World Bank
Workshop on Electricity Supply Security vs.
Intermittent Renewable Energies
A tale of two systems: Brazil
and Colombia
Jaime Millán
February 18, 2009
1
Presentation
• The Brazilian Energy Auctions in a
Nutshell
• Brazilian Treatment of Interruptible
Energy Sources
• Brazil and Colombia Compared
• Conclusions
2
Presentation
• The Brazilian Energy auctions in a
nutshell
• Brazilian treatment of interruptible
energy sources
• Brazil and Colombia compared
• Conclusions
3
Motivation
• No more power shortages and affordable
tariffs for the regulated market
– Need to gain distance from Cardoso’s reform
– But acknowledging the need for new private
investment and some sort of market
– Develop hydro potential and local entrepreneurs
– Acknowledgment of synergies of joint operation of
hydrothermal system
4
Two Contractual Environments
ACL “controls” ACR prices
ACR
ACL
Regulated
•DISCOS
• Captive
customers
Free
Small activity
Auctions
•Existing Energy
•New Energy
•Distributed
Generation
Shortterm
Market
Large
consumers
Self-generators
Price defined by
model
Free contracts
Generators
5
ACR
•
•
Two type of contracting Old Energy and New Energy with different
terms but procured in auctions organized by CCEE ( Market Operator)
annually
Old Energy
Distributors and old generators participate in auctions 1 year planning time, 5
to 15 years delivery time
•
New Energy:
–
–
–
–
–
3 and 5 years planning time and 20 years Forward Contracts with physical
backing
Thermal projects call options bid Premium and Strike price compete with
hydro
Special Hydro Projects
Developers compete for hydro projects designed by EPE (Planning
government office) and with cleared EIA
All new energy is allocated prorated to distributors according to their needs.
• Information http://www.ccee.org.br
6
ACL
• Large Consumers and self-generators
• Load is free to sign bilateral contracts
(?)
• Self generators can participate in ACR
auctions
• Special projects participate in ACR and
set up a portion for ACL
• Contracts settled in the Short term
7
market at PLD
Several auctions
• Old Energy auctions
– Regular auctions
– Adjustment auctions
• Max1% of load
• New Energy auctions
–
–
–
–
3 and 5 years ordinary auctions
Renewable
Special projects
Reserve auctions
• Biomass
• Wind
• Distributed energy
8
Product
• Firm energy
– Hydro defined by the regulator as the incremental
energy to the system with a reliability based on
hydrology and joint operation of the hydrothermal
system
– Thermal is energy plant is able to deliver in a
continuous basis
– Biomass is the energy produced in the 7 harvest
months
– Wind total annual energy
9
Contracts
• New hydro contracts are forward
(“quantity”)
– Generator assumes price and quantity risks
(difference between production and contracted
energy)
• New thermal contracts are “call options”
(“Availability”)
– generators offer a fix amount (“premium”) and
variable cost (“strike price”). Distributors pay
premium and compensates cost when option is
exercised
10
Evaluating “Call Options”
cost
Unit Price Pd (R$/MWh):
•
Pd = (Fd + EO(CV) + EC(CV)) (R$/year)
/ E(CV) (MWh/year) + ∆K
Where:
– Fd is (“premium”)
– EO(CV) is expected value of annual operation co; EC(CV) is
expected value of energy bough/sold at the spot market; and
E(CV) is the firm Energy of the Project
– ∆K is LNG Adjustment
– All values depend on the strike price CV and are computed
by the government before the auction takes place
11
New Energy: Procedure
• Distribuitors inform their contractual needs
• Each generators to sign bilateral contracts with all
distributors
– Contracted amounts cannot be reduced
• A “Menu” of generation alternatives is prepared
–
Hidro (concesions prepared by EPE)
– Agents presented projects, (thermal, renewables or
interconexions)
– Each project has a firm energy
• Two Stage auction. 1. Hydro concesions; 2
Technology competition
• Government to produce environmental licenses for
Hydro projects in advance!
12
2 Stage Auction
•
•
•
•
Hydro candidates bid a contract price
Projects are stacked until energy offered tops demand
Winners receive a “pre-concession”
Projects with “pre-concession” participate in stage 2
– Must offer energy at the price resulting in pre-concession
– “pre-concession” becomes a concession only if energy is contracted
in stage 2
• Stage 2 (Hydro vs Thermal)
– Hydro and Thermal compete to meet demand at least cost
– Initial run, unit and discriminatory
• Administrative definition of quantities to H15 and H30
13
Presentation
• The Brazilian Energy auctions in a
nutshell
• Brazilian treatment of interruptible
energy sources
• Brazil and Colombia Compared
• Conclusions
14
Renewable Energy
• PROINFRA. To buy 3300 MW in equal
quotas for Small Hydro (SH), Biomass, and
Wind to be bough by Eletrobras was
unsuccessful
• In 2007 auction for renewable with different
caps for each; SH, Wind and Biomass
• At present SH can compete in phase 1 Hydro
auctions and Biomass and Wind in phase 2
• Special auction for reserve energy
– for Biomass in 2008
– Wind in 2009
15
Firm Energy for interruptible
sources in Brazil
• Biomass and Wind: Declared by the
supplier for every month.
– Biomass declare for the 7 months bagass
is available
• High penalties for not delivering
• Obligation to report wind data on at
least one complete year in the past five
years
16
Reserve auctions
• Held for delivery in 1 to 2 years to
accommodate changes in positions
and/or provide a security buffer
• Technology Driven: Special features to
accommodate intermittent supply,
connections to the grid, and uncertainty
in resource (wind)
– May increase cost without a proportional
increase in security
17
The new wind reserve auction
• MEM Open consultations on February 10 (Portaria #
52)
• Product is total energy in year independently of when
it is produced
• 20 year CER contract starting in January 2012
• Generators can pull resources for connection to the
grid
• Handling of uncertainties in production
18
• Handling of uncertainties in production
– Contract is divided Five four year periods to adjust quantity
to real production
•
+ balances <10% passed to next period or valued at Min {VR, Average
PLD}
•
+ negative <10% valued at VR
• Quantity for next period is adjusted to the valued observed in the
precious capped by the original quantity
– Annual balances up to 10% from contract annual quantities
are passed to next year
• Negative balances >10% are valued at 1.1 contract price (VR) and paid
in 12 monthly quotas
• Positive balances > 10% at Min { VR, Average PLD}
19
Presentation
• The Brazilian Energy Auctions in a
nutshell
• Brazilian treatment of interruptible
energy sources
• Brazil and Colombia compared
• Conclusions
20
Energy Auctions prices in R$/MWh
150
Energia Nova 2007
140
130
R$/MWh
120
138
FA 2007
Energia Nova 2006
137
135
Energia Nova 2005
140
135
135
135
129
126
Energia Existente
Leil‹ o de Ajuste (A-1 de 2007)
110
105
102
100
90
89
92
80
76
70
Source: PSR
65
60
2005
2006
2007
2008
2009
2010
2011
2012
21
1ª New energy auction:
28.800 Gwh/year, 2009 y 2010
Hidro
29%
Diesel
7%
PCH
1%
Bioamassa
3%
Natural gas
Gás Natural
42%
Óleo
Comb.
1%
Carvão
17%
Dic 2005
22
New Energy Auction 2006
14734 GWh/year
PCH
5%
Biomassa Natural
Gas
4%
1%
9671 GWh/year
Óleo
Comb.
17%
Biomassa
6%
Cogeração
18%
Hidro
52%
Hidro
55%
Diesel
17%
Biogas
1%
A-3
Diesel
6%
A-5
Óleo
Comb.
1%
Gás Natural
18%
25% SOE
23
Small renewable“A-3” 2007
1226 Gwh/Year Biomass
Biomassa
75%
PCH
25%
402 GWh/Año SH
Limited participation 20% of
registered plants (2,800 MW)
24
New Energy Auction 2007
11423
GWh/year
20253 GWh/year
Oil
Hidro
31%
Hydro
Óleo Comb.
14%
Gás Natural
15%
Óleo Comb.
100%
100%
Oil
A-3
Carvão
40%
Natural
Gas
Coal
A-5
25
2008 Auctions
• Reserve Auction
– 8.800 GWh Year of biomass contracted
• Less than expected
– Price between 90 and 100 $/Mwh
• New Energy A-3 and A-5 mostly fossil fuel
generation
• Special Projects Santo Antonio and Girau
bring new hydro energy at low prices
26
Prices
132,3
140
120
107,0
R$/MWh
129,3
121,8
94,9
100
80
60
113,9
114,8
67,3
75,5
83,1
63,0
57,5
40
20
0
2005 2006 2007 2008 2006 2009 2008 2009 2010 2008 2009 2010
1º
2º
3º e 4º
Energia "Velha"
Hidro
Termo
Energia "Nova"
Santo Antonio RS78
Jiraud
RS71.80
ACL 2010
RS175
ACL 2011
RS 135
27
Colombia CC at 13.998 usd/mwh
40 Existing plantsplantas existentes,
The existing part of 2 special plants
3 new plants, 1 new agent
6 hydro plants in the GPSS
Canasta Energética Total Subastado
7635 GWh/Año
Canasta Energética Subasta
Principal
Carbón
15%
Hidro
7%
Fuel Oil 2
56%
Carbón
37%
Fuel Oil 2
22%
Hidro
63%
1 N, 2 E
1N, 5 E
28
Brazil
Colombia
Objectives
Reliability and affordability
Facilitate use of hydro potential and local
investors
Small renewables treatment evolves
Efficiency and reliability
Nondispatchable < 20 MW do not
participate in the MEM
Contracting
Mandatory 100% of demand for
distributors (ACR) and Free (ACL)
Auctions for; Existing, new, reserve,
adjustment and distributed
ISO contracts Firm Energy Options
covering the whole demand in two actions
•Regular
•GPPS
Bilateral voluntary forward contracts
Product
contracts for Energia Garantizada with
physical backing. Hydros: Forward
Contracts; Fuel: Call Options. Different
products but compete in 2 phase auction
Firm energy Options OEF,
Planning
Period
New energy , 3 and 5 years, Old
energy, 1 year, Reserve. 1 to 2
Existing 1 year; New , 3 years; GPSS>3
years
Commitment
Period
New energy: Hydro, 20;thermal 15;
reserve 20
Old energy: 5-15
New Up to 20;Existing 1;Special 10
Procurement
Hybrid Auctions for old, new and
adjustment energy
Descending Clock for OEF
Closed envelope GPPS with a cap
29
Product definition facilitate treatment of
intermittent resources in Brazil
• Colombia: Availability of Energy during Scarcity Event
– Firm Energy for the Reliability Charge (Energía Firme para el Cargo
por Confiabilidad or ENFICC): maximum energy that a generation
plant (Hydro or Fuel) is able to deliver on a continual basis during a
year.
• Brazil (Energía Garantida): Incremental Energy that the plant
contributes to the System when jointly operated with a given
probability of been exceeded.
– When intermittent are a small share large reservoir capacity smooth needs
for availability on a continuous basis
30
Presentation
• The Brazilian Energy auctions in a
nutshell
• Brazilian treatment of interruptible
energy sources
• Brazil and Colombia Compared
• Conclusions
31
Conclusions
• Both countries managed to procure new resources
and avoid shortages but:
– Brazilian goal of bringing large amounts of new hydro has
been delayed by environmental hurdles
– Colombian was able to contract large amounts of hydro but
goal of bringing new players was not met or barely met
– Brazilian Old and New energy managed to moderate prices
but renewal of concessions poses a new threat
• Processes are work in progress and subject to
improvements
32
Conclusions…
• Intermittent Energy sources participation facilitated in
Brazilian auctions but limited by cost of resource
• More difficult to handle intermittent in Colombia within
the framework of the CC, limited hydro storage
– One possible solution may be to procure on a limited basis
reserve energy following the Brazilians
• Two lessons
– Think in the objectives before you come with a
procedure
– Think again
33
Thank you for your attention
Jaime Millán
millanuribe@gmail.com
34