Study on Geothermal Power Development in OO Peru 목 차

Executive Summary 1. Overview of the Host Country and Sector 2. Study Methodology 3. Justification, Objectives, and Technical Feasibility of the Project 4. Evaluation of Environmental and Social Impacts 5. Financial and Economic Evaluation 6. Planned Project Schedule 7. Implementing Organizations 8. Technical Advantages of Japanese Companies Executive Summary (1) Background and Necessity of the project

The total installed capacity of power plant facilities of Peru in 2010 is 7,309 MW, and a growth of 8.1% per annum is expected for the 2009-2018 power demand. Peruvian government has established the “Energy Efficient Use Promotion Law (Law 27 345, 2000) " for the purpose of development of renewable energy and energy saving and conservation promotions. The "Sub-regulations on renewable energy power generation" put into force in 2008 defines implementation of the bidding of the renewable energy business and the target value of the renewable energy (It is updated every five years. The goal of five-years term from 2009 to 2013 is 5% of the total power. The target value of the succeeding term is under study). There are expectations for the development of geothermal resources which are abundant (available potential resources of more than 3,000 MW). To seek possibility of such expectations, Pre F/S surveys of geothermal development were implemented by Japan Bank for International Cooperation (JBIC) (2008) and Japan External Trade Organization (JETRO) (2008), and a master plan study has been implemented by Japan International Cooperation Agency (Agencia de Cooperación Internacional del Japón: JICA) (2012) until now. However subsequent development has not progressed because of various constraints and problems of institutions and legislations. Hence, the geothermal power plant does not yet exist in the country.

As an activity of Japanese Business Alliance for Smart Energy Worldwide Geothermal Working Group, Latin America sub-working group, the study team sent two missions to Peru to exchange views with related organizations, gather information and survey the project site in September 2012 and March 2013. Through these activities, the following issues were confirmed: 1) State-owned power company Electroperu,S.A. (EP) has come to have a strong desire of implementing the first geothermal power generation project and for such purpose, wishes to obtain the support of the Peruvian government and expects the entry of Japanese companies as well as the participation of Peruvian governmental sectors, 2) There will be expectation for Japanese companies to have future opportunities to join geothermal development in the country, 3) Geothermal development in the country is expected to advance the progress of rural electrification and economic development, and furthermore, an increase in power demand can be expected by mining development in the province. In October 2012, OO. OOO, the Minister of Energy and Mines, instructed EP to consider the studies on geothermal development projects. From the circumstances described above, what we are proposing is a geothermal generation project in Calientes, OO Region in southern Peru of which OO would be the implementing agency.

The power demand of Peru is expected to be three to four times the current demand in the next 15 years up to 2030. Most of this demand will be covered by large-scale gas power generation using natural gas and large-scale hydroelectric power generation.

The power demand of OO Region is concentrated mainly around OO city. With recent development in OO Region, the power demand in the province is increasing as similar as that in entire Peru. This increase of power demand will be covered by large-scale gas power generation plants (500 MW, 2 plants) which are planned in the neighboring province, and a 500 kV transmission line between Lima and OO Region.

The geothermal power plant, to be constructed by this project, produces less electricity compared with the above large-scale gas power generation plants so it is difficult to obtain the generation capacity which can meet the increase of power demand. However it is expected to cover the local power demand which is originated by copper and other mine operators around Candarave. The mines and refineries they operate require a large amount of electricity which is mainly generated by their own power plants. Thus, the local power demand can be covered by transmitting electricity to the copper mines from new geothermal plant to be constructed by this project, and it has another advantage for power companies to stabilizing the power supply and reducing transmission loss.

In addition, it is possible to ensure FIRR (Financial Internal Rate of Return) of 12% or more at revenue of 0.045 USD per kWh if preferential terms of Japanese Yen Loan is used. The key to the realization of the project is this yen loan.

(2) Basic Design for Determination of Project Contents

Peru holds the leading position among the geothermal promising countries of the world. However, despite the above mentioned advantage, Peru so far has not built any nor shown signs of building geothermal power plants. This is because of Peru's preference for implementation by private companies which will continue to be the obstacle for geothermal power generation.

Many geothermally developed countries also had similar problems in the past, but they received public funds for geothermal development at the initial stage of the project to reduce resource risk effect. For example, in countries such as Costa Rica, the Philippines, Indonesia, and Mexico, their first geothermal power generation projects were implemented with yen loan fund and thereafter they successfully obtained funds of private sector and other donors for the following projects. There is no reason why Peru cannot implement geothermal power generation project in the same manner as above which will be the bridgehead for such projects of full-scale. In addition, as the first successful geothermal project in South America, a ripple effect is also expected on neighboring countries with geothermal potential.

In the meantime, EP, the national electric company, has expressed strong willingness to conduct the first geothermal development project as operator with the support of the government of Peru, for the purpose of making a breakthrough in the current stagnating situation. Peru’s technology and management capacity for geothermal development will be advanced if EP conducts its own geothermal development project. This will cause reviewing and revising of present geothermal laws and regulations (in terms of application for project implementation and environment and incentives for geothermal development). Furthermore, it would be a model case for promoting private operators to enter the geothermal business and finally is expected to promote geothermal development projects among private operators.

(3) Abstract of the Project

1) Basic Design for Determination of Project Contents a)Selection of Project Area The Calientes geothermal area was inspected by JBIC (2008) and JETRO (2008) together with Borateras geothermal area, and confirmed as high-potential areas for geothermal development.

On the other hand, OO Region designated those geothermal-prone areas as conserved area in 2008. Therefore, those two areas were not yet considered as concession area and geothermal development was not planned there.

Then, Peru selected this area to be studied as geothermal development areas to be funded by Japanese Yen Loan, through the discussions between Latin America sub-working group and the Peruvian government, in 2012 and 2013. b)Project Implementation Organizations The number one candidate organization for project implementation is EP, which is the national electric company conducting power production in Peru. Practically, EP is the only organization who is eligible to be the implementing party of a Japanese Yen Loan project and EP's playing such role is the key to the materialization of this project.

The Ministry of Energy and Mines (Ministerio de Energia y Minas: MEM) and Institute of Mining and Metallurgical Geology (Instituto Geológico Minero y Metalúrgico: INGEMMET) are ministry and agency related to the project promotion. INGEMMET will provide geological information and technical support. MEM will control the rights and approvals. c)Project Implementation Period From 2014 to 2023 d)Determination of Output Capacity According to JBIC (2008), the total geothermal resource of the area was evaluated as approximately 100 MW. This project will be the first step of the development in the said area and an output capacity of 50 MW would be appropriate to start with. This output capacity will be reviewed and revised by future study. e)Transmission Line to be connected to Main Power Grid Generated power will be connected to the 128 kV electrical power transmission line, and transferred to OO Region, mainly Candarave Province.

The main electrical power transmission line will be constructed from Lima to OO and if it is completed before this project, it can connect to the geothermal power plant.

2) Actions to be taken by the Project Proponent in Peru for the Project Implementation a)Preparation of Environmental Impact Report for Application of Geothermal Right based on Geothermal Resource Law As per the Articles 12 and 21 of Geothermal Resources Implementation Regulations (Nuevo Reglamento de la Ley No.26848, Ley Organica de Recursos Geotermicos: D.S.No.019-2010-EM), the project implementing party must submit a sworn statement on submission of an environmental survey report to Directorate General for Energy Environmental Affairs (Direccion General de Asuntos Ambientales Energetico: DGAAE) before applications of exploration and concession respectively. In addition, according to the National Service of Protected Natural Areas by Study (Servicio Nacional de Areas Naturales Protegidas por el Estado: SERNANP), Environmental Impact Assessment (Evaluación de Impacto Ambiental: EIA) report on geothermal development which is approved by DGAAE is required before commencement of Phase II of geothermal exploitation. b)EIA under Electricity Concession Law EIA of this project needs to be conducted based on Electricicity law as well as the Environmental Impact Evaluation System (Sistema de Evaluación de Impacto Ambiental: SEIA) law, and Environmental Certificate should be obtained. In the EIA, current environment needs to be surveyed at field, detailed prediction and evaluation based on the results of field survey, and it significant impacts on environment need to be predicted: it is also necessary to consider countermeasures. In addition, monitoring for environmental items where significant impacts are expected is required.

Environmental Protection Regulation on Electrical Activities (Reglamento de Proteccion Ambiental en las Actividades Electricas: D.S. No. 29-94-EM) provides that consulting firms that implement EIA must be those registered with the MEM. c)EIA for National Public Investment System (Sistema Nacional de Inversión Pública :SNIP) In SNIP, the projects are categorized based on project scale (investment cost). Although contents and depth required in the report vary from one category to another, EIA is required in all public projects by the SNIP law. EIA stipulated by the Electricity Concession Law can be used for SNIP. d)Certificates of Non-existence of Archaeological Relics (Certificación de Inexistencia de Restos Arqueológicos: CIRA) The Archaeological Investigation Regulations (Supreme Resolution No. 044-2000-ED) provide that the National Institute of Culture (Instituto Nacional de Cultura: INC) is also in charge of evaluating archeological investigation results and issuing CIRA. To conserve historical and cultural assets, in principle, all projects need CIRA which is issued by INC. For application of CIRA, field survey by INC is required for the project less than 5 ha in area or 5 km long. If the project area or length is more than the above, the implementing party of the project must carry out archaeological investigation before starting development activities. In parallel, archaeological monitoring plan (Plan de Monitoreo Arqueológicos) is to be prepared. The survey for application of CIRA is to be carried out during the process of Environmental Certification. In case of encounter with unexpected relics during project activities, the work must be halted and the findings reported to the Ministry of Culture. e)Land Acquisition

The project site has been used communally by the community for long-time even though it is not registered. For this kind of “common land of community”, it is necessary to hold consultations between the project implementing party and local people, and agreement on compensation should be made. In Article 31 of Geothermal Resource Implementation Regulation (D.S.No.019-2010-EM), before the start of Phase II of geothermal exploration or activities corresponding to geothermal exploitation, there must be agreements with the owners of the land to be affected by the geothermal activity, otherwise they could request the imposition of easement.

As for Electricity Concession Law, it provides that resettlement of residents and land acquisition must be compensated, and the scope of compensation shall include land, crops and buildings. f)Clean Development Mechanism (Mecanismo de Desarrollo Limpio: CDM) Registration In order to register this project as a CDM project, a Project Design Document (PDD) should be prepared by the project implementing party.

3) Summary Results of the Financial and Economic Preliminary Analyses a)Case Study without Yen Loan The cash flow statement was also calculated on the assumption of the selling price of electricity and determining the financial internal rate of return (Tasa Interna de Retorno Financiero : FIRR) for this cash flow, without taking debt into account. The validity of the project was also examined. The condition was assumed that: operation period: 30 years, efficiency: 90% and economic discount rate: 12%, etc.

Based on the standard selling price (per kWh) of USD 0.10 for electricity, FIRR was estimated under five price cases of USD 0.05, 0.06, 0.09, 0.10, and 0.12. Benefit exceeds the cost at a selling price USD 0.06 or more. However, in order to ensure 12% of the long-term market interest rates, it is necessary to set the selling price of electricity more than USD 0.10.

The EIRR was compared with the gas-fired combined-cycle power plants, which are one of the major power sources in Peru. The power plant output was assumed at 50 MW, which is the same as this project. Gas prices have been estimated to be 75% of the current prices, with 150% and 200% as variable factors. It is necessary that gas prices to rise by over 150% of the present in order to obtain an EIRR of more than 12%, which is the acceptable long-term market interest rate. b)Case Study with Yen Loan The study team studied the project cases with yen loan for economic evaluation.

As a result of using the general conditions, USD 0.072 (free), 0.08 (taxable), and 0.10 (free and taxable) were used as selling prices of electricity. The IRR and NPV were examined for the different selling prices. In order to secure a 12% long-term market interest rate, in the case of a tax-free option, the selling price of electricity is required to be USD 0.072 or more. In the case of a tax burden of 30%, the selling price of electricity is required to be USD 0.08 or more.

As a result of using the preferences, the study team examined the cases for USD 0.072 (free), 0.08 (taxable), and 0.10 (free and taxable) selling prices for electricity. In order to secure a 12% long-term market interest rate for a tax of 30%, the selling price of electricity is required to be more than USD 0.045.

From the above results for the case of the yen loan under general terms, the estimated feasible selling price of electricity shall be equal to USD 0.08 per kWh or more. In addition, for a yen loan under preferential terms, the estimated feasible project selling price of electricity is equal to USD 0.045 per kWh or more. It is believed that in particular, the geothermal project that takes advantage of the yen loan under preferential terms will be competitive even if compared with the electricity selling price of a hydroelectric power plant, which is the cheapest in Peru.

(4) Schedule of the Study

After the study, a detailed study, drilling of test wells, evaluation of geothermal resources, detailed design, drilling of productive and injection wells and construction of geothermal plant with associated facilities are scheduled to be performed. Selection of the consultant and contractors are also included. The working period of each work item by stage is estimated as follows: In case the Loan Agreement (L/A) is concluded in late 2014, detailed design will be done in early 2018, bidding the middle to late 2019 and the construction work will be conducted from middle-late 2019 to late 2023.

Table-1 Work Item and Period

Stage Work Items Period

Detailed study (Preparatory Study by JICA) Approx. 6 months Application for Project Implementation Approx. 6 months Exploration Stage Exploration Well Drilling (Engineering Service Loan) Total 37 months Procurement of the Consultant Local Drilling Contractor Approx. 15 months for ES Loan (Preparation of Specification and Bidding) Drilling of exploration wells (Dia.:6-1/2inch, Approx. 12 months Depth:2,000m) Evaluation of Geothermal Resources Approx. 12 months

Detailed Design of Facilities Approx. 15 months

Construction of Power Plant and Associated Facilities Total 75 months

Procurement of Consultant Approx. 9 months Procurement of Local Drilling Contractor for Access road Approx. 12 months construction (Local Bidding) Development Procurement of Contractor for Construction of Geothermal Approx. 18 months Stage Power Plant (International Bidding) Drilling of productive and injection wells (total 15 wells) Approx. 30 months Construction of Geothermal Power Plant with associated Approx. 44 months facilities (50MWx1) Test Operation Approx. 4 months Source: Study Team Regarding the Socio-Environmental Consideration, the following documents are necessary to be submitted to and approved by the relevant organizations:

- EIA report approved by DGAAE based on the Geothermal Resource Implementation Law - EIA based on Electricity Concession Law and SNIP - CIRA - Land Acquisition - CDM Registration

It will take maximum 12 months to prepare above environmental consideration documents necessary for obtaining exploration right. In the stage of application of development right, review of EIA report approved with exploration right and additional investigation are expected to be done.

(5) Feasibility Study for Yen Loan request and implementation

In case of a power generation project funded with Japanese Yen Loan of general conditions, it can be judged to be economically feasible if the selling price of product electricity is 8 cents per kWh or higher. If the same project is funded with Japanese Yen Loan of preferential conditions, the said price would be 4.5 cents per kWh or higher. It can be emphasized that a geothermal project with Japanese Yen Loan of preferential conditions is more competitive even compared with hydroelectric power plants which, in Peru, has the lowest sales price.

For geothermal development projects in Peru, the Peruvian government was hoping for project implementation by the private sector such as Independent Power Producer (Productor Independiente de Energía: IPP) and Public-Private Partnership (Participación Público Privada: PPP), rather than a country-driven project. But currently the government is changing the process as follows.

MEM supports in principle the Concession scheme by the private sector such as PPP and IPP for geothermal development, but recognizes that development by the private sector is not progressing, MEM is showing interest in geothermal development by the state funded with the Japanese Yen Loan. In addition, EP has expressed strong willingness to conduct geothermal development by Japanese Yen Loans which is economical since it has continues coordination with MEM.

Also, the Ministry of Economy and Finance (Ministerio de Economia y Finanzas: MEF) is making an effort to reduce the external debt to achieve a sound financial structure and economic growth. In the past few years, Peru has continued to have healthy economical growth at a stable low inflation rate. Under such circumstances, MEF has borrowed yen loan only for very high business priority. Since energy demand increases are expected in the future, MEM has a positive attitude for the implementation of geothermal power generation development by Japanese Yen Loan.

In consultation meeting between the Government of Japan and the Government of Peru held in Lima on November 12, 2013, the Japanese Yen Loan request on geothermal project was noted in the margin. However, according to the hearing survey to MEF by the study team on 10th December 2013, MEF has announced that they would consider the Japanese Yen Loan request if there is a request from the MEM. So, MEF is thought to be considering Japanese Yen Loan for the geothermal project.

As of December 2013, EP sent a written request in accordance with the promotion of this project to MEM and OO provincial government sent the same to MEF. MEM, which is the competent authority for EP, requested a review of the economics and the implementation scheme for this project. Based on this review results, MEM is expected to determine whether or not MEM will request Japanese Yen Loan to MEF.

(6) Technical Advantages of Japanese Companies

1) Turbine and generator Japanese manufacturers have a great deal of experience in turbines and generators for geothermal development projects all over the world, ranging from research and development, through design, manufacturing, installation, and to operation & maintenance. Japanese-made geothermal turbines and generators have over 67% share in the global market.

Since economic performance and operation reliability of a power plant are largely depending on the performance and reliability of the turbine and generator installed, Japanese manufacturers with abundant experience will have the greatest advantage. At a geothermal power plant, since both atmosphere the steam supplied to the steam turbine contain hydrogen sulfide gas, it is very important to take countermeasures including improvement of metal materials of turbine, turbine shape design which prevents concentration of stress and improvement of coating for electrical wire and control unit to prevent corrosion caused by hydrogen sulfide gas. The selection of proper materials and the know-how of countermeasures to protect electrical parts, instrumentations and control devices from corrosion are the advantages of the Japanese manufacturers. Recently, Japanese manufacturers have competed with those from Italy and USA and China has recently become a new competitor. Nevertheless, with advanced technologies and abundant experience not only in manufacturing but also in terms of efficient maintenance programs, especially for meticulous detailed after-sales service (To monitor the status of geothermal power generation facility by telecommunication line after delivery, and propose contents and period of proper maintenance, etc.), Peruvian contractors will have sufficient reasons for selecting the Japanese manufacturers over the others.

2) Consulting and operation of geothermal project Japanese consulting companies have abundant experience to develop both vapor-dominant and water-dominant geothermal fluid and construct both flash and binary geothermal power plants. Direct use such as for bathing, farming and heating is spread across the country. Japanese technology and the experience cultivated over many years have contributed to overseas geothermal development projects in Southeast Asia, Central and South America and Africa, and this would be also applied to the geothermal development in Peru. In addition, it should be pointed out that Japanese geothermal power plants endured the large-scale earthquake disaster on March 11, 2011. When the giant earthquake of M 9.0 attacked East Japan, power generation was stopped by turbine trip for ensuring safety in the six power plants in the region. All geothermal power plants in the East Japan could re-start generating electricity after several hours or several days. It hugely contributed to local power supply security. The is due to Japanese-original earthquake-resistant design; the power plants were designed for the standard of Japanese earthquake-resistant and seismic accelerometer is inside the control unit of turbine, which is programmed for emergency halt of turbine when the earthquake was detected.

Peru is located in the subduction zone of the oceanic plate like Japan and sometimes suffers damage from major earthquakes. Experiences, that Japanese geothermal power plant encountered by the Great East Japan Earthquake Disaster, would be an asset for the Peru side to choose Japanese companies.

(7) Practical Schedule and Risks for Project Implementation

1) Construction Schedule for Geothermal Power Plant The entire implementation schedule is shown in the following table. It is noted that access road construction was not included in this schedule. Application for project implementation to be done by the government of Peru, would be done once when Engineering Service (Servicios de Ingeniería: E/S) Loan is applied and not be done at the construction stage of the project. Table-2 Project Implementation Schedule

Stage Work Item 2014 2015 201620182017 2019 2023202220212020 Preparation and Approval of Socio-Environmental Consideration Application to Exploring Right

Detailed Study (JICA Preparatory Study)

Application for Project Implementation Exploration Well Drilling (Engineering Service Loan)

L/A Conclus ion

Procurement of Consultant

Procurement of Drilling Contractor (Local Bidding) Exploration Stage Exploration Drilling of Exploration Wells (3 Nos.)

Evaluation of Geothermal Resource

Detailed Design of Facilities

Review and Additional Survey for Socio-Environmental Consideration Application of Development Right Construction of Power Plant and Associated Facilities (Japanese Yen Loan) L/A Conclus ion

Procurement of Consultant

Procurement of Drilling Contractor (Local Bidding)

Drilling of Productive/Injection Wells (15 Nos.) Procurement of Contractor (International Bidding) Development Stage Development Construction of Power Plant (50MW)

Construction of Associated Facilities

Test Operation

Source: Study Team 2) Risks for the Project Implementation For the introduction of renewable energy including geothermal power generation, at present, the Peruvian government is trying to implement by private participation. However, initial risk of geothermal power generation is large as compared with wind and solar power so the development has not yet progressed at present. The risks associated with geothermal development are uncertainties related to the development of initial resources, the length of the construction period, and such as prolonged investment recovery period among others.

The prerequisite in Peru for project implementation, technology selection and request for Japanese Yen Loan may arise from the following legislative and financial issues. a)Renewable energy development policy by the IPP

Based on the Electricity Concession Law, power generating is basically implemented by IPP. There were two biddings for renewable energy project based on the regulation concerning renewable energy. However, in interviews with power-related influential people of Peru, it was noted that the IPP policy does not prohibit placing of public funds in power development. For this reason, the operation of a flexible policy is desired while performing the coordination of interests with other private power companies. b)Environmental and Social Impacts  Environmental Consideration In carrying out this project, it is necessary to obtain approval of whether it is possible or not to develop first because of the fact that the project site is part of a conservation area of OO State Government, and from the standpoint of environmental protection.

 Social Consideration In the last few years the residents have come to know how different geothermal development is from mining as result of presentations and seminars held by private sector and local government. However, it is necessary to take measures to deepen their understanding of the project, make further consideration on their benefit and avoid problems in the project development. c)Capacity Development of implementation organization in Peru side Because this is the first geothermal development in Peru, there is no experience in the areas of technical, human resources and management for geothermal development. There is a method of forming a new organization of professionals specializing in geothermal development, but because it is impossible to secure human resources and funds to be launched soon, it is practical to proceed with the existing organization. (8) Location Map

Figure-1 Location Map

Calientes Geothermal Power Plant

Candarave ●

Lima N 150km OO ● OO

Source: Map from INGEMMET, arranged by Study Team

50km 1. Overview of the Host Country and Sector (1) Economic and Financial Situation of Recipient Country

1) Outline of Peru Peru is located in an area with geographical coordinates S 3o-18o W 69o-81o. Its capital Lima is situated near S 12o of the country. Peru is situated in the center of the South American continent, inside the Tropic of Capricorn, and is contained within the tropics in terms of latitude, but the area is subject to various geographic effects and has various climatic conditions. The country, which has a land area about 3.4 times of Japan, may broadly be divided into three areas, i.e., tropical rain forests (Selva) which occupy about half the land mass, the Andes mountains (Sierra), and the coastal desert area (Costa) which extends along the Pacific coast. The country’s population exceeds 30 million, where more than half of it is concentrated in the coastal district including the capital Lima.

General data on Peru is as follows (JETRO, 2013):

・ Area : 1,285,216 km2 ・ Population : 30,140,000 (2012) ・ Capital : Lima, Population: 9,130,000 (2011, Greater Lima Metropolis) ・ Races : Mestizo (52%), Indigena (32%), European (12%), and Others (4%). ・ Languages : Spanish, Quechua, and Aymara ・ Religion : Catholic (95%) and others (5%) ・ Regime : Constitutional Republicanism ・ Major industries : Manufacturing, agriculture, husbandry, oil, and mining

Peru was the first country where Japan has established its diplomatic relationship among the countries in Central and South America (August 21, 1873). Currently, this year is the 140th anniversary of this relationship. Traditionally, both countries have friendly and cooperative relations. In 2009, the 110th anniversary of Japanese migration was celebrated.

2) Economy and Financial Situation The macro-economy of Peruhas the steady. Since 2001, due to the expansion of domestic demand and a jump in the international price of mineral resources, there has been rapid growth and low inflation. Because of this, Peru has achieved the leading growth rate in Central and South America (8.8% in 2010, 6.9% in 2011, and 6.3% in 2012). According to the Government of Peru, the economic growth rate in 2013 was expected at 6.0% (refer to Table 1.1).

In Peru, the gross domestic product (Producto Interno Bruto : GDP) is USD 199 billion, and the per capita gross national income (Renta Nacional Bruta : GNI) is USD 6,530 (2012, the World Bank). The consumer price index appreciation rate in 2013 was expected at 2.0%, and is now gradually leveling off. Despite this strong economy, many citizens believed that some people of poverty group living in the mountains and tropical rain forest zones, have not benefited from this economic growth. Staple trade items include copper, gold, lead, textiles, and fish meal. Its main export destinations are China, the United States of America (USA), Canada, and Japan. In the international balance of payments, although the trade balance is surplus, it is thought that the current balance including interest payments on debts will continue to be 2.3%.

Table 1.1 Key Economic Indicators of Peru 2011 2012 2013 Item (Track (Prospects) (Prospects) record) ①Real GDP growth rate (%) 6.9 6.3 6.0 Private-sector final consumption expenditure 6.4 5.8 5.5 Government final consumption expenditure 4.8 9.1 6.0 Private investment 11.7 10.0 10.0 Exports of goods and services 30.1 5.6 8.4 Imports of goods and services 28.3 9.9 9.8 ②Consumer price index appreciation rate (%) 4.7 2.8 2.0 ③Wage growth rate (%) －－－ ④Unemployment rate (%) 7 6.6 － ⑤International balance of payment Current balance (%) △1.9 △2.3 △2.3 Trade balance (USD 1 million) 9,302 8,249 8,389 ⑥Other key indicators Budget deficit (GDP ratio, %) △1.9 △1.0 △1.1 Public foreign debts (PEN 1 million) 54,470 54,969 53,731 ⑦Exchange rate (USD 1.00 to PEN) 2.75 2.67 2.64 Source: JETRO Economic Prospect 2013 (53 countries and areas), p.67 (2) Overview of Sector Subject to the Project

1) Target Sectors The objective of the project is the construction of a geothermal power plant. The energy and electrical power sectors are the target sectors of the project. The responsible authority for the energy and electrical power sectors in Peru is MEM. Figure 1.1 shows the organizational chart of MEM.

The MEM, as the general energy organization, is responsible for planning policies in order to ensure legal security in the energy field and is also responsible in drawing up related bills. The MEM is divided into two parts: the Division of Energy and the Division of Mines. Each department is headed by a vice-minister. The target sectors of this project are mainly under the Division of Energy, particularly the Electricity General Directorate.

Figure 1.1 MEM Organization Diagram

Source: Peru Electricity Subsector, MEM, 2012

2) Outline of Electricity Sector Although the electrification rate of Peru exceeds 90% in the urban areas such as Lima, the electrification rate in other regions where 40% of the country’s population lives is only about 35%. The gap of electrification rate between regions is remarkable, and Japan has already previously carried out a project entitled Electricity Frontier Extension to improve the local electrification rate in Peru.

In 2011, the national installed capacity was 8,556.4 MW. The electrical power structure in the country consisted mainly of hydroelectric power (about 59%) and natural gas generation (37%), as shown in Figure 1.2. Through the installed capacity, the proportion of thermal power stations run by natural gas has been increasing in recent years (Figure 1.3). Figure 1.2 Breakdown of Electricity Supplies in Peru

Source: Peru Electricity Subsector, MEM, 2012

Figure 1.3 Trend in Electricity Generation in Peru (1995-2011)

Thermal power

Hydropower

Source: MEM Statistics

In 1995, the per capita power demand was 584 kWh, and by 2011, it had doubled to 1,149 kWh in a span of 15 years. Moreover, due to the improvement of the electrification rate and increased industrial use, the maximum demand has increased by about 2.5 times. It is expected that the future growth of demand in the coming 15 years until 2030 will increase by 3-4 times (refer to Figure 1.4). In order to avoid future electricity shortfall, the construction of new electric power plants is required.

Figure 1.4 Future Trend of Maximum Power Demand (2010-2030) Source: Peru Electricity Subsector, MEM, 2012

Figure 1.5 shows the change in electricity price. For industrial use, it has reached at about USD 0.06/kWh, whereas for home use, it has reached at about USD 0.12/kWh. This showing that the prices of electricity have not increased much over the past 15 years.

Figure 1.5 Change in Price of Electricity per Sector (1995-2011)

Source: MEM Statistics

Peru is aggressively promoting renewable energy. The power station business is basically run by the IPP system. So far, there have been two bids for renewable energy projects. There have been bids for small hydroelectric power, wind power, biomass, and solar energy. As shown in Figure 1.6, a total of 37 bids amounting to 357 MW and 2,360 GWh/year of renewable energy have been successfully completed. As for geothermal energy, although mining rights (exploration rights) have been acquired and several areas are currently under surface investigation, no bids have been tendered in the electrical power business. The reason is considered to be regarding resources development risks peculiar to geothermal development as well as its comparatively large initial investment cost.

Figure 1.6 Renewable Energy Bid Results Source: Peru Electricity Subsector, MEM, 2012

(3) Conditions in the Project Area

The planned project site is located in Calientes, Candarave Province of OO Region in southern Peru. Nearby villages are Candarave and Tarata.

Table 1.2 gives an overview of the project region (refer to the photographs at the beginning).

Table 1.2 Overview of Project Region Item Summary Altitude of Project Area 4,200-4,300 m Outline of Candarave Area: 2,261.10 km2, Population: 9,534 (2000) Province Provincial capital: Candarave

Climate Dry alpine desert area with little rainfall. Annual mean precipitation is 167.4 mm. Rainfall is generally heaviest from January to March, and there may be snowfall. Annual mean temperature is 9.6 °C and fluctuates from 6 °C to 13 °C through the year.

Surrounding Geography Located in the Andes mountains' volcanic area. The Calientes River flows into the planned project site. Since its neighboring hot spring water flows into the Calientes River, the salinity of the river is fairly high, making it unsuitable for irrigation. Because of this, drainage canals from rainwater pond for irrigation have been installed.

Nature Reserve Planned project site In the Vilacota Maure Conservation Area, a regional conserved area (Area de Conservacion Regional : ACR) set up by the regional government to complement the natural protection areas (Areas Naturales Protegidas : ANP) has been established at the national level.

Land use The target region and its surrounding area are mainly used as grazing land. There are about 2,000 - 3,000 alpacas and llamas pastured feeding plants grown on swamps and marshes that spread out on both sides of the Calientes River. Local residents of the Calientes River make their living by pasturing for alpacas and llamas, and live a nomadic existence depending on the grass required for pasturage. The planned project site is located on a land which the community has been using for many years as public (communal) land.

Access to Electricity According to the Rural Electrification National Plan in Peru 2011-2013 (Plan Nacional de Electrification Rural Period 2011-2020), electrification rate in OO Region on 2011 was 85.9%, rather high level in Peru. Aiming to 91.6% of electrification rate in 2020, it is planned that the amount of USD 18,146,820 is invested for electrification of 14, 795 houses and 62,622 beneficiaries in 194 village.

Sightseeing From nearby villages to the target area, an unpaved road has been built for the needs of local residents (or nomadic people) for sightseeing, and for recreation. At hot springs resorts, simple bathing facilities are also installed. According to one OO Region state officer, the area near the target region is included in sightseeing tours as a tourist attraction.

Source: Study Team 2. Study Methodology (1) Contents of the Study

1) Objective

The objective of this project is to construct a 50 MW geothermal power plant, its electrical transmission and distribution, transformer station, associated facilities such as roads, etc. The aim of this study is to determine the point of geothermal test wells, prepare a drilling plan, prepare a plan for the power plant and associated facilities, analyze the environment and economic feasibility, review related laws and regulations, and prepare the plan for financial arrangements. The purpose of the aims is to promote project and business development of Japanese enterprises overseas.

2) Contents of the Study

The contents of the study are as follows:

- Discussions with respective organizations and collection of related data,

- Clarification of laws, regulations, and organizations for geothermal development,

- Geothermal resource potential survey at the site,

- Review and analysis of collected data,

- Basic design for geothermal power plant,

- Cost estimation and examination of the project implementation schedule, and

- Preparation of project implementation plan. (2) Organization and Methodology of the Study

1) Methodology of the Study The study is composed of field work and desk work. Field work was done twice with the study team members visiting Peru. The study team discussed with respective organizations, collected related data, clarified about laws, regulations and organizations for geothermal development, and carried out geothermal resource potential survey at the project site.

The desk work was done in Japan wherein the study team reviewed and analyzed collected data, prepared a basic design for the geothermal power plant, estimated project cost, and prepared the project implementation plan. Furthermore, the study team prepared the report based on the above results.

2) Organization of the Study Figure 2.1 shows the organization of the study team while Figure 2.2 shows the organizational chart of the Peruvian counterpart and respective agencies.

Figure 2.1 Organizational Chart of the Study Team

Source: Study Team Figure 2.2 Organizational Chart of the Counterpart and Respective Agencies in Peru

MEM ELECTROPERU

State Minister for Energy State Minister for Mines INGEMMET

Coordination Technical Cooperation

Electricity General DGAAE Directorate (DGE) EIA Approval

Source: Study Team

(3) Schedule of the Study

The contract of this study was made and agreed upon on 21 September 2013, with the first field work having commenced on 22 September 2013. The entire schedule of the study is shown in Table 2.1 and all respective organizations that were visited during the field work are described thereafter.

Table 2.1 Schedule of the Study Year 2013 Year 2014 Work Item / Year and Month September October November December January Febuary (1st Field Work) 1. Discussion with Respective Organizations 2. Site Survey 3. Drilling Plan 4. Power Supply Survey and Constitutional Survey (2nd Field Work) 5. Environment, Social, Economic, and Financial Survey 6. Explanation to the Counterpart Agencies 1. Preparatory Work 2. Collection and Analysis of Information 3. Consideration of Project Circumstance and Basic Design 4. Project Cost Estimation and Economic Evaluation 5. Finalization/Preparation of Draft Report 6. Final Reporting and Report Submission Source: Study Team A. First Field Work The first field work was conducted from 22 September to 6 October 2013. The contents are as follows:

Contents of the Work - Meeting and data collection survey to respective organizations in Lima (from 23 to 25 September and from 30 September to 3 October 2013) - Interview and data collection survey in OO Region and Candarave Province (from 25 to 29 September 2013) - Site survey in Calientes Geothermal Field (from 26 to 29 September 2013)

Member and Date of Meeting 23 September, 2013 (Monday): - EP, Mr. Jesus Ramirez, President, and two other members - MEM-DGE, Mr. Alcides Claros, Director of Power Concession, and two other members

24 September 2013 (Tuesday): - SERNANP, Mr. Pedro Gamboa, Senior Secretary, and three other members - The Embassy of Japan in Peru, Mr. Yasushi Imai, Ambassador ad Interim; Mr. Takayuki Kondo, Vice Representative, JICA Peru Office; and Mr. Masayuki Fujimoto, Representative, JETRO Peru Office - INGEMMET, Ms. Susana Vilca, Senior Secretary, and two other members

25 September, 2013 (Wednesday): - OO Region, Ms. Edith Naara Campos, Secretary General, and five other members

25 to 29 September, 2013 (Thursday to Sunday): - Site survey in Calientes Geothermal Field and surrounding areas

30 September 2013 (Monday): - SERNANP, Mr. Marcos Pastor, Board Member, Technical Advisor 1 October 2013 (Tuesday): - MEM, Hon.Mr. Dicky Edwin Quintanilla Acosta, State Minister for Energy (Position for applying Japanese Yen Loan), Mr. Nicho Diaz, Ag. Director of Electric; and one other member - EP, Mr. Jesus Ramirez, President, and two other members

2 October 2013 (Wednesday): - The Embassy of Japan in Peru (for reporting)

3 October 2013 (Thursday): - Mr. Shoji Sakakura, Representative, JICA Peru Office

B. Desk Work Desk work for compiling results of the first field work was conducted from October 2013 to February 2014. The contents are as follows:

- Review and analysis of collected data, - Evaluation of geothermal resources, - Basic design for geothermal power plant, - Cost estimation, - Examination of implementation schedule of the project, - Preparation of project implementation plan, - Preparation of interim report meeting, and - Preparation of draft final report.

C. Second Field Work The second field work was conducted from 4 to 15 December 2013. The contents are as follows:

Contents of the Work - Reporting and explanation of the results of the study to respective organizations and discussion for the possibility of Japanese Yen Loan (10 December 2013) - Additional interview survey and data collection on environmental and social consideration (4 to 5 December 2013) - Site survey in Calientes Geothermal Field (from 7 to 9 December 2013) - Data collection of local companies (5 and 11 December 2013)

Member and Date of Meeting 4 December 2013 (Wednesday): - SERNANP, Mr. Marcos L. Pozas, Board Member, Technical Advisor 5 December 2013 (Thursday): - INGENIEROS S.A. CIDES (Environmental Consultant), Mr. Cesar Zumaran Calderon, President, and one other member

6 December 2013 (Friday) - Mr. Takayuki Kondo, Vice Representative, JICA Peru Office - 7 December 2013 (Saturday): - Mr. Marco Alberto Navarro Guzman, Senior Manager, Vilacota Maure Conservation Area

8 December 2013 (Sunday): - Site survey in Calientes Geothermal Field

9 December 2013 (Monday): - (1)Regional Directorate of OO Region, Mr. Ricardo Paullo Perez, Director - (2)Energy Directorate of OO Region, Ing. Marcelo Marca Flor, Director - (3)Natural Resources Directorate of OO Region,Mr. Giancarlo Franco Diaz, Director

10 December 2013 (Tuesday): - (1)EP, Mr. Jaime Hanza Sanchez Concha, Chairman, and two other members - (2)MEF, Mr.. Valentin Cabanas, Officer, and two other members - (3)MEM, Mr. Rivera, Officer of Power Concession Directorate, and two other members

11 December 2013 (Wednesday): - (1)Weatherford (drilling company), Mr. Patricio Wehncke, Marketing Manager, and two other members - (2)Schlumberger (drilling company), Mr. Eddy Cordero Manrique, Manager and one other member - (3)INGEMMET, Ing. Lionel Fidel Smoll, Officer - (4)The Embassy of Japan in Peru, Hon. Mr. Masahiro Fukukawa, Ambassador Extraordinary and Plenipotentiary of Japan to Peru, Mr. Hideki Morimoto, Second Secretary; Mr. Takayuki Kondo, Vice Representative, JICA Peru Office: and Mr. Masayuki Fujimoto, Representative, JETRO Peru Office 3. Justification, Objectives, and Technical Feasibility of the Project (1) Background and Necessity of the Project

1) Background of the Project The total installed capacity of power plant facilities of Peru in 2010 is 7,309 MW, and a growth of 8.1% per annum is expected for the 2009-2018 power demand. Peruvian government has established the “Energy Efficient Use Promotion Law (Law 27 345, 2000) " for the purpose of development of renewable energy and energy saving and conservation promotions. The "Sub-regulations on renewable energy power generation" put into force in 2008 defines implementation of the bidding of the renewable energy business and the target value of the renewable energy (It is updated every five years. The goal of five-years term from 2009 to 2013 is 5% of the total power. The target value of the succeeding term is under study). There are expectations for the development of geothermal resources which are abundant (available potential resources of more than 3,000 MW). To seek possibility of such expectations, Pre F/S surveys of geothermal development were implemented by Japan Bank for International Cooperation (Banco Japonés de Cooperación Internacional: JBIC) (2008) and Japan External Trade Organization (Organización de Comerció Exterior del Japón: JETRO) (2008), and a master plan study has been implemented by Japan International Cooperation Agency (Agencia de Cooperación Internacional del Japón: JICA) (2012) until now. However subsequent development has not progressed because of various constraints and problems of institutions and legislations. Hence, the geothermal power plant does not yet exist in the country.

As an activity of Japanese Business Alliance for Smart Energy Worldwide Geothermal Working Group, Latin America sub-working group, the study team sent two missions to Peru to exchange views with related organizations, gather information and survey the project site in September 2012 and March 2013. Through these activities, the following issues were confirmed: 1) State-owned power company Electroperu,S.A (EP) has come to have a strong desire to implement the first geothermal power generation project and for such purpose, wishes to obtain the support of the Peruvian government and expects the entry of Japanese companies as well as the participation of Peruvian governmental sectors, 2) There will be expectation for Japanese companies to have future opportunities to join geothermal development in the country, 3) Geothermal development in the country is expected to advance the progress of rural electrification and economic development, and furthermore, an increase in power demand can be expected by mining development in the province. In October 2012, Hon. Jorge Merino Tafur, the Minister of Energy and Mines, instructed EP to consider the studies on geothermal development projects. From the circumstances described above, what we are proposing is a geothermal generation project in Calientes, OO Region in southern Peru of which EP would be the implementing agency.

2) Scope of the Project and Beneficiaries

The scope of this project focuses on geothermal power plant construction. The main beneficiaries are residents, mines, and companies that are located in OO Region. By connecting the transmission line to nationwide networks that are currently being planned, it is possible that the benefit will spread throughout Peru.

In addition, in association with this project, electrification in the region, development of multi-purpose use of geothermal fluid, maintenance of road networks, and job opportunities are expected. 3) Analysis of the Current State, Future Prospects, and Expected Problems when Projects are Implemented At present, the Peruvian government is trying to introduce renewable energy including geothermal power generation in the country through the participation of the private sector. However, as the initial risk of geothermal power is larger as compared with wind and solar power, the development has not yet progressed. The risks associated with geothermal development are uncertainties related to the development of initial resources, the length of the construction period, and prolonged recovery period. For this reason, despite being a promising country for geothermal energy development and as one of the world's leading sources of geothermal energy, no plant has been built yet. If it relies on private participation, no sign of geothermal development has been seen.

Many countries with developed geothermal plants also had the similar problems in the past, but they casted public funds to geothermal development in the initial stage to reduce resource risk. For example, countries like Costa Rica, the Philippines, Indonesia, and Mexico have geothermal projects that were carried out through yen loan as the countries’ first projects for geothermal power generation, which were able to attract the funds from other donors and private companies thereafter.

When geothermal power generation project is successfully carried out in Peru by Japanese Yen Loan as same as above countries, it would be possible to advance the geothermal development in earnest by IPP in the future.

4) Effectiveness and Impact of Implementing the Project By using yen loan as its first geothermal power plant construction, it is expected that the project will attract funding from other donors and private companies, which can also be used for expanding geothermal power generation into a full-scale business in Peru. In addition, by becoming the first successful geothermal project in South America, a ripple effect on neighboring countries with geothermal potential as well as within Peru is also expected.

5) Comparison with the Proposed Project and Other Options to be Considered Currently, power generation comes mainly from natural gas and hydropower in Peru. Hydropower can be a cheap power supply in the economy. But because the power generation is dependent on rainfall, the risk has been increasing in terms of stable power supply considering the impact of climate change in recent years. In addition, natural gas is advantageous in terms of power generation efficiency. Although from the standpoint of national policy, such as the export of natural gas and carbon dioxide emissions, promoting the development of large-scale natural gas power generation may not be possible.

Figure 3.1 shows the correlation of power generation utilization rate and cost of each power generation system. According to the said figure, the cost is reduced as the utilization rate is higher for each power system. For 80% or more utilization rate, it can be seen that geothermal energy is more efficient than other generating systems including renewable energy in particular. Furthermore, compared to other renewable energy such as small hydro, wind, solar, and solar thermal power, geothermal energy source is more stable as it is not influenced by weather and climate. When considering a substitute for hydropower and natural gas in power generation from the energy security and economical viewpoints, geothermal power is very advantageous as was previously pointed out.

Figure 3.1 Levelized Energy Costs (USD/kWh) as a Function of the Capacity Factor

Source：World Bank/ESMAP Geothermal Handbook (2012) (2) For Sophistication and Streamlining of Energy Use

An advanced use of energy is possible by turning the fuel power generation into export of resources and energy, while power generated by local source will be used for local consumption as much as possible.

As previously described, the main power source of Peru comes from hydropower and natural gas mined within the country. It is possible to obtain a national interest for exporting these abundant natural gas resources. Locally produced energy, that is, renewable energy as an alternative energy will lead to a sophisticated and maximized use of energy resources.

In addition, as compared with thermal power generation from fossil fuels, in terms of reducing carbon dioxide emissions, the introduction of renewable geothermal energy will largely contribute to solving global warming.

By moving away from the current focus of using natural gas and fossil energy for power generation and excessive dependence on unstable hydropower because of climate change, the rationalization of energy use is to achieve the best mix and diversification of energy and to measure cost savings and risk reduction.

Figure 3.2 shows an example of the best energy mix. Base power is covered by geothermal power generation while the daily or seasonal peak demand for electricity is covered by fossil fuels, which can easily change power output. The only renewable energy not affected one by weather and climate is geothermal power generation, thus, it can be utilized for base power.

Figure 3.2 Example of Load Curve (Geothermal Energy as Base Power Supply)

Source: World Bank / ESMAP Geothermal Handbook (2012) (3) Justification, Objectives and Technical Feasibility of the Project

1) Estimated Power Demand As shown in Figure 1.4, the power demand of OO Region is concentrated mainly around OO city. With recent development in OO Region, the power demand in the province is increasing as similar as that in entire Peru. This increase of power demand will be covered by large-scale gas power generation plants (500 MW, 2 plants) which are planned in the neighboring province, and a 500kV transmission line between Lima and OO Region. The geothermal power plant, to be constructed by this project, produces less electricity compared with the above large-scale gas power generation plants so it is difficult to obtain the generation capacity which can meet the increase of power demand. However it is expected to cover the local power demand which is originated by copper and other mine operators around Candarave. The mines and refineries they operate require a large amount of electricity which is mainly generated by their own power plants. Thus, the local power demand can be covered by transmitting electricity to the copper mines from new geothermal plant to be constructed by this project, and it has another advantage for power companies to stabilizing the power supply and reducing transmission loss.

2) Review of Previous Studies The Calientes Geothermal Field is located in an active volcanic zone in southern Peru. The geothermal models are created according to its geology, geochemistry, and geophysics such as MT survey（JBIC, 2008; Cruz et al., 2010; and INGEMMET, 2012）. a)Geology and Geochemistry ・ Stratigraphy The Calientes Geothermal Field and its surroundings are formed by Mesozoic sediment and volcanic products as basement rocks which are overlain by Cenozoic formation. Surface geology of the study area consists of Cenozoic formation of Barraso volcanic rocks and alluvial and glacial deposits.

Although there is no direct information about the underground geology since no borehole surveys have been executed, it is assumed that the Calientes Geothermal Field is formed by the thick formation of Barraso volcanic rocks.

・ Structure and Lineament According to the distribution of lineaments and geothermal manifestations, two main faults called Fc-1 and Fc-2 that run along the northeast-southwest axis and north-south axis, respectively, are found at the Calientes River (refer to Figure 3.3). There are many geothermal manifestations around Challepina area (as shown at the center of Figure 3.1), which is expected to be the intersection point of two faults. In addition, some faults that strike along the north-northeast-south-southwest axis are estimated from the lineament analysis.

・ Volcanoes There are many active volcanoes around the study area like the Yucamane Volcano that have been activated from the last part of the Quaternary period to present. There is likely to be a magma chamber in the relatively shallow underground.

・ Geothermal Manifestations Many hot springs with temperature near boiling point are distributed along the Calientes River especially from Chaullane to Challepina. There are also some alternated rocks and carbonates as well as silicate deposits called sinter along the Calientes River.

・ Fluid Geochemistry Most of hot springs along the Calientes River have temperature near the boiling point of 82-87 °C, while its pH is neutral from 7.3 to 8.1 with high chlorine (Cl) concentration of 1,700-1,900 mg/L.

The water chemistry of the Calientes River differs from the upstream and downstream. The river water at the upstream has a lower temperature, lower chlorine content with acid (pH=3.1), and higher concentration of sulfate ions. On the other hand, the river water at the downstream has relatively higher temperature, neutral pH, high electric conductivity, and high Cl concentration that is affected by the mixture of hot springs. b) Type and Origin of Geothermal Fluid Hot springs along the Calientes River are classified as neutral, Cl-type water which is the same as an ordinal deep geothermal fluid. Based on the analyzed data of hydrogen and oxygen isotopes and Cl concentration of hot spring water, the origin of geothermal fluids are recharged local meteoric water, and the water is mixed with magmatic water. According to the silica and alkali ratio geothermometers, the temperature of geothermal fluid is more than 200 °C. c) Resistivity Distribution Based on the resistivity distribution at the study site, underground formations can be classified into three layers: the surface formation with low resistivity between 10 to 100 Ω-m, the intermediate formation with resistivity under 5 Ω-m, and deep formation with resistivity over 30 Ω-m.

There are low resistivity zones near the surface along the Calientes River from northeast to southwest, and the discontinuity lines along the trend are identified and named Rc1 and Rc2 as shown in Figure 3.3. Rc1 and Rc2 show a clear lineament structure that corresponds to Fc-1. It is estimated that the low resistivity zone show the distribution of geothermal alteration or the existence of hot water. Geothermal alteration zone might form cap rocks for geothermal reservoir by smectite and zeolite. The area between Rc1 and Rc2 are likely forming the fractured zone. d) Conceptual Geothermal Model (Figure 3.4) The following conceptual geothermal models are established based on collected data and evaluation for the study area: ・ Geothermal reservoir is formed in the permeable zone along high-angle faults of the northeast-southwest strike which are assumed to belong to the Barraso fault group.

・ Geothermal fluid mainly originated from meteoric water. Recharged meteoric water around the site, especially at the volcanic areas in the south, are mixed with high temperature magmatic water, and/or conductively heated. It then becomes a fluid-dominant geothermal reservoir with a neutral and high Cl concentration.

・ Geothermal fluid flows along faults and creates a geothermal alteration zone at shallower depth of about 500 m, which performs as a cap rock. Some amount of geothermal fluid continues up flowing to the surface and become hot springs along the Calientes River.

e) Evaluation of Geothermal Resource Potential The geothermal potential at the Calientes Geothermal Field has been estimated by volumetric method using parameters such as estimated temperature and the volume of the reservoir (JBIC, 2008). For the calculation, the Monte Carlo analytical method was applied which is a kind of sensitivity analysis for each parameter. The most probable value for the geothermal potential has been statistically identified. The volumetric method is used to estimate the volume of geothermal resources which can be used for power generation by calculating the quantity of heat in the reservoir.

As a result of the calculation, the estimated resource volume is in the range from 40 to 500 MWe, and the probability of existence of resources more than 100 MWe is over 80%. It is concluded that the considerable development scale is 100 MWe (JBIC, 2008). f) Selection of Production and Reinjection Zone The production zone has been selected at the area between discontinued lines Rc1 and Rc2 identified from the resistivity distribution along the Calientes River. This is due to the high permeable zone that might exist along the northwest-southeast trend of this area which controls the geothermal fluid flow as shown in Figure 3.3 (JBIC, 2008).

However, there are no existing wells in the study area. It is necessary to confirm the existence of geothermal resources by exploration wells and to observe fractures, temperature logging, and high temperature fluid as well. Figure 3.3 Conceptual Geothermal Model of Calientes Geothermal Area

Source: JBIC, 2008

Figure 3.4 Cross Section of Conceptual Geothermal Model （Temperature structure was estimated by resistivity distributions）

Source: JBIC, 2008 3) Results of the Study In this study, we conducted a survey to support the above hypothesis. The survey consisted of topographic analysis and field survey, in order to verify the conceptual geothermal model shown in Figure 3.4. The results are as follows.

・Result of Topographic Analysis Rc1 and Rc2 fault (JBIC, 2008) are assumed faults of NE-SW direction which are parallel to Calientes river. In this study, we conducted topographic analysis using digital elevation data by U.S. National Aeronautics and Space Administration (NASA). As the result shown in Figure 3.5, bending of some river branches was found where the Rc1 and Rc2 fault is crossing. This structure indicates that those faults are available and the area, intercalated by those faults, has geological weakness.

Figure 3.5 Result of Topographic Analysis

Bending structures at river branch N Rc1 Rc2

Point A

Bending structures at river branch

Source: Study Team

・Result of Field Survey We conducted geological survey at the Point A where the river branch and fault are crossing for the purpose of verification of existence of Rc-2 assumed fault. As a result, we could not find Rc-2 fault on surface, but we could find steep fractures which direction is parallel to Rc-2 fault in andesite lava of the Barroso Group. Further we confirmed that surrounded andesite lavas are block-shaped by clashing (Photo 3.1).

・Verification of Conceptual Geothermal Model of Calientes Geothermal Area The geological information obtained in this field survey was generally corresponded to the Conceptual Model by JBIC (2008). Even though Rc-2 fault was not observed on surface, based on the existence of concordant fractures and block-shaped rocks, there is high possibility of existence of Rc-1 and Rc-2 fault and high permeability zone in underground, which is the premise of the model.

Photo 3.1 Geology in Point A

Highly blocked andesitic lava（north of stream） Steep fractures concordant with Rc2 Fault in andesite （south of stream） Source: Study Team

4) Study of the Technical Method There are mainly two methods for major geothermal generation systems: the flash type system and the binary type system. Depending on the temperature, pressure, and fluid of geothermal resource, the most appropriate method shall be selected.

Table 3.1 Comparison of Geothermal Generation Type System

Geothermal Generation Type Generation Method and Features Flash Type Geothermal fluid produced from geothermal wells shall be separated into steam and brine by a separator. The steam shall be used for turbine operation. This method is normally applied for the geothermal resource where steam of more than 150 °C is obtained. As of today, this method is the most popular one in the world. Japanese companies had many experiences using this method. Binary Type Heat from hydrothermal fluid causes the secondary fluid to vaporize or flash, which then drives a turbine for power generation. The working fluid with boiling point lower than water passes through a heat exchanger. This method is applicable for power generation to use lower temperature reservoir at 100-150 °C . Butane, pentane, ammonia-water mixture, and fluorocarbons are used as secondary fluid. Source: Study Team Flash systems are further detailed in Table 3.2.

Table 3.2 Features of the Flash Type System Flash Type Generation Method and Feature Single Flash Geothermal fluid produced from geothermal wells shall be separated into steam and brine by a separator. The steam shall be used for turbine operation. Geothermal brine is re-injected into the ground through a re-injection well.

Double Flash Lower pressure steam is obtained by de- pressurization of the brine separated by the separator. Such produced steam is admitted in intermediate turbine stages for geothermal generation. About 15-20% more power may be obtained compared with the single flash type with the same volume of the geothermal resource. Because the double flash system utilizes lower temperature level, the silica scaling at the re-injection well would be the issue to study. It is necessary to study the anti-scaling by analyzing the composition of geothermal steam and brine. Source: Study Team

According to the information collected by the study team, it is assumed that appropriate steam can be obtained for the normal flash type generation. For the Calientes Geothermal Field, it is recommended that the single flash type will be applied due to it being the most popular, with large experience, and has easier maintenance.

However, it is noted that this concept may be reviewed again if any further information is obtained including steam condition. (4) Abstracts of the Project

1) Basic Design for Determination of Project Contents The Government of Peru is promoting IPP and PPP with the participation of private operators by setting concession areas and giving exploration rights. However, private operators that have acquired exploration rights are concerned about fund-raising for drilling of test wells and risks of promoting the projects. Thus, geothermal development has not been promoted as well.

Due to the abovementioned background, Peru selected these areas as geothermal development areas to be funded by Japanese Yen Loan, through the discussions between the above-mentioned Latin America sub-working group and the Government of Peru, in 2012 and 2013. b) Project Implementation Organization The number one candidate organization for project implementation is EP, which is the national electric company conducting power production in Peru. Practically, EP is the only organization who is eligible to be the implementing party of a Japanese Yen Loan project and EP's playing such role is the key to the materialization of this project.

The Ministry of Energy and Mines (Ministerio de Energia y Minas: MEM) and Institute of Mining and Metallurgical Geology (Instituto Geológico Minero y Metalúrgico: INGEMMET) are ministry and agency related to the project promotion. INGEMMET will provide geological information and technical support. MEM will control the rights and approvals. c) Project Implementation Period The project will be implemented from 2014 to 2023. d) Determination of Output Capacity In the view of future demand in Peru and OO Region and its countermeasure, especially for large-scale gas power plants (capacity: 500 MW, two plants) which are planned to be constructed in adjacent region, the capacity of 50 MW, to be generated by geothermal power plant planned in this project, is relatively smaller than those, and it cannot give much contribution against the future demand. However, geothermal development in the Candarave area has a significant local benefits from the viewpoint of global environment preservation, such as: improving electrification rate, industrial development, use of renewable energy, choice of different types of energy.

According to JBIC (2008), the resource capacity of the Calientes area was evaluated at approximately 100 MW. This project will be the first step for geothermal development with an appropriate 50 MW of output capacity. This output capacity will be reviewed and revised in future studies.

The project implementing party has no experience in managing and operating geothermal power plants. He may receive such trainings from Japan and other countries so it is practical to start with a plant of world standard capacity of 50 MW. Furthermore, it is appropriate to start with the standard capacity in order to review and strengthen the institution of geothermal development. e) Transmission Line to be Connected to the Main Power Grid Generated power will be connected via 128 kV electrical power transmission lines, and transferred to OO Region, particularly to Candarave Province.

Meanwhile, a 500 kV electrical power transmission line is being constructed along Pan-American Highway, a major national road, to connect Lima and OO. Itis possible to connect via this power line when this power line construction is completed before the project completion. However, consideration with the scale of generation, it would be appropriate that the generated electricity should be consumed in OO Region and surroundings.

2) Basic Design Concept and Outline of Major Equipment a) Basic Design Concept Based on the result of this study, the study team assumes that all obtained steam with suitable pressure will be used and the plant shall be operated as base load with standard output. The basic design concept is discussed below. i) Base method of power station Flash cycle is adopted as the model of geothermal power generation where the turbine will be rotated with the steam obtained from production wells. According to the resource characteristics of Calientes Geothermal Field, the flash cycle suits such characteristics with a simpler configuration. Furthermore, the single flash cycle is selected in consideration of easy maintenance including the FCRS. ii) Turbine/Generator Condensing steam turbine will be adopted in order to obtain more power. As for the generator, a three-phase synchronous generator with air cooling will be adopted. The generator is brushless or without mechanical contact. Its design power output is a single 50 MW unit in consideration of the economic point of view and the possible steam and demand. The turbine will have a down exhaust. Therefore, the turbine will be installed on the second floor of the powerhouse, while the condenser will be installed on the ground floor. Non-condensable gas included in the geothermal steam (such as CO2 and H2S) will flow into the condenser through a steam exhaust. iii) Condenser/Cooling System In order to minimize the volume, the exhaust steam from turbines which will include non-condensable gas will be cooled in the condenser. The direct type condenser will be adopted. Because the cooling water for operation is difficult to obtain from nearby water source, a cooling tower will be used. The cooling water will be sent from the cooling tower to the condenser by the pressure differences between the inner pressure of the condenser and the barometric pressure of the water pool of the tower.

The cooled exhausted gas containing non-condensable gas will be sent from the condenser to the gas extractor to be installed near the condenser. iv) Gas Extractor/Gas Releasing The gas extractor will be of a hybrid type. Non-condensable gas will be extracted from the exhausted gas in the extractor and will be sent to the cooling tower. The gas sent to the cooling tower will then be released to the open air by cooling fans. v) Transformer Power will come from the output of the generator terminal with 11 kV, and then pressurized with transformer through a circuit breaker. The power will be sent via the transmission line. The transformer shall be installed at the opposite side of the cooling tower across the turbine house. This will protect as much as possible the transformer from having contact with non-condensable gas and/or water droplets or dew. The detailed layout shall be further reviewed with more information including the surrounding weather condition during the detailed design stage.

The conceptual layout is shown in Figure 3.6. The layout presented in the figure is for information only and more details will be studied during the detailed design stage.

Figure 3.6 Conceptual Layout of Geothermal Power Plant Source: Study Team vi) Countermeasures against Geothermal Atmosphere

Because hydrogen sulfide (H2S) gas is present in both the atmosphere and the steam supplied to the steam turbine, greater care must be taken not only on the selection of materials but also on the design of equipment. Corrosion of the plant electrical and instrumentation systems by H2S gas will impose serious problems during plant operation; therefore, countermeasures against H2S gas are significant in plant design.

The following plans shall be considered for the countermeasures against H2S gas corrosion:

- To prevent equipment or systems from being directly exposed to H2S gas by applying tin or zinc coating on such surface especially on copper materials.

- To use anti-corrosion materials,which shall be used for the equipment that are directly exposed to H2S gas; and

- In order to prevent H2S gas from entering into the control and electrical rooms, H2S gas absorption filters shall be installed at the air intake of the control and electrical rooms.

3) Outline of the Proposed Project a) Major Mechanical Equipment The Calientes geothermal power station is designed with turbines that will have a rated output of 50 MW, a single casing, and double flow down exhaust. Turbine exhaust will be led to the condenser, which will be installed on ground level under the turbine. Since there is no water source at the near area to satisfy the required water volume, cooling water will be used with condensate water by condenser and will be cooled by the cooling tower. The non-condensable gas in the geothermal steam will be extracted by hybrid type gas extractor from the condensers and will be diffused into the atmosphere through the air discharged from the cooling tower fans.

The above facilities are quite general for a geothermal power plant of and are well adopted throughout the world. b) Geothermal Steam Turbine i) Outline The geothermal steam turbine is of single casing, multi-stage, double flow, and condensing type. The turbine will be assembled in the factory and then dismantled for the upper casing, lower casing, rotor, etc. for transportation purposes. These will be transported to and then re-assembled again on site. The steam pipe branches off into two at the upstream of the turbine and will be connected to the turbine through steam strainers, main stop valves, and steam control valves.

Since carbon dioxide and highly corrosive H2S gas are contained in the geothermal steam, there is a high risk of stress corrosion cracking (SCC), etc. Therefore, the turbine design shall be reliable for this situation with its proven track record. ii) Main Specifications Below are the list of major specifications based on the available and assumed information on steam pressure, temperature, wet bulb temperature, cooling temperature, etc. These shall be further reviewed during the detailed design stage.

Type of turbine : Single casting, multi-stage, and double flow condensing Steam pressure : 11.0 bar (absolute) Steam temperature : 185 °C (saturated) Speed : 3,000 rpm Connection method with generator : Rigid type direct coupling c)Condensing System i) Outline Direct contact type condensers will be adopted. Since the exhaust from the steam turbine contains non-condensable gas mainly consisted of carbon dioxide, non-condensable gas extraction systems will be installed to maintain condenser vacuum. ii)Main Specifications

Condenser type : Direct contact Cooling water temperature : 20 °C Design wet bulb temperature : 10 °C Condenser pressure : 0.1 bar (absolute) Gas extraction type : Single stage steam jet ejector and vacuum pump Driving steam pressure : 11 bar (absolute) d) Major Electrical Equipment-Generator i)Outline Air-cooled three phase synchronous generator will be adopted. For a geothermal power plant, since highly corrosive H2S gas is contained in the atmosphere, countermeasures such as oxidization catalytic filters must be installed at the air inlet of the generator in order to remove the H2S gas. ii) Main Specifications: Type : Totally enclosed water to air cooled type Rating : Continuous Output : 62,500 kVA Voltage : 11 kV No. of phase : 3 Power factor : 0.8 (lagging) Frequency : 50 Hz Speed : 3,000 rpm Connection : Star Neutral point grounding method : Transformer Cooling system : Totally enclosed type with air cooler Excitation system : Brushless Insulation : F class Temperature rise : F class

The voltage will be boosted from 11 kV to 138 kV by the generator transformer and then will be led to the grid through a switchyard.

As for the electrical equipment including the generator, a single line diagram is proposed as shown in Figure 3.7. This concept shall be further reviewed with more information in the detailed design stage. Figure 3.7 Power Station Single Line Diagram

Source: Study Team e) Instrumentation and Control System In order to achieve an effective plant management, the distributed control system (Sistemas de Control Distribuido: DCS) will be adopted. DCS will help in controlling and supervising the power plant operation. With the data stored in the DCS a for long period, it will support in measuring and storing several of operating data automatically so that the operation and maintenance team can perform its work with more efficiency.

The Calientes geothermal power station is assumed as one of the important sources of energy in the OO Region. A dual redundant configuration may be adopted for this station where two units of pair module, each with a dual-core micro processor (Unidad de Microprocesadores : MPU), will be installed. The chip will ensure that a higher reliability can be maintained as well as minimize DCS plant shut down.

The main control system and devices in the power plants are as follows: i) Steam turbine The turbine governor system, which is normally used in other geothermal power plants, will be adopted. ii) Condenser level Hot water in the condenser is delivered to the cooling towers by hot well pumps. Water level control in the condenser is required in order to protect the hot well pumps. For this reason, level transmitters will be mounted on the condenser and used for level control according to control logic incorporated in a DCS. iii) Cooling tower water level Water level in the cooling tower basin is controlled. This control works to avoid abnormal low level which causes cooling water not to flow to condensers, and excessive high level which causes overflow from the basin. The interlock will be applied for equipment protections in the power plant. The equipment control interlocks are built in the DCS. The interlocks on the generator and turbine protection are basically done by relay circuits. The DCS consists of a liquid crystal display (LCD) which provides an interface with operators where general operation monitoring and control can be carried out through the LCD screen and keyboard. As a power source for the DCS, an uninterruptible power system will be installed so that the system can safely stop in case of blackout. f) Fluid Collection and Reinjection System (Fluido de Recogida y el Sistema de Reinyección : FCRS) i) Type of FCRS In this study, fluid produced from production wells is assumed as a mixture of dry steam and brine (two phase). Produced steam will be transported from the production well pad to the power plant via steam pipes. ii) Description of FCRS The FCRS will consist of a two-phase piping: separator and steam pipeline. The plant layout is assumed as follows:

 There are 12 production wells, which produce all steam (400 t/h) for the 50 MW power plant that will be drilled in group but at several production well pads.  Steam from the 12 production wells will be fed to a cyclone separator via steam header. Thereafter, steam will be separated by the cyclone separator.  Separated steam will be transported from the production well pad to the power plant via steam pipeline. The steam condition may be reviewed later during the detailed design stage.

[Production Well Pad Equipment] i) Separator A cyclone separator will be installed at the production well pad in order to separate steam from geothermal fluid. ii) Rock Muffler A rock muffler will be constructed at the production well pad in order to reduce the noise caused by steam venting to the atmosphere. iii) Hot Water Pond A hot water pond will be constructed at the production well pad. Drainage from the separator and rock muffler will be discharged to the hot water pond via drain pipes. iv) Basic Design Condition

Production well is designed as follows:

 Number of wells : 12  Fluid : Steam  Wellhead pressure : 16.0 bar abs.  Flow rate : 35 t/h (per well)

Tie-in point of the power plant is designed as follows.:  Site : Power plant  Interface : Block valve installed on tie-in point  Pressure : 11.0 bar (absolute)  Flow rate : 35 t/h (per well) v) Steam Pipelines

Steam pipeline is designed as follows:  Steam pressure : 11.0-15.0 bar (absolute)  Steam temperature : 185-195 °C  Flow rate : 400 t/h  Length : 4,500 m (approx. total length)  Pipe diameter : 500 mm (main steam pipe)

[Outline of Process] At the Calientes Geothermal Field, no major obstacles were observed and the site level was found to be relatively flat. Therefore, the FCRS piping was designed based on such condition. The construction of the FCRS pipeline will be largely affected for its construction period and cost due to such site condition. It is expected that the detailed design will help in selecting an easier location for construction, which may also be related to the location of each steam wells.

The conceptual process flow of FCRS is shown in Figure 3.8. Figure 3.8 Conceptual Process of FCRS

Source: Study Team

4) Issues and Countermeasures for the Technical Proposal and System There are no significant technical issues found in the case of the proposal for the power station and FCRS system as mentioned above. However, special attention should be given on the site location which is 4,500 m above sea level. The following special attention should be considered:

・ The electrical equipment shall be carefully designed for appropriate insulation distance and cooling effect in order to maintain the reliability even at low atmospheric pressure.

・ The equipment control especially the electronic parts shall be designed to maintain sufficient cooling.

・ When planning site erection and commission works, adequate working hours and rest hours should be planned to keep a sufficient time frame.

5) Drilling Plan for Exploration Wells Based on the results of geothermal resource evaluation and site survey, drilling plan for exploration wells were designed as follows: a) Selection of Drilling Pad According to the geothermal model from existing studies and verified by this study, two main faults from the northeast-southwest trend, named Fc-1 and Fc-2, have been assumed in the study area (refer to Figure 3.3). It is expected that the drilling depth should be about 2,000 m up to the assumed faults and high temperature convective zone. Therefore, flat areas of about 4,000 m2 will be selected as drilling pads for a rotary type rig with 2,000 m class (750 HP class). The area shall also act as site for material storage. Selected drilling locations are shown in Figure 3.9. CT-1 and CT-2 are expected to be installed as production wells, and CT-3 will be used for reinjection well.

There are enough spaces for drilling pads at each location. However, it is necessary to confirm the strength of the ground for drilling works. b) Water Supply Plan The three selected locations have advantages of securing drilling water from the neighboring river, then the drilling water will be taken from the river by using suction pump or gravity with construction of water intake in upward. However water treatment by neutralizer, such as calcium bicarbonate, is necessary before using it as drilling water, as the river water is found to be acidic with a pH of about 3.4.

Figure 3.9 Location of Exploratory Wells

Source: Study Team c) Implementation Plan of Drilling Rig The access road from OO City to Candarave where the base camp is set, becomes an unpaved rough road 15 km before reaching Candarave. From Candarave to Calientes, the road continues to be unpaved and rough with steep slopes, large curvature and narrow width.

In order to transport the rotary-type drilling rig, it is necessary to undertake a large scale road rehabilitation for large trucks, trailers and large cranes to be able to pass, however the access road passes some of the center of villages between Candarave and Calientes, then road rehabilitation would be very difficult.

Therefore, it is desirable to construct new access road for transportation from the upward of Calientes to the direction of north-east, to deploy drilling rig, provided that the geothermal potential should be confirmed. d) Specifications for Exploratory Wells In the study area, the Fc-1 and Fc-2 faults run along the northeast-southwest trend of the river in Calientes which control the flow of geothermal fluid. These faults will be the target for exploratory wells. Specifications for each exploratory well are shown in Table 3.3.

The casing program and the drilling cross section of CT-1 are shown in Figure 3.10 and Figure 3.11, respectively. The last diameter is designed at 6.25 in while the intermediate casing shoe is at 1,200 m.

Table 3.3 Drilling Specification of Three Exploration Wells

Item CT-1 CT-2 CT-3 Outline of target Drill near the fault Fc-1, Drill near faults Fc-1 and 2, Drill near the fault Fc-2, aiming at high aiming at high permeable aiming at high permeable permeable fracture zone fracture zone along Fc-1 and fracture zone along Fc-2. along Fc-1. Fc-2. Target Fc-1 (NE-SW, high Fc-1 (NE-SW , high angle) Fc-2 (NNE-SSW, high angle fault) Fc-2 (NNE-SSW, high angle) angle) Location of target from Direction from true [Fc-1]Direction from North : Direction from North : wellhead North standard : S60°E, S79°E, S35°E, Vertical depth: 1,500 m Vertical depth: 1,223 m Vertical depth: 1,500 m Horizontal distance: Horizontal distance: 336 m Horizontal distance: 660 100 m [Fc-2] Direction from North : m S79°E, Vertical depth: 1,590 m Horizontal distance: 667 m Depth of target 1,506 m (2,850 m a.s.l.) [Fc-1] 1,332 m (3,092 m a.s.l.) 1,675 m (2,796 m a.s.l.) [Fc-2] 1,828 m (2,723 m a.s.l.) Direction at target 7°30’ 42° 32° Estimated Temperature Approx. 250 °C Approx. 230-260 °C Less than 250 °C (Out at target from active geothermal manifestation area) Kick off Point (KOP) 660 m 630 m 180 m Intermediate casing shoe 1,200 m (3,152m a.s.l.) 1,200 m (3,190 m a.s.l.) 1,200 m (3,199 m a.s.l.) Last diameter (inch) 6-1/4 6-1/4 6-1/4 Drilling depth to bottom 2,000 m 2,000 m 2,000 m Source: Study Team Figure 3.10 Casing Program of CT-1

Depth (m) 0 ＧＬ 13-3/8″CSG 17-1/2″ (K-55,54.5lb/ft,BTC) 100 105.00m 100.00m 200

300

400

500 9-5/8″CSG 12-1/4″ (K-55,47.0lb/ft,BTC) 600 605.00m 600.00m KOP 660m 700 2Stage Cementer

800

900

1000 L/H TOP 1150.00m 1100 7″CSG 8-1/2″ (L-80,23.0lb/ft,BTC) 1200 1205.00m 1200.00m 1300

1400

1500 Target

1600 （Well Encounters estimated fault FC‐1） approximately 1,506min drilling depth 1700

1800

1900 4-1/2″CSG 6-1/4″ (L-80,11.6lb/ft,BTC) 2000 2000.00m 1990.00m

Source: Study Team Figure 3.11 Cross Section of CT-1

MS60°E Deviation -800 -600 -400 -200 0 200 400 600 800 0

500

1000

1500 Target （Well Encounters estimated fault FC‐1） approximately 1,506m drilling depth

Total Vertical Depth(m) 2000 Source: Study Team e) Suggestion of Structural Test Well In order to drill the 2,000 m exploratory wells, it is necessary to construct an access road. Since surveys were only conducted on surfaces, information is not clear about underground situation such as geological structure and temperature. Prior to drilling exploratory wells, it is considered to drill a test well to examine the temperature and geological structure in the Calientes Geothermal Field using a spindle-type driller, which is possible to transport on the existing road.

This structural test well shall be drilled near the CT-3, which is expected to yield the highest potential. The well is designed as a vertical well and the drilling depth will be 1,500 m in order to drill through the cap rock.

It is recommended to firstly clarify the geothermal structure from the obtained data of the structural test well. The next step is to decide which has the higher potential from the three drilling targets for exploration wells; CT-1, CT-2, or CT-3, . 4. Evaluation of Environmental and Social Impacts (1) Analysis of Present Environmental and Social Conditions

1) Analysis of Present Conditions a) Outline of Project Site The project site is located in Calientes, OO Region, in southern Peru. The nearest villages to the site are Candarave and Tarat. The area around the project site is mainly used for grazing animals. There are approximately 2,000-3,000 alpacas and llamas (Lama glama) being grazed in the area where the animals feed on vegetation on wetlands or marshlands that spread along the Calientes River. The local people in Calientes earn their living by grazing alpacas and llamas and rolling grass seed based on the conditions of the grass necessary for grazing. Although some resident houses can be found near the project site, they have relocated to Candarave a few years ago and the houses are not used at present. The land at the project site is used by the community for a long-time.

The project site is located at altitudes between 4,200 and 4,300 m above sea level (a.s.l.). Precipitation is small due to the dry alpine arid region climate. The air temperature (monthly averages of daily maximum and minimum air temperature) and monthly precipitation records nearest the Candarave village (3,415 m a.s.l.) are shown in Figure 4.1. The precipitation tends to be concentrated from January to March and sometimes experiences snowfall because of the high altitude. However, as the project site is located at about 1,000 m higher than Candarave, the air temperature is considered to be lower and precipitation patterns may be slightly different.

Figure 4.1 Air Temperatures and Precipitation at Candarave

℃ mm Precipitation Temperature

Air

Air Temp. (Max) Air Temp. (Min) Precipitation

Source:Tourist Climate Guide, SENAMHI

The Calientes River flows near the project site. The Calientes River flows slowly along a flatland where the valley stretches out, making the valley look like a wetland or marsh area. Since hot spring water coming from underground flows into the stream of the Calientes River, the salinity of the river water is relatively high. Thus, the river water is not suitable for irrigation, and that is why small scale irrigation canals were established. In addition, unpaved road is being developed up to the project site for local use (grazing) as well as for tourism purposes. Simple bathing facilities have been also established at the place where hot spring water flows to the surface. According to the OO Region officers, the project site is a tourist attraction and it is included in tourist tour routes. b) Natural Environment Since the project site is in a dry alpine arid region with little precipitation, flora is limited. The plants which have been identified near the project site are as follows (as referred to the Feasibility Study on Geothermal Sector and Calientes Field, JBIC, April 2008):

・Bent grass (Stipa, Festuca, Calamagrostis) ・Ericaceous low trees (Lephydophyllum quadrangulare, Fraseria fruticosa) ・Succulent plant (Opuntia spp.) Furthermore, Yareta (Liareta), flowering plant of Umbelliferae, was commonly observed.

In addition, fauna is also limited, reflecting that the project site is located in a dry alpine arid region with little precipitation. Vegetation is also poor and water is scarce. Thus, only a limited number of animals that have adjusted to this kind of environment have inhabited near the project site. Faunas found in this region are as follows (as referred to the Feasibility Study on Geothermal Sector and Calientes Field, JBIC, April 2008):

(a) Mammals ・Vizcacha (Lagidium peruanum) ・Vicugna (Vicugna vicugna) ・South american foxes (Zorro, Lycalopex culpaeus) (b) Birds ・Falcon (Halcon, Falco peregrines) ・Chimney swallow (Golondrina, encejo, Apodidae: sp1 and 2) ・Humming bird (Tordo negro, Myrtis fanny)

In Peru, valuable species are categorized as critically endangered (en peligro crítico: CR), endangered (en peligro: En), and nearly threatened (casi amenazado: NT) according to categories of the International Union for Conservation of Nature and Natural Resources (Unión Internacional para la Conservación de la Naturaleza: IUCM). As mentioned below, the project site is located inside Vilacota Maure ACR. In Vilacota Maure ACR, valuable species are identified such as Polylepis (quenoales) categorized as En in D.S.No.043-2006-AG (Categorizacion de Especies Amenazadas de Flora Silvestre), and Suri (Rhea Pennate) categorized as CR in D.S.No.034-2004-AG (Categorizacion de Especies Amenazadas de Fauna Silvestre y Prohiben su caza, captura, tenencia, transporte o exportacion con fines comerciales). c) Regional Regulation The project site is located inside Vilacota Maure ACR. ACRs have been established by local government in order to complement national level ANPs.

Vilacota Maure ACR was established on August 27, 2009 through D.S. N°015-2009-MINAM (Decreto Supremo que establece el Area de Conservacion Regional Vilacota Maure y desafecta la Zona Reservada Aymara Lupaca) with an area of 124,313 ha. According to D.S. N°015-2009-MINAM, Article No.2., the objectives of the establishment of Vilacota Maure ACR are as shown in Table 4.1.

Table 4.1 Objectives of the Establishment of Vilacota Maure ACR

Category Objectives General To conserve the natural, cultural resources, and biological diversity of the Andean ecosystem of OO Region, ensuring the continuity of ecological processes through integrated and participatory management. Specific (a) To conserve the biodiversity based on the sustainable use of the resources of wild flora and fauna. (b) To contribute to the conservation of the population of Suri (Rhea pennata). (c) To protect the soil and vegetation as regulators of the hydrological regime in the Maure River basin, and ensure the supply of water and other environmental services for the benefit of the involved population. (d) To prevent the degradation and loss of natural resources by destruction of the fragile ecosystem. (e) To create the necessary conditions for carrying out of ecotourism, recreational, educational, scientific and cultural activities. Source:D.S. N°015-2009-MINAM

The area of Vilacota Maure ACR is divided into seven zones. The project site is located in the “tourism and recreational zone” as shown in Figure 4.2. As per D.S. N°015-2009-MINAM, Article No. 6, renewable natural resources can be used in the ACR under the management plan and supervision of project competent authority. In addition, as per Article No.8, development activities are possible if the project has been given a status in the master plan and its EIA has been approved, taking into considerations the opinions of the National Service of Natural Protected (Servicio Nacional de Naturales Protegidas por el Estado: SERNANP). SERNANP also showed its opinions that if the lands in the Strict Management Zone, where the Polylepis (quenoales) forest is protected and that the Wildlife Zone where the population of Suri is conserved, are not disturbed, development activities can be approved with appropriate procedures. Figure 4.2 Vilacota Maure ACR and the Project Site

Buffer zone Legend Tour ism and recreational zone Wild zone Direct use zone Strict management zone

Vilacota Maure ACR Project Site

Buffer zone 124,303.18ha

Source: Study Team, based on Zoning Map of Vilacota Maure ACR of OO Region

2) Future Projection (In case of no project implementation) In case there is no project implementation in addition to hydraulic power generation, thermal power generation based on natural gas will be continuously used. Consequently, the following situations would be anticipated to be caused by thermal power generation:

・Possibility to worsen air pollution, and

・Possibility to increase greenhouse gas (mainly CO2) emissions.

It is estimated that Peru has abundant geothermal resources. Thus, the development of geothermal generation could contribute in reducing greenhouse gas emissions by alternating a part of electricity from thermal power generation using fossil fuel. (2) Environmental Improvement Effects by the Project

1) Environmental Improvement Effects by the Project It has been known that greenhouse gases emitted from geothermal generation is less than those of other power sources. According to the information published by the Ministry of Economy, Trade and Industry (METI) and the Agency for Natural Resources and Energy of Japan, greenhouse gas emissions from geothermal generation is estimated at approximately 1/65 of coal-fired power generation, 1/35 of integrated gasification combined

cycle (IGCC) generation, and 1/3 of photovoltaic generation. CO2 emissions of different power generating sources are shown in Figure 4.2.

Figure 4.2 CO2 Emission of Power Generating Sources

g‐CO2/kWh 1200

1000

（） 800 Construction indirect

（） 600 Combustion direct

400

200

0 CoalCoal fired power Oil firedOil power LNG firedPNG power (steam LNG fired） LNG power (combined)PhotovoltaicSolar Win Windd NuclearNuclea energyr Geothermal Geothermal HydroelectricHydro power

Source: METI, and the Agency for Natural Resources and Energy of Japan

In general, the facility utilization rate of geothermal generation is relatively high at 80-95%. Because of this, when compared with other renewable energy, it is possible to supply a relatively large amount of electric power.

Thus, a relatively greater CO2 emission reduction could be expected. In this connection, the examination of the

effects of environmental improvement of the project should be focused on the reduction of CO2 emissions, as well as the preliminary estimation of the amount reduced.

If the generating power of the geothermal plant is set at 50 MW with a facility utilization rate of 95%, the estimated annual power generation and net power supply to the grid is 416,100 MWh, as shown in Table 4.2, with a 6% distribution loss based on the World Bank data.

Table 4.2 Annual Power Generation and Net Power Supply to the Grid Planned Annual Power Loss of Utilization Rate Net Power Supply Generating Power Generation Distribution (%) to the Grid (MWh) (MW) (MWh) (%) 50 95 416,100 6 391,134 Source: Study Team In general, when geothermal generation development is examined as a Clean Development Mechanism (CDM) project, the consolidated baseline methodology for grid-connected electricity generation from renewable sources, also known as ACM0002, is applied in order to estimate the reduction of CO2 emissions in many cases. If the combined mission factor (CM factor) is set at 0.5470 t-CO2/MWh (FONAM, Fondo Nacional del Ambiente, 2007), the estimated annual CO2 emission reduction is 213,950 t-CO2/MWh as shown in Table 4.3. However, for convenience, CO2 emission from geothermal generation through the release of non-condensable gas (Gas No Condensable: NCG) was not considered in the estimation.

Table 4.3 CO2 Emission Reduction as CDM Project Items Estimated Amount Net power supply to the grid (MWh/y) 391,134

CM emission factor (t-CO2/MWh) 0.5470

Annual emission reduction (t-CO2/y) 213,950 Source: Study Team

2) CDM Potential of the Project As of October 2010, a total of 16 geothermal generation projects worldwide have been proposed as CDM projects, of which nine projects have been registered as CDM projects. Among the nine registered CDM projects, three are in Indonesia, two in El Salvador, and one each in Guatemala, Nicaragua, Papua New Guinea, and Kenya. Most of the proposed projects adopted the ACM0002. Problems to be tackled for the application of geothermal generation as CDM projects include the estimation of CO2 emission from NCG in geothermal fluid and steam, estimation of grid emission factor, and verification of additionality.

So far, there are no geothermal generation projects in Peru that have been proposed as a CDM project. However, 62 CDM projects have been registered in Peru from 2005 to 2013, of which, 45 are hydraulic power generation projects, five are solid waste management projects, and four are fuel conversion projects.

3) Laws and Regulations of Peru related to implementation of the project Table 4.6 shows the environmental laws and regulations related to the project in Peru.

Table 4.6 Environmental laws and regulations related to the Project in Peru

No. Name Abstract Law No. 27446 Ley de Sistema Nacional de SEIA law: All projects required the Evaluacion de Impact Ambiental acquisition of environmental certification and EIA Decreto Legislativo 1078 Decreto Legislativo que modifica la Revised SEIA law ley No.27446 D.S.No.019-2009-MINAM el Reglamento del la ley No.27446 Procedure of SEIA Sistema Nacional de Evaluacion de No. Name Abstract Impact Ambiental Law No.29968 Ley de Creacion del Servicio Nacional The law stipulates an organization for de Certificacion Ambiental para las National Service of Environmental Inversiones Sostenibles (SENACE) Certification of Sustainable Investments (SENACE) D.S.No.003-2008-MINAM Estandares de Calidad Ambiental para Approval of Air Quality Standard Aire Law No.25844 Ley de Concesiones Eléctricas Basic Law for Electrical Concession D.S.No.29-94-EM Reglamento de Proteccion Ambiental Operation method of Environmental en las Actividades Electricas conservation For Electrical Project Law No.26848 Ley Organica de Recursos Basic law for Geothermal Geotermicos Development and its application D.S.No.019-2010-EM Nuevo Reglamento de la Ley Operation method for Geothermal No.26848, Ley Organia de Recursos Development Law Geotermicos Law No.27293 Ley de Sistema Nacional de Inversion Basic law for Operating SNIP Publica Law.No.26834 Ley de Areas Naturales Protegidas Natural environment conservation law, stipulating SINANPE D.S.No.038-2001-AG Reglamento de la ley de Areas Operation method for Natural Naturales Protegidas environment conservation law, D.S.No.015-2009-MINAM Decreto Supremo que establece el Area Stipulation of Vilavota Maure ACR de Conservacion Regional Vilacota Maure y desafecta la Zona Reservada Aymara Lupaca D.S.No.034-2004-AG Categorizacion de Especies Classification of vulnerable animals Amenazadas de Fauna Silvestre y followed by IUCN Prohiben su caza, captura, tenencia, transporte o exportacion con fines comerciales D.S.No.043-2006-AG Categorizacion de Especies Classification of vulnerable plants Amenazadas de Flora Silvestre followed by IUCN Law No.28296 Ley General del Patrimonio Cultural Stipulation for conservation of Cultural de la Nacion heritage Law No.27117 Ley General de Expropiaciones Basic law for land acquisition and its process Source: Study Team (3) Environmental and Social Impacts by the Project 1) Preliminary Scoping for Environmental and Social Items In order to identify the environmental and social considerations items for the project, preliminary scoping was conducted as shown in Table 4.4. The items analyzed in the preliminary scoping were selected based on the check items listed in the “JICA Guidelines for Environmental and Social Considerations (April 2010)”, and “JBIC Guidelines for Confirmation of Environmental and Social Considerations (April 2012)”. The degree of impacts were assessed for the preparation stage (test drilling, land acquisition), construction stage (construction of facilities), and operation stage (operation of facilities) assuming that the case has no avoidance and mitigation measures are taken.

Table 4.4 Results of Preliminary Scoping Rating Category No Items Rating Basis Pre Con Ope Pollution 1 Air Quality B- B- B- Pre・Con：By production test, generation of the gas containing hydrogen sulfide (H2S) is expected. In addition, emission gases are discharged by operation of heavy machines during well drilling and facility construction. Ope：H2S is expected to be released along with steam. 2 Water Quality B- B- B- Pre ・ Con ： Muddy water is expected to be generated due to well drilling. Ope： Wastewater is expected to be discharged from the facilities. 3 Wastes B- B- B- Pre・Con：Drilling sludge, construction waste soil, and scrap wood are expected to be generated by well drilling activities. Ope：Wastes (sludge, waste oil) are expected to be generated at the facilities. 4 Soil Pollution D D D No activities which may cause soil pollution are planned. 5 Noise/ B- B- B- Pre・Con：Blowout of geothermal fluid by well Vibration drilling and noise from operation of heavy machines are expected. Ope ： Noise from operation of the facilities （power generator, steam turbine, cooling tower, etc.）is expected. 6 Ground D D C Pre・Con: Collection of geothermal fluid during Subsidence well drilling and facilities construction is limited. Ope：Although ground subsidence is expected by collection of geothermal fluid, detail examination is required. 7 Offensive Odor D D D No activities which may cause offensive odor are planned. 8 Sediment D D D No activities which may cause sediment quality Quality pollution are planned. Natural 9 Protection Area A- A- A- The project site is located inside Vilacota Maure Environm ACR. ent 10 Ecosystem/ A- A- A- Some negative impacts on regional ecosystem and Flora and flora and fauna are expected due to disturbance of Fauna the land, operation, and existence of the facilities. 11 Hydrology B- B- D Pre・Con： Surface water or groundwater is planned to be used. Ope ： The amount of surface water or Rating Category No Items Rating Basis Pre Con Ope groundwater planned to be used is limited. 12 Topography/ D B- D Pre：Impacts are negligible as large-scale well Geology drilling is not planned. Con：The land is expected to be disturbed by construction of facilities (generator building, steam and hot fluid transport pipe, cooling tower, etc.). Ope：No activities which may cause impacts on topography/geology are planned. Social 13 Involuntary D D D Since there are no residents at the project site, Environm Resettlement involuntary resettlement is not required. ent 14 Poor People D B+ B+ Pre：Creation of employment opportunities are limited by test drilling. Con・Ope：Some positive impacts on regional economy are expected such as creation of employment opportunities through construction and operation of the facilities. 15 Ethnic D D D There are herders and nomads available in the Minority/ area, but there are no ethnic minorities or Indigenous indigenous people who need special consideration. People 16 Local Economy D B+ B+ Pre：Test drilling only creates limited employment and Livelihood opportunities. Con・Ope：Some positive impacts on regional economy such as creation of employment opportunities are expected by construction and operation of the facilities. 17 Land Use and D D B+ Pre・Con：No impacts on land use and utilization Utilization of of local resources are expected. Local Ope：Geothermal fluid could be used for other Resources purposes in addition to geothermal generation. 18 Water Use B- B- D Pre・Con： Surface water or groundwater is planned to be used. Ope ： The amount of surface water or groundwater planned to be used is limited. 19 Social D D D There are no sensitive social infrastructures Infrastructures (dwelling, school, medical facilities, etc.) located and Services in and around the project site. 20 Social D D D No impacts on social institutions and local Institutions and decision-making institutions are expected. Local Decision- making Institutions 21 Misdistribution D D D No unequal distribution of benefit and damage is of Benefits and expected in and around the project site. Damages 22 Local Conflicts D D D No local conflict of interest is expected in and of Interest around the project site. 23 Cultural and C C C Although no cultural and historical heritage were Historical considered at the project site, a detailed Heritages investigation is required. 24 Landscape D D A+/- Pre・Con： Since no large scale construction work is planned, impacts on landscape are temporal and limited. Rating Category No Items Rating Basis Pre Con Ope Ope： Some impact on landscape is expected by the existence of plant facilities (power generator, steam turbine, cooling tower, etc.). 25 Gender D D D No impact is expected. 26 Children’s D D D No impact is expected. Rights 27 Infectious B- B- D Pre・Con： Although no large-scale construction Diseases (such work is planned, there is a possibility for as HIV/AIDS) infectious diseases to spread due to the influx of workers. Ope：Since the number of works at the project facilities, impact on infectious disease is considered to be small. 28 Occupational B- B- B- Since the project site is located at a high elevation, Environment special considerations on occupational safety are (including required. Occupational Safety) Others 29 Accidents B- B- B- Special considerations on accidents are required during test drilling, facility construction, and operation, respectively. 30 Climate change D D A+ Pre・Con：Since no large-scale construction work is planned, impact on climate change is temporal and limited. Ope： This project could contribute to reduce greenhouse gas emission. Note: Pre-During preparation, Con-During construction, Ope-During operation

A+/-: Significant positive/negative impact is expected. B+/-: Positive/negative impact is expected to some extent. C+/-: Extent of positive/negative impact is unknown (further examination is needed, and its impact could be clarified as the study progresses) D: No impact is expected. Source:Study Team

As a result of preliminary scoping, environmental impacts are to be expected on air quality, water quality, waste, noise, protected area, ecosystem/flora and fauna, hydrology, topography, geology, landscape, and climate change. In addition, positive and negative social impacts are also expected on poor people, local economy and livelihood, land use and utilization of local resources, water use, infectious disease (HIV/AIDS, etc.,), occupational environment (including occupational safety), and accidents. Further studies are required to assess ground subsidence and cultural and historical heritages.

2) Results of Comparison between the Proposed Project and Other Alternatives that have Smaller Negative Impacts Aside from geothermal power, small-scale hydropower, wind power generation, or photovoltaic generation could also be considered as possible power plant alternatives that have smaller environmental and social impacts. As these are renewable energy projects, environmental and social impacts would be smaller. However, as their generating power is small, it is difficult to consider these plants in providing base power. On the other hand, thermal power generation and hydraulic power generation could be considered as base power, but the environmental and social impacts are considered to be larger than geothermal generation.

3) Results of the Meeting with Implementing Agencies and Organizations Knowledgeable on Environmental Issues of the Project Area The results of meetings with project implementing agencies and organizations relevant to the environmental and social conditions of the project site are summarized in Table 4.5.

Table 4.5 Results of the Meetings with Implementing Agencies and Relevant Organizations on Environmental Issues of the Project Area Agency/Organizations Collected Information and Opinions MEM - Since the project is implemented in Vilacota Maure ACR, an agreement between OO Region and SERNANP is necessary. DGAAE - Development steps for geothermal generation are described in the Geothermal Resources Implementation Regulations (D.S, No.019-2010-EM). - Before implementing Phase II of the test drilling, application to DGAAE is necessary. For the application, the contents of the Phase I survey’s initial environmental examination (advance EIA report) should be submitted to DGAAE. For extraction, a detailed EIA is required. INGEMMENT - Data on natural conditions are available at the National Service of Meteorology and Hydrology of Peru (Servicio Nacional de Meteorología e Hidrología del Perú : SENAMHI). - Regulations were issued for the creation of the National Service of Environmental Certification of Sustainable Investments (Servicio Nacional de Certificate Ambiental para las Inversiones Sostenibles : SENACE) as a sub-agency (independent organization) under the Ministry of Environment (Ministerio del Ambiente : MINAM). SERNANP - If lands in the Strict Management Zone and Wildlife Zone are not disturbed, then development activities will be approved through appropriate procedures. - For application of exploration, the EIA report approved by the Directorate General of Energy-related Environmental Affairs (Dirección General de Asuntos Ambientales Energéticos: DGAAE) must be attached. The contents of EIA must be coordinated with DGAAE. OO Region - Development activities are possible for tourism and the development of a Environment and recreational zone even in Vilacota Maure ACR, but careful considerations Natural Department for preserving the ecosystem should be made. - The management plan of Vilacota Maure ACR is available. Although the survey was carried out in 2008 for the management plan, the plan was approved in 2012. - Admission from the water authority of OO Region is required regarding water utilization rights. OO Region - The land at the project site is a communal land that has been used the Candarave local for a long time. - Most of the local people in Calientes earn their living by grazing alpacas and llamas and rolling grass seed based on the conditions of grass necessary for grazing. Source: Study Team

(4) Outlines of Legislation for Environmental and Social Considerations in

Peru

1) Outlines of Legislation for Environmental and Social Considerations Related to the Project a) EIA In 2011, the law of the National Environmental Impact Assessment System (Sistema de Evaluación de Impacto Ambiental: SEIA) (Law No.27446) was promulgated which obliges project proponents on the implementation of EIAs as well as obtaining environmental certifications.

The SEIA law was amended partially based on the Government Decree No.1078 (Decleto Legislativo 1078, Decreto Legislativo que modifica la ley No.27446) upon the establishment of MINAM in May 2008. In the amended SEIA law, obligations for obtaining an environmental certification and its process, categorization of the projects, information disclosure, follow-up and monitoring, and strategic environmental assessment (Evaluacion Ambiental Estrategica: EAE) are stipulated, with its details stipulated in the enforcement regulations of SEIA law (D.S.No.019-2009-MINAM : Reglamento del la ley No.27446 Sistema Nacional de Evaluacion de Impact Ambiental). According to the enforcement regulations, the development of a geothermal power plant which generates more than 20 MW shall follow the SEIA law.

Although MINAM has been defined as the regulating authority for EIA in the amended SEIA law upon its establishment, checking of contents of the EIA is not within the jurisdiction of MINAM. Thus, MINAM is not involved with the EIA procedures. The department of the regulating authority for the project also reviews and approves the EIA and issues its corresponding environmental certification.

EIA for power development projects is reviewed and approved by DGAAE of MEM. According to D.S. No. 29-94-EM of the Environmental Protection Regulations for Electrical Activities (el Reglamento de Protección Ambiental en las Actividades Eléctrica), DGAAE is in charge of review of the EIA contents, approval of EIA, amendment of procedures, and regulations of permissible maximum emission amount. However, as this project is a development activity in the ACR, DGAAE will inquire technical opinions from SERNANP which is an organization under MINAM. Considering the technical opinions of SERNANP, DGEEA shall then make the approval of the submitted EIA.

However in December 2012, regulations under S.D. No.003-2013-MINAM was issued to set forth a timetable for the creation of the National Service of Environmental Certification of Sustainable Investments (Servicio Nacional de Certificación Amiental: SENACE) as a sub-agency (independent organization) under MINAM to review and approve the EIAs defined under the SEIA law and its enforcement regulations (Law No.29968: Ley de Creacion del Servicio Nacional de Certificacion Ambiental para las Inversiones Sostenibles (SENACE)). SENACE is currently under establishment for its operation as a part of an exclusive specialized organization of SEIA. After SENACE starts its operation, the EIA (or EIA-d) will be reviewed by SENACE. b)Environmental Standards There are environmental standards (estandar de calidad ambiental: ECA) targeted on environmental conservation and environmental regulations (limite maximo permisible: LMP) to archive the ECA. ECA is the standard which is adapted to the cross-sectoral society, while LMP is a deferent by sector. ECA and LMP on air quality, water quality, and noise are more relevant in geothermal generation projects. In particular, ECA for H2S, which is closely related to geothermal generation, is defined in the Environmental Standards for Air Quality (D.S. Nº 003-2008-MINAM, Aprueban Estándares de Calidad Ambiental para Aire). The environmental standard value for 3 3 H2S control is 150 ug/m (24 hour average), as with the standard value written in the WHO guidelines (150 ug/m , corresponding value 0.1 ppm). c)Natural Protection The law on the protection of natural environment, i.e., Protected Natural Areas Law (Law No. 26834, Ley de Áreas Naturales Protegidas) defines the National System of Protected Natural Areas (Sistema Nacional de Inversión Pública: SINANPE). In addition, Law No. 26834 and D.S. No. 038-2001-AG, the Regulation of the Law on Protected Natural Areas (Reglamento de la Ley de Áreas Naturales Protegidas) classifies the ANP into ten categories according to protection level and designates buffer zones outside the ANP.

In addition to SINANPE, ACRs were established. As with the areas surrounding the ANPs, buffer zones are designated outside the ACRs. The development and use of natural resources are possible in the ACRs in which buffer zones around the area have the same use restrictions on the ANPs categorized as direct use areas. Likewise, EIA is required for the approval of SERNANP on planned development activities. d)Social Considerations The laws related to social considerations are laws or regulations on land acquisition, conservation of relics, considerations on socially vulnerable people, and safety of construction activities.

For land acquisition for public projects, Law No.27117 or the Basic Law on Expropriation (Ley General de Expropiaciones) which was promulgated in May 1999 was adopted. However, forced expropriation is only authorized by the national government under the special law enacted by the congress. Law No.27117 stipulates that fair compensation, payment of cash, and compensation for potential damage must be made for expropriation in accordance with the procedures provided by the law.

2) EIA Required for the Project a)Environmental Impact Report for Geothermal Development When the geothermal development moves to the electric generation stage, it is necessary to obtain a concession, and the application of geothermal right (exploration or concession) must be done based on Law No. 26848, which is the Law of Geothermal Resources (Ley Orgánica de Recursos Geotérmicos) promulgated on 29 July 1997. Under Articles 30 and 49 of the said law, namely the application of a geothermal development concession, environmental survey documents are required to be attached in the application as a form of judicial declaration. In the environmental survey report, current environmental conditions at the proposed project site and predicted environmental impacts based on related laws and regulations must be discussed. The environmental survey report must be prepared based on the TOR given by DGAAE, which shall be approved by DGAAE. b) EIA for Electric Power Project EIA implementation for power development projects is provided in the Decree Law No. 25844, or Law on Electricity Concessions and Regulations, promulgated in 1993. The details of EIA implementation are also set forth in D.S. No. 29-94-EM on Environmental Protection Regulations for Electrical Activities, which came into effect in 1994. Law No. 25844 stipulates that the requirement for EIA for a power development project depends on the energy output capacity of the power plant. An EIA is required for a project of 20 MW or greater capacity.

For a power development project of 20 MW or greater output capacity, an EIA must be prepared and processed in accordance with the provisions under Law No. 25844 and D.S. No. 29-94-EM. The EIA process as shown in Figure 4.3 is as follows:

- Submission of stakeholders’ opinions on the proposed project and holding workshops for collection of information; - Submission of a plan regarding resident participation (PPC) and TOR (TOR will be sent to SERNANP, and other agencies concerned, as required); - Holding workshops prior to commencement of EIA survey (preparatory stage) and during survey (mid-stage of EIA survey); - Submission of EIA statement to the DGAAE-MEM and other agencies concerned (SERNANP and local municipal governments); - Evaluation and approval of EIA statement overview; - Publication of EIA (in addition to the publication on El Peruano newspaper and broadcast on local radio, EIA statement must be available for viewing at the MEM, regional Directorate of Energy and Mines (Direcciones Regionales de Energía y Minas: DREM) and local municipal government offices) - Conducting workshops to explain the details of the EIA statement; - Technical review by SERNANP; - Holding public hearings; and - Approval of EIA (decision by bureau chief).

Figure 4.3 EIA Procedure for Power Development Projects Source: DGAAE

After an EIA statement has been submitted, its processing takes 60 days before approval which includes a 20 day period for holding public hearings after the publication of the EIA statement. As for EIA report preparation, any necessary preparation period as well as survey items shall depend on the components and location of the project. If the survey is required to cover seasonal changes, the EIA report preparation period should cover any adjustment period for the survey.

Items to be included in the EIA are provided in Article 4, Part 2 of D.S. No. 29-94-EM. The major items are as follows:

- Baseline study (the current conditions of resources, geography and society of the planned development area, and effects of project activities and facilities to be constructed on the local culture, economy and communities) - Overview of the proposed project; - Forecasts and assessment of direct and indirect impacts on the environment during each stage of the project; - An environmental management program that includes measures to avoid and/or minimize negative impacts of the project on the environment and measures to enhance positive impacts; - An environmental monitoring program incorporating the measures to mitigate potential impacts of the project; and - A contingency plan and environmental restoration plan after closure of the power plant.

For power development projects, there are two kinds of EIA survey guidelines formulated by MEM/DGAA, i.e. Guidelines of Environmental Impact Studies for Electric Activities (Guía de Estudios de Impacto Ambiental para las Actividades Eléctricas, DGAA-2001), and Guidelines of Community-related Studies (Guía de Relaciones Comunitarias, DGAA-2001). The major survey items required by the Guidelines of Environmental Impact Studies for Electric Activities are as follows:

- Introduction (framework of policies and laws, and administrative agencies); - Environmental conditions (including natural geography, hydrology, meteorology, water quality, soil, flora and fauna, society, economy, and culture) of the area where the project will be implemented; - Overview of the project development activities; - Environmental impact forecast and assessment; - Environmental management program; - Environmental monitoring program; - Contingency plan and environmental restoration plan after closure of the power plant; and - Cost and benefit analysis. (5) Actions to be Taken by the Project Proponent in Peru for the Project

Implementation

1) Preparation of Environmental Impact Report for Application of Geothermal Right based on Geothermal Resource Law As per Articles No. 12 and No. 21 of the Geothermal Resources Implementation Regulations (D.S.No.019-2010-EM), a judicial declaration (declaration jurada) states that the environmental survey report must be submitted to DGAAE before its applications for exploration and concession. In addition, according to SERNANP, the EIA report on geothermal development which is approved by DGAAE is required before the commencement of operation.

2) EIA for Electric Concession Law（Obtain of Environmental Certificate） The EIA of this project must be conducted based on the electricity law as well as the SEIA law. An environmental certificate should also be obtained. In the EIA, the current environment must be surveyed, after which detailed prediction and evaluation based on the results of field survey will be conducted and significant impacts on the environment will be predicted. It is also necessary that measures in minimizing the impacts should be considered. In addition, monitoring of environmental items in which significant impacts are expected is required.

In general, the EIA system for power projects in Peru meets the basic requirements of the JICA Guidelines for Environmental and Social Considerations for Category A projects. However, for the implementation of EIA, it is necessary to analyze the gaps between the EIA system in Peru and the JICA guidelines. Necessary measures should also be taken.

D.S. No. 29-94-EM provides that consulting firms implementing EIAs must be registered with the MEM.

3) EIA for SNIP In SNIP, projects are categorized based on project scale (i.e., investment cost). Although contents and depth are required in the report, EIA is required in all public projects according to the SMIP law. For the EIA required in the SNIP, the EIA based on the power law can also be used.

4) Certificates of Non-existence of Archaeological Relics (CIRA) Protection of cultural assets is provided under Law No. 28296, or General Law of the Cultural Heritage of the Nation (Ley General del Patrimonio Cultural de la Nacion). The Archaeological Investigation Regulations (Supreme Resolution No. 044-2000-ED) indicates that the Ministry of Culture (Instituto Nacional de CulturaNational: INC) is also in charge of evaluating archeological investigation results and the issuance of Certificates of Non-existence of Archaeological Relics (Certificados de Inexistencia de Restos Arqueológicos: CIRA). To conserve historical and cultural assets, in principle, all projects must apply for CIRA that will be issued by INC. For projects less than 5 ha or 5 km long, field survey by ICM is required when applying for CIRA. If the project is more than the above, the development project proponent must carry out archaeological investigation (Proyecto de Evaluación Arqueológica) before starting any development activity. In parallel, an archaeological monitoring plan (plan de monitoreo arqueológicos) shall be prepared. The survey for the application of CIRA shall be carried out during the environmental certificate process. However, in case of an encounter with unexpected archaeological relics during project activities, the work must be halted and the findings should be immediately reported to the Ministry of Culture.

5) Land Acquisition The communal land at the project site has been used by communities for a long-time, although it is not yet registered. For this kind of communal land, it is necessary to have consultations between the project implementing agency and the local people. An agreement on compensation should be made between the two parties. In Article 31 of the Geothermal Resource Implementation Regulations (D.S.No.019-2010-EM), before the start of Phase II of the geothermal exploration or activities corresponding to geothermal exploitation, there must be agreements with the owners of the land to be affected by the geothermal activities. Otherwise, the affected party may request the respective imposition of easement.

The Electricity Enterprise Law provides resettlement and land acquisition compensation for affected residents. The scope to be compensated includes land, crops, and buildings.

6) CDM Registration In order to register the project as a CDM project, a project design document (Documento de Diseño de Proyecto : PDD) should be prepared by the project implementing agency. 5. Financial and Economic Evaluation (1) Project Cost

Figure 5.1 shows the configuration of the project cost while Table 5.1 shows the breakdown of the general project cost estimate. The total project cost for the construction of the 50 MW geothermal power plant was estimated at USD 233 million (about JPY 24.2 billion). The cost estimation was based on the following conditions: drilling cost in steam production equipment on past construction data in Japan considering the site conditions of this project and the power plant cost on the recent construction data in the world.

During the project’s development stage, the structure of the project cost can be broadly classified as "steam production equipment costs" and " power plant construction costs." The conditions are as follows:

A) Steam Production Equipment Costs • Exploration wells in the F/S survey, including the drilling of three 2,000 m deep exploration wells. The study team assumes that one of these three wells will be successful and can be developed to a production well. This cost should be the survey cost for verification of geothermal resources. • The success rate of drilling geothermal wells during the development stage is 80% and the output is assumed at about 5 MW per well. • The tests and surveys associated with well drilling, as steam tests, are included to drilling cost.

B) Power Plant Construction Costs • Building a power plant unit with a 50 MW capacity. • Construction cost includes electrical installation work and civil construction work.

It should be noted that, in association with this project, the repair of existing roads as well as construction of new roads and a power transmission line will be required. Since there is a possibility that these requirements will be carried out in other projects, their construction costs were not included in the project cost estimate. However, these facilities are intended to be used for estimating the project cost after considering the project’s funding sources and making the construction schedule in future detailed designs.

Figure 5.1 Configuration of Project Cost

Source: Study Team Table 5.1 Breakdown of Project Cost

Foreign Local Unit Price Item Quantity Currency Currency （MM USD） (MM USD) （MM Sol） A. Steam Field Development 0 Reconnaissance & Exploration ・Surface Survey (Geochemistry, MT survey etc) 5.6 1 Confirmation ・Land and Rights 2.8 ・Exploration wells with tests 3 15.4 46.2 ・Evaluation and detailed design 2.8 ・Consultant fee at FS stage 1 F/S Total(0+1) 1 57.4 2 Drilling ・Production wells with tests 12 15.4 184.8 ・Injection wells 5 11.2 56 3 FCRS Construction ・Land and Rights 2.8 ・Separator Station 4 ・FCRS Piping 20 4 Consultant fee 4 5 Administration Cost 16.8 Steam Field Development Total(2+3+4+5) 28 260.4 B. Power Plant Construction 6 Power Plant ・Facility cost for Power Plant(Generator:50MW) 49 ・Facility cost for Switchyard etc. 3 ・Electrical installation and Civil construction Works 28 7 Consultant fee 4 8 Administration Cost 16.8 Power Plant Construction Total(6+7+8) 84 16.8 Total（0～8） 113 334.6 US$119.50 US MM$ 233 Total Cost Million Yen 24,194 1US$ = 2.8 sol = 104.06JPY

Source: Study Team (2) Summary Results of the Financial and Economic Preliminary Analyses

1) Case Study without Yen Loan After conducting the project’s financial and economic preliminary analyses, the project cost was estimated as (1), for the case without Yen Loan . The cash flow statement was also calculated on the assumption of the selling price of electricity and determining the financial internal rate of return (Tasa Interna de Retorno Financiero : FIRR) for this cash flow, without taking debt into account. The validity of the project was also examined. The condition was assumed that: operation period: 30 years, utilization rate: 90% and economic discount rate: 12%, etc.

In addition for the project’s economic analysis, economic internal rate of return (Tasa Interna de Retorno Económico : EIRR) was obtained by comparing the case of the construction of a combined cycle gas turbine power plant having the same power capacity (50 MW). For the real case for comparison, there is a large-scale gas power plant is planned near OO Region, however it is too difficult to compare in terms of capacity. Thus, a combined cycle gas turbine power plant of equal capacity was selected to compare. a) FIRR Based on the standard selling price (per kWh) of USD 0.10 for electricity, FIRR was estimated under five price cases of USD 0.05, 0.06, 0.09, 0.10, and 0.12. As shown in Table 5.3, benefit exceeds the cost at a selling price USD 0.06 or more. However, in order to ensure 12% of the long-term market interest rates, it is necessary to set the selling price of electricity more than USD 0.10.

Table 5.2 Calculation Results of FIRR Selling Price (USD/kWh) 0.05 0.06 0.09 0.10 0.12 FIRR 4% 6% 10% 12% 1% B/C 0.83 1.0 1.5 1.7 2.0 Source: Study Team b) EIRR The EIRR was compared with the gas-fired combined-cycle power plants, which are one of the major power sources in Peru. The power plant output was assumed at 50 MW, which is the same as this project. Gas prices have been estimated to be 75% of the current prices, with 150% and 200% as variable factors, as shown in Table 5.3 It is necessary that gas prices to rise by over 150% of the present in order to obtain an EIRR of more than 12%, which is the acceptable long-term market interest rate.

Table 5.3 Calculation Results of EIRR Gas price 75% 100% 150% 200% EIRR 5% 8% 12% 16% Source: Study Team 2) Case Study with Yen Loan The study team studied the project cases with yen loan for economic evaluation.

Peru is a more developed country (upper-middle income countries) based on the classification of the World Bank and DAC. ODA loans under JICA conditions for upper-middle income countries are shown in Table 5.4.

Table 5.4 ODA Loan Conditions for Upper-Middle Income Countries

Source: JICA (http://www.jica.go.jp/english/our_work/types_of_assistance/oda_loans/standard/index.html)

In this study, the study team used an interest rate of 1.7% with a redemption period of 25 years and a seven year grace period, which is the standard condition under the General Terms and Standards of the above table. In addition, in consideration of the environmental project case, the second option was considered a 0.6% interest rate, a redemption period of 40 years and also a ten-year grace period, which is the standard condition under preferential terms. Yen lending is carried out starting from the third year of the project and the calculation was done on the assumption that 80% of the project cost will be covered through yen loan. The remaining 20% of the project cost three years later and the payment of the first and second years are set to be procured from the open market where the calculated long-term market interest rate is 12%, with a ten-year redemption period. a) Case for Using Yen Loan in the General Terms As a result of using the general conditions, USD 0.072 (free), 0.08 (taxable), and 0.10 (free and taxable) were used as selling prices of electricity. The IRR and NPV were examined for the different selling prices and the results are shown in Table 5.5. In order to secure a 12% long-term market interest rate, in the case of a tax-free option, the selling price of electricity is required to be USD 0.072 or more. In the case of a tax burden of 30%, the selling price of electricity is required to be USD 0.08 or more.

Table 5.5 IRR and NPV Calculation Results Under General Terms Selling Price (USD/kWh) 0.072 0.08 0.10 0.10 Tax 0% 30% 0% 30% IRR 12% 12% 31% 25% NPV (USD in millions) -1 1 41 27 Source: Study Team b) Case for Using Yen Loan of Preferential Terms As a result of using the preferential terms, the study team examined the cases for USD 0.072 (free), 0.08 (taxable), and 0.10 (free and taxable) selling prices for electricity and the results are shown in Table 5.6. In order to secure a 12% long-term market interest rate for a tax of 30%, the selling price of electricity is required to be more than USD 0.045.

Table 5.6 NPV and IRR Calculation Results Under Yen Loan of Preferential Terms Selling Price (USD/kWh) 0.045 0.05 0.05 0.07 0.08 0.10 TAX 30% 30% 0 0 0 0 NPV (USD in millions) 1 6 7 37 52 80 IRR 13% 15% 16% 27% 32% 40% Source: Study Team

3) Comparison and Verification of Geothermal Development Cases of Other Countries In order to verify this project and the project cost of geothermal power generation in Peru, the study team compared the project with other geothermal development projects in the world. a)Comparison of Project Cost of Geothermal Power Plant of 50 MW Table 5.7 shows a breakdown of the estimated project cost of a 50 MW general geothermal power plant. The project cost of this project is USD 232 million, which is slightly higher when compared to the project cost (middle value) as shown in the table. This may be because the power plant for this project is located in the highlands, making the excavation and construction costs more expensive. Table 5.7 Total Project Cost Breakdown of the 50 MW Geothermal Power Plant (USD in millions)

Source: World Bank/ESMAP Geothermal Handbook (2012) b)Well Drilling Cost and Power Plant Construction Costs as a Percentage of the Total Construction Costs Figure 5.2 shows the percentage of each item with respect to the project cost in Iceland. In Peru, 37% of the project cost is allotted for well drilling while 34% of project cost is for power plant construction cost. The well drilling and power plant construction costs were 34% and 35% respectively for Iceland, which is close with that for Peru

Figure 5.2 Comparative Distribution of the Total Construction Cost in Iceland and Peru

Source: World Bank / ESMAP Geothermal Handbook (2012) c)Comparison of the Power Purchase Price

Table 5.8 shows the electricity selling price of geothermal power generation per kWh in geothermal power plant-rich countries. As mentioned in the previous section, electricity selling price obtained in this project without the use of yen loan is about USD 0.12, while it is USD 0.08 under general terms of the yen loan and USD 0.045 for the use of the yen loan under preferential terms.

Based on the above, it is believed that the use of the yen loan can make the geothermal project viable at a lower cost or as the same price as the average selling price value in the world.

Table 5.8 Geothermal Power Generation Cost in Geothermal Power Generation Facility-Rich Countries (USD/kWh)

Source: World Bank / ESMAP Geothermal Handbook (2012) Table 5.9 FIRR Calculation Flow (Result of USD 0.10 /kWh)

Investm ent Revenue Cost No. of Project Operation Capacity Supplement Total Total Output SALES Investment Additional Energy sales Revenue O & M cost Net revenue Year Year Factor Drilling Cost Investment Revenue Wells MW % GWh MM$ MM$ MM$ MM$, 10cent/kWh MM$ 177-7 277-7 37.57.5-7.5 42222-22 59999-99 69090-90 7 1 50 90 367 36.7 18 3 33.7 8 2 50 90 367 36.7 18 3 33.7 9 3 50 90 367 36.7 18 3 33.7 10 4 50 90 367 36.7 18 3 33.7 11 5 50 90 367 2 9.5 9.5 36.7 18 3 24.2 12 6 50 90 367 36.7 18 3 33.7 13 7 50 90 367 36.7 18 3 33.7 14 8 50 90 367 36.7 18 3 33.7 15 9 50 90 367 36.7 18 3 33.7 16 10 50 90 367 2 9.5 9.5 36.7 18 3 24.2 17 11 50 90 367 36.7 18 3 33.7 18 12 50 90 367 36.7 18 3 33.7 19 13 50 90 367 36.7 18 3 33.7 20 14 50 90 367 36.7 18 3 33.7 21 15 50 90 367 2 9.5 9.5 36.7 18 3 24.2 22 16 50 90 367 36.7 18 3 33.7 23 17 50 90 367 36.7 18 3 33.7 24 18 50 90 367 36.7 18 3 33.7 25 19 50 90 367 36.7 18 3 33.7 26 20 50 90 367 2 9.5 9.5 36.7 18 3 24.2 27 21 50 90 367 36.7 18 3 33.7 28 22 50 90 367 36.7 18 3 33.7 29 23 50 90 367 36.7 18 3 33.7 30 24 50 90 367 36.7 18 3 33.7 31 25 50 90 367 2 9.5 9.5 36.7 18 3 24.2 32 26 50 90 367 36.7 18 3 33.7 33 27 50 90 367 36.7 18 3 33.7 34 28 50 90 367 36.7 18 3 33.7 35 29 50 90 367 36.7 18 3 33.7 36 30 50 90 367 36.7 18 3 33.7 Total 11010 232.5 10 47.5 280 1101 540 90 731 NPV 150 296 24 Benefit (MM$) 296 Cost (MM$) 174 FIRR 12%

Source: Study Team Table 5.9 EIRR Calculation Flow This Project Alternative : Gas Combined Cycle Power Plant (50 MW) Annual Annual Fuel Project Operation Project Capacity Supplement Alternative Capacity Cost Capability Salable O & M cost Total Cost Capability Salable Efficiency Consump- Fuel Cost O & M cost Total Cost Year Year Cost Factor Drilling Cost Project Cost Factor Balance energy energy tion MM$ MW % GWh MM$ MM$ MM$ MM$ MW % GWh % Million m3 MM$ MM$ MM$ MM$ 17 7 -7 27 7 -7 37.5 7.5 -7.5 422ConstructionPeriod 2220 ConstructionPeriod 20 -2 599 9920 20 -79 690 9030 30 -60 7 1 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 8 2 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 9 3 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 10 4 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 11 5 50 90 367 3 9.5 12.5 50 87.2 367 48 70 16 4 20 7.5 12 6 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 13 7 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 14 8 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 15 9 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 16 10 50 90 367 3 9.5 12.5 50 87.2 367 48 70 16 4 20 7.5 17 11 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 18 12 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 19 13 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 20 14 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 21 15 50 90 367 3 9.5 12.5 50 87.2 367 48 70 16 4 20 7.5 22 16 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 23 17 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 24 18 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 25 19 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 26 20 50 90 367 3 9.5 12.5 50 87.2 367 48 70 16 4 20 7.5 27 21 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 28 22 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 29 23 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 30 24 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 31 25 50 90 367 3 9.5 12.5 50 87.2 367 48 70 16 4 20 7.5 32 26 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 33 27 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 34 28 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 35 29 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 36 30 50 90 367 3 3 50 87.2 367 48 70 16 4 20 17 Total 232.5 11,010.0 90.0 47.5 370.0 70.0 11,010.0 480.0 120.0 600.0 230.0 EIRR 8% Source: Study Team Table 5.9 Cash Flow Sheet in General Terms (Result of USD 0.08 /kWh)

Inflow Outflow (yen Loan) Outflow Balance Cash flow Annual Energy Project Operation from Salable sales Refund Interest Interest O & M cost Depreciation of Asset Cash Outflow Balance Year Year operating energy Revenue General Term, Fixed Interest Rate, Bollowing from Private Bank Ac tivities Period of Deferment: 7 years Period of Deferment: 0 years Borrowing Period of Payment: 25 years Yen Loan Period of Payment: 10 years Bollowing Payment for Payment for Earning Borrowing MM$, Yen Loan Bollowing Payment Additional Taxable Initial Additional Non Yen GWh Standard Total from Non Principal Interest MM$ before Initial Inv. Total Tax Profit Per year Yen Loan 8cent/kWh Total from Private Grand Total Inv. Income Investment Investment Loan Rate: 1.7% Yen Total Total income tax Bank Total LoanTotal 80% 20% 30% 17 0 0 0.7 0.7 0.84 0.70 0.84 1.54 7 -1.54

27 0 0 0.7 0.7 1.4 1.60 1.40 1.60 3.00 7 -3.00

3 6 1.5 0 0 0 0.7 0.7 0.15 1.55 1.61 1.55 1.61 3.16 7.5 -3.16

4 17.6 4.4 0 0 0 0 0.7 0.7 0.15 0.44 1.99 1.95 1.99 1.95 3.94 22 -3.94

5 79.2 19.8 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 3.97 4.09 3.97 4.09 8.06 99 -8.06

6 72 18 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 5.77 5.77 5.77 11.54 90 -11.54

7 1 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 5.08 5.77 5.08 10.85 3 15.51 6.2 6.2 9.31 2.79 6.52 6.52

8 2 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 4.39 5.77 4.39 10.16 3 16.20 6.2 6.2 10.00 3.00 7.00 7.00

9 3 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 3.69 5.77 3.69 9.46 3 16.90 6.2 6.2 10.70 3.21 7.49 7.49

10 4 367 29.36 0.24 0 0 0 0.24 0.102 0.342 0.7 0.7 0.15 0.44 1.98 1.8 5.77 3.00 6.01 3.10 9.11 3 17.25 6.2 6.2 11.05 3.31 7.73 7.73

11 5 367 29.36 0.24 0.704 0 0 0.944 0.39712 1.34112 0.7 0.15 0.44 1.98 1.8 5.07 2.31 6.01 2.71 8.72 3 17.64 6.2 6.2 11.44 3.43 8.01 9.5 -1.49

12 6 367 29.36 0.24 0.704 3.168 0 4.112 1.727472 5.839472 0.15 0.44 1.98 1.8 4.37 1.70 8.48 3.43 11.91 3 14.45 6.2 1.9 8.1 6.35 1.91 4.45 4.45

13 7 367 29.36 0.24 0.704 3.168 2.88 6.992 2.881568 9.873568 0.44 1.98 1.8 4.22 1.18 11.21 4.06 15.27 3 11.09 6.2 1.9 8.1 2.99 0.90 2.09 2.09

14 8 367 29.36 0.24 0.704 3.168 2.88 6.992 2.762704 9.754704 1.98 1.8 3.78 0.67 10.77 3.43 14.20 3 12.16 6.2 1.9 8.1 4.06 1.22 2.84 2.84

15 9 367 29.36 0.24 0.704 3.168 2.88 6.992 2.64384 9.63584 1.8 1.8 0.22 8.79 2.86 11.65 3 14.71 6.2 1.9 8.1 6.61 1.98 4.63 4.63

16 10 367 29.36 0.24 0.704 3.168 2.88 6.992 2.524976 9.516976 0 6.99 2.52 9.52 3 16.84 6.2 1.9 8.1 8.74 2.62 6.12 9.5 -3.38

17 11 367 29.36 0.24 0.704 3.168 2.88 6.992 2.406112 9.398112 0 6.99 2.41 9.40 3 16.96 6.2 1.9 8.1 8.86 2.66 6.20 6.20

18 12 367 29.36 0.24 0.704 3.168 2.88 6.992 2.287248 9.279248 6.99 2.29 9.28 3 17.08 6.2 1.9 8.1 8.98 2.69 6.29 6.29

19 13 367 29.36 0.24 0.704 3.168 2.88 6.992 2.168384 9.160384 6.99 2.17 9.16 3 17.20 6.2 1.9 8.1 9.10 2.73 6.37 6.37

20 14 367 29.36 0.24 0.704 3.168 2.88 6.992 2.04952 9.04152 6.99 2.05 9.04 3 17.32 6.2 1.9 8.1 9.22 2.77 6.45 6.45

21 15 367 29.36 0.24 0.704 3.168 2.88 6.992 1.930656 8.922656 6.99 1.93 8.92 3 17.44 6.2 1.9 8.1 9.34 2.80 6.54 9.5 -2.96

22 16 367 29.36 0.24 0.704 3.168 2.88 6.992 1.811792 8.803792 6.99 1.81 8.80 3 17.56 6.2 1.9 8.1 9.46 2.84 6.62 6.62

23 17 367 29.36 0.24 0.704 3.168 2.88 6.992 1.692928 8.684928 6.99 1.69 8.68 3 17.68 6.2 1.9 8.1 9.58 2.87 6.70 6.70

24 18 367 29.36 0.24 0.704 3.168 2.88 6.992 1.574064 8.566064 6.99 1.57 8.57 3 17.79 6.2 1.9 8.1 9.69 2.91 6.79 6.79

25 19 367 29.36 0.24 0.704 3.168 2.88 6.992 1.4552 8.4472 6.99 1.46 8.45 3 17.91 6.2 1.9 8.1 9.81 2.94 6.87 6.87

26 20 367 29.36 0.24 0.704 3.168 2.88 6.992 1.336336 8.328336 6.99 1.34 8.33 3 18.03 6.2 1.9 8.1 9.93 2.98 6.95 9.5 -2.55

27 21 367 29.36 0.24 0.704 3.168 2.88 6.992 1.217472 8.209472 6.99 1.22 8.21 3 18.15 6.2 1.9 8.1 10.05 3.02 7.04 7.04

28 22 367 29.36 0.24 0.704 3.168 2.88 6.992 1.098608 8.090608 6.99 1.10 8.09 3 18.27 6.2 1.9 8.1 10.17 3.05 7.12 7.12

29 23 367 29.36 0.24 0.704 3.168 2.88 6.992 0.979744 7.971744 6.99 0.98 7.97 3 18.39 6.2 1.9 8.1 10.29 3.09 7.20 7.20

30 24 367 29.36 0.24 0.704 3.168 2.88 6.992 0.86088 7.85288 6.99 0.86 7.85 3 18.51 6.2 1.9 8.1 10.41 3.12 7.28 7.28

31 25 367 29.36 0.24 0.704 3.168 2.88 6.992 0.742016 7.734016 6.99 0.74 7.73 3 18.63 6.2 1.9 8.1 10.53 3.16 7.37 9.5 -2.13

32 26 367 29.36 0.24 0.704 3.168 2.88 6.992 0.623152 7.615152 6.99 0.62 7.62 3 18.74 6.2 1.9 8.1 10.64 3.19 7.45 7.45

33 27 367 29.36 0.24 0.704 3.168 2.88 6.992 0.504288 7.496288 6.99 0.50 7.50 3 18.86 6.2 1.9 8.1 10.76 3.23 7.53 7.53

34 28 367 29.36 0.24 0.704 3.168 2.88 6.992 0.385424 7.377424 6.99 0.39 7.38 3 18.98 6.2 1.9 8.1 10.88 3.26 7.62 7.62

35 29 367 29.36 0.704 3.168 2.88 6.752 0.26656 7.01856 6.75 0.27 7.02 3 19.34 6.2 1.9 8.1 11.24 3.37 7.87 7.87

36 30 367 29.36 3.168 2.88 6.048 0.151776 6.199776 6.05 0.15 6.20 3 20.16 6.2 1.9 8.1 12.06 3.62 8.44 8.44

2.88 2.88 0.04896 2.92896 2.88 0.05 2.93 3 -5.93 -5.93 -5.93 -5.93

175.6 57.9 11010 880.8 6 17.6 79.2 72 174.8 38.6308 213.4308 7 7 1.5 4.4 19.8 18 57.7 38.08 232.50 76.71 309.21 509.82 186 47.5 233.5 276.32 84.97 191.64 232.5 47.5 112.91

IRR 12%

NPV 1 Source: Study Team Table 5.10 Cash Flow Sheet in Preferential Terms (Result of USD 0.08 /kWh)

Cash flow Borrowing Annual Energy from Non Yen Salable sales Payment Interest Interest O & M cost Depreciation of Asset Tax Cash Outflow Balance operating loan energy Revenue Bollowing from Private Bank Activities Project Operation Borrowing MM$, Yen Loan Yen Loan Payment Bollowing Bollowing Additional Taxable Initial Additional GWh Fixed Interest Rate Payment for Payment for MM$ EBIT Initial Inv. Total Tax Profit Per year Accumulate Year Year Yen loan 8cent/kWh Total Standard Total from Private from Non Payment Inv. Income Investment Investment Principal Interest 0.6% Bank Total Yen Grand Total 80% 20% Deferment: 10 years 30% Payment: 10 Years Total Total Payment: 40 Years LoanTotal 17 0 0 0.7 0.7 0.84 0.7 0.84 1.54 7-1.54-1.54 27 0 0 0.7 0.7 1.4 1.596 1.4 1.596 2.996 7 -2.996 -4.536 3 6 1.5 0 0 0 0.7 0.7 0.15 1.55 1.608 1.55 1.608 3.158 7.5 -3.158 -7.694 4 17.6 4.4 0 0 0 0 0.7 0.7 0.15 0.44 1.99 1.95 1.99 1.95 3.94 22 -3.94 -11.634 5 79.2 19.8 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 3.97 4.0872 3.97 4.0872 8.0572 99 -8.0572 -19.6912 6 72 18 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 5.7708 5.77 5.7708 11.5408 90 -11.5408 -31.232 7 1 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 5.0784 5.77 5.0784 10.8484 3 15.5116 6.2 6.2 9.3116 2.79348 6.51812 15.5116 -15.7204 8 2 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 4.386 5.77 4.386 10.156 3 16.204 6.2 6.2 10.004 3.0012 7.0028 16.204 0.4836 9 3 367 29.36 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 3.6936 5.77 3.6936 9.4636 3 16.8964 6.2 6.2 10.6964 3.20892 7.48748 16.8964 17.38 10 4 367 29.36 0 0 0 0 0 0 0 0.7 0.7 0.15 0.44 1.98 1.8 5.77 3.0012 5.77 3.0012 8.7712 3 17.5888 6.2 6.2 11.3888 3.41664 7.97216 17.5888 34.9688 11 5 367 29.36 0 0 0 0 0 0 0 0.7 0.15 0.44 1.98 1.8 5.07 2.3088 5.07 2.3088 7.3788 3 18.9812 6.2 6.2 12.7812 3.83436 8.94684 9.5 9.4812 44.45 12 6 367 29.36 0 0 0 0 0 0 0 0.15 0.44 1.98 1.8 4.37 1.7004 4.37 1.7004 6.0704 3 20.2896 6.2 1.9 8.1 12.1896 3.65688 8.53272 20.2896 64.7396 13 7 367 29.36 0.15 0 0 0 0.15 0.036 0.186 0.44 1.98 1.8 4.22 1.176 4.37 1.212 5.582 3 20.778 6.2 1.9 8.1 12.678 3.8034 8.8746 20.778 85.5176 14 8 367 29.36 0.15 0.44 0 0 0.59 1.407 1.997 1.98 1.8 3.78 0.6696 4.37 2.0766 6.4466 3 19.9134 6.2 1.9 8.1 11.8134 3.54402 8.26938 19.9134 105.431 15 9 367 29.36 0.15 0.44 1.98 0 2.57 0.61236 3.18236 1.8 1.8 0.216 4.37 0.82836 5.19836 3 21.16164 6.2 1.9 8.1 13.06164 3.918492 9.143148 21.16164 126.59264 16 10 367 29.36 0.15 0.44 1.98 1.8 4.37 1.04436 5.41436 0 4.37 1.04436 5.41436 3 20.94564 6.2 1.9 8.1 12.84564 3.853692 8.991948 9.5 11.44564 138.03828 17 11 367 29.36 0.15 0.44 1.98 1.8 4.37 1.02894 5.39894 0 4.37 1.02894 5.39894 3 20.96106 6.2 1.9 8.1 12.86106 3.858318 9.002742 20.96106 158.99934 18 12 367 29.36 0.15 0.44 1.98 1.8 4.37 1.00272 5.37272 4.37 1.00272 5.37272 3 20.98728 6.2 1.9 8.1 12.88728 3.866184 9.021096 20.98728 179.98662 19 13 367 29.36 0.15 0.44 1.98 1.8 4.37 0.9765 5.3465 4.37 0.9765 5.3465 3 21.0135 6.2 1.9 8.1 12.9135 3.87405 9.03945 21.0135 201.00012 20 14 367 29.36 0.15 0.44 1.98 1.8 4.37 0.95028 5.32028 4.37 0.95028 5.32028 3 21.03972 6.2 1.9 8.1 12.93972 3.881916 9.057804 21.03972 222.03984 21 15 367 29.36 0.15 0.44 1.98 1.8 4.37 0.92406 5.29406 4.37 0.92406 5.29406 3 21.06594 6.2 1.9 8.1 12.96594 3.889782 9.076158 9.5 11.56594 233.60578 22 16 367 29.36 0.15 0.44 1.98 1.8 4.37 0.89784 5.26784 4.37 0.89784 5.26784 3 21.09216 6.2 1.9 8.1 12.99216 3.897648 9.094512 21.09216 254.69794 23 17 367 29.36 0.15 0.44 1.98 1.8 4.37 0.87162 5.24162 4.37 0.87162 5.24162 3 21.11838 6.2 1.9 8.1 13.01838 3.905514 9.112866 21.11838 275.81632 24 18 367 29.36 0.15 0.44 1.98 1.8 4.37 0.8454 5.2154 4.37 0.8454 5.2154 3 21.1446 6.2 1.9 8.1 13.0446 3.91338 9.13122 21.1446 296.96092 25 19 367 29.36 0.15 0.44 1.98 1.8 4.37 0.81918 5.18918 4.37 0.81918 5.18918 3 21.17082 6.2 1.9 8.1 13.07082 3.921246 9.149574 21.17082 318.13174 26 20 367 29.36 0.15 0.44 1.98 1.8 4.37 0.79296 5.16296 4.37 0.79296 5.16296 3 21.19704 6.2 1.9 8.1 13.09704 3.929112 9.167928 9.5 11.69704 329.82878 27 21 367 29.36 0.15 0.44 1.98 1.8 4.37 0.76674 5.13674 4.37 0.76674 5.13674 3 21.22326 6.2 1.9 8.1 13.12326 3.936978 9.186282 21.22326 351.05204 28 22 367 29.36 0.15 0.44 1.98 1.8 4.37 0.74052 5.11052 4.37 0.74052 5.11052 3 21.24948 6.2 1.9 8.1 13.14948 3.944844 9.204636 21.24948 372.30152 29 23 367 29.36 0.15 0.44 1.98 1.8 4.37 0.7143 5.0843 4.37 0.7143 5.0843 3 21.2757 6.2 1.9 8.1 13.1757 3.95271 9.22299 21.2757 393.57722 30 24 367 29.36 0.15 0.44 1.98 1.8 4.37 0.68808 5.05808 4.37 0.68808 5.05808 3 21.30192 6.2 1.9 8.1 13.20192 3.960576 9.241344 21.30192 414.87914 31 25 367 29.36 0.15 0.44 1.98 1.8 4.37 0.66186 5.03186 4.37 0.66186 5.03186 3 21.32814 6.2 1.9 8.1 13.22814 3.968442 9.259698 9.5 11.82814 426.70728 32 26 367 29.36 0.15 0.44 1.98 1.8 4.37 0.63564 5.00564 4.37 0.63564 5.00564 3 21.35436 6.2 1.9 8.1 13.25436 3.976308 9.278052 21.35436 448.06164 33 27 367 29.36 0.15 0.44 1.98 1.8 4.37 0.60942 4.97942 4.37 0.60942 4.97942 3 21.38058 6.2 1.9 8.1 13.28058 3.984174 9.296406 21.38058 469.44222 34 28 367 29.36 0.15 0.44 1.98 1.8 4.37 0.5832 4.9532 4.37 0.5832 4.9532 3 21.4068 6.2 1.9 8.1 13.3068 3.99204 9.31476 21.4068 490.84902 35 29 367 29.36 0.15 0.44 1.98 1.8 4.37 0.55698 4.92698 4.37 0.55698 4.92698 3 21.43302 6.2 1.9 8.1 13.33302 3.999906 9.333114 21.43302 512.28204 36 30 367 29.36 0.15 0.44 1.98 1.8 4.37 0.53076 4.90076 4.37 0.53076 4.90076 3 21.45924 6.2 1.9 8.1 13.35924 4.007772 9.351468 21.45924 533.74128 37 31 0.15 0.44 1.98 1.8 4.37 0.50454 4.87454 4.37 0.50454 4.87454 3 -7.87454 -7.87454 -7.87454 -7.87454 525.86674 38 32 0.15 0.44 1.98 1.8 4.37 0.47832 4.84832 4.37 0.47832 4.84832 -4.84832 -4.84832 -4.84832 -4.84832 521.01842 39 33 0.15 0.44 1.98 1.8 4.37 0.4521 4.8221 4.37 0.4521 4.8221 -4.8221 -4.8221 -4.8221 -4.8221 516.19632 40 34 0.15 0.44 1.98 1.8 4.37 0.42588 4.79588 4.37 0.42588 4.79588 -4.79588 -4.79588 -4.79588 -4.79588 511.40044 41 35 0.15 0.44 1.98 1.8 4.37 0.39966 4.76966 4.37 0.39966 4.76966 -4.76966 -4.76966 -4.76966 -4.76966 506.63078 42 36 0.15 0.44 1.98 1.8 4.37 0.37344 4.74344 4.37 0.37344 4.74344 -4.74344 -4.74344 -4.74344 -4.74344 501.88734 43 37 0.15 0.44 1.98 1.8 4.37 0.34722 4.71722 4.37 0.34722 4.71722 -4.71722 -4.71722 -4.71722 -4.71722 497.17012 44 38 0.15 0.44 1.98 1.8 4.37 0.321 4.691 4.37 0.321 4.691 -4.691 -4.691 -4.691 -4.691 492.47912 45 39 0.15 0.44 1.98 1.8 4.37 0.29478 4.66478 4.37 0.29478 4.66478 -4.66478 -4.66478 -4.66478 -4.66478 487.81434 46 40 0.15 0.44 1.98 1.8 4.37 0.26856 4.63856 4.37 0.26856 4.63856 -4.63856 -4.63856 -4.63856 -4.63856 483.17578 47 41 0.15 0.44 1.98 1.8 4.37 0.24234 4.61234 4.37 0.24234 4.61234 -4.61234 -4.61234 -4.61234 -4.61234 478.56344 48 42 0.15 0.44 1.98 1.8 4.37 0.21612 4.58612 4.37 0.21612 4.58612 -4.58612 -4.58612 -4.58612 -4.58612 473.97732 49 43 0.15 0.44 1.98 1.8 4.37 0.1899 4.5599 4.37 0.1899 4.5599 -4.5599 -4.5599 -4.5599 -4.5599 469.41742 50 44 0.15 0.44 1.98 1.8 4.37 0.16368 4.53368 4.37 0.16368 4.53368 -4.53368 -4.53368 -4.53368 -4.53368 464.88374 51 45 0.15 0.44 1.98 1.8 4.37 0.13746 4.50746 4.37 0.13746 4.50746 -4.50746 -4.50746 -4.50746 -4.50746 460.37628 52 46 0.15 0.44 1.98 1.8 4.37 0.11124 4.48124 4.37 0.11124 4.48124 -4.48124 -4.48124 -4.48124 -4.48124 455.89504 53 47 0.44 1.98 1.8 4.22 0.08502 4.30502 4.22 0.08502 4.30502 -4.30502 -4.30502 -4.30502 -4.30502 451.59002 54 48 1.98 1.8 3.78 0.0588 3.8388 3.78 0.0588 3.8388 -3.8388 -3.8388 -3.8388 -3.8388 447.75122 55 49 1.8 1.8 0.03348 1.83348 1.8 0.03348 1.83348 -1.83348 -1.83348 -1.83348 -1.83348 445.91774 Total 175.6 57.9 11010 880.8 6 17.6 79.2 72 174.8 23.80026 198.60026 7 7 1.5 4.4 19.8 18 57.7 38.082 232.5 61.88226 294.38226 524.64974 186 47.5 233.5 291.14974 113.99198 177.45776 232.5 47.5 445.91774 IRR 32% NPV 52 Source: Study Team 6. Planned Project Schedule (1) Construction Schedule of the Geothermal Power Plant

After the study, succeeding work items such as the detailed study, drilling of test wells, evaluation of geothermal resources, drilling of productive and injection wells and construction of geothermal plant with associated facilities are scheduled to be done. Furthermore, the selection of consultants and contractors are also to be included. The working period of each work is estimated in Table 6.1.

Table 6.1 Future Work Items and Time Period Stage Work Items Period Detailed Study (Preparatory Study by JICA) Approx. 6 months Application for Project Implementation Approx. 6 months Exploration Well Drilling (Engineering Service Loan) Total 37 months Exploration Procurement of Consultant Local Drilling Contractor for ES Approx. 15 months Stage Loan (Preparation of Specification and Bidding) Drilling of Exploration Wells (Dia: 6.5”, Depth: 2000 m) Approx. 12 months Evaluation of Geothermal Resources Approx. 12 months Detailed Design of Facilities Approx. 15 months Construction of Power Plant and Associated Facilities Total 75 months Procurement of Consultant Approx. 9 months Procurement of Local Drilling Contractor for Access Road Approx. 12 months Construction (Local Bidding) Development Procurement of Contractor for Construction of Geothermal Approx. 18 months Stage Power Plant (International Bidding) Drilling of Productive and Injection Wells (15 wells) Approx. 30 months Construction of Geothermal Power Plant with Associated Approx. 44 months Facilities (50 MWx1) Test Operation Approx. 4 months Source: Study Team

(2) Schedule for Environmental and Social Considerations

Regarding the Socio-Environmental Consideration, as described in Chapter 4 (5), the following documents are necessary to be submitted to and approved by the relevant organizations at the application of exploration right and development right: - EIA report approved by DGAAE based on the Geothermal Resource Implementation Law - EIA based on Electricity Concession Law and SNIP - CIRA - Land Acquisition - CDM Registration It will take maximum 12 months to prepare above environmental consideration documents necessary for obtaining exploration right. In the stage of application of development right, review of EIA report approved with exploration right and additional investigation are expected to be done. This review may take up to nine months, but not as long as the application of the exploration rights.

The entire implementation schedule including the above issues is shown in Table 6.2.

It is noted that the access road construction was not included in this schedule. Application for project implementation to be done by the government of Peru, would be done once when Engineering Service (Servicios de Ingeniería: E/S) Loan is applied and not be done at the construction stage of the project.

Table 6.2 Project Implementation Schedule

Stage Work Item 2014 2015 2016 20182017 2019 2023202220212020 Preparation and Approval of Socio-Environmental Consideration Application to Exploring Right

Detailed Study (JICA Preparatory Study)

Application for Project Implementation Exploration Well Drilling (Engineering Service Loan)

L/A Conclusion

Procurement of Consultant

Procurement of Drilling Contractor (Local Bidding) Exploration Stage Exploration Drilling of Exploration Wells (3 Nos.)

Evaluation of Geothermal Resource

Detailed Design of Facilities

Review and Additional Survey for Socio-Environmental Consideration Application of Development Right Construction of Power Plant and Associated Facilities (Japanese Yen Loan) L/A Conclusion

Procurement of Consultant

Procurement of Drilling Contractor (Local Bidding)

Drilling of Productive/Injection Wells (15 Nos.) Procurement of Contractor (International Bidding) Development Stage Development Construction of Power Plant (50MW)

Construction of Associated Facilities

Test Operation

Source: Study Team 7. Implementing Organizations (1) Outline of Implementing Agency

1) Electroperu (EP) EP, the country’s national power corporation, will be the implementing agency for this project. EP has jurisdiction over the power generation, power transmission, and power distribution in Peru.

Figure 7.1 shows the organizational chart of EP. The general meeting of stockholders and the Board of Directors have been established as the highest decision-making body of the company, while the General Affairs Bureau has been established as the executive body. The Planning and Administration, Legal Affairs Bureau, Public Relations/CSR Office, Production Office, Marketing Office, Project Management Office, and the Treasury are under the General Affairs Bureau. Carrying out the management and supervision of this project is the responsibility of the Project Management Office.

With regard to the financial situation of EP, in September 2012, the Peru Rating Committee (Comite de Clasificacion de Equilibrio) rated EP having an AA+ pe financial situation from 2008 to 2011. From this, the study team has determined that EP maintains a healthy financial position.

The EP has no experience when it comes to geothermal power generation. However, the study team has determined that EP is at a technical first-class level in terms of power generation, power transmission, and power distribution.

Figure 7.1 Organizational Chart of EP

Source: Study Team 2) MEM MEM is the highest organization responsible for the entire implementation of the energy and mining policies in Peru.

Figure 7.2 shows the organizational chart of MEM. Positioned under the minister is the vice minister for energy and mine sector.

In this project, Directorate General of Electricity (Dirección General de Electricidad: DGE) will conduct coordination work to EP, the Directorate General of Energy-related Environmental Affairs (Dirección General de Asuntos Ambientales Energéticos: DGAAE) will control the approval of Socio-Environmental Consideration for conducting the project.

Figure 7.2 Organizational Chart of MEM

Source: Study Team

3) INGEMMET INGEMMET is a national research organization that conducts surveys and studies related to geology and mineral resources under the Ministry of Energy and Mines . For this project, INGEMMET will support the academic and technical studies on well drilling and underground science data obtained from the geothermal development area. (2) Organizational Structure for Implementation of the Project in Partner

Countries

Figure 7.3 shows the organizational structure of the project.

EP will establish a project management unit under the Project Management Office at the time of project implementation. The unit shall then perform project management and supervision of contractors and consultants. In addition, the unit will coordinate with the electricity general directorate (Dirección General de Electricidad

: DGE) and DGAAE of MEM, and issue licenses for exploration and development rights as well as the approval of the environmental impact assessment.

In addition, it is expected that the needs and technical support to INGEMMET in studying the well during excavation and adjustments, in support of the environmental and social considerations for OO Province, shall be provided by EP.

FigureMEM 7.3 Organizational Structure of the Project -DGE (adjustment of general matters related to power) Advice -DGAAE (approval in accordance with the environmental SERNAMP and social considerations) (environmental and social considerations) Coordination and licensing application EP INGEMMET Project Management Office (Technical advice)

Project Management Unit Support OO Province (PMU) (environmental and social considerations) Manage and supervise Other institutions Consultant and Contractor (such as Petroperu)

Source: Study Team

Government agencies such as EP and MEM do not have enough staff with expertise on the generation and use of geothermal power at present. The system for exchanging information between concerned organizations towards the development promotion has also not been established. Human resource development such as training in Japan and technical cooperation projects by JICA should be proposed for this purpose. 8. Technical Advantages of Japanese Companies (1) International Competitiveness and Possibility of Contract by Japanese Companies for the Project 1) Turbine and Generator Japanese manufacturers have a great deal of experience in geothermal development projects all over the world, ranging from research and development, design, manufacturing, installation, and operation and maintenance of turbines and generators. The share of Japanese-made geothermal turbines and generators is over 67% in the global market (refer to Table 8.1).

Since the economic performance and operational reliability of a power plant largely depends on the performance and reliability of the turbine and generator installed, Japanese manufacturers with abundant experiences of such will have the greatest advantage. At the geothermal power plant, since both the atmosphere and the steam supplied to the steam turbine contain H2S gas, it is very important to take countermeasures including improvement of metal materials of turbine, turbine shape design which prevents concentration of stress and improvement of coating for electrical wire and control unit to prevent corrosion caused by H2S gas. The selection of proper materials and the know-how of countermeasures to protect electrical parts, instrumentations and control devices from corrosion are the advantages of the Japanese manufacturers.

Recently, Japanese manufacturers have competed with those from Italy and USA and China has become a new competitor. Nevertheless, with advanced technologies and abundant experience not only on manufacturing but also in terms of efficient maintenance programs, especially for meticulous detailed after-sales service (To monitor the status of geothermal power generation facility by telecommunication line after delivery, and propose contents and period of proper maintenance, etc.), Peruvian contractors will have sufficient reasons in selecting Japanese manufacturers over the others.

Table 8.1 Geothermal Turbine Manufacturers (as of 2010) Total Total Manufacturer Country No. Manufacturer Country No. MW MW Kawasaki Heavy Mitsubishi Heavy Industries Japan 100 2,882 Japan 3 16 Industries Toshiba Japan 44 2,746 Westinghouse USA 1 14.4 Fuji Japan 60 2,387 UTC USA 57 13.7 Ansaldo/Tosi Italy 72 1,556 Elliot NZ 3 12.5 Ormat Israel 174 1,234 Exex Iceland 2 11.4 GE/Nuovo Pignone USA 23 533 Harbin China 2 11.3 Alstom France 11 155 Makrotek Mexico 1 5 Associated Electrical NZ 3 90 Parsons NZ 1 5 Industries Kaluga Russia 11 82 Siemens Germany 2 3.6 British Thompson Houston UK 8 82 Barber Nichols USA 4 2.3 Mafi Trench USA 6 72 Peter Brotherhood UK 1 1 Qingdao Jieneng China 9 62 GMK Germany 1 0.2 Total 599 11,977 Source: Geothermal Power Generation in the World, 2005-2010 Updated Report by Ruggero Bertani, Proceedings Geothermics 41 (2012) 2) Consulting and Operation of Geothermal Project Japan is known for having a lot of volcanoes. The country has more than 200 active volcanoes, so that there are plenty of geothermal resources to be developed. Japan has succeeded its first drilling of steam for geothermal energy use in Oita Prefecture in 1919. In 1966, the country’s first geothermal power plant has started its operation at Matsukawa in Iwate Prefecture, which is the fourth geothermal power plant that was made in the world. At present, 20 geothermal power plants in 18 areas with a total capacity of 535.25 MW exist in Japan (refer to Figure 8.1).

Japanese consulting companies have abundant experiences in the development of both vapor-dominant and water-dominant geothermal fluids as well as the construction of both flash and binary geothermal power plants. Direct use such as bathing, farming, and heating are also installed. Japanese techniques and experiences cultivated from many years have contributed to overseas geothermal development projects in Southeast Asia, Central and South America, and Africa, which would also be appealing to the geothermal development in Peru.

In addition, it should be pointed out that Japanese geothermal power plants have endured the large-scale earthquake disaster on March 11, 2011, known as the Great East Japan Earthquake. When the magnitude 9.0 earthquake attacked eastern Japan, power generation stopped at once due to turbine trip in order to ensure the plant’s safety. All geothermal power plants in the East Japan could re-start generating electricity after several hours or several days. It hugely contributed to local power supply security (Figure 8.2).

This is due to Japanese-original earthquake-resistant design; the power plants were designed for the standard of Japanese earthquake-resistant and seismic accelerometer is inside the control unit of turbine, which is programmed for emergency halt of turbine when the earthquake was detected.

Peru is located in a subduction zone of the oceanic plate like Japan and sometimes suffers damage from major earthquakes. Experiences that the Japanese geothermal power plants have encountered from the Great East Japan Earthquake would be appealing for the Peru to choose Japanese companies. Figure 8.1 Geothermal Power Plants in Japan

Source: Geothermal Research Society of Japan (2011)

Figure 8.2 Situation of Operation of Geothermal Power Plants in Japan after the Great East Japan Earthquake in

2011 Source: Yasukawa (2011) Geothermal Energy in Japan: Asia Pacific Clean Energy Summit and Expo (2) Main Equipment and Materials Expected to be Procured from Japan and Their Costs

The steam turbine and generator, which are the core equipment of the geothermal power station, are expected to be designed and manufactured from Japan in case a Japanese contractor will be chosen. Other equipment will be properly selected from candidate manufacturers all over the world.

The share of the equipment from Japan is expected at around 30-40% among the total cost of power station in the budget. Especially for the case of Calientes, as it is located in Peru which is very far from Japan, the rate of procurement from Japan would be relatively low because of issues on transportation and others.

(3) Necessary Measures to Promote Receipt of Orders by Japanese

Companies

For the success of this project, Japanese companies are able to contribute the best for the following reasons .

· Single Unit Capacity of the Turbine Generator In the bidding of geothermal turbine, it actually becomes a competition between three Japanese companies with European companies. European companies have no experience for installation of more than 25MW of geothermal turbine. The 50MW single unit capacity is a prerequisite for the best economic value of the project. Therefore, the design specification should be a single unit capacity of 50MW, and an experience of installation of geothermal single unit turbine of about 50 MW in recent years should be prequalification criteria for bidding.

・Regulations of Earthquake-resistant Design Earthquake-resistant design is one of the most important issues for Peru, earthquake-prone country, and should be included to the specification for the safety of this project. Japan is also an earthquake-prone country in the world; Japanese companies have unique technology of earthquake-resistant design through many years of experience. For example, earthquake-resistant structure of the power plant as well as an emergency trip of the turbine due to the occurrence of earthquake, such kind of unique technologies are essential to this project.

・Environmental Conservation Conservation of natural environment is a fundamental issue of this project. An experience of the geothermal power plant construction in the National Park of Japan and landscape-considered building design by Japanese companies are the key to success.

Though Japanese products are predominantly advantageous not only in terms of quality itself but also in its strict observance of delivery date and duration of works, it was observed that the companies in other countries won the bid due to their discounted price during the public international bidding through quality-and cost-based selection (QCBS). In such circumstances, Japanese companies are spending efforts to bear the price of their products at a minimum while keeping high quality services. We have told to Peru this kind of nature of Japanese companies, and we would like to continue the efforts in order to be evaluated and properly understood. This report concluded that the feasibility of this project is high; however we would like to repeat that one of the prerequisite is the adoption of reliable products and technologies backed by experience.