Market Integration The Southern Cone of South America Experiences

1. Market IntegrationThe Southern Cone of South AmericaExperiences Juan Luchilo – CAMMESA APEx 2003 Conference Cartagena, Colombia

2. Regional Market - Basic Data Mercosur Market, 5 countries: (Argentina, Brazil, Chile, Paraguay, Uruguay) Population: about 240 M Installed Capacity:  120 TW Annual Energy Consumption:  450 TWh

3. Regional Market - Basic Data • Different resources in each country (Brazil, Uruguay, Paraguay mostly hydro; Argentina, Chile, hydrothermal) and level of deregulation • Long distances between main loads and from resources to load; • Barriers between countries • natural (mountains, rivers) • political => openness to integrate markets • technical and economical viability=> distances, electrical issues Opportunities => complementarity of demand and hydro availability, gas and electricity integration

4. Energy Conssumption

5. Deregulation of the Electric Sector BRAZIL 1998 PARAGUAY ? URUGUAY 200? CHILE 1982 ARGENTINA 1992

6. Links - Evolution • Before 1997 => Integration related with binational hydro power plants; agreement between countries • Argentina – Uruguay - Salto Grande (1890 MW) • Brazil – Paraguay – Itaipú (12600 MW) • Argentina – Paraguay - Yacyreta (1800 MW)

7. Links - Evolution • After 1997=> Integration related with market opportunities=> • competitive market, gas availability and new capacity in Argentina • generation needs at northern Chile • complementarity with Brazil and Uruguay (firm capacity for dry hydro years) • Argentina – Chile => new 345 kV link from Salta to Northern Chile; thermal generation built specifically for that purpose; isolated • Argentina - Brazil (2000 MW); 2 back to back DC converters (50/60 HZ) built – firm capacity contracts • Argentina – Uruguay – firm capacity contracts (400 MW) using existing link

8. Electricity or/and Gas? • As well as electricity, gas has also become a product exchange in the south cone: • Brazil imports from Argentina and Bolivia, and transform part locally in electricity • Chile imports from Argentina, to fuel its new generation plants • Uruguay is on the same way soon • There’s a competition wether to transport gas and transform it afterwards in electricity or to produce electricity and then transport it through wires; economic viability is related with volume requirement and scale

9. High Loads Hydro Resources Gas Resources Gasoducto Bolivia-Brasil 30 Electricity link Argentina-Brazil Electricity link Argentina-Paraguay Electricity link Argentina-Uruguay Energy Links – Gas & Electricity Electroducto Argentina Chile GasoductoAtacama y Norandino Gasoducto Gasandes 7-8 Gasoducto del Pacífico 1.5-9

10. Impacts (Argentina – Brazil link) • Resources Optimizatión • Share reserves (seasonal, hourly) • Increase reliability, quality Some Benefits It requires adequate technical coordination between the interconnected systems

11. Results -Argentina – Brazil link

12. Impacts • Increase volatility in Argentine spot price (2000 MW firm capacity delivered if Brazil needs it; Argentina is a 10000 MW system)

13. Concerns • Macroeconomic issues (like devaluation) affect parties => requires dynamic adaptation to mantain in the short term operativity, and long term commercial viability • Lack of regulatory compatibility • Technical and economical complexity to interconnect countries

14. Quality, Technology & Transparency For an Electrical Market without frontiers ¡Thanks for your attention!Colombia, October 2003 • Doubts =>jluchilo@cammesa.com.arMore info =>www.cammesa.com.ar