Electricity markets in Colombia, El Salvador and Central America were explored in discussions promoted by PSR

In April, PSR coordinated a two-week agenda involving a nine-person Brazilian delegation, including representatives of the country’s main electricity sector institutions on a visit to three Latin American cities (San Salvador, in El Salvador, and Bogotá and Medellin, in Colombia). The visits were organized within the scope of the Meta II Price Formation project, selecting the electricity markets that have the most relevant experiences with regard to “cost-based” and “supply-based” pricing.

The Latin American region as a whole is very rich in terms of experiences with electricity market design. It is worth noting that Chile was the first country in the world to promote the liberalization of its electricity sector in the 1980s (unbundling and introduction of competition in the generation activity); and that the experience with energy contracting auctions in Brazil, which began in 2005, has been very influential.

Colombia and the Central American regional market are the main examples on the continent that adopt an “offer-based” electricity sector model (i.e., using information submitted by agents as the main input for decision-making), while Brazil, Chile, Peru, and other countries adopt a “audited cost-based” model (in which the operator must centrally validate the information submitted by agents). El Salvador is an example of a country that initially adopted an “offer-based” model, but later changed its strategy, now implementing a “cost-based” model.

It is important to emphasize that there are subtleties in this classification of market design and that the most appropriate modality for the reality of any country may be a “hybrid” mechanism, instead of a “cost-based” or “offer-based” model. This is the theme of the Meta Pricing Formation project, which has been implemented by PSR and partners since last year – with project reports available at https://www.meta2formacaodepreco.com.br/. The project was contracted by the Chamber of Electric Energy Commercialization (CCEE) under the “Meta II” program, established by the International Bank for Reconstruction and Development (IBRD) and the Ministry of Mines and Energy.

The visits made during this international trip included meetings with the following institutions and companies located in El Salvador: (i) Unidade de Transacciones (UT), operator of the Salvadoran wholesale energy system and market; (ii) Ente Operador Regional (EOR), operator of the Central American Regional Electricity Market (MER); (iii) Superintendencia General de Electricidad y Telecommunications (SIGET), autonomous regulator of the Salvadoran electricity sector; and (iv) Mercados Eléctricos (Merelec), an energy trading company in El Salvador and Central America, with operators in six countries from the United States to Panama.

The following meetings were also held with institutions and companies located in Colombia (both in Bogotá and Medellin): (i) Colombian Generators Association (Acolgen), an association that represents the Colombian electricity generation sector; (ii) Angela Cadena, former director of the Mining-Energy Planning Unit (UPME), who was also responsible for leading Colombia’s Energy Transformation Mission; (iii) Colombia’s Ministry of Mines and Energy (MinMinas); (iv) National Operations Council (CNO), an organization whose main function is to agree on the technical aspects of the Colombian electricity sector; (v) Commercialization Advisory Committee (CAC), responsible for supporting the regulator in monitoring and reviewing the commercial aspects of the Colombian market; (vi) Mining-Energy Planning Unit (UPME), responsible for planning the electricity and mining sector in Colombia; (vii) Energy and Gas Regulatory Commission (CREG), an institution that regulates the Colombian energy market; and (viii) XM, the system operator and administrator of the wholesale energy market in Colombia.

The purpose of these visits was to promote the exchange of experiences and knowledge between the countries regarding electricity pricing, operation scheduling, expansion planning, among several other topics relevant to the electricity sector. The visits resulted in very rich discussions, which made clear the importance of a well-formulated and careful market design that takes into account the specificities of the country, in addition to collaboration between institutions in the electricity sector for its proper functioning.

The Brazilian delegation was composed of members of the Ministry of Mines and Energy (MME), the National Electric Energy Agency (ANEEL), the National Electric System Operator (ONS) and the Chamber of Electric Energy Commercialization (CCEE). The following members made up the delegation: Gabriel Cunha (PSR), Juliana Xavier (PSR), Bruno Peixoto (PSR), Bianca Alencar (MME), Mariana Andrade (EPE), Felipe Calabria (ANEEL), Diogo Cruz (ONS), Guilherme Ramalho (CCEE) and Fernanda Kazama (CCEE).