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Argentine Power Sector Capacity payments, markets and new Generation

?. ?. ?. Compañía Administradora del Mercado Eléctrico Mayorista. Argentine Power Sector Capacity payments, markets and new Generation. APEX Conference November 2005 Orlando, USA. CAMMESA. Outline. WEM – Basic Rules - Global Figures – Key Indicators

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Argentine Power Sector Capacity payments, markets and new Generation

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  1. ? ? ? Compañía Administradora del Mercado Eléctrico Mayorista Argentine Power Sector Capacity payments, markets and new Generation APEX Conference November 2005Orlando, USA CAMMESA

  2. Outline • WEM – Basic Rules - Global Figures – Key Indicators • Payments to Generators – Energy, Capacity & Ancillary Services • Incomes – Hydro and Thermal Generation • Macroeconomic changes • Investments in new Generation • Expectations - Concerns

  3. % GDP Annual Variation vs. Demand 15% 10% 5% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -5% -10% -15% GDP Demand % GDP vs Demand about 3 $/u$s exchange rate 1$/u$s

  4. Annual GDP Variation vs Electricity Demand 2003 vs 2002 15% 1997 vs 1996 10% 5% 0% % Annual Demand -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% -5% Estimated 2005 2002 vs 2001 => 2004 vs 2003 vs 2004 -2% Dem var with -10% -11 % GDP var -15% % annual GDP % GDP vs Demand

  5. Annual Peak Demand EXP = 2200 MW Local = 6700 MW 600 MW/yr 500 MW/yr

  6. Installed Generation Capacity WEM capacity: 1992 = 13267 MW 2004 = 23284 MW  ~70% Increase – Gen => 9700 MW 60 MW/yr 900 MW/yr

  7. SPOT MARKET (80%) SHORT-TERM MARGINAL-COST BASED STABILISED SEASONAL PRICES FOR DISTRIBUTORS (regulated) HOURLY PRICES IN SPOT MARKET (capped to gas prices) ADDITIONAL PAYMENT FOR CAPACITY (12 $/Mwh; 90 hours per week) REMUNERATION FOR ANCILLIARY SERVICES CONTRACT MARKET (20%) CONDITIONS AGREED BETWEEN PARTIES Basic Market Operating Rules

  8. Payments to Generators CAPACITY ENERGY ANCILLARY SERVICES

  9. Payments to Generators $/MWh u$s/MWh Margin

  10. Capacity Payments • Capacity • it is paid 90 hours of higher demand per week: labour days (9 am to 12 pm); weekends (10 peak hours) • price => 12 $/MW • Payments to generators that are available in those hours

  11. Capacity Payments • Base Capacity => determined annually through simulations for each power plant • Hydro =>average output (related with the river module) plus spinning reserve • Thermal => all generators required on a dry hydrologic year with high demand

  12. Capacity – Hydro & Thermal • Hydro =>average output => stabilises capacity incomes through the year (seasonal variations) and related with inflows variability Avg output Expected output Rich years • Thermal => if rich hydro year => receives payment if the plant is available even while not generating Dry years

  13. Capacity Payments • Signals • Be available (hydro & thermal), especially when needed (hours of higher demand) • Payments independent of actual dispatch => helps to prepare the budget

  14. Electricity Sector Scenario - Economics • Tariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishment • Pesification of natural gas, energy and capacity prices on the WEM • Increase of imported fuel and maintenance costs; gradual increase of natural gas price • Uncertainty related with exchange rate evolution and expected performance of the generation units

  15. PURCHASE DISTRIBUTORS LARGE USERS SELL PURCHASE GENERATORS Energy Prices Regulated Tariff SEASONAL PRICE (forecast) STABILIZATION FUND SPOT MARKET HOURLY PRICE (real)

  16. Spot Price Evolution Definanciation of stabilization fund

  17. Investment in new generation • Conditions • Tariff situation permits only to cover variable costs • Complex Macroeconomic scenario • 5 % annual increase in demand > gradual reduction of the level of reserves => needs of new generation (1200/1600 MW) in a couple of years • Restrictions of gas availability (product & transport) • Atomised generation ownership, combining hydro & thermal interests • Fiscal Surplus due to the increase of economic activity

  18. Generation ownership

  19. New Investment - Agreement • An agreement was reached where the Treasure ensures payments of variable costs (including capacity) and 35 % of marginal rent • Rest of marginal rent => derived to a Fund (FONINVEMEM) created to finance the installation of new generation • Expected Amount 2007 => enough to finance a 600/1000 MW Combined Cycle plant • All Generators will own shares of the new plant. • Gradual return to initial market conditions (capacity payment 10 u$s/MW; marginal price; adequate tariffs to distributors) when the new generation begins its operation

  20. Generators & FONINVEMEM To Fund 65% Marginal Rent 35% To Genco

  21. Expectations - Concerns • Tender for new plant to be launched soon • Agreement to ensure gas availability to operate the plant efficiently • Increase of fossil fuels costs make hydro and alternative generation more competitive, but require a kick off from national government • Capacity payments help to maintain the operation of existing plants, required to cope with the increase of demand • Timeline very tight => energy savings and an efficient use of available reserves to reduce risk of supply

  22. Quality, Technology & Transparency For an Electrical Market without frontiers ¡Thanks for your attention!Orlando, November 2005 • Doubts =>jluchilo@cammesa.com.arMore info =>www.cammesa.com.ar

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