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ENERGY INTERMARKET SURVEILLANCE GROUP COLOMBIAN WHOLESALE ENERGY MARKET MAIN ISSUES AND ACTIONS

ENERGY INTERMARKET SURVEILLANCE GROUP COLOMBIAN WHOLESALE ENERGY MARKET MAIN ISSUES AND ACTIONS. ELECTRICITY MARKET FOLLOW-UP COMMITTEE COLOMBIAN PUBLIC SERVICES AGENCY - SSPD ARGEMIRO AGUILAR PABLO RODA GABRIEL SANCHEZ-SIERRA Monterey, CA, SPRING2009 MEETING. AGENDA.

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ENERGY INTERMARKET SURVEILLANCE GROUP COLOMBIAN WHOLESALE ENERGY MARKET MAIN ISSUES AND ACTIONS

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  1. ENERGY INTERMARKET SURVEILLANCE GROUP COLOMBIAN WHOLESALE ENERGY MARKET MAIN ISSUES AND ACTIONS ELECTRICITY MARKET FOLLOW-UP COMMITTEE COLOMBIAN PUBLIC SERVICES AGENCY - SSPD ARGEMIRO AGUILAR PABLO RODA GABRIEL SANCHEZ-SIERRA Monterey, CA, SPRING2009 MEETING

  2. AGENDA • Update of the Colombian Electricity Market • Main Power System Characteristics • Wholesale Energy Market • Main Issues and Actions on the Energy Market • Spot Prices • Offer Prices Behavior • Gas for Electricity • Market Power • Startup and Stop Costs of Thermal Plants • Secondary Frequency Regulation Service • Bilateral Contracts

  3. MAIN POWER SYSTEM CHARACTERISTICS • Hydro-Thermal System • Installed Capacity 13.457 MW • 63% Hydro • 32% Thermal ( Gas and Coal) • Tropical Hydrology – 6 years Waiting for a Niño (Extremely Dry Condition) • Power System Demand - 2008 • 53.869 GWh • 9.089 MW Maximum Peak Demand • Interchanges with Ecuador and Venezuela • 69% Regulated and 31% Non-Regulated Demand

  4. WHOLESALE ENERGY MARKET • Spot Market • Unique bus price – Ideal Dispatch with no transmission constraints • Hourly Resolution • Price Generation Offers • Bilateral Contracts - Financial • Firm Energy Auctions • Reliability Mechanism • Free Generation Participation • Firm Energy Obligations honored by generators in critical conditions

  5. SPOT MARKET PRICE PERFORMANCE

  6. GENERATION OLIGOPOLY3 AGENTS DEFINE SPOT PRICE MORE THAN 80% OF TIME

  7. High volatility due to stochastic hydrology behavior and dispatch highly dependent on reservoir levels Daily hydro price defined by the generator agent according to water opportunity cost and risks valuation. This allows any offer price with no bounder as contrary to thermal generation Use of a hydro-thermal simulation model with historical data to estimate markup SPOT PRICES ISSUES PROPOSALS

  8. Radical changes up and down of hydro offer prices in daily or weekly periods A tandem offer strategy oriented to maintain a high spot price Extremely high offer prices of thermal plants justified by fuel and startup-stop costs Force agents to sustain offer prices based on their own calculations of marginal costs Definition of a maximum offer price change for next day through the Regulatory Board - CREG OFFER PRICES BEHAVIOR ISSUES PROPOSALS ACTIONS TAKEN • The Regulatory Board ordered that starting February 2009, the offer prices must be kept confidential for three months.

  9. Gas Market: Supply and transportation based only on bilateral contracts Transportation bottle necks and shortages of supply prevent dispatch of some thermal plants Uncertainty generates increasing expectations of future prices Informal coordination of gas and electricity dispatch A government integral gas policy and implementation is required until reaching a solid gas development To speed-up the building of gas treatment plants. A formal entity in charge of gas and electricity dispatch coordination is required GAS FOR ELECTRICITY ISSUES PROPOSALS

  10. Actually, by regulation, startup and stop costs are included in energy offer prices. Agents consider that their units may be dispatched only one or a few hours, then offer prices are highly increased to recover all costs in such period time. Hourly spot prices are defined by minimizing offer prices that satisfy hourly demand. Split offers of thermal units into energy price startup and stop price Determine ideal dispatch by minimizing energy offer prices during whole day, including startup and stop prices and international exchange offers. Determine spot hourly prices considering startup and stop prices required in the hour and the energy offers of dispatched units/plants STARTUP AND STOP COSTS OF THERMAL PLANTS ISSUES PROPOSALS

  11. A unique offer price is used for both energy supply and Secondary Frequency Regulation Service - SFRS. This allows strategic offers behavior. Price of SFRS is determined based on individual offers (no marginal). When price is above spot price, in addition it implies out of merit energy supply. Shortage of enabled regulation capacity that increases in winter periods Increase enabled regulation capacity, specially allowing new thermal plants. Create a new market to supply SFRS with price offers independent from energy supply. SECONDARY FREQUENCY REGULATION ISSUES PROPOSALS

  12. Seller Market due to: Gap between supply and demand is being reduced Sellers impose clients and quantities Geographical splitting of the market Vertical integration Prices for regulated demand are higher than for non-regulated Organized Market for the Demand: Centralized and standardized auction. Amount of regulated demand to be bought is defined by the Regulator Commercializers must participate and generators are free to do it Same conditions for all buyers BILATERAL CONTRACTS ISSUES PROPOSALS

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