Enel sale: how does the electricity market in Peru work and what does this change mean?

Market in Peru electricity It is divided into several stages: generation, transmission, distribution and commercialization. The sum of all this is reflected in the electricity bill rates that Peruvians pay each month.

Until 2021 Ministry of Energy and Mines (Minem) indicated that there are more than 80 generation companies, 21 transmission companies and 23 distribution companies. Luis Espinoza, professor of energy management at Esan, specifies that the most important of these are Enel and Luz del Sur.

“Both Enel and Luz del Sur have the largest distribution assets. Lima has about 2.7 million customers, Lima represents 55% of the distribution assets, of which Enel has 23% and Luz del Sur has 32% (…) in terms of the sale, Enel owns 27% of the entire regulated market and southern light is 30%,” he said.

But recently, Enel, an electricity service provider in northern Provincias and Metropolitana Lima, where areas like Comas and San Martin de Porres are located, will exit the Peruvian market to reduce its debt levels.

It is now known that Enel has agreed to sell its operations in Peru to Chinese state-owned Southern Power Grid International, but what will that mean?

For the National Society of Industry (SNI) we might encounter concentration in electricity distribution in Lima.

“For us, this would mean that about 70% of the distribution of electricity would be in the hands of one state, in the sense that the People’s Republic of China would be represented by two companies, and the distribution in the south of Lima would be given by another Chinese company in 2020 and the purchase northern Lima would mean a possible concentration. In a sector that is considered a public good, there should be competition,” said SNI economic research manager Antonio Castillo.

Recall that in 2020 Luz del Sur was bought by another Chinese state-owned company, Yangtze Power International Co., Limited (CYP). For this reason, Espinoza points out that if the purchase is fully completed with the integration of urban distribution, Chinese companies will have at least 57% of the entire regulated market.

“This integration would harm the electrical system, because distribution regulation implies that the regulator is trying to find the real value of the company, but there is always an asymmetry and for this reason a comparison is always made (…) with the usual ones up to Lima, Luz del Sur was compared to Enel because they were from two different groups and each had a different policy, but if they were merged, those differences would no longer exist because everything would be concentrated. I would argue that this concentration hurts the customer and it will lead to higher rates in the long run,” he says.

Despite this, former Vice Minister of Energy Pedro Gamio notes that the government should not stop this. investmentsbut they have to make sure they have the right regulation.

“The sale itself is not negative, it is necessary to ensure that it attracts more investment, that best practices are provided, and since this is the leading state in the world, this is an opportunity for the country to provide best practices. and that they are not frozen or the best social and environmental practices, as well as the most competitive prices, are lost,” he said.

Closing the deal to sell Enel to a Chinese company must be cleared by Indecopi under a law establishing prior control over concentration operations, and this could take about 6 months.

However, for now, Indecopi indicates that they have not yet received a request for an estimate of the possible concentration in sale from Enel to Southern Electric Networks.