Supply Adequacy Mechanisms and Cross-Border Contracts in the Central American Regional Electricity Market

Transcription

1 Supply Adequacy Mechanisms and Cross-Border Contracts in the Central American Regional Electricity Market PES, June 2006, Montréal Manuel Tinoco SNC-Lavalin Fernando Montoya-SNC-Lavalin, Jorge Karacsonyi- Mercados Energéticos, Ricardo Ríos-SIEPAC

2 Topics Supply (G) Adequacy Mechanisms (general) Experience with Generation Adequacy Mechanisms in Central America Regional Electricity Market and Cross- Border Contracts

3 Quality of Service / Supply Chain G T D Security Ability to withstand disturbances Adequacy Ability to meet aggregate power and energy requirements of consumers Question: How can market-based mechanisms replace/complement the central planner in ensuring the desired adequacy in G? This paper: how electricity regulatory framework in Central America addresses this issue

4 Topics Supply (G) Adequacy Mechanisms (general) Experience with Generation Adequacy Mechanisms in Central America Regional Electricity Market and Cross- Border Contracts

5 (1) PPAs Strengths World-wide use during first steps of liberalization Mitigates credit risk to investors Can be a transparent process and produce reasonable prices (BR, MX, HO) Limited scope for competition: only at contract award time limits new technologies Weaknesses Opportunities Benefits flow to consumers (lower tariff) via continued investment at lower cost Should be used as a transitory measure, followed by opening of wholesale/retail competition Dominant position of Single Buyer is an obstacle to further development of wholesale competition Retail competition doesn t develop Threats

6 (2) Energy (only) markets Best in theory, but Produces big price spikes, specially if: Irresponsive demand to price Little hydro regulation Needs Price responsive consumers Energy ministry with guts In practice Limited Success Reliance on price spikes discourage investments

7 Alternatives to Energy Markets (3) Capacity Payments Retailers / End-users in addition to energy market payments Generators Payments (formula) Key problems Definition of capacity price and its update to reflect current market conditions Volume of investments (many factors influence investments)

8 Alternatives to Energy Markets (4) Capacity Obligations p p* Central Authority (SO) defines the Installed Capacity (ICAP) needed ICAP obligation is transferred to Retailers/Eligible Customers Retailers/EC to procure capacity (penalties for short positions) Market participants offer capacity and the price is defined q SO procures and allocates payments to Retailers/EC

9 Challenges in a regional market GUATEMALA PEPESCA GUATE NORTE GUATE ESTE BE LI CE RIO LINDO EL SALVADOR EL CAJON SUYAPA HONDURAS Definition of Capacity Available to count towards obligation Consistency between Capacity and Energy Markets AHUACHAPAN NEJAPA 15 SEPTIEMBRE LEON NICARAGUA PAVANA TICUANTEPE PACIFIC OCEAN CAÑAS ATLANTIC OCEAN PARRITA PANAMA COSTA RICA RIO CLARO VELADERO

10 Topics Supply (G) Adequacy Mechanisms (general) Experience with Generation Adequacy Mechanisms in Central America Regional Electricity Market and Cross- Border Contracts

11 PPAs (HO, CR) HO: 66% of total production Single Buyer Model PPAs: up to 30% of installed capacity 2003 (12%, 29 PPAs) new modality: PPPs (40MW, 75MW)

12 Failed energy only market (ES)? Originally designed as energy only market At market opening Discos allocated existing PPAs Lack of new investments SO contracts reserve via tenders cap price capped (5.5$/kW-m) uplift in the energy market price

13 Capacity Obligations (GU, NI, PA) Energy markets are cost-based pools At market opening Discos allocated existing PPAs Obligations to Discos/Eligible Consumers to contract capacity forward Auctions for yearly reserve (only PA) Daily Capacity Imbalance Market

14 Capacity Obligations Country Cap. Oblig. to Distr. Procurement Volumes Problems Guatemala expected peak load of next 2 yrs + 5% reserve International Public Tenders Vesting Contracts still cover most of captive customers load Small size of mkt ineficient central purchase being considered Nicaragua 80% of forecasted load Yr+1 and 60% for Yr+2 International Public Tenders idem

15 Time frame for capacity obligations in Panama T-1Y Nov T-1Y Dec T-1D T T+1D Capacity Obligations Long Term Reserve Market Daily Capacity Market Day of Operation SMO 10yr load forecast 100% Capacity Obligation of each load participant Prices determined through public tenders (initally regulator intervened!) G, D, EC bid noncontracted capacity All D and EC must purchase shortages in LTR market G, D, EC with surplus capacity submit bids Peak load SMO calculates: participation of each load in daily peak imbalances prices settlement

16 Reserve and Capacity Prices - Panama MW MW hydro -60MW MSD $/kw-m MW hydro ICAP Dmax LTR price 0.0 LTR prices respond to reserve margin Discos are not contracting bilaterally all capacity requirements

17 Capacity and Energy Daily Prices - Panana $/kw-m $/Mwh Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 avg min max cm 0 Low daily capacity spot prices Small volumes reserves are adequate, load participants forecast correctly

18 Topics Supply (G) Adequacy Mechanisms (general) Experience with Generation Adequacy Mechanisms in Central America Regional Electricity Market and Cross- Border Contracts

19 MER REGIONAL TRANSMISSION Guatemala Guatemala SIEPAC Honduras Honduras SIEPAC Nicaragua Nicaragua Lines are 230 kv - single circuit Transfer Capacity = 300 MW SIEPAC El El Salvador Salvador Costa Costa Rica Rica SIEPAC Existing Interconnection National Grid Future SIEPAC Line Interconnection ES-HO Panamá Panamá

20 MER Institutions created by the Treaty Governments Regional Regulator CRIE National Regulators REGIONAL ISMO EOR NATIONAL ISMOs & TSOs MER Regional Market National Markets

21 MER Regional market co-exist with national markets: any national market participant is allowed to trade in MER LMP = Energy + Congestion + Losses Day-Ahead & Real-Time Markets (Prices and Settlements) Financial Transmission Rights Firm Transmission Rights: financial hedge guarantee of transmission capacity

22 MER Firm Contracts Give buyer/seller certainty about price and delivery Promote development of Regional Generators Authorized by regulators in both countries (fulfill capacity obligations) Must hold Firm Transmission Rights

23 Firm Regional Contract obligation to offer the contracted capacity in D-1 Contracts according to regional regulation Gen C Country A Firm Contract Foreign Customer Country B Gen A Gen B National Customers Contracts according to national regulation Gen X Gen Y National Customers

24 Conclusions Satisfactory levels of supply adequacy and timely investments with capacity obligation mechanisms in CA Energy-only markets don t seem to achieve supply adequacy goals when there is little competition and lack of responsive demand Firm Regional Contracts provide opportunity for region-wide compatibilization and optimization of supply adequacy

25 Thank you!