the new colombia firm energy market
DESCRIPTION
THE NEW COLOMBIA FIRM ENERGY MARKET. Luis Alejandro Camargo S. Wholesale Market Manager XM S.A. E.S.P. Luis Alejandro Camargo S. Wholesale Market Manager APEx 2006, Seoul. 4,000. 3,000. 2,000. 1,000. 0. jul-92. jul-93. jul-94. jul-95. jul-96. jul-97. jul-98. jul-99. jul-00. - PowerPoint PPT PresentationTRANSCRIPT
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October, 2006
Todos los derechos reservados para XM S.A E.S.P.
Luis Alejandro Camargo S.Wholesale Market Manager
XM S.A. E.S.P.
THE NEW COLOMBIA FIRM ENERGY MARKET
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October, 2006
Todos los derechos reservados para XM S.A E.S.P.
Luis Alejandro Camargo S.Wholesale Market Manager
APEx 2006, Seoul
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Due to the high Hydro component of supply, the Colombian system is vulnerable to energy shortages, while currently capacity is not an issue
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Total Demand Total Generation Hydro Generation Thermal Generation
rationing El Niño
DEMAND VS CAPACITY (MW)
8637 8988
4378
PEAK LOAD CAPACITY
Demand Hydro Thermal
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A centrally administered mechanism has been in place for the last 10 years
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• Capacity payment is assigned every year using a hydro-thermal generation model run for a critical hydrology defined by the Regulator, considering the costs and availability of the plants
• No explicit obligation for the generators who received the payment
• Verification of availability through random Audits
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A Firm Energy Market was designed to reach multiple objectives
• In theory, these can be achieved through an energy only market, and some market have placed their bets on this approach.
• It implies a high variability in both cash flows for investors and energy prices for the demand.
• Others, opted for a capacity mechanism (market o administered), to ensure generation adequacy by allowing stable cash flows.
• A Firm Energy Market was the selection for the Colombian case.
COMPETITION
INVESTMENT &PERMANENCE
EFFICIENCY
MARKETPOWER
CONTROL
RELIABILITY
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The Firm Energy Market Proposal (1)
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• The whole physical Demand buys the right to pay a maximum spot price defined by the Regulator (Scarcity/Strike Price)
• Generators receive an Option Price, which will be determined by the market in a descending clock auction
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A Generator with Energy Firm Options receives the Option Price and is subjected to a Reward or a Penalty:
(Q supplied – Qobligation) x (Pspot – PStrike)
Scarcity/Strike Price
Option Price
The Firm Energy Market Proposal (2)
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A Firm Energy Market was designed to reach multiple objectives
REDUCE MARKET POWERAND SCARCITY RENTS
AVOID BOOM/BUST CYCLESAND REDUCE INVESTOR RISK
IMPROVE SPOT MARKETEFFIENCY AND REDUCE ITS VOLATILITY
ACHIEVE DESIRED RELIABILITY –
AVOID SHORTAGES
ATRACT NEW AND ENOUGHGENERATION INVESTMENT
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A new Firm Energy Market has been regulated from December 2006, using a financial call option backed by the physical
capability to supply firm energy
• Generators are allowed to offer firm energy up to a centrally verified realistic limit
• Hydro generators are constrained by their hydrological characteristics and history
• Thermal generators are constrained by historical capacity and fuel contracts
$12.00 = P0
P1
P2
P3
QuantityDemand
Round 5
Round 4
starting price
clearing price
Aggregatesupply curve
P4P5
$6.17 = P6
Round 3
Round 2
Round 1 excess supply
$6.00 = P6’
descending clock
auctions are held
annually, three to four
years in advance
• Generators acquire a firm energy obligation• An administered demand curve represents the marginal
value of additional firm energy. Price Limits: 2 x Cost of New Entry –CONE- to 0.5 CONE
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The first auction will be held in May 2007 for 2010 commitments
2007 2008 2009 2010 2011 2012 …2006
TRANSITION
Existingresources
New entrants Up to 20 years
2010auction
Existingresources
New entrants Up to 20 years
2011auction
Existingresources
New entrants Up to 20 years
2012auction
(Dec. - Nov.)
• During the transition (initial) period, generators will be assigned the obligation pro rata of their declared firm energies
• The Option price will be defined by the Regulator in this period
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Security mechanisms are provided to adjust positions and to avoid shortages
Primaryauctions
Reconfigurationauctions
Secondary market
Last Resort generators
Voluntary desconectable demand
Fail-
safe
mec
hani
sm fo
r ina
dequ
ate
supp
ly o
r in
suffi
cien
t com
petit
ion
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References
• Colombia Firm Energy Market. Cramton, Peter and Stoft, Steve. 15 September 2006
• Colombian Energy and Gas Regulation Commission. Resolution 071 and 079 of 2006. www.creg.gov.co
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October, 2006
Todos los derechos reservados para XM S.A E.S.P.
Luis Alejandro Camargo [email protected]