Natural Gas Market Rigidities and the Promotion of NC-RER in Peru

During the recent years Peru launched a program for the promotion of the production of NC-RER in the electric generation market. Despite the relative success in attracting investments to this new technologies in a first stage, in the future, regulatory adjustments must be introduced for mitigating some acknowledged risks associated with NC-RER, like volatility and intermittent production. In the Peruvian case, the regulatory approach to be applied in this case, is closely related with the performance of natural gas market.
In Peru, natural gas market shows high levels of rigidities particularly for power generators. The main inflexibility in the natural gas market is the transport contract conditions, which force power generators to contract all their capacity in firm transport service. Based on a model optimization for the electricity system in Peru, we found that the inflexibilities in the natural gas market are costly compared to an optimal system. Additionally, as the participation of non-conventional renewable energies increases, so do the cost of the system in greater proportion in an inflexible natural gas market in comparison to a flexible one.