Stories

At the foot of the Andes mountains, 1660 metres above sea level, 900 construction workers are building Statkraft's first hydropower plant in Peru.

Image of Peruvian worker

Up on the steep mountainside, headed for the new power line, three men carry heavy equipment on their backs. It's hot and dusty, but the construction workers are used to it.

Tunnels are being blasted and vast caverns are carved out to make room for turbines that will power a market in intense growth.

The work on the Cheves power plant has been going on steadily for three years, and according to the plan, the power plant will deliver its first kilowatt hours before Easter in 2015. The intake from two rivers originating higher up in the mountain is located at 2100 metres.

Statkraft owns the land where the water intake and the actual power plant are located. The rest of the area is rented from the local community and private landowners.

Underground caverns and tunnels are nearly finished. The construction workers are about to complete the most challenging construction phase.

Hydropower in Peru

It is estimated that Peru only exploits four to five per cent of its hydropower potential.

Much of the reason for this is that the water resources are mainly located in the thinly populated Amazon area, while it is very dry in the coastal areas around Lima, where the majority of the population lives.

Although some water has been brought from the Amazon basins to the coastal areas, there are still many villages where people do not have running water, and the need for irrigation systems is great. Mining also requires a lot of water and competes for resources that could possibly be used for hydropower.

Conflicts regarding the utilisation of water resources have led to social unrest and protests against hydropower plants, mining and irrigation systems. A separate agency, Autoridad Nacional del Agua (ANA), was established in 2008 to solve water-related conflicts. Despite the challenges, Peru's total water resources are so vast that it is likely that hydropower will play a greater role in the future, which is the government's goal as well.

Changing power country

Cheves is the largest of the ongoing development projects in the new Statkraft countries that were integrated in June. Peru has virtually unlimited hydropower reserves and has been utilising this resource for a long time. Among the eight power plants Statkraft took over from SN Power, one is turning 100 this year.

“State-owned companies previously dominated the power market in Peru, but today, six major international companies produce a total of 60 per cent of all the power in the country – we are part of this group,” says Alejandro Ormeño, head of Statkraft’s department in Lima.

It is just over 10 years since hydropower constituted nearly 90 per cent of all electricity in Peru, but the number declined to 50 per cent in October 2013, despite stable production. The reason for this was the discovery of major gas resources, which have been developed in recent years as a result of an increased power demand.

The demand is correlated with the strong financial development that took place when the new government vowed to take up the fight against corruption and mismanagement around the turn of the century.

At the same time, they succeeded in quashing the guerrilla organisation Shining Path, which had terrorised the local population and kept tourists and investors away for many decades. The guerrilla organisation is assumed to be responsible for the death of 70,000 people in the 1980s.

Cheves map

Peru – the powerhouse

Peru is the new Statkraft country following the integration with SN Power, which has the most fully-owned activity (100%). Statkraft is the country's sixth largest power producer, with 227 employees in Peru. Statkraft is responsible for operations and maintenance of eight fully-owned power plants. The Cheves power plant is under construction.

Capacity

Cheves is being built with connection to the Huaura river, about 130 km from Lima. With its contribution of 168 MW, Cheves is one of five major hydropower plants being built in Peru in the period 2013-2017.

Reduced emissions

Cheves is approved and registered to generate climate quotas under the UN's Clean Development Mechanism (CDM). Through production of renewable energy, Cheves will replace some of Peru's thermal power production, and the UN estimates the project will reduce greenhouse gas emissions by 394,000 tonnes each year. CDM approval and registration was a decisive factor for realising the project.

Growth market

The current president, Ollanta Humala, was very popular among Peruvians when elected presidentin 2011. Popularity of the president has decreased over time due to high expectations from the people regarding distribution of wealth. However, a democratic and seemingly stable political rule is causing foreign companies and investors to race to invest in this country, which is incredibly rich in natural resources.

Gold, copper, nickel, fish, cotton, rice, coffee, not to mention fruit and vegetables that can be harvested many times a year, are just some of the natural resources Peru is blessed with. Apart from Panama, tiny in comparison, Peru has Latin America’s fastest growing economy.

“The demand for electricity skyrocketed 12 years ago, and just keeps growing,” says Ormeño. “Though the government has expressed a desire to invest in more hydropower, the entire increase of power supply since 2004 has been within natural gas.”

Development of the Camisea gas field in 2004 changed the power market completely, and the government green-lighted construction of a number of gas-fired combined heat and power plants to meet the increased demand. Over the course of five years, they ended up delivering 45 per cent of all electricity in Peru, which still has a few combined heat and power plants driven by coal or oil. However, utilising cheap natural gas is a short-term solution to the power problem.

“The proven reserves of natural gas are not so large, so I think it is better to use gas in the households and the petrochemical industry instead of burning it and producing cheap power,” says Ormeño.

We will be here for three to four years, but the power plant will remain, and it is important for the local community to feel a sense of ownership of it.

Joining forces with the local population

Construction work in Cheves started in 2011, but negotiations with a sceptical local community started as early as 2007. History has given no reason for people to trust foreign companies, or their own government. They know that Peru is in the midst of robust economic development, but this is not so easily apparent so far away from Lima. The conversations with the leaders of the various local communities were started by SN Power’s employees at the main office in Lima.

Ronald Breña“We first needed to establish trust, then explain that there are a number of statutes and rules we relate to. The people have clear rights and enjoy strong protection under the regulations,” says Ronald Breña, CR manager for the various local projects started by SN Power and now continued by Statkraft.

“Our main message was this:‘What can we do for you?’ The breakthrough came when we took all of the leaders to an existing power plant where they could talk to the local population and see with their own eyes what the projects and power plant have meant to them,” says Breña. “After this, they said yes to Cheves.”

The four local communities surrounding Cheves all make their living in different ways. Following an analysis of their possibilities and needs, measures such as building an irrigation installation, strengthening education at the schools and contributing to better infrastructure in the area were implemented.

A cattle project has given the animals better food and veterinary care, while artificial insemination strengthens breeding work. Today, the cows milk 40 per cent more than just three years ago, cheese production has increased, and farmers have greater income. Agronomists have worked closely with the farmers on their own fields, which has led to increased peach, cherimoya (or custard apple) and avocado crops, to mention a few. This training has been ongoing for four years, and the project is now being phased out.

“In certain villages we first had to make sure everyone had running water, which is very important to reduce disease,” says Breña. “The irrigation installations have also been very significant for the population. A local community with water can grow. Those without water fall behind in development.”

Breña adds that the local population eventually developed unrealistic expectations as to what Statkraft can contribute.

“They are asking for everything, including things which the government is actually responsible for providing, but we do not get involved in government tasks, we try to be a supplement. For example, we do not build schools or hospitals. It has taken three to four years of dialogue before the local population has realised that Cheves neither can nor should replace the government.”

That is why we are helping the population through developing sustainable projects, and offering jobs during the construction period.

Tragic accidents

Not everything has gone according to plan in the development. Accidents during work in the tunnels have claimed three lives, leading to a full review and change in safety routines.

“When we started the construction work, it emerged that the geological conditions were more difficult than we predicted, and the plans had to be changed and adapted to the actual conditions,” says Ormeño.

Another surprise was that the authorities started improving the winding road that leads to Cheves last year. The road can be blocked for eight hours at a time, which causes major work delays. Lorries cannot make it out or in to the plant, and workers being bused to a much-deserved weekend off in Lima have to wait a long time before they can leave.

"We have also experienced that people from the area have blocked the road and denied us access to the construction site," says Ormeño.

"Because all agreements were in order and we established a good cooperation with the local population, we were not expecting to meet this type of resistance. We have had to negotiate, or get assistance from guard crews and the police to make it through. In any case, this causes delays. It is not something we want, but is common in most places with developments of this scale. All in all, it has not been a big problem for us."

Paul LazenbyBased on a Norwegian perspective, there are still a lot of police at the construction site in Cheves, but project manager Paul Lazenby says they represent a low security level for such a large plant.

Demanding their rights

The landscape here appears barren and deserted, but several thousand people live higher up in the mountains.

"They have a right to compensation, and they know it," says Lazenby. "They are not primarily demonstrating to create trouble for us. We are here to earn money, and they use their right to do what they can to get paid what they deserve."

Lazenby emphasises that the current Cheves management has a good relationship with the majority of the people living in the area. "They have a deep appreciation for the land and their surroundings, and we are obviously disrupting nature to some extent. We will be here for three to four years, but the power plant will remain, and it is important for the local community to feel a sense of ownership of it. That is why we are helping the population through developing sustainable projects, and offering jobs during the construction period. If we do all this well and are able to communicate properly, we could make Cheves part of the community.”

Peru is a community that Statkraft wants to be part of for many years to come. If this growth continues in Peru, Cheves will hardly be the last major development project.

Text: Ellen Stai
Photo: Jimmy Linus and Statkraft
Also published in Statkraft's magazine People & Power no. 2/2014

It is estimated that Peru only exploits four to five per cent of its hydropower potential.