for program success and creating a friendly investment environment (Barnes, 2007; Urpelainen, 2014; Zerriffi, 2011). Kale (2014) writes that the variations in the social and political foundations of the state at the provincial level account for the variation in patterns of infrastructural development. Pinner and Rogers (2015) believe that a combination of state and investor cooperation are important for the rise of solar power, and these forms of help are regulatory support, industrialization, technological innovation, and financing. Developing countries in general, and Latin American countries specifically, pass policies that are supportive of renewable energy, but they usually have two different motives, and the policy is different depending on the motive. The first type of policy is for large-scale renewable projects. Governments pass policies to support large-scale projects because of two reasons. The first reason is to increase their energy security. Chile, for example, is a sliver of a country that has very few traditional energy resources like natural gas or oil. Chile is also the biggest investor in renewable energy in Latin America. It is one of the first countries to pass policies or implement projects, and then other countries follow suit. For example, it was the first Latin American country to pass the policy that created blocks of hours during which energy companies can bid to provide electricity. Solar companies are given priority during daylight hours. This means that they do not have to compete with traditional fuels for daylight hours. They are also not losing out on a bid because they cannot provide electricity during the night hours (Currie, 2017). Other countries, including Peru, are interested in implementing this policy in their auction system as well. Chile is Chapter 6| 162 highly interested and has implemented many supportive policies because it wants to be able to produce its own electricity to increase its energy security. The second motive to promote large-scale renewable energy projects is to mitigate climate change. As of the writing of this dissertation, 133 of the 197 parties who were present at the Convention in Paris in 2015 have signed the agreement. Every country in South America except for Ecuador, Colombia, and Venezuela has signed the agreement (UNFCCC, 2017). Peru, having hosted COP 20, is a big proponent of mitigating climate change. A large-scale switch from hydrocarbons to renewable energy can greatly reduce a country’s greenhouse gas emissions. These policies generally affect utility companies, large businesses involved in large megawatt projects, and national grid operators. The electricity produced from the projects that these policies help tends to impact people living in urban areas and industrial users. The reasons large-scale utilities oppose renewable energy are already documented in Chapter 3 and will not be repeated here. Suffice it to say that passing large-scale renewable energy policies generally meets with significant political attention. The second type of policy supports small-scale installations. The motive for these policies is usually for rural electrification. This is an issue that developed countries largely no longer need to deal with. Developing countries, however, face the issue that many of their rural populations still do not have access to electricity. Policies that help smaller systems include licensing and certification systems to indicate to consumers that a product is trustworthy. NGOs, social enterprises, municipal governments, and the rural electrification offices of each country are interested in the policy support for these smaller systems. The main motive for supporting these Chapter 6| 163 systems is to fill the electricity gap in rural areas that the electricity grid cannot reach in order to improve citizens’ lives. Therefore, the government is fighting a two-front war in which renewable energy is the solution, but the types of policies are different. The first front is support for large-scale systems to combat climate change and increase energy security; stakeholders include utility companies and large businesses. The second front is to electrify rural areas, and the national government mainly deals with municipal governments, NGOs, and social enterprises. One important point to note is that, in the past, NGOs and international organizations have cited mitigating climate change as a motive for using renewable energy in rural electrification efforts. For example, a rural electrification project report in Bangladesh funded by the World Bank writes, “The Global Objective of the Project, which remained unchanged, was to reduce atmospheric carbon emissions by overcoming market barriers for renewable energy development, including high implementation costs” (World Bank, 2014, p. 1). While of course reducing carbon emissions from any area will contribute to reducing global carbon emissions, the question is the impact of such effort. If all rural consumers used renewable energy, this would not greatly change the course of climate change because the vast majority of carbon emissions come from industries and urban areas (Töfflinger, Interview: 8 December 2016). However, from a social perspective, rural electrification is very important, and if one can do so using clean energy, this would be preferred over GHG-emitting energy. The point here is not to critique prioritizing renewable energy technology for rural electrification, but to point out that it is a dubious strategy to focus on this if the goal is to meaningfully mitigate climate change. In dealing with climate change, the target should be mass-scale energy consumption. Chapter 6| 164 These two fields have different stakeholders who represent different interests, and this results in different political strategies necessary to move forward with legislation on each issue. Politically, many politicians oppose mass use of renewable energy because many traditional energy companies do not like such mass use. Rural electrification, though, has much more political support because it takes a different calculus. Unlike with mass renewable energy, rural electrification is a market with practically no major business players to oppose in this industry. In fact, businesses shy away from rural electrification because it is expensive, it is risky, and the return is low because rural residents have a lower ability to pay. Secondly, it is very difficult to oppose efforts that would help such a disadvantaged group in society. Third, the funds for many of these projects come from international donors who have stipulations specifically for rural electrification, so the state has to expend these funds for rural electrification purposes and usually needs to allocate only a small part of its own budget to complete these projects. For these reasons, there have been several notable laws in Peru specifically for rural electrification and for involving renewable energy whenever feasible. 17 Therefore, Peru has many more impactful laws and regulations that promote the use of renewable energy in rural areas compared to those for use in urban areas. Past Rural Electrification Efforts In the past, much of the funding of Peru’s rural electrification programs came from the World Bank. In 2006, the World Bank approved and disbursed funds to Peru to invest in rural 17 Examples of such laws include Law 27744, 2002, Law of electrification of rural, isolated, and frontier regions; Law 28546, 2005, Law of promotion and utilization of nonconventional renewable energy resources in rural, isolated, and frontier zones of the country; Law 28749, 2006, General law of rural electrification. Chapter 6| 165 electrification. The goal of the loan was to improve people’s lives and alleviate poverty by giving them access to electricity. The World Bank gave Peru USD 50 million and a Global Environmental Facility Grant of USD 10 million. Also in 2006, Peru passed Law 28749, the “General Law of Rural Electrification,” which formally codified Peru’s intention to provide universal electrification. MINEM is the overarching ministry that oversees rural electrification. This Law created the General Directorate of Rural Electrification (DGER), which began operation in 2007 to administer specifically rural electrification projects. The World Bank also established a mechanism through which Peruvian renewable energy projects can qualify for the UNFCC CDM funding (HuffPost, 2013). A loan from the World Bank has also boosted rural electrification by allowing the renewable energy sector to grow in Peru. With this loan and other funds, Peru has invested much in renewable energy programs for rural areas. The PNER, approved in June 2006, is the DGER’s program to accomplish the goals of the law and the terms of the World Bank loan. PNER encourages joint participation from regional, local, public and private entities involved with electrification. It endeavors to install 20,000 solar PV systems on a national level and to benefit 100,000 people living in isolated regions. The total budget was USD 175 million. Electrification was supposed to come mainly from solar and hydroelectric installations (MINEM-DGER, 2008). Peru passed the “General Law of Rural Electrification” in 2006, approved the PNER program also in 2006, and implemented it in 2007. All of this happened only a year after the World Bank’s loan approval. In the World Bank’s final report for this loan, it writes, “Implementation Arrangements: The GoP [Government of Peru], together with local and regional governments, strengthened Chapter 6| 166 efforts to increase electrification during Project implementation. MINEM increased investment in electrification markedly, from an annual average of US$40-50 million to more than US$150 million, and reaching a peak of US$200 million in 2010. As part of these efforts, a Rural Electrification Law was passed in July 2006 and its regulations published in 2007" (World Bank, 2013). The World Bank recognizes Peru’s efforts to use the loan for its intended purpose and that Peru even invested money on top of the loan amount to enhance the project’s impact. As the first loan was ending, Peru received another loan for USD 50 million from the World Bank in July 2013. This loan, in contrast to the first one, specified an emphasis on clean-energy technology. The World Bank also established a mechanism through which Peruvian renewable energy projects can qualify for the UNFCCC Clean Development Mechanism (CDM) funding (HuffPost, 2013). With this second loan, the country launched the National Photovoltaic Household Electrification Program (PEFoDo), which promises to bring solar electricity to two million of its poorest residents (HuffPost, 2013). PEFoDo passed in December 2013 (DGER, 2013). The money is administered by the National Fund of Rural Electrification (FONER), which is under the authority of DGER. PEFoDo builds upon PNER and continues the execution of the law. Similar to PNER, PEFoDo is intended to be a joint collaboration between private and public entities. Unlike PNER, more of the funds are expected to come from private sources with some state subsidies (MINEM- DGER, 2013, p. 6). The goal for PEFoDo is to electrify 98% of the rural population by 2023 (ibid, p. 25). Additionally, it would provide to rural families 500,000 solar-powered electric stoves. This Chapter 6| 167 plan is expected to affect 2 million people and bring new electricity access to 140,000 people. The cost of the total plan is about USD 200 million. The main technology is solar PV systems. PNER and PEFoDo are similar in their core elements, but they also have slight differences. Both programs aim to improve living conditions of the rural poor, received the same loan amount from the World Bank, expect public and private participation from multiple levels of actors, and have similar total budgets. Unlike PNER, PEFoDo has slightly higher goals and budgets, intends to disperse responsibility from the central government to a more decentralized system, and does not include hydroelectric programs or grid extensions. The similarities show that PEFoDo was based in large part in the ideas already developed in PNER, but the differences indicate that it has learned several lessons from PNER and have made adjustments accordingly. Many of these projects, although done with good intentions, have proven to be unsustainable. During the World Bank’s first loan, the plan was to electrify rural areas using solar and hydroelectricity. The Peruvian government intended to install 15 megawatts of hydroelectricity to generate electricity that would feed into the electric grid. However, this project had to be cancelled because there was not enough support for technical, environmental, social, and financial assistance from the private sector (World Bank, 2013, p. 5). Because this part of the project failed to launch, the Peruvian government did not receive USD 3.84 million from the World Bank that was originally allocated to this part of the project (ibid, p. viii). Peru was also marked down for its poor performance in reducing GHG emissions, mainly because a big portion of the total calculated GHG reduction was supposed to come from hydroelectricity, but no system was installed. Hydroelectricity was removed from Peru’s proposal for the World Bank’s second loan and from PEFoDo’s plan. Chapter 6| 168 Another failure of PNER was that it intended for distribution companies to propose, construct, own, and operate their own subprojects to extend the electric grid. Unfortunately, costs were higher than expected, and electricity consumption remained low. The Peruvian government had to subsidize the subprojects at 85%, versus the agreed upon 75%, so that distribution companies could achieve the 12% profit they were expecting (World Bank, 2013, p. 11). With this economic fiasco in the background, PEFoDo does not mention grid extension subprojects. It only includes PV systems, which are usually standalone systems that do not need grid connectivity. The World Bank loans stipulated the use of renewable energy specifically, but the government has implemented other independent projects using nonrenewable sources of energy for rural electrification that have also not fared well. Several site visits provided anecdotal evidence as to why some of these electrification programs failed. On Amantani Island, one of the islands located in Lake Titicaca, the government had installed power lines to bring electricity to the island. The power lines now sit useless. This occurred because the power lines are powered by an electricity generator, which required diesel to run. The island itself sits on one of the highest lakes in the world, high up in the Andes. Most of their supplies, except for some livestock and plants raised on the island, must be brought in by boat, which is very costly and labor intensive. After the initial installation and after electricity was generated for a while, the community could not afford to transport and pay for the diesel. Thus, they live without electricity even though they are within reach of the infrastructure. The island itself, through ecotourism, has grown wealthier and some of the families have been able to afford to install a solar panel that can light a few light Chapter 6| 169 bulbs and flashlights. This shows that past government projects have failed, and residents are seeking their own solutions to the lack of electricity. The government also tried the same scheme in the Amazon. The community of Libertad, which sits about four hours outside of Iquitos in the northern jungles, was lucky to win the government’s electrification lottery. This part of the Amazon tends to have wet seasons that can last for months, raising the water level several meters higher compared to the dry season. Again, the government came in and installed a generator and power lines. When the wet season came, the rain and water inundated the generator, destroyed its internal parts, and left it inoperable. In the first year, Libertad community members pitched in to replace parts and repair it, although this was very costly because they had to travel to outside communities for parts and find experts who could fix it. When the rains came the second year and destroyed the system again, the members abandoned the system altogether. The poles and power lines now exist but serve no one. The community has some electricity because some wealthier members bought their own generator and use it to run a “TV cafe” and impose a fee for other electricity uses. In this way, they are able to pay for the diesel and maintain the generator. But this is only accessible by a few members of the community. These projects in the 2000s and 2010s, though with some failures, taught the Peruvian government several important lessons. First, the government was not going to have any more giveaways. Residents generally did not care to take care of their systems when they did not have to pay for them. Second, the government was going to play the role of promoter, letting private companies take over the job of rural electrification. The government was in charge of choosing social enterprises to grant land concessions to, and the government would oversee and Chapter 6| 170 subsidize the projects, but it was not going to be in charge of the everyday operation of the projects. Third, the government would require that resources for maintenance be budgeted so that once the projects were installed, they would not be abandoned. Last, their models were going to include community involvement, which would make it easier to understand the local conditions. Current Rural Electrification Efforts Despite many past setbacks, the government is still forging forward with its rural electrification efforts. Currently, the government is dealing with rural electrification through two strategies. The first is the traditional one: grid extension. Residents still prefer this because they believe it is a sign that their area is being modernized, and grid connected electricity is generally more powerful and stable than distributed generation. One innovation that helped to rapidly deploy electricity was building extension lines that consisted of only one power line. Traditionally, transmission lines consisted of three lines, and poles helped to string them across vast distances. The government and technicians realized that given the low electricity demand of rural people, they could build single phase rather than three phase transmission and distribution lines, which required only one instead of three cables. This resulted in faster and cheaper connections (de la Cruz, 2013; Winkel, Interview, 20 March 2017). 18 New plans that MINEM approved to extend 18 Much of electricity is delivered through alternating currents, which have peaks and troughs in voltage and do not deliver electricity at a constant rate. For single phase systems, electricity currents complete a cycle of high and low about 60 times per second, and most people do not notice the change in voltage in the electricity delivered to them. Three-phase systems deliver three electrical currents at the same time but at 120 degrees apart, which smooths out the peaks and dips, and power is able to be consumed at a more constant rate. Three-phase systems can serve higher loads and are necessary for industrial uses (AEGIS, 2015). For Peru’s particular conditions, the single phase extension means an overall reduction in cables necessary, pole Chapter 6| 171 transmission lines include installing more 500 kilovolt (kV) lines, which have served as the backbone of Peru's national grid, and 220 kV lines for areas that use less electricity (Global Transmission Report, 2017). However, they are reaching their limit even with this kind of grid extension because some places are so remote and have such a disperse population that financially it does not make sense (MINEM, 2003, p. 19). For areas that are remote and sparsely populated, the second strategy is to use distributed generation such as pico solar systems. The government is also starting to promote micro grids of 2-21 MW systems in the frontiers of jungles (Suarez, Interview: 21 March 2017). Again, because grid extension is not economical in many of the remaining, unelectrified areas, these distributed systems are a cheaper alternative and can provide people with electricity faster. The government, through DGER, plans projects and reviews proposals from regional governments. It also finances and executes some of these projects. DGER invests in some projects, and auctions off some projects to private investors. For projects for which the government invests money, the public electricity distributors of the area are required to collect fees from users. The priority areas are areas that are populated, well-trafficked, or close to the grid. This means that communities that are far from the grid will likely not be connected to the grid for as long as ten to twenty years. This also means that tourism to certain areas can actually make it a priority area for electrification. One example is the oasis resort at the bottom of Colca Canyon. Colca Canyon is one of the deepest canyons in the world and about a four-hour drive from structures that can be weaker and smaller, and fewer structures because they can be built farther apart (de la Cruz, 2013). This leads to a saving in materials, labor, and time for construction. Chapter 6| 172 Arequipa. One can imagine how remote this place is from urban areas. But in recent years, it has become a major tourist destination. Tourists who decide to do a multi-day trekking tour can descend and stay at the bottom of the canyon at a resort. While five years ago, this resort did not have grid connectivity, it was connected to the grid three years ago. One can think of other areas that may have been easier to connect to the grid than such a deep canyon, but this area has become a priority and profitable area to electrify because of increased traffic, in this case due to tourism. However, DGER faces many challenges for the gargantuan task that it has at hand. It is highly understaffed. There are only three people working on planning, so it is difficult for DGER to coordinate with local governments. It also lacks major funding (Interview with Suarez, 21 March 2017). Most of its budget comes from the World Bank fund, with a small portion coming from domestic allocation (Grupo Rural, 2017). Although MINEM publishes a map of existing and planned projects on its website, all communities are shown as having planned projects, making it still impractical for groups like PowerMundo to make meaningful decisions. This situation is slightly remedied in recent years since the government made more information from Geographic Information Systems available online, but challenges remain (Winkel, Interview, 20 March 2017). Whether this ambiguous situation is intentional or not, politically, it is beneficial because if there were a plan with clear timelines, communities that would not be electrified for a long time would likely complain about this injustice. This lack of information is an issue for NGOs that want to help the government fill these gaps. NGOs want to work in areas where the government will not be able to help anytime soon, but this is guesswork. There have been times when the NGO services an area with pico PV Chapter 6| 173 systems, only to find that residents quickly abandon them because the government decided to extend the grid to that area or implement a government project in that area. Lack of public planning information also causes confusion for consumers. Some consumers refuse to buy solar systems from NGOs because they believe that their homes would soon be electrified. They do not want to spend money on a small solar system when they could have a more reliable and powerful system with a government-backed program. However, sometimes this belief can be dubious, and they may delay their own access to electricity for several more years (Winkel, Interview: 20 March 2017). The World Bank’s second loan is for the years 2013 to 2017. Through money from the World Bank, various programs that have been set up have helped Peru take concrete steps toward electrifying more rural areas. In 2014, the Peruvian government held an auction to see which company could install 500,000 solar home systems across Peru, and the company Ergon won the bid (Taj, 2014). So far, Ergon has installed almost 200,000 of these systems. The government also has separate concessions with private companies, such as Entelin, and one non-governmental institution, Acciona. NGOs such as Endev and social enterprises such as PowerMundo operate in regions that do not have concessions, or they work as technical advisers to the government. However, the remaining 30% of Peru’s unelectrified areas are the hardest to reach regions. For example, many people doubt that Ergon will be able to install 200,000 systems, let alone the 500,000 systems that the Peruvian government had originally promised. The government must come up with more funding and creative ways to reach these remote areas. One of the biggest challenges is creating a system that is sustainable. Companies and organizations must find ways to collect fees from users and maintain these systems when they break down, two services that Chapter 6| 174 are extremely difficult because rural homes are hard to access. However, various organizations are devising creative ways, and the advancement of technology has helped. For example, PowerMundo is experimenting with the pay-go method through which users can pay through their mobile phones to keep their systems running. When they do not pay, the systems shut off until they buy more credit. Making the payment systems occur through phones is highly efficient because many rural residents use cell phones, and this cuts out the need for a person to physically enter communities to collect payments. Basically, reaching the last unelectrified areas will require using methods that have not been tried in the past, or using old methods in new ways. Another innovation is the Yachaywasi Michawarmi school, which focuses on teaching women to maintain renewable energy systems that are used in rural areas. This school is being supported by the Peruvian government, UNDP, and GEF (Rough, 2017). Not only is this project aimed at reducing the gender gap by educating women and teaching them a commercial skill, it also ensures that renewable energy technologies in rural areas, once installed, have knowledgeable people close at hand who know how to repair them should they break down. This increases customers’ trust in purchasing these systems. Leapfrogging Conventional Energy The Peruvian government, through the financial assistance of the World Bank, foreign governments, NGOs, and social enterprises, has made great strides with its rural electrification effort. In the past, it tried to connect rural areas to the existing electricity grid. As these peri- urban areas become connected, only the most remote areas remain, and it was no longer practical to extend the grid. The government currently pushes for isolated systems that use innovative technologies to bring electricity to the remaining homes. Relying on funding mainly Chapter 6| 175 from the World Bank, the government plays the role of administrator and overseer, while allowing private companies to find creative ways to sustainably provide electricity to these rural homes. Practical Action (Soluciones Prácticas), in its rural development efforts, understands the need for evaluation after a project has been implemented. It does impact evaluations with some residents who received a system. It does an impact report at the beginning, middle, and end of the project. It then returns six months and one year later to do follow-up evaluation. It usually contracts a third party to evaluate projects, but it provides the evaluators with a number of parameters to survey, such as energy use and productive impact. It also cares about the management of the project (Escobar, Interview: 4 January 2017). Endev-Peru also evaluates the project after it is implemented. It monitors projects every six months after implementation. Endev has a list of people who have received its service, and then from that list Endev takes a sample of people. They do not visit every home but work from this sample. When employees visit these families, they ask the family survey questions. Then the evaluators submit the survey answers through an online system, so at the main office, they can have this information immediately (Moreno, Interview: 22 December 2016). NGOs have learned that development projects are not one-off stints but require monitoring, evaluation, and follow- ups if they want the projects to really take root and have an impact on the targeted population. However, rather than the traditional development path where electricity requires a grid extension, and consumers get energy from fossil fuel sources, Peru and other developing countries that still have a lot of unelectrified, rural areas have the ability to develop by skipping over fossil fuels. They can go straight to renewable energy. They can do this with mass-use Chapter 6| 176 electricity as well, but it is especially beneficial in the rural space because grid connection is not feasible in many of these areas. One innovative strategy that the company has implemented is to hire, train, and pay specialists that are from each community that it serves. Entelin is a social enterprise that has received a concession from Peru to service certain territories. It hires specialists from the communities it serves. These specialists serve as either technicians or treasurers for the company and are the company’s point of contact between consumers and Entelin. This allows the community to become more involved in the program, provides Entelin with a fast way to collect fees, and gives these people more skills. Of course, many challenges remain. A site visit to Entelin’s service area in the Tarapoto region of Peru shows many issues that the company is still trying to resolve. In the past, rural residents tended to try to fix their solar systems when they broke down because, one, they generally have the do-it-yourself mentality with most aspects in their lives, and, two, it took a long time for a repair person to actually come — sometimes even months. The problem with this is that rather than fixing the system, people actually destroyed them sometimes. In order to confront this, Entelin has locked the power switch of each system, with a key that only employees have and that correspond to each lockbox. However, sometimes people are able to break into the lock boxes anyway, or Entelin mixes up the keys, or the keys just simply do not work. Another issue is lack of communication. Rural residents still do not completely understand or trust the company and their products. When they call, sometimes Entelin is slow to respond, which further diminishes trust. Entelin is contracted to install 60,000 solar systems in total, 20,000 systems in each of Peru’s three regions. The Peruvian government’s strategy first began Chapter 6| 177 with grid construction that was powered by stand-alone diesel generators. Next, there was the attempt to give people stand-alone solar home systems. Both of these have proven to be unsuccessful because the technologies broke down and there was no system in place for maintenance. Now, in its third phase, it is trying to contract with social enterprises and charge consumers for solar systems. Although these programs still have their problems, this model, first developed by Acciona in the Cajamarca region of Peru in the 2000s, is more sustainable. It has taken Peru several decades of trial and error, but it is making progress nonetheless. Among the different levels of government, local governments are more communicative and understand the population’s needs better than the state government. Theoretically, they should be better able to design projects in such a way that would meet the local population’s needs. Sometimes, it is not possible to enter into a community without the collaboration of the local government representatives or community leaders. However, local governments are even more resource-strapped than the national government, so their ability to provide information and evaluate projects is even more hampered. They are also generally tied to the terms of the entity providing them finance for projects, whether that be the state government or an international donor, who understands the local population less. If local governments do not comply by the set terms, however, then they do not receive funding. This tension can oftentimes result in inefficient projects (Escobar, Interview: 4 January 2017). Lack of funds is an eternal problem in the development industry. With post- implementation evaluation, development actors are better able to measure the impact and issues of their projects. Still, even with this knowledge, this does not mean that anything could be done about it due to lack of funds. As the Director of Endev-Peru, Ana Moreno, laments, “For Chapter 6| 178 our internal monitoring system, we may know that some families need help or no longer use the system [we provided], but we cannot return to help the family further in the future because we do not have enough funds for this” (Interview: 22 December 2016). While information is a necessary component of maintaining a project, money is another necessary component that enables actors to act once they receive pertinent information. The almost complete change of government personnel at all levels every five years also devastates policy continuity. Every five years, the regional governments transition. The governor changes every five years and cannot be reelected. The municipal mayors also change every five years. The tendency is that regardless of whether one is from the same party as his or her predecessor, the new administration wants to do something different from before, and with each change the priorities and budget change (Cady, Interview: 6 March 2017). These changes disrupt development projects, which many times take longer than five years to fully mature. People working in development also must be cognizant of the different qualities between populations, especially in different geographic regions. Samantha Boy, a lawyer and former Manager of the Bureau of Conflict Management and Social-environmental Commitment Fulfillment of OEFA, used to help mediate issues among indigenous populations and local communities. She notes that populations that live in the coast, jungle, and highlands of Peru have different cultural tendencies. The strongest efforts of development are concentrated in the highland and jungle regions of Peru. Highland people are not called indigenous but campesinos (even though they could be officially recognized as indigenous) which roughly translates to “peasant,” they are organized as peasant communities and are more modern than people from the jungles, who are called “indigenous” (most of them are officially recognized as indigenous) Chapter 6| 179 and are organized as native communities, which gives a connotation that they are less developed and of a different culture all together. Highland areas are easier to access than jungles, but highland peoples can be less unified than jungle people. As a result, they could be less cooperative than jungle people. Highland people focus on grazing and raising animals, while jungle people tend to work with agriculture and fishing. There is also the question of how much large companies have pitched these people against one another and external parties, since the highland areas have large mining companies while the jungle has had tensions with oil companies in the past (Boy, Interview, 12 December 2016). Development actors must take these various cultural differences into account when thinking about how to first approach a community, who to ally with, and how to deploy the project in the most effective and efficient way. Even though these groups are all working in Peru, they may have to design their projects differently depending on the geographic location of the people with whom they work. This chapter has mentioned many of Peru’s blunders in its past effort with rural electrification, but it in no way intends to disparage what it has done. Rural electrification is an extremely difficult topic with which many countries around the world are struggling. It is obviously not an issue that has been resolved. The fact that Peru began with an extremely ruined electrical infrastructure system and has since built it up to where it is now is an admirable feat. More challenges remain, but international assistance has helped by combining with domestic political will. The effort now is focused on designing the program better at the outset and improving existing programs (Rough, 2017). The important thing is that Peru has learned from its past mistakes and has tried to correct them in its future efforts. This shows progress. The important thing is to not lose political momentum in this current effort. Chapter 7| 180 Chapter 7. Looking at the Potentials and Challenges Ahead “I think Peru is on a precipice of something really great. They can fall off the cliff or they can soar.” (Cady, Interview: 6 March 2017) This dissertation has taken readers along a ride to learn about how Peru was able to pass its first renewable energy policy for mass use. This story is important because many countries across the world constantly face situations in which they must pass policies that are beneficial for society in the long run but face strong opposition in the short run. How do they circumvent this obstacle to pass the necessary policies? Learning about how political elites in Peru were able to do so — given that a mass-use renewable energy policy was extremely unfavored before its passage — may teach us about some of the factors conducive to passing such highly opposed policies. The story starts off with providing a framework for how to think about this issue, which is couching the idea of policy windows within an institutional framework. Institutions have long been seen to constrain actors’ behavior, but their design can also create opportunities for actors to pass major policy changes where none was expected. Still, the literature leaves several questions unclear, and this dissertation strives to answer a few of them: What is required for sufficient political willingness? What opens a policy window? Why does a policy window allow for major policy change? This case study illuminated answers to these questions and has raised a few more interesting observations. The story then delves deeper into the Peruvian case, first by providing a brief history of Peru and its electricity sector. Peru’s politics underwent a major shakeup in 1992, under the Chapter 7| 181 president/dictator Alberto Fujimori. For better or for worse, Fujimori instituted a new constitution and overhauled many of the existing institutions. The electricity sector, formerly a public enterprise, was divided and privatized. The generation, transmission, and distribution companies, both public and private, that now have ownership of the electrical grid have a natural monopoly in the market. Generators mainly were hydroelectric, natural gas, and some diesel. The market had a surplus supply of electricity, and most were interested in maintaining low rates for customers and keeping the status quo in the makeup of the sector. The third chapter traces how political willingness began to form within Peruvian society. International trends and interest in mitigating climate change led to growing interest in renewable energy technology. These trends included technology advancement, increase in information, political embrace of the climate change effort, and growing economic interest. Following these international developments, Peruvian state and civil society began to create institutions that researched and promoted efforts to mitigate climate change and encourage mass deployment of renewable energy technologies. Despite the growing interest, a suitable opportunity to overcome the strong opposition did not present itself. The opportunity came when Peru entered into a trade deal with the U.S., the topic of the following chapter. One of the terms of the trade deal required Peru to create more institutions and pass policies that were environmentally sound. Because the government had to make many institutional changes quickly to comply with the terms of the trade deal, the legislature delegated legislative power to the executive branch. There was interest in this policy among a few select elites in the past, and they had researched and designed a possible renewable energy Chapter 7| 182 policy for Peru. When these elites within MINEM received legislative power, they were prepared and cooperated with a few elites from civil society to pass this policy as a LD. The final empirical chapter takes a quick look at Peru’s rural electrification efforts and the role that renewable energy plays. In the past, the hope was to extend the electricity grid. However, as the remaining, unelectrified areas became increasingly remote, distributed systems were preferred, and renewable energy technology became the ideal technology candidate. Peru accepted several loans from the World Bank to develop its rural electrification programs, and these had stipulations that renewable energy technologies be the primary strategy. The government then tried to implement these distributed projects, but it lacked the resources to cover all the areas that this would require. It can be seen as entering a third phase in its rural electrification effort, which is selecting private investors to execute these projects. This concluding chapter will first cover the main takeaways from this in-depth research project. It will next discuss the applicability of these findings in other contexts because policy windows can occur in a variety of situations. It will then discuss the impact that LD 1002 has had on the market, now that this policy has had ten years of implementation. It is a good time to assess its progress so far. The fourth section analyzes some remaining thorny issues that policy makers still need to resolve. Following that, other policy options found elsewhere in the world are discussed, since Peruvian policymakers are now thinking about how else they can further expand the renewable energy market. The penultimate section looks at the global policy landscape and notes a correlation between high support for renewable energy with high income levels. Finally, the last section looks at recent global investment trends in renewable energy and confirms that the world is continuing to embrace renewable energy. Chapter 7| 183 Main Takeaways The first central question is: What opened a policy window? In this particular instance, the event that opened a policy window was an exogenous factor that drew great national attention. This allowed for attention to be diverted elsewhere and for renewable energy supporters to act without drawing much notice. It also shifted legislative power from its traditional seat in congress to the seat in the executive branch. Rather than Baumgartner’s theory that an event draws attention to a certain issue, allowing policies that would fix that issue to pass, this is an instance where an event happens that changes the normal distribution of power, which allows for policies that would not have passed during a political equilibrium to suddenly pass in this instance. Although it was only momentary, the executive branch was able to push many of its policy priorities through during this time. Thus, a policy window is an event that changes the regular distribution of power in a system. Usually, the status quo bias reigns supreme, and things operate in a business-as-usual way. Policy windows are actually shifts in the distribution of power, where players are given powers that they normally do not have and act upon them. This shift can take various forms, including a reduction in the number of veto players. Veto players are people who can block the adoption of a policy (Tsebelis, 1995). When the Peruvian legislature deliberates on a policy, the number of veto players can be as many as 130 members of congress, plus all the committee analysts and lobbyists who were involved with a policy. The people who could have obstructed the passage of a policy along its path numbered in the several hundreds. When the executive branch received legislative power, the veto players were reduced to essentially three. Given that the vice minister wanted the policy, he needed the approval of the minister, and then finally the president. Decision-making was highly Chapter 7| 184 concentrated and more radical change was possible. To be clear, this is not to argue that this is good or bad, just that this situation is more conducive to radical policy change than when there are more veto players. But just because a policy window opens does not mean that political actors will jump through it. This leads us to ask the second question about political willingness. The second central question: What factors were conducive to passing this highly opposed policy? The first factor is that actors did not pass this policy through the formal, normal route, but they used creative political maneuvering. Going through the formal route would have been too obvious and met with too much political opposition. The actors tried by proposing a bill at first, but quickly realized that they would not be able to attain their policy objective in this manner. Therefore, they used a political instrument that was “sneakier” to fly under the radar and pass this policy. An important consideration was the element of surprise in this action. Second, actors were highly prepared. Even before they knew that a policy window would open, they had already done much research to learn about the issue. They also had drafted the language and designed the policy. By the time a policy window did open, all their materials were ready, and they acted swiftly, catching the opposition by surprise. When the executive branch had legislative power, LD 1002 was the second legislative decree that MINEM passed. Third is recognizing an opportunity as a policy window when it comes. The power to pass LDs placed the rare concentration of power in the hands of a few decision-makers in the executive branch, which circumvented much of the traditional, anticipated opposition. But nothing would have occurred if actors did not seize this opportunity. Although the PTPA did not require that Peru pass a policy related to renewable energy, supporters creatively framed renewable energy so that it fit under the terms of the PTPA. Chapter 7| 185 Passing highly opposed policies also required actors to be placed in strategic positions where they can be politically influential. Having a team and knowing whom to call upon was also necessary. There is a little bit of luck, but people decided to crystallize the outcome that they wanted. The political process requires a little bit of creativity in order to get unconventional policies to pass, especially major policy changes that have strong opposition. So there does need to be this confluence of events occurring at the same time. But when it does, actors must be ready to pass the policy that they want. This case also illustrates the power of institutional design. The government and its institutions are generally stable and incrementally changing. However, the Peruvian government had systems in place for when quick change is necessary. This institutional design is especially great when there are natural disasters, when quick mobilization of political resources may be necessary. These institutional choices are ripe moments for political actors to enact changes that traditionally are not allowed in the normal course of events. Thus, while institutions provide predictability, their design must also provide room for adaptability. Another lesson from this case is the strong influence that the international system can have on domestic politics. Peru’s institutions changed drastically because of the trade deal with the U.S. “If you look at the basic level, without the trade agreement, Peru would probably be more behind environmentally than it is now. And in the past 10 years, it has done a lot of work. We need to give Peru the time to strengthen its institution” (Cady, Interview: 6 March 2017). The fact that a highly significant environmental and energy policy resulted from a trade deal with the U.S. is quite incredible. The desire of developing countries to conform to international norms is a strong force, so it is worthwhile to include these normatively desirable terms in international Chapter 7| 186 deals, such as when a country is entering into a bilateral trade deal, regional trade deal, or the OECD. Other terms that are worthwhile to include are environmental protection, human rights, civil liberties, and rural development terms. Finally, this case demonstrates the linkages between the international, state, and individual levels. The three levels are in constant interaction with each other. The developments in the international level are observed by the state and individual levels, and their effects also reverberate on the state and individual level. The closer the levels are to each other, the more likely they are to be able to impact the other. International proceedings are more likely to impact the state level, and state-level developments have a greater impact on the individual. The reverse direction is also true. The individuals’ activities are more likely to impact the state level than the international level, and state activities are more likely to impact the international level — witness how agreements on climate change actions are making great progress because states have signed onto the Paris Agreement. Also possible but less common is when the interaction skips a level. For example, this case shows how the international mindset on renewable energy energized domestic individual actors to pick up this effort. Keck and Sikkink (1998) discuss how individual actors can circumvent state governments and appeal directly to the international community. This study contributes to analyzing the relationship between levels of analysis, an analytical style where a system is divided into different categories or levels, with each being analyzed separately to make analyzation easier. Policy Windows in Other Contexts A case study of Peru is highly particular, but some generalizable lessons can be drawn. Of course, this is not proven in this dissertation, but there are certain characteristics that are present Chapter 7| 187 in many different contexts. The first is that institutions generally do have some designs that provide for policy windows. Power balance shift can happen through a straight reassignment of power, but it can also shift in other ways. The balance of power can change if a political actor or group of actors suddenly gains power that it did not previously have. One way that this could occur is if there is a change in actors’ functions. To continue using the U.S. as an example, a shift in power would be if the legislature suddenly gains executive power, or the executive branch is given legislative power. Another way that the balance of power can shift is if a certain party that was traditionally in power loses power. This is why elections are a policy window because after each election there is the possibility that a political party that had a majority in the government no longer has this majority, and another party gets elected to the majority in the office. This would be the structural policy windows that MS Model scholars write about. Elections can also give voice to new actors that did not have a voice in the past. Elections can open a policy window because they change the composition of the people who hold power in government and allow different actors to access power. Finally, there can be a change in the weight of power. In the U.S., there is supposedly a checks-and-balances system, in which the three governmental branches have differentiated but equal power to make sure that the other branches do not overstep the limits of their powers. During an impeachment, the president and the executive branch’s power may be diminished because of lack of respect for the president. At this time, the legislature has the opportunity to pass laws according to its will without much threat of being vetoed by the president because the legislature has more legitimacy and respect from the people. The shift in Chapter 7| 188 the balance of power can be an actual, administrative change, or it could be a perception that power has shifted. During this time, power is more concentrated in the hands of the legislature, which changes the normally equal distribution of power and can allow policies that under the status quo would not have passed to pass. Therefore, any power balance shift can be a window of opportunity for actors to effect radical changes that they have been waiting for. It is important to note, however, that policy windows are also specific to a subject matter. For example, a storm-related crisis may open up a policy window for policies related to alleviating damage from the storm. It is not an opportunity to pass a policy about immigration, unless the immigration issue is related to the storm crisis. The policy window opens for those policies that are relevant to the political situation that opened that policy window in the first place. If it is not related to the situation, policy-makers will have to strategically frame the issue to demonstrate its relevance to the issue at hand. If a policy window is about trade, then contentious trade policies are more likely to pass during this time, but not initiatives about childcare, unless there is a connection between childcare and the trade issue. The types of policies that can pass must be related to the type of policy window that opened. Although not borne out in this study, one can imagine that the threat of shifting the balance of power may be enough to open a policy window. Crises tend to shift the balance of power because when a crisis occurs and the public is unhappy with the response, then people tend to blame the leaders who are in place (Achen & Bartels, 2016). If people are unhappy about how the consequences of a natural disaster or a social crisis are handled, then in a democracy, they may want to vote their current leaders out of office. This threat of losing office may be Chapter 7| 189 enough to get political elites to take a major policy change seriously because they do not want to lose the power that they currently have. Fear of losing reelection because of such blame may pressure leaders to pass radically different policies from the past to show that they are responsive. Thus, a policy window permits major policy change because it shifts or threatens to shift the balance of power as compared to the status quo. It is significant because it allows many policies that would not have passed during a status quo period to pass. It is also when a greater volume of policies pass. Finally, policy windows are important because they permit major policy changes from the current political trajectory. For strategic actors who are trying to push a controversial or highly opposed policy through, policy windows are their opportunity to finally pass their coveted policies. In the past, policy windows were identified because they are structural and routine. But random policy windows were generally only identified post hoc, when political actors observe that many policies or controversial policies had passed. Understanding a policy window as a shift in the balance of power allows policy-makers and researchers to identify when a random policy window is opening, ex ante, so that they can prepare their strategy if they want to pass a highly controversial policy. This study is also not exclusive to renewable energy policies. There are many highly opposed policies on all subject matters. Regardless of the subject matter, it is possible to imagine that the various interests must also work around each other, perhaps bargain, in order to pass a certain policy. Similar to other contexts, Peru is a developing country where some institutions are still weak. MINAM, for example, was a direct result of the trade deal with the U.S. as well. It is still relatively weak and does not have much bargaining power or power to pass significant Chapter 7| 190 policies. However, it is gaining in power. Its minister was able to win the hosting of COP 20, which may not have led to a direct policy change at the time but made Peru feel compelled to back up its promises with real action. Therefore, it is gaining in prominence within the Peruvian society. Other developing countries face a similar situation in which the various governmental agencies may have differing power levels and interests. This makes a great opportunity for the various ministries to struggle to have their interests expressed in policy. Because this is a single case study, it is unable to make a strong generalizability claim. Therefore, the first step is to expand this study to other highly opposed policies and trace the political process that took place in order for it to pass. This would allow for more comparison and to develop the literature on the dynamics within policy windows. Thus, this study can be strengthened by studying highly opposed policies that were able to pass in other countries and in other subject fields as well. This would allow for a corpus to develop of the dynamics of various policy windows. What kinds of triggers are there? Why do they allow for major policy change? Who are the relevant actors? All of these questions merit further research to understand how radical policy change can take place. LD 1002’s Impact on the Market Ten years after LD 1002’s passage, now is a good time to analyze what impact, if any, it has had on the renewable energy market in Peru. LD 1002 has opened the door for renewable energy generators to sell electricity on the national grid for the first time, thereby changing Peru’s energy matrix. The first auction occurred in 2009. Abiding by their contracts, renewable energy producers started selling their electricity to the grid in 2011. Figure 9 shows the growth of the participation of renewable energy in Peru’s electricity grid. It has been growing every year due Chapter 7| 191 to the auction system and as companies complete their plants. Renewable energy currently constitutes slightly less than 5% of Peru’s total electricity output. There was supposed to be an auction in 2017, but it was not carried out. There is no official reason for the delay, although there is speculation that the government is trying to make the auctions better or considering increasing the 5% requirement that LD 1002 stipulates to a higher percentage. Figure 9: Electricity Production from Renewable Energy 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 0 500 1000 1500 2000 2500 2011 2012 2013 2014 2015 2016 % of Total Electricity Production GW/h Year Electricity Production from Renewable Energy GW/h % of Total Source: COES, 2018 Chapter 7| 192 As of 2018, there had been four renewable energy auctions. Because of the way that the law is written now — which states that companies that win these auctions must start producing electricity for the grid after two years of signing the contract — the only sources that qualify are solar, urban biomass, wind, small hydroelectric systems, and agricultural biomass. Geothermal plants take about seven years from development to production, so they still cannot enter these auctions (Rough & Espinoza Zegarra, Interview: 21 March 2017). Figure 10 shows the results of the four auctions that have taken place and the average prices of the bids that were entered. The light green horizontal line shows the average market price, which comes in at about USD 52/MWh. As can be seen, renewable energy prices have Figure 10: Peru's Renewable Energy Auction Results: Average Prices of Bids Market Price 0 50 100 150 200 Solar Urban Biomass Wind Small Hydroelectric Agricultural Biomass USD/MWh Renewable Energy Source Peru's Renewable Energy Auction Results: Average Prices of Bids Auction 1: 2009 Auction 2: 2011 Auction 3: 2013 Auction 4: 2015 Source: Quintanilla Acosta, 2016, p. 14 Chapter 7| 193 decreased over time. The first auction took place in 2009. In this year, the average price for solar was USD 221.1/MWh; urban biomass was USD 110/MWh; wind was USD 80.4/MWh; small hydroelectric was USD 60.0/MWh; and agricultural biomass was USD 52.0/MWh. In the second auction in 2011, solar cost USD 119.9/MWh; urban biomass cost USD 100.0/MWh; wind cost USD 69.0/MWh; small hydroelectric plants cost USD 52.6/MWh; and agricultural biomass did not participate. In the third auction in 2013, only small hydroelectric plants won contracts and their average price was USD 56.5/MWh. The fourth auction took place in 2015, with solar coming in at USD 48.1; urban biomass at USD 77/MWh; wind at USD 37.7/MWh; and small hydroelectric plants at USD 43.8/MWh. Again, agricultural biomass did not participate (Quintanilla Acosta, 2016, p. 14). Wind and solar were cheaper than market price for the first time. Solar electricity was injected into the grid for the first time in 2012, and then wind entered in 2014 (Ramos, Interview: 10 August 2017). In the first auction, agricultural biomass was the lowest priced, then small hydroelectric, then wind, then urban biomass, and finally solar. Solar energy was twice as expensive as the next most expensive energy source, urban biomass. By the fourth auction, the highest-priced energy sources were urban biomass, then solar energy, and then small hydroelectric plants; wind energy was the cheapest source. The prices of solar, wind, and small hydroelectric plants are reaching parity with traditional energy sources. As prices drop, consumers will no longer have to pay the difference in these prices from market price to subsidize renewable energy because their prices will be market prices. LD 1002 has also had some psychological impacts on Peruvians as well. The first long-held distrust was related to Peru’s infrastructure. Prior to renewable energy’s entrance, many skeptics believed that renewable energy would be disruptive to power lines. Some people were uncertain Chapter 7| 194 whether the surge in electricity production caused by certain types of renewable energy production would disrupt the existing grid and cause a breakage. The second distrust was of renewable energy producers. The question was whether renewable energy companies would be able to deliver the amount of electricity written in their contracts. Now that LD 1002 has been in place for about ten years and renewable energy producers have been feeding electricity into the grid for about seven years without any major disaster, the concerns about renewable energy have abated. People are less concerned that renewable energy production would be incompatible with the Peruvian electricity system because there is now a concrete and functioning system in place incorporating renewable energy producers into the electricity market. This has led more people to see the feasibility of incorporating more renewable energy production in the future. Remaining Issues Renewable energy’s price decrease has been used as argument that the privileges given to renewable energy producers are no longer necessary and should be removed so that renewable energy producers can compete in the market with other producers, on the same level playing field as everyone else (Quintanilla Acosta, 2016). The issue with this argument is that in Peru’s current law, generators are not allowed to sign contracts with unregulated users or distributors above the “stable power” that they can produce (Law 28832, Ch. 2, Art. 3). “Stable power” is the maximum power that a plant can produce while maintaining a high level of security over a span of time, usually measured over a month (Sectorelectricidad, 2014). This is to make sure that generators do not sign contracts based on an amount of electricity that they cannot realistically deliver, such as at the level of their installed capacity. Producing at the absolute maximum that Chapter 7| 195 their machines can produce for a long period of time may cause the machines to break down and prove to be dangerous. Butron explains why this provision exists: “It was created when Peru had a scarcity and it wanted to avoid this problem of a company lying about how much it can produce… Now that there is no scarcity, now that there is time to respond, it is no longer needed” (Interview: 16 May 2017). Biomass and hydroelectric plants usually do produce a relatively stable supply of electricity over a month, but solar and wind do not produce at the same level all the time. They only produce when the wind blows or the sun shines. Therefore, as Peru’s law is currently written, eliminating LD 1002 would prevent solar and wind producers from signing any PPAs with users or distributors to sell their electricity. But Butron does not see this as a major problem. “[Stable power] is an administrative issue, which the law states. This is not a physical problem… It is simply a concept. Free this condition and change the law so that you do not need stable power to sign PPAs, and they can begin to sign PPAs and attain the PPAs that they can to finance their projects” (Interview: 16 May 2017). He suggests that there is a simple solution to this issue, which is to change regulations to state that when a generator cannot generate stable power, this part of the law will mean that their stable power be calculated as 80% of their installed capacity. “The cleanest way to do this is to change the law. The other way to do this, which takes a little bit of bravery, is to pass a regulation that says that this will apply in this way” (ibid). But he says that MINEM members do not consult with COES when drafting any new regulations, and the communication surrounding this issue breaks down. MINEM, for its part, is also highly aware of the issue for renewable energy producers because of this “stable power” requirement. They lament that, “It is very difficult to change a law, Chapter 7| 196 so this office is trying to do whatever we can do by ourselves. We try to look at what is the most efficient way to promote renewable energy,” say representatives from the Energy Efficiency Office within MINEM (Rough & Espinoza Zegarra, Interview: 21 March 2017). Currently, there is a learning curve to understand and keep up with new technologies, and MINEM is trying to monitor the progress of the renewable energy installations so far. Aside from possible ways to change regulations, they are creating an analytical tool that can incorporate flexibility in policies and technology, devising an information technology program that can allow instant input of information about production to show Peru’s energy balance in real time, drafting a National Energy Plan, and analyzing ways to improve future renewable energy auctions (ibid). However, even within MINEM, there still exist many people who hold the older distrust of renewable energy because it is new and possibly disruptive to the energy market. Within MINEM, there are supporters and opponents, making progress slow but carrying the benefit of being a deliberative process. The government has committed to four Nationally Appropriate Mitigation Actions (NAMAs), and renewable energy use is one of them. NAMAs are actions that the national government of a developing country wishes to take to reduce GHG emissions. This idea resulted from COP 18 in Doha, Qatar. According to Daniella Rough, the Coordinator of NAMAs for Peru, Peru is committed to reducing GHG emissions through four mechanisms: using energy more efficiently, promoting renewable energy for grid-connected electricity, proliferation of renewable energy use in rural areas for electrification, heating, and cooking, and preparing the electrical grid for the transformation to electrical transportation (2017). Chapter 7| 197 Peru’s goals for reducing GHG emissions and contributing to the mitigation of climate change is closely tied to exploiting renewable energy technologies. More concretely to make progress on those goals, the NAMA program in Peru is looking to create tools to help Peru reach the goals set out in its New National Energy Plan, increase the 5% goal of electricity from nonconventional renewable sources, revise the definition of “stable power” so that renewable energy sources can compete in the free and regulated electricity markets, and promote regulations for renewable energy in distributed generation to facilitate its adoption. This would, for example, help solar rooftop installations. Another goal is to eliminate distortions of prices for use of other fuels. Currently, natural gas is highly subsidized. Finally, there is a move to evaluate alternatives to auction, since it is currently the only means that renewable energy can sell electricity on the grid. Methods that the program is evaluating include block schedules, so solar energy producers would only have to compete during daylight hours when they produce energy, for example. Other ideas are quotas for distributors, and, finally, thinking about how to free up the market so that they can compete more freely (Rough, 2017). Another issue that needs some contemplation is that of geothermal energy. Peru has much geothermal energy potential. According to one estimate, there is about 3,000 MW of geothermal energy in Peru, mostly concentrated in the southern region (Claros Pacheco, 2015). Geothermal currently cannot enter through the mechanism that LD 1002 created, however, because there is a requirement that contract winners must start selling electricity to the grid within two years of winning the bid. Geothermal plants usually take about seven years to construct. MINEM is also thinking about ways to amend the laws or regulations to permit geothermal plants to compete as an energy source as well (Rough, 2017). Chapter 7| 198 Of course, skeptics remain. These people think that Peru does not need renewable energy, it is still expensive, and incorporating it increases the price for everybody. “So because everyone is conscious of this, even though there is a law, they try to complete it as slowly as possible. This is what they have done. They had to hold auctions, yes, but the law does not say that there has to be a minimum of 5%. It says, ‘up to 5%’. So good. If we are at 2%, we can stay there. So for a long time there was a lot of frustration on the part of the renewables because there were auctions that were very spaced out and for a small quantity” (Butron, Interview: 16 May 2017). The ongoing skepticism creates an environment of “reluctant implementation,” where the bare minimum of the law is reached, and progress is not made as fast as it can be. As Cady puts it, “I hate to say there is no will yet because I think they don’t know yet (Interview: 6 March 2017).” It is not because people still oppose renewable energy, but they just do not understand the issue well enough to trust it. Amazonian congressmen, for example, prioritize bringing hydrocarbon, hydropower, and gold mining companies into their region because these have been lucrative for them in the past. There is security in the familiar. If this is the issue, the solution would be to educate congressmen of the potential benefits of renewable energy and show them examples of successes in other areas. More information and education can be big keys to getting Peru to move ahead with renewable energy efforts. These sentiments show that it is premature to be too optimistic. Renewable energy production currently makes up less than 5% of total electricity production in Peru (excluding large hydroelectric dams). This means that its market presence is still very small. It is also a new presence. Therefore, it is still difficult for domestic actors to conjure up effective lobbying to change policies. However, the Paris Accord has been passed and requires countries to make Chapter 7| 199 changes to reduce their emission. If the global norm continues to change in favor of ratcheting up efforts to mitigate climate change, Peru will likely, as it has been in the past, feel compelled to increase its efforts, too. If the momentum continues, this will give renewable energy producers more market presence. According to the terms of the decree, MINEM, with OSINERGMIN’s assistance, is supposed to conduct an auction every two years. There should have been an auction in 2017, but this was cancelled. The president of the Peruvian Society of Renewable Energy (SPR), Juan Coronado, believes that the next renewable energy auction will take place at the end of 2018. This is especially necessary now because Peru’s energy consumption pattern grew more than predicted and the oversupply of energy is predicted to end by 2020 or 2021 (Energía Estratégica, 2018). LD 1002 gave renewable energy producers the ability to have a market presence for the first time. The next step is to think about how else to facilitate the market so that more producers can enter and compete in the market. Another development, to expand the market even more, is to encourage distributed generation by traditional energy consumers. With rooftop solar panels, each energy consumer can be a producer as well, with unused electricity sold back to the grid. This is being done on growing scale in many countries, including the United States, Germany, and Japan. But policies must be put in place so that distributed generation can be more secure and profitable for investors to encourage more people to invest. One current drawback is lack of information. The government and private sector can increase information for users so that they know what policies are in place and have more information about renewable energy sources (Töfflinger, Interview: 8 December 2016). Chapter 7| 200 The government, of course, can always help more with research and development. Research is always taking place at research institutes, such as universities. This research is exploratory and takes place on a small scale to produce prototypes. Once researchers are able to find a product that looks promising, then they look into producing the product on a medium or large scale, but scaling production comes with many complications and costs. At the Pontifical Catholic University of Peru, researchers conduct research on new layers of materials that could be used to improve solar panels. But the researchers cannot transfer these layers to actual solar cells to test these layers when they are interacting with solar cells, so they must transfer their hypotheses and materials to the Helmholtz-Zentrum Institute in Berlin or another institution that has a solar cell production facility to test this. This is one of the reasons Germany has many innovations in solar energy technology: They can produce their own solar cells. While this process generates communication between researchers from all over the world, it also introduces many inefficiencies because institutes have to get institutional clearance to collaborate and then share information. The government can help researchers by providing more funding for research projects, and then providing infrastructure and support for commercialization if it reaches that stage (Töfflinger, Interview: 22 November 2016). Policy Options for Renewable Energy in the World Peru chose an auction to promote its renewable energy sector. More than other regions in the world, the auction plays a large part in accelerating this sector in Latin America, with twelve countries using auctions: Argentina, Belize, Brazil, Chile, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, and Uruguay. As of 2015, these nations have hosted more than 60 renewable energy auctions. Auctions are attractive because they are a cost-efficient way Chapter 7| 201 of reaching renewable energy targets and learning about market costs (IRENA, 2016, p. 70-72). Latin American countries have found the auction to be a suitable policy option for their renewable energy needs. Auctions in which the government allows companies to bid and place the price for projects that the government wants completed are a popular program. The company that can complete the project at the lowest price wins the bid. Ideally, this process encourages companies to come up with innovative ways to cut down their cost and saves money for the government. A problem that can arise from these auctions is that companies will have an incentive to mark down their actual cost. Governments, especially of developing countries, may lack the expertise to fully evaluate whether the estimated cost is feasible or not. After the company wins the bid and starts to construct the project, the final price may end up higher than the price that had been agreed upon during the auction. Governments are then left with three options. First, the government can leave the project unfinished once the cost agreed upon at the auction has been reached. However, this looks bad politically because the government spent time and public money to hold the auction but is not providing the public with any new service. Second, the government can agree to keep paying the increasing cost to the company until the company finishes the project. The issue with this option is that the government is spending more on this energy project than it had originally budgeted. The upside is that the public will be able to benefit from a new service. Third, depending on the quality of the company’s work, the government can end the contract with this company and contract with another company, either through another auction or other process, to complete the project. To circumvent this issue, some governments in their contract require that the initial capital investment all come from the company, and the Chapter 7| 202 government will pay a higher electricity price for a period of time so that companies can recoup their initial investment over time after they have started producing electricity. Despite some risk of defaults, even with an auction system, countries have seemed largely satisfied with the auction process as more and more countries are using this process for their larger energy projects. Latin America is the earliest adopter of the auction process. Peru is on its fourth round of auctions, El Salvador will soon have its second, and Mexico and Argentina are preparing for their first one. Other countries that use auctions to attract bidders are Iraq, Jordan, Turkey, Morocco, France, Germany, and Spain (REN21, 2016, p. 114). Aside from the auction, there are many policy options that countries can choose from moving forward. Fiscal incentives, regulatory instruments, and financial mechanisms are common tools to support renewable energy use. Countries that have high scores for legal, institutional, and administrative framework also attract the highest levels of investment, most notably Brazil, Chile, Mexico, and Uruguay (IRENA, 2016, p. 16-17). A popular form of commitment in the renewable energy sector is the target. 173 countries have a target for renewable energy use, with some state/provincial governments having their own separate targets as well. Targets are generally not binding, but they express a country’s commitment to using more renewable energy, which can spur industries and assure possible investors about the government’s intended commitment to the industry. Latin America has one of the highest targets in the world, with Costa Rica aiming for 100% of its energy generation to come from renewable energy sources by 2030; Uruguay plans 95% by 2017, Belize plans 85% by 2027, Guatemala plans 80% by 2030, and Bolivia plans 79% by 2030 (REN21, 2016, p. 109). Chapter 7| 203 Fifty-two countries have now installed some kind of net metering policy in their systems. Net metering is when utility companies keep track of the amount of energy produced and consumed on site. With net metering, an electricity producer who owns an eligible renewable energy generation system, such as rooftop PV systems, can send excess electricity back into the grid. Producers only pay for the net energy that they consume from the grid and are credited for the electricity that they send to the grid (SEIA, 2018). Utility companies are only allowed to charge consumers the cost of using electricity from the grid that consumers did not produce on site. Some net metering setups give consumers credit for producing more electricity than what they consume. An extension of the net metering process is the feed-in policies. Feed-in policies are the most popular policy support and are in place in 75 countries at the national level and 35 entities at the state/province/territory level. Feed-in tariff is an even more generous form of net metering. This program allows small-scale electricity producers to receive a return for all electricity they generate and provide to the grid at a set price and for a set period of time (NREL, 2010). Net metering and feed-in tariffs accelerate the return on investment for people who own renewable energy systems. These programs are popular in developed countries, but they pose several challenges for developing countries. Allowing traditional customers to use distributed systems to feed into the grid can cause grid instability if the infrastructure is not strong. The electricity grid has traditionally been unidirectional, so they have to be retrofitted to allow electricity to flow in from consumers. Finally, these programs must be funded, which can come from the government, electric companies, or consumers who do not own these systems, so the source of subsidies can stir up much controversy. Chapter 7| 204 Although it was one of the first major ways that governments helped renewable energy, governments are beginning to phase out feed-in policies as renewable energy becomes more price competitive with traditional fuels. Instead, countries are switching to auction systems in hopes of winning the lowest price from a variety of bidders. Latin America is not a big fan of feed-in policies, with Ecuador eliminating its feed-in tariff for all technologies and Costa Rica introducing new feed-in tariff rates for solar PV systems only (REN21, 2016, 0. 109). The Renewable Portfolio Standard (RPS) is a quota generally requiring utility companies to produce a certain amount of their electricity from renewable sources. These can be voluntary or mandatory. By 2015, 26 countries had a national RPS. The RPS is also popular at the subnational level. Vermont, a U.S. state, requires that 55% of its electricity be generated from renewable energy by 2017, and 75% by 2032. Some states and sub-national regions are changing their voluntary quota to mandatory quotas (REN21, 2016, p. 114). California just passed a law to require that electricity providers generate 60% of its electricity from renewable sources by 2030, and 100% of its electricity from zero-carbon sources by 2045 (De León, Senate Bill 100, 2018). Countries also provide a number of financial incentives. There are various tax relief mechanisms in place. In 2015, the U.S. approved its longest extension to date of existing production and investment tax credits (REN21, 2016, p. 115). Governments also provide subsidies, such as for the purchase of certain equipment, or this subsidy is rolled into the form of a tax credit. The overall idea is to reduce the cost for producers and consumers of renewable energy. Additionally, countries also offer grants and loans for research and development and to conduct feasibility studies of projects. Chapter 7| 205 LD 1002 is a gateway policy for future, grid-connected policies that promote renewable energy. There are people who now think about how to modify the current system to make it easier for the renewable energy market to grow. For example, how can regulations be changed so that renewable energy producers can compete with other energy sources outside of the auction system? Currently, this only occurs once every two years, and if companies miss these deadlines, there is no other way for them to enter. Another policy that public officials are pondering is that of blocked schedules. Chile, for example, allows separate competition times. Daylight hours is considered one period and night hours is another period, so then solar energy companies do not have to compete with companies who can produce throughout the entire day. 19 Another thought is to implement a net metering or feed-in tariff system so that producers can install rooftop installations on homes and incentivize consumers to buy solar panels and save money on their electric bills. The hope is that more laws can be passed to support renewable energy in the future. If not laws, then at least regulations can be passed to promote more renewable energy. In some cases, governments below the national level are taking the lead in implementing more aggressive renewable energy policies. Current practices of municipalities played a prominent role in COP21 negotiations as they were examples of what was possible. They are also advocates of more aggressive policies. Denman Prospect in Australian Capital Territory, for example, required that all new buildings in its jurisdiction install solar PV panels of at least 3 19 Chile passed Law 20805 in 2015, which introduced hourly blocks into the energy tender process (day, peak, night, and 24 hours). This allowed bidders to bid at the time period when they are most competitive. Solar energy, for example, can compete in the daytime block when it is the most competitive, rather than competing with producers who can produce for 24 hours (Currie, 2017). Chapter 7| 206 KW (REN21, 2016, p. 117-18). The State of California, under Governor Brown, hosted the Global Action Climate Summit in September 2018 to affirm California’s commitment to mitigating climate change and the Paris Accord, even as the federal government under the Trump Administration has pulled out of the agreement. Policy Landscape Regarding renewable energy policy, there is a policy gap. This can be clearly seen in Figure 11. The majority of renewable policies in the world that have been passed target the electricity sector, and many fewer seek to convert the heating and transportation sectors. Policies have been mostly lagging in the heating and cooling sectors. In transportation, there is interest in policies for renewable fuels and electric vehicles, but not much has been focused on aviation, rail, or shipping. Judging from 2010 data, globally, electricity, and heating constitute 37% of emissions. It is not possible to tease out how much of this percentage comes from electricity and how much from heating, because most databases lump electricity production and heating together when measuring greenhouse gas emission. Transportation alone constitutes 15% of GHG emissions. In Peru, electricity and heat constitute 21% of GHG emissions, while the transport sector constitutes 23% of GHG emissions. It would have made a bigger difference in GHG reduction if governments targeted cleaning up their transport sector than their electricity sector. In the U.S., heating and electricity emit 46% of GHG, which is significant, but transportation also emits 29%, also significant (The Shift Project, 2018). With so many policies targeting electrification and not as many targeting transportation, the contribution to GHG emissions has likely decreased for Chapter 7| 207 electricity while it has increased for transportation. Why do countries focus on converting the electricity sector more so than the heating or transportation sector? The answer to this question likely involves many political interests as well. Renewable energy is a component of sustainable energy. Sustainable energy encompasses three main pillars: universal energy access, energy efficiency, and renewable energy (SE4ALL, 2017). The Sustainable Development Goals of the United Nations on energy Figure 11: Global Renewable Energy Policy Landscape 56 63 64 66 20 16 21 21 100 102 112 114 0 20 40 60 80 100 120 2012 2013 2014 2015 # of Countries with Policy Year Global Renewable Energy Policy Landscape FIT* Tendering* Net Metering* Solar obligation~ Technology-neutral obligation~ Biodiesel' Ethanol' Non-blend mandate' Countries with Power Policies Countries with Transport Policies Countries With H&C Policies *Power Policies ~Heating and Cooling (H&C) 'Transportation Policies Chapter 7| 208 strives to “ensure access to affordable, reliable, sustainable, and modern energy for all” by 2030 (UNSD, 2017). Renewable energy is one important component of having sustainable energy. The Regulatory Indicators for Sustainable Energy (RISE) provides country benchmarks on performance in sustainable energy. It came from the SE4All initiative’s Knowledge Hub, where it was recognized that there needed to be a way to better compare policies across countries to understand best practices. RISE scores countries on three main indicators — energy access, energy efficiency, and renewable energy — using twenty-seven indicators and eighty sub- indicators. In its latest report in 2016, it covered 111 countries and ranks them as green for the top third scoring countries, yellow for middle-range performers, and red for countries scoring in the bottom third. The reports are released biennially (RISE, 2016, p. XV). Figure 12: RISE Overall Scores RISE Overall Scores Source: RISE, 2016 Chapter 7| 209 Looking at the map of renewable energy policy in Figure 12, it is apparent that developing countries are still behind the rest of the world in passing more supportive policies for renewable energy. About 80% of countries scored in the green or yellow zone, and in this pool about half scored green and half scored yellow. About 20% of countries were red, meaning that they have very little policy support for sustainable energy rollout. Denmark scored the highest with a 90 out of 100, while Somalia scored the lowest at only 10 (RISE, 2016, p. 6). Figure 13: RISE Overall Scores and Average Scores by Region 3 14 33 31 54 70 100 43 71 42 54 38 30 0 54 14 25 15 8 0 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sub-Sahara Africa South Asia East Asia & Pacific Latin America & Carribean Middle East & North Africa Europe & Central Asia OECD high income % RISE Overall Scores and Average Scores by Region ≥67 33<x<67 ≤33 33 Average Score 50 53 57 62 71 85 Source: RISE, 2016, p. 6 Chapter 7| 210 Support for sustainable energy policies is highly correlated with income levels, as can be seen in Figures 13 and 14 (RISE, 2016, p. 6.). High-income countries scored mainly green or yellow, while low-income countries were either yellow or red. Why does this correlation exist? Why is there more sustainable energy support when the country’s income is higher? These are more interesting questions that can be investigated to understand the factors that allow for renewable energy policies to pass. Figure 14: RISE Overall and Average Scores by Income Group 0 18 73 79 41 5 23 21 59 27 5 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Low Income Lower Middle Income Upper Middle Income High Income % RISE Overall and Average Scores by Income Group ≥67 33<x<67 ≤33 29 Average Score 49 67 79 Source: RISE, 2016, p. 6 Chapter 7| 211 Recent Global Trends in Renewable Energy Moving forward in time, the world continues to invest in renewable energy, with ups and downs but carrying an overall upward trend, into the present. Renewable energy continues to grow in both generation and capacity, as can be seen in Figure 15. In 2015, for the first time in history, developing countries invested more in renewable energy than did developed countries, totaling USD 156 billion, with China at the forefront, contributing 36% of total global investment. Developed countries saw a decline of 8% to USD 130 billion, mainly because of Europe’s decline in investment, even though the U.S.’s investment increased by 19% to USD 44.1 billion (REN21, 2016, p. 25; FS-UNEP & BNEF, 2016, p. 14). Latin America constitutes one of the fastest-growing regions for renewable energy use. This is due to its long dependence on hydroelectricity and fossil fuels, which, with climate change, has increased pressure to diversify its energy mix. A move away from these two sources would mean Figure 15: Renewable Power Generation and Capacity as a Share of Global Power 0 2 4 6 8 10 12 14 16 18 2007 2008 2009 2010 2011 2012 2013 2014 2015 % Year Renewable Power Generation and Capacity as a Share of Global Power Renewable power as a % of global power capacity Renewable power as a % of global power generation Source: FS-UNEP & BNEF, 2016, p. 30 Chapter 7| 212 that droughts would have less of a disruption on the total energy market, and reducing fossil fuel use means fewer emissions. Furthermore, Latin America also attracts investors because some countries have passed favorable policies, and most countries have competitive development costs (IRENA, 2016, p. 3). Costa Rica now generates 99% of its electricity from renewable sources, and Uruguay generates 92.8%. Chile is also growing rapidly as a renewable energy investor while Brazil has long been a world leader in hydropower, wind generation, and biofuels. Other notable or emerging markets in Latin America include Mexico, Guatemala, and Peru (REN21, 2016, p. 34). Chile and Honduras are among the top fifteen countries worldwide for new installations. Figure 16: Asset Finance in Renewable Energy in Selected Latin American Countries, 2015 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Mexico Chile Uruguay Honduras Jamaica Peru Dominican Republic Asset Finance in Renewable Energy in Selected Latin American Countries, 2015 Asset Finance (Billion of USD) Source: FS-UNEP & BNEF, 2016, p. 29 Chapter 7| 213 Figure 16 shows the asset finance in renewable energy in selected Latin American countries. In addition to Brazil, which has been a big investor in renewable energy for some years, other Latin American countries are also beginning to participate in a big way. In 2015, Brazil accounted for about 40% of investment in the region, with Latin America contributing a total of USD 7.1 billion (BNEF, 2016). In 2015, Mexico saw investment increase by 109% to USD 3.9 billion, Chile by 141% to USD 3.4 billion, and Uruguay by 25% to USD 1.1 billion. Chile is Latin America’s leader in solar power, with USD 2.2 billion of asset finance of solar in 2015. Still, there are countries that declined in their renewable energy commitment in 2015, with Honduras dropping 27% to USD 567 million, Peru down 48% to USD 155 million, and Panama, Costa Rica, and Guatemala dropping in investment figures and investing less than USD 100 million (FS-UNEP & BNEF, 2016, p. 29). Peru is not a leader in renewable energy policy or consumption in Latin America, but it is beginning to open up more to renewable energy. It joins the growing tide of renewable energy converters, and adds to the norm trend, pushing it toward tipping point and cascade. As many Peruvian elites have noted, the world is moving evermore toward renewable energy use. The study of why highly opposed policies are able to pass is interesting because it presents moments of great opportunity for policy change. Radical policy change is rare but momentous due to the lasting effect that it has. Usually, once policies are passed, they are not overturned, or not overturned completely, so their legacy lasts for a long time. In Peru’s case, this radical change was catalyzed by a trade deal with the U.S. — an unlikely source to create environmental and renewable energy policies, but that was what happened. Continuing this area of study can help us understand how major policies can occur in other important areas, Chapter 7| 214 such as human rights protection and development. In understanding them better, we may take one step closer to creating the right conditions for these highly opposed but necessary policies to pass. 215 Appendix 1: Legislative Decree 1002 (English) LEGISLATIVE DECREE to promote investment in electricity generation with the use of renewable energies LEGISLATIVE DECREE No. 1002 Concordances: 1. Supreme Decree No. 050-2008-EM, published on 10/02/2008 2. Law Decree No. 25844, published on 11/19/1992 3. Law No. 26848, published on 07/29/1997 4. Law No. 28832, published on 07/23/2006 5. Legislative Decree No. 1041, published on 06/26/2008 6. Legislative Decree No. 1058, published on 06/28/2008 7. Supreme Decree No. 009-93-EM, published on 02/25/1993 8. Supreme Decree No. 056-2009-EM, published on 07/11/2009 THE PRESIDENT OF THE REPUBLIC CONSIDERING THAT: The Congress of the Republic, through Law No. 29157 and in agreement with Article 104 of the Political Constitution of Peru, has delegated to the Executive Power the authority to legislate on certain matter, with the purpose of facilitating the implementation of the Trade Promotion Agreement and its Amendments (TPA) between Peru and the United States, and of bolstering economic competitiveness through its use. Some of the delegated issues are to improve the regulatory framework, strengthen institutions, modernize the State, promote private investment, stimulate technological innovation, and build institutions in the field of Environmental Governance; The Peruvian economy has experienced a sharp growth, which generates a great demand for electric energy, whose growth rates have been 8.3% in 2006 and 10.8% in 2007. It is estimated that by 2015, the average annual rate of growth will be 7.3%, taking into account that the TPA 216 Peru-US will be in effect. The need for new supplies of electricity in 2015 is estimated to be more than 3,600 MW. To reach that, the cleanest and most beneficial option is to encourage that a great part of the needed supply come from renewable energy, in place of electricity generation derived from oil and natural gas since they are polluting and non-renewable sources; The promotion of renewable energies, by eliminating whatever barrier or obstacle for its development, means diversifying the energy matrix and constitutes an advancement towards a policy of energy security and environmental protection. It is of public interest to provide a legal framework to develop these energies in a way that encourages investment and to modify existing laws that have not been effective because they lack the minimum expected incentives as compared to this legislation; The present legislative proposal will provide additional benefits such as the implementation of a framework that will encourage private investment, elimination of barriers to this energy activity, preservation of the environment through the production of clean energy, contribution to positive impacts at the global level, and at the same time, reaching a minimum condition for developing Peru’s economy, which needs greater security in energy availability; It is necessary to issue incentives to promote investment in the generation of electricity with the use of renewable energy sources, to incentivize scientific research and technological innovation, to implement projects that qualify as Clean Development Mechanisms (CDM), and to obtain the respective Certified Emission Reductions (CER) credits, which can be used as negotiables with companies from industrialized countries that count those reductions of greenhouse gases as part of their quantitative goals that were promised in the Kyoto Protocol; 217 In agreement with the established rights in Article 104 of the Political Constitution of Peru; With approbatory votes from the Council of Ministers and the charge of notifying the Congress of the Republic; Has provided in the Legislative Decree the following: LEGISLATIVE DECREE TO PROMOTE INVESTMENT IN ELECTRICITY GENERATION WITH THE USE OF RENEWABLE ENERGY Article 1. – Objective The present Legislative Decree has as its objective to encourage the use of Renewable Energy Resources (RER) to improve the quality of life of the population and to protect the environment through the promotion of investment in electricity production. The present Legislative Decree applies to the generation of electricity using RER that enters commercial operation after the present Legislative Decree comes into effect. The acquisition of the corresponding electric rights is subject to the established terms in Law Decree No. 25844, Law of Electric Concessions, its regulations, and complementary standards. New company operations that use RER as their primary energy source will be able to benefit from the terms in the present Legislative Decree, provided that they have received accreditation from the Ministry of Energy and Mines. Concordance: S.D. No. 050-2008-EM: Art. 2 S.D. No. 056-2009-EM Article 2.- Declaration of national interest and the participation of RER in the electricity generation matrix 218 2.1. The development of new electricity generation through the use of RER is declared as a national interest and public necessity. 2.2 The Ministry of Energy and Mines will establish every five (5) years a target percentage of the national electricity consumption that will come from RER-generated electricity, not considering in this goal production from hydroelectric stations. This target percentage will be 5% each year for the first five years. Concordance: S.D. No. 050-2008-EM: Art. 4 Article 3.- Renewable energy resources (RER) For the purpose of the present Legislative Decree, RER includes energy resources coming from biomass, wind, solar, geothermal, and ocean current. Regarding hydroelectric energy, it is when the installed capacity does not exceed 20 MW. Concordance: S.D. No. 050-2008-EM: Art. 5 Article 4.- Responsible authorities The Ministry of Energy and Mines is the proper national authority in charge of promoting projects that utilize RER. Regional Governments can promote the use of RER within their own territorial domain, corresponding with the framework outlined in the National Renewable Energy Plan. Article 5.- Commercialization of energy and generated power using RER 219 Electricity generated using RER has priority in the daily dispatch conducted by the Committee of Economic Operation of the System (COES), for which the variable cost of production will be considered equal to zero (0). In the total or partial sale of electric energy production, the titleholders of investment projects resulting from this present Legislative Decree should be able to sell their energy in the Spot Market, at the price that this market determines, complemented by a fixed premium from the Supervisory Agency for Investment in Energy and Mining (Osinergmin) in the case that the marginal cost is less than the determined price by Osinergmin. To determine the price and premium indicated in the previous paragraph, Osinergmin will conduct the corresponding calculations, taking into consideration the type of installation based on its categories and groups and according to the characteristics of each distinct RER. The price and premium are determined in such a way that will guarantee a yield no less than that established in Article 79 of Law Decree No. 25844, Law of Electric Concessions. Concordance: Law Decree No. 25844: Art. 79 S.D. No. 050-2008-EM: Art. 8, 9, and 10 Article 6.- Payment for use of distribution lines Generators using RER that qualify as Cogeneration or Distributed Generation as established in the Law, will pay for the use of distribution lines according to the terms written in part b) of the Eighth Complementary Final Provision of Law No. 28832. Concordance: Law No. 28832: 8th Complementary Final Provision, part b) 220 Article 7. – Determination of the regulated price of generation applicable to RERs 7.1 Osinergmin will hold a tender to decide the premium for each project using RER generation, according to guidelines set by the Ministry of Energy and Mines. Proposals that participate in the auction will also include the cost of installing necessary transmission lines to connect to the National Interconnected Electric System (SEIN). 7.2 In order to cover the agreed upon price for each RER, the difference in remuneration will be obtained from users through surcharges in the Fee for Connection as referenced in Article 61 of the Law of Electric Concessions. The respective generators will receive this difference through a transfer that COES will execute, according to the procedure that is established in the Regulations. 7.3 Osinergmin will annually establish the expected surcharge in the Fee for Connection, in which will be included the settlement from the previous year. 7.4 Osinergmin will determine the costs for necessary connections from the integration of new producers feeding into the interconnected grid through electricity generated from RER. Concordance: S.D. No. 050-2008-EM: Art. 13 Law Decree No. 25844: Art. 61 and 79 Article 8.- Dispatch and access to transmission and distribution electric lines In the case where there exists capacity in the transmission and/or distribution systems of the SEIN, the generators whose production is based on RER will have priority to connect themselves, until the annual target percentage that is set by the Ministry of Energy and Mines according to Article 2 of this Legislative Decree is reached. 221 Article 9.- Easements The titleholders of concessions of electric energy generation using RER will have the right to solicit the Ministry of Energy and Mines for an imposition of easement conforming with the Law of Electric Concessions and its Regulation. Concordance: Law Decree No. 25844: Art. 110 to 119 Article 10.- Renewable energy research The National Council of Science, Technology, and Technological Innovation (CONCYTEC), in coordination with the Ministry of Energy and Mines and Regional Governments, will implement mechanisms and corresponding actions to develop research projects about renewable energies, encouraging the participation of universities, technical institutions, and development organizations that are specialized in this topic. Concordance: S.D. No. 050-2008-EM: Art. 23 Article 11.- The National Renewable Energy Plan The Ministry of Energy and Mines will develop within one (1) year from the date that this Legislative Decree goes into effect a National Renewable Energy Plan, which will be in accordance with the Regional Renewable Energy Plans and will fall within the framework of the National Energy Plan. The National Renewable Energy Plan will include those strategies, programs, and projects to be developed utilizing renewable energies, that are likely to improve the quality of life of the population and to protect the environment. 222 Concordance: S.D. No. 050-2008-EM: Art. 24 Article 12.- Promotion of Research and Development (R&D) in projects of electric generation using RER The Ministry of Energy and Mines, with the purpose of investing in R&D in projects of electric generation using RER, will utilize financial funds that will come from: 12.1 Resources directly collected, conforming with previous amounts for this purpose in the Annual Laws of the Public Sector Budget and its modifications. 12.2 Funds obtained from external debt transactions that the National Government approves and subject to the legal norms applicable to this matter. 12.3 The contribution, direct financing, and resources coming from international cooperation and subject to the terms in existing laws. Concordance: S.D. No. 050-2008-EM: Art. 23 SUPPLEMENTARY PROVISIONS First. – The present Legislative Decree will enter into effect the day following its publication in the official daily newspaper, The Peruvian. Second. – Law No. 28546 and all laws that contradict with the terms within the present Legislative Decree are repealed. Third.- In a maximum period of ninety (90) days from the date of publication of this Legislative Decree, the Ministry of Energy and Mines will prepare the corresponding regulations 223 necessary for its adequate execution. The Regulations will stipulate the criteria used for calculating the stable power of each entity that generates using RER. MODIFIED PROVISIONS First.- Modify Articles 3,4, the first paragraph of Article 25, and Article 38 of the Law Decree No. 25844, Law of Electric Concessions, in the following manner: “Article 3.- Definitive concessions are required for the development of each of the following activities: a) The generation of electric energy that uses hydraulic resources, with installed power greater than 500 KW; b) The transmission of electric energy, when installations affect the welfare of the State and/or require an imposition of easement on its behalf; c) The distribution of electric energy that serves as a Public Service of Electricity, when the demand is greater than 500 KW; and, d) The generation of electric energy using renewable sources conforming with the Law on this subject, with an installed power greater than 500 KW.” “Article 4.- Authorization is required to develop activities of thermal electric generation, when the installed power is greater than 500 KW.” “Article 25.- The request for a definitive concession, except to generate using Renewable Energy Resources with installed power equal to or less than 20 MW, will be presented to the Ministry of Energy and Mines, with the following information and requirements: (…)” 224 “Article 38.- Authorizations that meet these requirements will be conferred through ministerial resolutions for an indefinite period, within thirty (30) business days of the presented request. The request should be accompanied by the following: a) Identification and legal address of the solicitor. If the solicitor has a legal representative, the solicitor should present the Public Deed of Social Constitution and the power of the legal representative, properly registered in the Public Registries; b) Affidavit of completion of the technical regulation requirements and of the conservation of the environment and the Cultural Patrimony of the Nation. Regarding thermal electric generation whose installed power is greater than 20 MW, the directorial resolution approving the Environmental Impact Assessment should be presented; c) Descriptive report and complete plans of the project, with the studies done at one level of feasibility, at the least; d) Timeline of Project Execution, indicating the initiation date and the commercial operation date; e) Budget of the Project; f) Technical information with statistics that will consist of at least the following: installed power of the station, number of units of generation, type of each unit of generation, model of each unit of generation, flow of the design, specific consumption of combustibles, type of combustible; regarding generation stations in use or repurposed, the historic records of operation and relevant information that demonstrates an adequate operative performance must also be presented; g) A guarantee of faithful project completion as indicated in the Regulation. 225 h) Verifiable proof of the contract with the investor, promising the provision of capital with the purpose of executing the projects; i) A favorable report produced by a qualified Risk Classification agency, respecting the financial solvency of the applicant. The definitive concessions for the generation of Renewable Energy Resources whose installed power is less than or equal to 20 MW is subjected to the present article. The Regulation will establish the mechanism of control to verify its completion.” CONCORDANCE: S.D. NO. 056-2009-EM, ONLY TRANSITORY PROVISIONS Second.- Modify numeral 1) of Article 8 of Law No. 28832, Law to assure the efficient development of electricity generation, according to the following text: “Article 8.- Conditions of contracts derived from a Tender (…) I. The period of provision of up to twenty (20) years and Stable Prices, neither of which can be modified by agreement of the participating parties during the validity of the contract, except with prior authorization from Osinergmin. When the prices during the validity of the respective contracts are reduced, Distributors should transfer to consumers fifty percent (50%) of the said reductions.” 20 20 Article is modified by Article 1 of Legislative Decree No. 1041, published 26 June 2008, whose text resides in the present. The original text was the following: I. The period of provision of up to fifteen (15) years and Stable Prices, neither of which can be modified by agreement of the participating parties during the validity of the contract, except with prior authorization from Osinergmin. When the prices during the validity of the respective contracts are reduced, Distributors should transfer to consumers fifty percent (50%) of the said reductions. 226 THEREFORE: Orders that this be published and implemented and that the Congress of the Republic be informed. Decreed in the Government Palace, Lima, the first day of the month of May in the year two thousand eight. ALAN GARCÍA PÉREZ Constitutional President of the Republic JUAN VALDIVIA ROMERO Minister of Energy and Mines and Residing President of the Council of Ministers 227 Appendix 2: Legislative Decree 1002 (Spanish) Decreto Legislativo de promoción de la inversión para la generación de electricidad con el uso de energías renovables DECRETO LEGISLATIVO No. 1002 Concordancias: 1. Decreto Supremo No. 050-2008-EM, publicado el 02/10/2008   2. Decreto Ley No. 25844, publicado el 19/11/1992   3. Ley No. 26848, publicada el 29/07/1997   4. Ley No. 28832, publicada el 23/07/2006   5. Decreto Legislativo No. 1041, publicado el 26/06/2008   6. Decreto Legislativo No. 1058, publicado el 28/06/2008   7. Decreto Supremo No. 009-93-EM, publicado el 25/02/1993   8. Decreto Supremo No. 056-2009-EM, publicado el 11/07/2009   EL PRESIDENTE DE LA REPÚBLICA   POR CUANTO:   Que, el Congreso de la República por Ley No. 29157 y de conformidad con el Artículo 104 de la Constitución Política del Perú ha delegado en el Poder Ejecutivo la facultad de legislar sobre materias específicas, con la finalidad de facilitar la implementación del Acuerdo de Promoción Comercial Perú - Estados Unidos y su Protocolo de Enmienda, y el apoyo a la competitividad económica para su aprovechamiento, siendo algunas de las materias de delegación la mejora del marco regulatorio, el fortalecimiento institucional, la modernización del Estado, la promoción de la inversión privada, el impulso a la innovación tecnológica, así como el fortalecimiento institucional de la Gestión Ambiental; Que, la economía peruana viene experimentando un incremento sostenido, que a su vez genera una mayor demanda de energía eléctrica, cuyas tasas han sido de 8,3% en 2006 y 10,8% en 2007. Se estima que hasta el 2015 la tasa promedio anual de crecimiento será de 7,3%, por lo 228 que, teniendo en cuenta la entrada en vigencia del TLC PERÚ - EEUU; los requerimientos de nueva oferta de generación para dicho año se estiman en más de 3 600 MW, para ello, la opción más limpia y beneficiosa es promover que una parte importante de dicha oferta sea con energías renovables, en lugar de la generación de electricidad con derivados del petróleo y gas natural, por ser estas fuentes no renovables y contaminantes; Que, el fomento de las energías renovables, eliminando cualquier barrera u obstáculo para su desarrollo, implica fomentar la diversificación de la matriz energética, constituyendo un avance hacia una política de seguridad energética y de protección del medio ambiente, siendo de interés público dar un marco legal en el cual se desarrollen estas energías que alienten estas inversiones y modifique las normas vigentes que no han sido efectivas al carecer de alicientes mínimos previstos en la legislación comparada; Que, la presente iniciativa normativa traerá beneficios adicionales tales como la implementación de un marco de fomento de la inversión privada, eliminando barreras a esta actividad energética, la preservación del medio ambiente con la producción de energías limpias, contribuyendo a lograr efectos positivos a nivel global y, al mismo tiempo, alcanzar una condición mínima de desarrollo de la economía peruana, la cual necesita una mayor seguridad en la disponibilidad de energía; Que, es necesario dictar incentivos para promover la inversión en la generación de electricidad con el uso de fuentes de energía renovable, incentivar la investigación científica e innovación tecnológica, además de la realización de proyectos que califiquen como Mecanismos de Desarrollo Limpio y, de obtener éstos su registro, los respectivos Certificados de Reducción de 229 Emisiones - CRE pueden ser negociables con empresas de los países industrializados que contabilizarán estas reducciones de GEI como parte de las metas cuantitativas a que se comprometieron con el Protocolo de Kyoto; De conformidad con lo establecido en el artículo 104 de la Constitución Política del Perú; Con el voto aprobatorio del Consejo de Ministros y con cargo a dar cuenta al Congreso de la República; Ha dado el Decreto Legislativo siguiente: DECRETO LEGISLATIVO DE PROMOCIÓN DE LA INVERSIÓN PARA LA GENERACIÓN DE ELECTRICIDAD CON EL USO DE ENERGÍAS RENOVABLES Artículo 1.- Objeto El presente Decreto Legislativo tiene por objeto promover el aprovechamiento de los Recursos Energéticos Renovables (RER) para mejorar la calidad de vida de la población y proteger el medio ambiente, mediante la promoción de la inversión en la producción de electricidad. El presente Decreto Legislativo es de aplicación a la actividad de generación de electricidad con RER que entre en operación comercial a partir de la vigencia del presente Decreto Legislativo. La obtención de los derechos eléctricos correspondientes, se sujeta a lo establecido en el Decreto Ley No. 25844, Ley de Concesiones Eléctricas, su Reglamento y normas complementarias. 230 Podrán acogerse a lo dispuesto en el presente Decreto Legislativo las nuevas operaciones de empresas que utilicen RER como energía primaria, previa acreditación ante el Ministerio de Energía y Minas. Concordancias: D.S. No. 050-2008-EM: Art. 2o D.S. No. 056-2009-EM Artículo 2.- Declaratoria de interés nacional y participación de la energía con RER en la matriz de generación de electricidad 2.1 Declárese de interés nacional y necesidad pública el desarrollo de nueva generación eléctrica mediante el uso de RER. 2.2 El Ministerio de Energía y Minas establecerá cada cinco (5) años un porcentaje objetivo en que debe participar, en el consumo nacional de electricidad, la electricidad generada a partir de RER, no considerándose en este porcentaje objetivo a las centrales hidroeléctricas. Tal porcentaje objetivo será hasta el cinco por ciento (5%) en cada uno de los años del primer quinquenio. Concordancias: D.S. No. 050-2008-EM: Art. 4o Artículo 3.- Recursos Energéticos Renovables (RER) Para efectos del presente Decreto Legislativo, se entiende como RER a los recursos energéticos tales como biomasa, eólico, solar, geotérmico y mareomotriz. Tratándose de la energía hidráulica, cuando la capacidad instalada no sobrepasa de los 20 MW. 231 Concordancias: D.S. No. 050-2008-EM: Art. 5o Artículo 4.- Autoridades competentes El Ministerio de Energía y Minas es la autoridad nacional competente encargada de promover proyectos que utilicen RER. Los Gobiernos Regionales podrán promover el uso de RER dentro de sus circunscripciones territoriales, en el marco del Plan Nacional de Energías Renovables. Artículo 5.- Comercialización de energía y potencia generada con RER La generación de electricidad a partir de RER tiene prioridad para el despacho diario de carga efectuado por el Comité de Operación Económica del Sistema (COES), para lo cual se le considerará con costo variable de producción igual a cero (0). Para vender, total o parcialmente, la producción de energía eléctrica, los titulares de las instalaciones a los que resulte de aplicación el presente Decreto Legislativo deberán colocar su energía en el Mercado de Corto Plazo, al precio que resulte en dicho mercado, complementado con la prima fijada por el Organismo Supervisor de la Inversión en Energía y Minería (OSINERGMIN) en caso que el costo marginal resulte menor que la tarifa determinada por el OSINERGMIN. Para la fijación de la tarifa y la prima indicadas en el párrafo precedente, el OSINERGMIN efectuará los cálculos correspondientes considerando la clasificación de las instalaciones por categorías y grupos según las características de las distintas RER. La tarifa y la prima se 232 determinan de tal manera que garanticen una rentabilidad no menor a la establecida en el artículo 79 del Decreto Ley No. 25844, Ley de Concesiones Eléctricas. Concordancias: D. Ley No. 25844: Art. 79o  D.S. No. 050-2008-EM: Arts. 8o; 9o y 10o Artículo 6.- Pago por uso de redes de distribución Los Generadores con RER que tengan características de Cogeneración o Generación Distribuida conforme lo establezca el Reglamento, pagarán por el uso de redes de distribución conforme lo señala el inciso b) de la Octava Disposición Complementaria Final de la Ley No. 28832. Concordancias: Ley No. 28832: 8va. Disp. Complementaria Final, inc. b) Artículo 7.- Determinación de las tarifas reguladas de generación aplicables a las RER 7.1 El OSINERGMIN subastará la asignación de primas a cada proyecto con generación RER, de acuerdo a las pautas fijadas por el Ministerio de Energía y Minas. Las inversiones que concurran a la subasta incluirán las líneas de transmisión necesarias a su conexión al Sistema Eléctrico Interconectado Nacional (SEIN). 7.2 La diferencia, para cubrir las tarifas establecidas para las RER, será obtenida como aportes de los usuarios a través de recargos en el Peaje por conexión a que se refiere el Artículo 61 de la Ley de Concesiones Eléctricas. Los respectivos generadores recibirán esta diferencia vía las transferencias que efectuará el COES, según el procedimiento que se establece en el Reglamento. 233 7.3 OSINERGMIN establecerá anualmente el recargo esperado en el Peaje por Conexión, en el cual se incluirá la liquidación del recargo del año anterior. 7.4 El OSINERGMIN establecerá los costos de conexión necesarios para la integración de un nuevo productor que alimente a la red interconectada mediante electricidad generada a partir de RER. Concordancias: D.S. No. 050-2008-EM: Art. 13o D. Ley No. 25844: Art. 61o y 79o Artículo 8.- Despacho y acceso a las redes eléctricas de transmisión y distribución  En caso de existir capacidad en los sistemas de transmisión y/o distribución del SEIN, los generadores cuya producción se basa sobre RER tendrán prioridad para conectarse, hasta el límite máximo del porcentaje anual objetivo que el Ministerio de Energía y Minas determine conforme al artículo 2 de este Decreto Legislativo. Artículo 9.- Servidumbres Los titulares de concesiones de generación de energía eléctrica con RER tendrán el derecho de solicitar al Ministerio de Energía y Minas la imposición de servidumbres de conformidad con la Ley de Concesiones Eléctricas y su Reglamento. Concordancias: D. Ley No. 25844: Arts. 110o al 119o Artículo 10.- Investigación sobre energías renovables 234 El Consejo Nacional de Ciencia, Tecnología e Innovación Tecnológica (CONCYTEC), en coordinación con el Ministerio de Energía y Minas y los Gobiernos Regionales, implementará los mecanismos y acciones correspondientes para el desarrollo de proyectos de investigación sobre energías renovables, promoviendo la participación de universidades, instituciones técnicas y organizaciones de desarrollo especializadas en la materia. Concordancias: D.S. No. 050-2008-EM: Art. 23o Artículo 11.- Elaboración del Plan Nacional de Energías Renovables El Ministerio de Energía y Minas elaborará en un plazo máximo de 1 (un) año a partir de la vigencia del presente Decreto Legislativo, el Plan Nacional de Energías Renovables, el mismo que estará en concordancia con los Planes Regionales de Energías Renovables y que se enmarcará en un Plan Nacional de Energía. El Plan Nacional de Energías Renovables incluirá aquellas estrategias, programas y proyectos a desarrollarse utilizando energías renovables, que tienden a mejorar la calidad de vida de la población y proteger el medio ambiente. Concordancias: D.S. No. 050-2008-EM: Art. 24o Artículo 12.- Promoción de investigación y desarrollo de proyectos de generación eléctrica con RER  El Ministerio de Energía y Minas, con fines de investigación y desarrollo para proyectos de generación eléctrica con RER, utilizará fondos financieros que provendrán de: 235 12.1 Los recursos directamente recaudados, conforme a los montos previstos para esta finalidad en las Leyes Anuales de Presupuesto del Sector Público y sus modificatorias. 12.2 Los fondos provenientes de operaciones de endeudamiento externo, que acuerde el Gobierno Nacional, con sujeción a las normas legales aplicables en la materia. 12.3 Los aportes, financiamientos directos y recursos provenientes de la cooperación internacional, que se obtengan con sujeción a lo dispuesto en la normatividad vigente. Concordancias: D.S. No. 050-2008-EM: Art. 23o DISPOSICIONES COMPLEMENTARIAS  Primera.- El presente Decreto Legislativo entrará en vigencia el día siguiente de su publicación en el Diario Oficial El Peruano. Segunda.- Deróguese la Ley No. 28546 y toda norma que se oponga al presente Decreto Legislativo. Tercera.- En un plazo máximo de noventa (90) días contados a partir de la publicación del presente Decreto Legislativo, el Ministerio de Energía y Minas elaborará las normas reglamentarias que correspondan para su adecuada aplicación. El Reglamento dispondrá los criterios de cálculo de la potencia firme de las unidades de generación con RER. DISPOSICIONES MODIFICATORIAS Primera.- Modifíquense los artículos 3, 4, el primer párrafo del artículo 25 y el artículo 38 del Decreto Ley No. 25844, Ley de Concesiones Eléctricas, de acuerdo a lo siguiente: 236 “Artículo 3.- Se requiere concesión definitiva para el desarrollo de cada una de las siguientes actividades: a) La generación de energía eléctrica que utilice recursos hidráulicos, con potencia instalada mayor de 500 KW; b) La transmisión de energía eléctrica, cuando las instalaciones afecten bienes del Estado y/o requieran la imposición de servidumbre por parte de éste; c) La distribución de energía eléctrica con carácter de Servicio Público de Electricidad, cuando la demanda supere los 500 KW; y, d) La generación de energía eléctrica con recursos Energéticos Renovables conforme a la Ley de la materia, con potencia instalada mayor de 500 KW.” “Artículo 4.- Se requiere autorización para desarrollar las actividades de generación termoeléctrica, cuando la potencia instalada sea superior a 500 KW.”. “Artículo 25.- La solicitud para la obtención de concesión definitiva, excepto para generación con Recursos Energéticos Renovables con potencia instalada igual o inferior a 20 MW, será presentada al Ministerio de Energía y Minas, con los siguientes datos y requisitos: (...)” 237 “Artículo 38.- Las autorizaciones que cumplan los requisitos serán otorgadas mediante resolución ministerial por un plazo indefinido, dentro de los treinta (30) días hábiles de presentada la solicitud. La solicitud deberá estar acompañada de lo siguiente: a) Identificación y domicilio legal del solicitante. Si es persona jurídica debe presentar la Escritura Pública de Constitución Social y el poder de su representante legal, debidamente inscritos en los Registros Públicos; b) Declaración Jurada de cumplimiento de las normas técnicas y de conservación del medio ambiente y el Patrimonio Cultural de la Nación. Tratándose de generación termoeléctrica cuya potencia instalada sea superior a 20 MW, se presentará la resolución directoral aprobatoria del Estudio de Impacto Ambiental; c) Memoria descriptiva y planos completos del proyecto, con los estudios del proyecto a un nivel de factibilidad, por lo menos; d) Calendario de Ejecución de Obras con la indicación del inicio y la puesta en operación comercial; e) Presupuesto del Proyecto; f) Información técnica con fines estadísticos que consistirá, cuando menos en lo siguiente: potencia instalada de la central, número de unidades de generación, tipo de cada unidad de generación, modelo de cada unidad de generación, caudal de diseño, consumo específico de combustible, tipo de combustible; tratándose de centrales de generación 238 en uso o repotenciadas se presentarán también los registros históricos de operación e información relevante que sustente un adecuado desempeño operativo; g) La garantía de fiel cumplimiento de ejecución de obras que señale el Reglamento. h) Sustento verificable del compromiso de inversionistas para el aporte de capital con fines de la ejecución de las obras; i) Informe favorable emitido por una entidad Clasificadora de Riesgo calificada, respecto de la solvencia financiera del solicitante. Se sujetarán al presente artículo, las concesiones definitivas para generación con Recursos Energéticos Renovables cuya potencia instalada sea igual o inferior a 20 MW. El Reglamento establecerá los mecanismos de control para verificar su cumplimiento.” CONCORDANCIAS: D.S. No. 056-2009-EM, Única Disp. Trans. Segunda.- Modifíquese el numeral I) del artículo 8 de la Ley No. 28832, Ley para asegurar el desarrollo eficiente de la Generación Eléctrica, de acuerdo al texto siguiente: “Artículo 8.- Condiciones de los contratos derivados de un proceso de Licitación (...) I. Plazos de suministro de hasta veinte (20) años y Precios Firmes, ninguno de los cuales podrá ser modificado por acuerdo de las partes, a lo largo de la vigencia del contrato, salvo autorización previa de OSINERGMIN. Cuando se trate de reducciones de precios 239 durante la vigencia de los respectivos contratos, los Distribuidores deberán transferir a los consumidores el cincuenta por ciento (50%) de dichas reducciones. 21 POR TANTO: Mando se publique y cumpla, dando cuenta al Congreso de la República. Dado en la Casa de Gobierno, en Lima, el primer día del mes de mayo del año dos mil ocho. ALAN GARCÍA PÉREZ Presidente Constitucional de la República JUAN VALDIVIA ROMERO  Ministro de Energía y Minas y  Encargado del Despacho de la Presidencia del Consejo de Ministros 21 Artículo modificado por el Artículo 1 del Decreto Legislativo N° 1041, publicado el 26 junio 2008 cuyo texto rige en la actualidad. El texto original era el siguiente: I. Plazos de suministro de hasta quince (15) años y Precios Firmes, ninguno de los cuales podrá ser modificado por acuerdo de las partes, a lo largo de la vigencia del contrato, salvo autorización previa de OSINERGMIN. 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Abstract (if available)

Abstract All countries face entrenched interests when political leaders seek a significant policy change, and nowhere is this more obvious than in the quest to embrace renewable energy (solar, wind, geothermal, etc.). Despite powerful domestic opposition, Peru recently passed its first policy for large-scale electricity production using renewable energy, Legislative Decree (LD) 1002, in 2008. What created this policy window despite vehement objection? This research finds that in order for Peru to pass its first major renewable energy policy, the confluence of increasing information, available technological solution, changing international political norms, and shifting international economic norms planted interest within the minds of domestic actors (political willingness). The opportunity came when a bilateral trade deal with the United States required rapid policy accommodations from Peru’s central government. This need for speed shifted legislative power from Peru’s Congress to a few hands within Peru’s Executive Branch, some of whom were renewable energy enthusiasts. Prepared domestic actors seized this opportunity to open a policy window. Understanding this policy-making process offers invaluable insights on those conditions most conducive for passing difficult but necessary laws, some of which could be transferable to other developing countries trying to contribute to the global effort on mitigating climate change. Theoretically, this dissertation draws on models of political decision-making and institutions to explain how local actors attain what they want. Globally, we are in an epic transition toward renewable energy use. This research aims to promote this necessary changeover within developing countries as quickly and seamlessly as possible.

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Creator Phan, Hai-Vu (author)

Core Title Circuit breakers: how policy entrepreneurs interrupted the electric flow with Peru’s first renewable energy legislation for the grid

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Political Science and International Relations

Publication Date 04/28/2019

Defense Date 01/10/2019

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag energy policy,energy security,Latin America,OAI-PMH Harvest,Peru,policy change,policy entrepreneur,policy window,renewable energy

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor James, Patrick (committee chair), Wise, Carol (committee chair), Below, Amy (committee member)

Creator Email haivu.b.phan@gmail.com,haivu.phan@usc.edu

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c89-157991

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Legacy Identifier etd-PhanHaiVu-7337.pdf

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Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

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