The Peruvian Renewable Energy Experiment: Lessons for Policymakers

Abstract

The introduction of specific regulation to incentivize the development of new power generation technologies is a sensible regulatory decision. In particular, policymakers should not only seek to define a well-structured set of rules, but also need to define clear objectives in order to assess the success of the policy. Additionally, policymakers should also revise what would the impact of the rules in the current situation of the power industry be and verify if these impacts would be offset by the benefits. In the case of the renewable energy regulation introduced in Peru in 2010, none of these has been made. In particular, the costs associated to the regulation cannot be properly compared to the benefits sought and, more harmfully, the interaction of these rules with the regulation in place has created unintended consequences which have been mostly endured by the smallest of the power consumers. Moreover, and unfortunately, the policymakers have not learnt from the past experiences and are trying to maintain a set of rules that clearly do not deliver sound policy.