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Four years after experiencing a difficult situation for energy supply, the authorities turned on the alerts again for new risks of shortages in electricity demand between December of this year and the first months of 2021.
And although for now no climatic entity has mentioned a high probability of another El Niño phenomenon as intense as the one of 2015-2016 (which added the obligatory stop of the Guatapé hydroelectric plant due to the damage caused by a fire), this year other climatic phenomena They have significantly reduced the level of rainfall, while the hydroelectric plants have continued to generate at their peak, with the expectation that between May and July the rains will fill the reservoirs again.
But the signals that the Energy and Gas Regulation Commission (Creg) analyzed in recent weeks, led it to issue the resolution in consultation 080 on April 29, setting just three business days for comments, and with which it made I have published a draft resolution that activates a measure known as a “mechanism for maintaining reliability in the supply of electrical energy.”
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It is a scheme that is in the regulation (resolution 026 of 2014 of the Creg) and that in simple words means that the entity plans to intervene in the electricity market, to ‘compel’ hydroelectric plants to store water in order to reach a sufficient level for the summer of the end of the year and from the beginning of the next one that gives sufficient reassurance that a risk of electrical rationing does not materialize.
According to the draft standard, market intervention would apply between the date of the signing of the final resolution and December 31, 2020.
Difficult conditions
According to the draft resolution, with the levels that the country’s reservoirs are today (32.72 percent at the cut of May 7 according to the XM firm, market operator), and the forecast of rains in the coming months, there is the the possibility that this risk of blackout is a reality, and ends up forming a ‘perfect storm’ that will take ahead the recovery that the country’s battered economy will need, once the health emergency due to the coronavirus is overcome.
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In effect, the draft of the norm pointed out that the Ideam forecasts show that, although rainfall is expected to be close to the historical average in May, the months of June and July would have rainfall below the historical average, and there is total uncertainty about its evolution in the following months. “Additionally, there is a probability of abnormally dry conditions for the summer 2020-2021”, add the document.
Abnormally dry conditions are likely to occur by summer 2020-2021
According to Alejandro Lucio, director of the firm Óptima Consultores and renowned consultant in the electricity market, the underlying problem is that since September 2019, the water contributions to the reservoirs have been 60 percent compared to the normal historical water level. “A year ago, this was not in anyone’s models,” adds the expert, indicating that a situation like this denotes an overconfidence of hydraulic generators on the future level of rainfall.
But also –he adds– shows a clear absence of supervision of the wholesale energy market (headed by the Superintendency of Public Services), which should have risk-based models as happens with the financial system, while a low control over the way in which the reliability charge is being assigned – an insurance that users pay so that energy is always available – a task in charge of the Creg.
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But given the situation that is projected if nothing is done, the Creg is determined to activate the intervention mechanism, since in document Creg 056, dated April 29, and which supports the proposed measure, it was revealed that the XM analysis have identified that for the beginning of the summer 2020-2021 an aggregate reservoir level of 70 percent must be reached in order to avoid difficulties in the dry period.
Why was this situation reached?
Alejandro Lucio, director of Óptima Consultores, explains that due to the fact that the incomes of the hydroelectric plants depend in a very relevant percentage on the contracts they sign with clients, and because they have the lowest generation price normally (only operational charges because they have it free), they have a high incentive to produce energy using the water from the reservoir, and fulfill their commitments, because by going to the stock market they can end up working at a loss.
For example, If they signed a contract agreeing on a price of 200 pesos per kilowatt and on the stock market this costs 300 pesos, they would spend more than they receive.
In this sense, the circular 026 of 2014 established a surveillance condition with three scales: normal, surveillance and risk, and the latter, which is the one that can be activated, begins when the short-term available energy and the energy analysis give signs of shortages, but the price of energy on the stock market does not rise.
In a letter sent to the director of the Creg, on May 7, the technical secretary of the National Operation Council (CNO) of the electricity market, Alberto Olarte, disagreed with the measure
And, with this, the hydraulic plants must continue to use the water from the reservoirs to fulfill the energy dispatches assigned to them, since their prices continue to be lower than those of thermal plants, which are their support and have higher rates, as they produce energy with gas, diesel or coal, and pay higher administrative costs.
After the publication of the draft standard, EL TIEMPO learned that, in a letter sent to the director of the Creg, Jorge Valencia, on May 7, the technical secretary of the National Operation Council (CNO) of the electricity market, Alberto Olarte, showed his disagree with the measure.
He argued, among others, that the Energy Mining Planning Unit (Upme) has not updated the demand projections after the decrease seen by the mandatory isolation and that there is no analysis that supports the path of a prompt recovery of energy consumption.
But, in this regard, it is worth bearing in mind that the wholesale market agents have a seat in the CNO, and most are represented by hydraulic plants (they have the largest capacity in the system), for which the intervention has two adverse effects: one , the opportunity cost of not being able to generate affecting their income and, two, that the payment of the energy not generated by reservoir will not be immediate.
ÓMAR G. AHUMADA ROJAS
Deputy Editor of Economy and Business
