Transcript The New Colombia Firm Energy Market

THE NEW COLOMBIA FIRM ENERGY MARKET
Luis Alejandro Camargo S.
Wholesale Market Manager
XM S.A. E.S.P.
October, 2006
Todos los derechos reservados para XM S.A E.S.P.
Luis Alejandro Camargo S.
Wholesale Market Manager
APEx 2006, Seoul
October, 2006
Todos los derechos reservados para XM S.A E.S.P.
3
Due to the high Hydro component of supply, the Colombian system is
vulnerable to energy shortages, while currently capacity is not an issue
rationing
El Niño
•4,000
•3,000
•2,000
Total Demand
Total Generation
Hydro Generation
Thermal Generation
DEMAND VS CAPACITY (MW)
4378
8637
8988
PEAK LOAD
CAPACITY
Demand
Hydro
Thermal
•ene-05
•jul-04
•ene-04
•jul-03
•ene-03
•jul-02
•ene-02
•jul-01
•ene-01
•jul-00
•ene-00
•jul-99
•ene-99
•jul-98
•ene-98
•jul-97
•ene-97
•jul-96
•ene-96
•jul-95
•ene-95
•jul-94
•ene-94
•jul-93
•ene-93
•ene-92
•0
•jul-92
•1,000
4
A centrally administered mechanism has been in
place for the last 10 years
• 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
12
10
8
6
4
2
Jul-06
Mar-06
Nov-05
Jul-05
Mar-05
Nov-04
Jul-04
Mar-04
Nov-03
Jul-03
Mar-03
Nov-02
Jul-02
Mar-02
Nov-01
Jul-01
Mar-01
Nov-00
Jul-00
Mar-00
Nov-99
Jul-99
Mar-99
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
Nov-96
Jul-96
Mar-96
Nov-95
0
Jul-95
US cents/kWh September 2006
14
5
A Firm Energy Market was designed to reach
multiple objectives
RELIABILITY
INVESTMENT &
PERMANENCE
EFFICIENCY
COMPETITION
MARKET
POWER
CONTROL
• 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.
6
The Firm Energy Market Proposal (1)
• The whole physical Demand buys the right
to pay a maximum spot price defined by the
Regulator (Scarcity/Strike Price)
12
10
• Generators receive an Option Price, which
will be determined by the market in a
descending clock auction
8
6
4
2
Jul-06
Mar-06
Nov-05
Jul-05
Mar-05
Nov-04
Jul-04
Mar-04
Nov-03
Jul-03
Mar-03
Nov-02
Jul-02
Mar-02
Nov-01
Jul-01
Mar-01
Nov-00
Jul-00
Mar-00
Nov-99
Jul-99
Mar-99
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
Nov-96
Jul-96
Mar-96
Nov-95
0
Jul-95
US cents/kWh September 2006
14
Jul-06
Mar-06
Nov-05
Jul-05
Mar-05
Nov-04
Jul-04
Mar-04
Nov-03
Jul-03
Mar-03
Nov-02
Jul-02
Mar-02
Nov-01
Jul-01
Mar-01
Scarcity/Strike Price
Nov-00
10
Jul-00
12
Mar-00
6
Nov-99
Jul-99
Mar-99
Nov-98
Jul-98
Mar-98
Nov-97
Jul-97
Mar-97
2
Nov-96
Jul-96
Mar-96
Nov-95
Jul-95
US cents/kWh September 2006
7
The Firm Energy Market Proposal (2)
14
A Generator with Energy Firm Options
receives the Option Price and is subjected
to a Reward or a Penalty:
8
(Q supplied – Qobligation) x (Pspot – PStrike)
4
Option Price
0
8
A Firm Energy Market was designed to reach
multiple objectives
AVOID BOOM/BUST CYCLES
AND REDUCE INVESTOR RISK
IMPROVE SPOT MARKET
EFFIENCY AND REDUCE ITS VOLATILITY
REDUCE MARKET POWER
AND SCARCITY RENTS
ACHIEVE DESIRED
RELIABILITY –
AVOID SHORTAGES
ATRACT NEW AND ENOUGH
GENERATION INVESTMENT
9
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
Aggregate
supply curve
starting price
$12.00 = P0
descending
clock
auctions are
held
annually,
three to four
years in
advance
excess supply
P1
Round 2
P2
P3
Round 3
P4
P5
$6.17 = P6
$6.00 = P6’
Round 1
Round 4
Round 5
clearing price
Demand
Quantity
• 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
10
The first auction will be held in May 2007 for 2010 commitments
2006
2007
(Dec. - Nov.)
2008
2009
2010
2011
…
2012
TRANSITION
Existing
resources
2010
auction
New entrants
Up to 20 years
Existing
resources
2011
auction
New entrants
2012
auction
Up to 20 years
Existing
resources
New entrants
Up to 20 years
• 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
11
Fail-safe mechanism for inadequate supply or
insufficient competition
Security mechanisms are provided to adjust positions and to
avoid shortages
Primary
auctions
Reconfiguration
auctions
Secondary market
Last Resort generators
Voluntary desconectable demand
12
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
Luis Alejandro Camargo S.
[email protected]
October, 2006
Todos los derechos reservados para XM S.A E.S.P.