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We present a simulation analysis of the proposed Colombian firm energy market. The main purpose of the simulation is to assess the risk to suppliers of participation in the market. We also are able to consider variations in the market design, and assess the impact of alternative auction parameters. Three simulation models are developed and analyzed...
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... De acuerdo conStoft (2002) la suficiencia es la: "capacidad del sistema eléctrico para abastecer la demanda eléctrica total y los requerimientos de energía de los consumidores todo el tiempo, teniendo en cuenta las interrupciones previstas y las esperadas no programadas" (Soft, 2002, 134, traducción de los autores).11 Pese a que existen diversas acepciones sobre confiabilidad, hay una que tiene amplia aceptación:"la confiabilidad es la probabilidad de que un dispositivo, componente o sistema, cumpla su propósito de manera adecuada para el período de tiempo previsto en las condiciones de operación"(Ehsani et al., 2008(Ehsani et al., , 1474, traducción de los autores). ...
The purpose of this article is to analyze the security of supply in Colombia. The analysis considers the Reliability Charge, which is a model adapted in Colombia to guarantee generation investments. We measure the difference among demand supply electricity scenarios. The supply side for new plants takes into account the firm energy obligations; and for on-line plants we perform simulation under different scenarios of the ENSO phenomenon. The demand side was taken for official UPME projections. The simulations show an appropriate size of the reliability charge.
... Based on my analysis of risk in the firm energy market (Cramton et al. 2006), I tentatively conclude that the risk issue should not be a concern here. Companies can manage risk through 1) a portfolio of resources, and 2) a portfolio of nonregulated contracts, and even when the company lacks a portfolio, the spot price risk is modest. ...
1 Summary This paper presents a product design for Colombia's regulated market (MOR), which is scheduled to began in 2008. The regulated market consists of residential and other small customers. Currently, regulated customers represent 69% of the total load. Sequel papers will present a proposed auction design and transition to MOR. I propose a market based on a single load-following product in which each supplier bids to serve its desired share of the Colombia regulated load. Thus, a supplier that wins a 10% share at auction has an obligation to serve 10% of the actual regulated load in every hour of the commitment period. The supplier is paid the MOR clearing price for every MWh of energy supplied. Deviations between the supplier's hourly supply and obligation are settled at the spot energy price or the scarcity price, whichever is lower. The spot settlement price is capped at the scarcity price, since the firm energy market provides price coverage for prices above the scarcity price (about $260/kWh in January 2007 Colombian pesos). One-hundred percent of regulated load is purchased on behalf of the regulated customers in a sequence of auctions. Thus, MOR together with the firm energy market provides 100% price coverage for all regulated customers. MOR provides price coverage from zero to the scarcity price, and the firm energy market provides price coverage above the scarcity price. This accomplishes two things: 1) it provides rate stability for regulated customers, and 2) it provides revenue stability for suppliers. The result is reduced risk for both sides of the market. The market is mandatory for regulated customers, but voluntary for suppliers. Mandatory participation on the demand side motivates robust participation on the supply side.
... Based on my analysis of risk in the firm energy market (Cramton et al. 2006), I conclude that the risk issue should not be a concern here. Companies can manage risk through 1) a portfolio of resources, and 2) a portfolio of nonregulated contracts, and even when the company lacks a portfolio, the spot price risk is modest. ...
This paper presents a market design for Colombia’s forward energy market, which is scheduled to began in 2008. The forward energy market is an organized market to procure energy for electricity customers on a forward basis. It includes both the regulated market (residential and other small customers) and the nonregulated market (large customers). Currently, regulated customers represent 68% of the total electricity demand and nonregulated customers represent the remaining 32%. The proposed design is novel in that it integrates both the regulated and nonregulated customers into a single organized market. Although the regulated and nonregulated energy products remain distinct, their integration into a single market facilitates arbitrage between the products, improves liquidity, and reduces transaction costs. Both regulated and nonregulated customers benefit from this unified approach. This paper presents all elements of the market design: the product design (see also Cramton 2007), the auction design, and the transition to the new market.
Este artículo considera el efecto del cargo por confiabilidad sobre el precio spot de la energía eléctrica en Colombia, implementado en 2006 con el fin de incentivar a los generadores existentes o a los nuevos inversionistas para mejorar la confiabilidad de la prestación del servicio, lo que conduce a incrementar la capacidad instalada en el mercado de energía mayorista. Se describe el funcionamiento de este mecanismo en Colombia y se analiza el comportamiento de algunas variables estructurales en el funcionamiento de este mercado, como la relación entre la demanda comercial y la disponibilidad real, el fenómeno de El Niño y La Niña, el nivel de embalse y algunas medidas de carácter regulatorio. El precio spot presenta alta volatilidad haciendo que la especificación adecuada corresponda a un modelo de regresión con estructura ARCH. Los resultados obtenidos evidencian que el cargo por confiabilidad es estadísticamente significativo y positivo, es decir hace que el precio spot aumente. Además, El Niño presenta un impacto positivo sobre el precio spot, debido a la gran participación hidráulica de este mercado.
Electricity capacity markets work in tandem with electricity energy markets to ensure that investors build adequate capacity, in line with consumer preferences for reliability. The need for a capacity market stems from several market failures. One particularly notorious problem of electricity markets is low demand flexibility. Most customers are unaware of the real time prices of electricity, have no reason to respond to them, or cannot respond quickly to them, leading to highly price-inelastic demand. This contributes to blackouts in times of scarcity and to the inability of the market to determine the market-clearing prices needed to attract an efficient level and mix of generation capacity. Moreover, the problems caused by this market failure can result in considerable price volatility and market power that would be insignificant if the demand-side of the market were fully functional. Capacity markets are a means to ensure resource adequacy while mitigating other problems due to the demand side flaws. Our paper describes the basic economics behind the adequacy problem and addresses important challenges and misunderstandings in the process of actually designing capacity markets.
Capacity markets are a means to assure resource adequacy. The need for a capacity market stems from several market failures the most prominent of which is the absence of a robust demand-side. Limited demand response makes market clearing problematic in times of scarcity. We present the economic motivation for a capacity market, present one specific market design that utilizes the best design features from various resource adequacy approaches analyzed in the literature, and we discuss other instruments to deal with the problems. We then discuss the suitability of the market for Europe and Germany in particular.
Firm energy market proposal for the Colombian electricity market is analyzed. It is based in a product: firm energy - the ability to provide electricity in a dry period - and it includes a financial call option and the physical capability to supply firm energy. This new market coordinates investment in new resources to assure that sufficient firm energy is available in dry periods. Load will be procured under a descendent clock auction format. Although, auctions has been the most efficient allocation mechanism, questions about the possible outcomes using the allocation format designed, and the incentives that participants have to collude or deviate from the true strategies have not been solved, neither questions about the way participants must behave (supply curve shape). This paper summarizes the research work in order to give solution to these problems under a simple methodological approach simulating agents' behavior in auction simulated exercises.
Forward markets, both medium term and long term, complement the spot market for wholesale electricity. The forward markets reduce risk, mitigate market power, and coordinate new investment. In the medium term, a forward energy market lets suppliers and demanders lock in energy prices and quantities for one to three years. In the long term, a forward reliability market assures adequate resources are available when they are needed most. The forward markets reduce risk for both sides of the market, since they reduce the quantity of energy that trades at the more volatile spot price. Spot market power is mitigated by putting suppliers and demanders in a more balanced position at the time of the spot market. The markets also reduce transaction costs and improve liquidity and transparency. Recent innovations to the Colombia market illustrate the basic elements of the forward markets and their beneficial role.
In an attempt to provide electricity generation investors with appropriate economic incentives so as to maintain quality of supply at socially optimal levels, a growing number of electricity market regulators have opted for implementing a security of supply mechanism based on long-term auctions.In this context, the ability to analyze long-term investment dynamics is a key issue not only for market agents, but also for regulators. This paper describes a model developed to serve this purpose. A general system-dynamics-inspired methodology has been designed to be able to simulate these long-term auction mechanisms in the formats presently in place. A full-scale simulation based on the Colombian system was conducted to illustrate model capabilities.
