Structure of the presentation

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1 Pontificia Universidad Católica de Chile Escuela de Ingeniería THE CALIFORNIAN MODEL AS THE PARADIGM FOR SECOND GENERATION REFORMS IN LATINAMERICA Hugh Rudnick IEEE PES 2001 Summer Meeting Vancouver, BC, Canada, July 16, 2001 Structure of the presentation Latinamerican reforms Successes and failures California paradigm California crisis & lessons Looking for new paths 1

2 The American Electricity Market CANADA & UNITED STATES Market of MW 1-2% annual growth = MW a year LATINAMERICA Market of MW 5% annual growth = 9500 MW a year High load growth 12.0% [Load yearly grow th] 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Chile- yearly growth of energy demand 2

3 Mainly hydro systems Nuclear 1.2% Thermal 23.2% Others 3.8% Hydro 71.8% Southamerica: installed capacity per technology (1997), MW Source: Cier CENTRAL AMERICA & PANAMA 1994 COLOMBIA 1993 PERU 1994 BOLIVIA BRAZIL CHILE 1992 ARGENTINA Pioneering regulatory changes in the electrical sector 3

4 ELECTRICITY MARKET REFORMS *wholesale market deregulation (unregulated prices for large consumers) *competition at generation level with centralized generation dispatch (Poolco model) -Chile, Bolivia, Peru, Brazil, Central America - audited costs -Argentina- bids with caps -Colombia- unrestricted bids ELECTRICITY MARKET REFORMS *two part price scheme -short term energy marginal cost -capacity pricing (adequacy signal) *nodal pricing (generation-transmission interaction) *financial bilateral contracts (non physical) 4

5 ELECTRICITY MARKET REFORMS *regulation in transmission and distribution *transmission open access regulation, global allocation of network costs, use of system approach *incentive based regulation in distribution (yard stick competition, price cap) Structure of the presentation Latinamerican reforms Successes and failures California paradigm California crisis & lessons Looking for new paths 5

6 Investment following high growth 30,000 25,000 20,000 [GWh] 15,000 10,000 5, Chile: yearly growth of energy demand Electricity coverage increasing 60% 39% 42% 46% 50% 54% 100% 80% 83% 83% 86% 87% 90% 90% 91% 100% 40% 60% 40% 20% 20% 0% % Ene-94 Jun-94 Ene-95 Jun-95 Dic-95 Jun-96 Dic-96 Dic-97 Perú Edelnor- Lima 6

7 Prices decreasing WHOLESALE ARGENTINE MARKET AVERAGE MONTHLY PRICE $/MWh jan-92 apr-92 Jul-92 Oct-92 jan-93 apr-93 Jul-93 Oct-93 jan-94 apr-94 Jul-94 Oct-94 jan-95 apr-95 Jul-95 Oct-95 jan-96 Prices decreasing Energy prices Chile SIC - SING (Oct.1999 values) $/kwh ABRIL 1999 ABRIL 1998 ABRIL 1997 ABRIL 1996 ABRIL 1995 ABRIL 1994 ABRIL 1993 ABRIL 1992 ABRIL 1991 ABRIL 1990 ABRIL 1989 ABRIL 1988 ABRIL 1987 ABRIL 1986 ABRIL 1985 ABRIL 1984 ABRIL 1983 SIC (Alto Jahuel) SING(Antofagasta) 7

8 Efficiency increasing 25% 20% 15% 13.9% 15.4% 18.2% 21.8% 20.6% 19.7% 17.1% 14.6% 12.4% 11.8% 10% 5% 0% Energy losses in distribution systems in Perú ( ) E. Zolezzi, CTE, Oct. 99 Security of supply increasing Non served energy January 88 - Dec 95 (GWh) - Argentina 8

9 Asunción Asunción Santa Cruz PARAGUAY Rio de Janeiro Interconnections and market integration Lima Electroducto Argentina Chile PERU BOLIVIA BRASIL Excedentes Gasoducto Hidráulicos Atacama Mejillones NOA Asunción Sao Paulo Interconexión SING-SIC CHILE Gasoducto Gasandes Generación Hidro Sur Austral Important load Natural gas resources Santiago Concepción Asunción Interconexión Argentina Brasil Neuquén Buenos Aires URUGUAY ARGENTINA Electroductos Tucumán - Carrera Pinto Mendoza - San Isidro Electroducto Alicurá - Osorno Gasoducto del Pacífico Hydroelectric resources Endesa 1999 PROBLEMS IN MARKET DESIGN -wholesale market energy and capacity prices (Chile, Perú, Bolivia, Colombia) -governing of independent operator (Chile) -transmission open access and pricing (Argentina, Bolivia, Colombia, Chile, Perú) -distribution pricing (Bolivia, Chile, Perú) 9

10 Chile - blackout crisis *central mainly hydro system *centennial drought *natural gas combined cycle failure *rotating blackouts RESERVOIR STORED ENERGY 7, ,000.0 GIGAWATTS HOUR (GWh) 5, , , , , /01/94 1/04/94 1/07/94 1/10/94 1/01/95 1/04/95 1/07/95 1/10/95 1/01/96 1/04/96 1/07/96 1/10/96 1/01/97 1/04/97 1/07/97 1/10/97 1/01/98 1/04/98 1/07/98 1/10/98 1/01/99 1/04/99 1/07/99 1/10/99 1/01/00 RAPEL INVERNADA COLBUN CHAPO LAJA 10

11 Chile - blackout crisis *conflicts in wholesale market *defficiencies in market design *absence of prices to cope with crisis *who is to blame? Chile - blackout crisis *no lack of investment *contracts do not oblige generators to serve (law changed during emergency) *weak coordination pool 11

12 Chile - security of supply crisis *northern thermo system *frequent blackouts Number of system blackouts Partial Total Restrictions 12

13 Chile - security of supply crisis *no lack of investment (overinvestment) *absence of common system security criteria *weak coordination pool Structure of the presentation Latinamerican reforms Successes and failures California paradigm California crisis & lessons Looking for new paths 13

14 Ref: M. Kahn & L. Lynch THE CALIFORNIA SYSTEM ESP end user load aggregator D I S T R I B U T I O N (W I R E S) G PX G G AS market ISO... G G G G... G G G G G SC bilateral contracts GG GG GG... GG 14

15 Different markets ISO PX Transmission network Real Real time time energy energy balance Ancillary services Short Short term term market market (day/hour-ahead) and direct access markets (bilateral contracts) CALIFORNIA PARADIGM *fully market driven *wholesale and retail competition *bilateral contracts drive operation *separation between different stages of market operation and physical secure operation (PX & ISO) *unrestricted bids 15

16 CALIFORNIA PARADIGM *simple transmission and distribution (wire) pricing *non elastic demand *extensive ancillary services *energy based pricing (no explicit capacity payments) Structure of the presentation Latinamerican reforms Successes and failures California paradigm California crisis & lessons Looking for new paths 16

17 CALIFORNIA CRISIS Price evolution (July June 2000) CALIFORNIA LESSONS *recognize essential difficulties in electricity market design *need to achieve independent market governing *recognize difficulty (failure) to predict market development and regulate accordingly *recognize potential for market power and gaming, even with many players 17

18 CALIFORNIA LESSONS *risks of bad decoupling of different stages of market operation and physical operation *need to balance threats to the environment with environmental threats to electricity supply *recognize importance of contracts for volatility hedging *recognize (and use) price elasticity of demand ARE THERE OTHER ALTERNATIVES TO CALIFORNIA FOR SECOND GENERATION REFORMS? 18

19 Structure of the presentation Latinamerican reforms Successes and failures California paradigm California crisis & lessons Looking for new paths A path parallel to California Before California With California After California Financial contracts do not drive operation Bilateral contracts drive operation Bilateral contracts drive operation Poolco model PX-ISO model Hybrid scheme (Poolco based- PJM?) 19

20 A path parallel to California Cost based dispatch Unrestricted bids Restricted bids (until competitive market develops) issue of market concentration and market power Market concentration MW installed capacity in Latinamerica 15,656 11,208 8,562 8,173 6,287 2,188 1,707 1,130 (QGHVD $(6 &RUS 6RXWKHUQ &R 6/G( 'XNH (QHUJ\ (G) (QURQ 9LYHQGL Enersis, May

21 Market concentration Thousand clients in distribution in Latinamerica 13,190 12,288 9,528 4,600 4, AES Corp Endesa EdF Enron Southern Co SLdE Enersis, May 2000 A path parallel to California Nodal pricing Single bus pricing Single bus pricing Capacity pricing No capacity pricing Capacity pricing Use of system transmission pricing Simple transmission (postage stamp) pricing Hybrid use of system-postage stamp pricing 21

22 A path parallel to California No consideration of demand elasticity No consideration of demand elasticity No consideration of demand elasticity Restricted regulator intervention Significant regulator intervention???????? still defining the path... looking for third party experiences... Hugh Rudnick Professor Department of Electrical Engineering Pontificia Universidad Católica de Chile Santiago, Chile 22