Argentine Power Sector

1
Argentine Power Sector
Wholesale Electric Market Management Company
APEX 2003 ConferenceCartagena, Colombia
CAMMESA
2
Outline

• Global figures
• Changes in the demand and supply
• Macroeconomic changes
• Impact of these changes in the market and the
  operation
• Expectations - Concerns

3
Wholesale Electrical Market - 2002
Installed Capacity 24 GW Generation 2002 80
TWh 500 kV 9.100 km 220/132 kV 12.000 km
WEM - Participants Generators 53 Distributors
63 Large Consumers Ma 302 Large Consumers Mi
2006 Transmission COs 10 Traders 4
4
Outstanding Variables - Generation

• Capacity WEM 1992 13267 MW
• 2001 23284 MW ? 70 10000 MW increase in
  Generation Capacity

5
Outstanding Variables Peak Demand
EXPGrowth 2200 MW
LocalGrowth 5000 MW
6
AnnualDemand Growth
Industrial consumers gt
7
Traded Energy

• High exposure to spot volatility

8
SPOT PRICE EVOLUTION
9
Outstanding Variables
Competitiveness of the market and efficiency of
generation units provoked a fall in spot prices
of about 40 ? 48.8 /MWh1992 to 28.5/MWh2002
10
Macroeconomic Changes

• Dic 2001 gt political crisis with deep recession
  in economy led to the fall of the government
  social instability
• Austral summer 2002
• New transition government
• Debt default end of the fixed exchange rate
  (11uS) and devaluation
• economic emergency law gt pesification of economy
• Profound economic crisis inflation

11
Macroeconomic Changes

• Since July 2002 gt conditions begin to stabilize
  relative normalization of the behaviour of
  economy
• May 2003 gt new elected government

Evolution of exchange rategt Increase of
industrial demand due to greater competitiveness
to export and import substitution Jan02-oct03
Exchange rate gt 200 Inflation gt about 50
12
Electricity Sector Scenario

• Tariffs to end consumers gt social impossibility
  to increase tariffs due to economic crisis and
  people impoverishment
• Pesification of natural gas, energy and capacity
  prices on the WEM
• Increase of imported fuel and maintenance costs
• Uncertainty related with exchange rate evolution
  and expected performance of the generation units

13
Electricity Sector Regulatory Decisions

• Keep tariffs at the initial level, absorbing the
  difference with the stabilization fund
• Cover variable costs (fuel, operation and
  maintenance) of each generator, permitting costs
  declarations each fortnight
• Maintain short term marginal cost system, with a
  cap price of 120 /MWh
• Modify capacity payments, turning them
  independent of actual dispatch and include base
  payment for almost every thermal plant available,
  and increasing it from 10 to 12 /MWh
• Remunerate new reserves (competitive bids)
  against commitment to fulfill them, to ensure
  fuel (gas or liquid) and MW availability
• Create a spot market in advance, similar to a
  contract, through competitive bids, to diminish
  volatility and risks. Decision based on minimum
  cost (risk) criteria

14
Results Prices Fund
15
Regulatory Decisions - Results

• Transition was managed, allowing to operate the
  system in good supply conditions
• Higher marginal spot prices due to increase of
  maintenance and liquid fuel costs, with a cap
  price of 120 /MWh. Differences between variable
  costs and maximum charged as uplift costs
• Spot market in advance, allowing to hedge, from
  mar to oct-03, about 40 of the spot market to an
  energy price of 24,4 /MWh. The average real
  price resulted 3 /MWh higher gt savings gt about
  60M.
• Generation availability performance similar as
  historical and new reserves fulfilled adequately
• Stabilization fund exhausted since jul-03. Debt
  of the fund with generators of abut 280 M (1-2
  months of payment). Priority of payment to cover
  variable costs (thermal units receive more money
  than hydro plants)

16
Expectations - Concerns

• Increase of tariffs required to gradually
  normalize situation. Gas increase pending, when
  adopted it will imply an additional increase to
  the WEM
• The whole situation seems very difficult to
  handle politically
• Demand increase and exports to Brasil, along with
  default of the stabilization fund may lead to a
  significant increase of the deficit of supply
  risk
• Medium and long term viability and the lack of
  new investments in generation is then one of the
  major concerns, until the regulatory framework
  may be adapted and political solutions adopted.

17
Next steps

• From CAMMESAs point of view
• Be flexible enough to implement changes on rules
  and keep on running the system and the Market, in
  a delicate environment.
• Study and analyse scenarios to identify and
  anticipate risks, in order to help in the search
  of solutions.

18
Quality, Technology Transparency
For an Electrical Market without frontiers
Thanks for your attention!Colombia, October
2003
Doubts gt jluchilo_at_cammesa.com.ar More info gt
www.cammesa.com.ar