Experts believe that this situation will lead to an increase in the ceiling price in the tenders to be launched by the government or that some of them will be declared deserted.
By Miguel Bermeo T
Source: Diario Financiero. June 18, 2013
That the country’s main electricity system, the Central Interconnected System (SIC), will face higher marginal costs is a reality accepted by the industry. However, in the absence of construction of new generation projects, the same phenomenon will now occur in average energy costs, i.e., the average cost of electricity production.
In fact, according to a recent Colbún presentation, in dry hydrology scenarios, such as the current one, the system’s peak demand, which occurs at certain hours and mostly in winter, will be served by diesel power plants, while LNG-based generation will also become more important in normal and dry hydrology scenarios. According to consultants, both phenomena would raise the average cost of electricity.
This would also imply, they say in the industry, that the marginal cost would remain a function of diesel for much longer.
According to Colbún’s projections, based on data from the National Energy Commission, in case of normal hydrologies, the shortage of more efficient generation would be verified in the same way, although this time starting in 2016.
A market analysis of Colbún’s estimates indicates that in 2018, in the dry hydrology scenario, the minimum demand (reached a few hours a year) will be supplied at the margin by coal-fired thermal power plants; the average demand (average of all other hours of the year) by gas-fired plants (assuming that this fuel will be available for all plants operating with LNG in the SIC); and the maximum demand (reached only a few hours a year), would not be fully covered.
But the average cost estimates are just a sign of an already known and unresolved problem, says Hugh Rudnick of consultancy Systep. “We are not solving the core problem of our market, which is to allow investments in baseload generation, whether hydro or thermal. We are concerned about 20/20 and the electric highway, but they do not solve the main problem. Security of supply and low prices will be achieved with greater competition by allowing hydro and thermal (coal or gas) investments,” says the consultant and academic.
For this reason, they say in the industry, it is necessary for the plants recommended in the CNE’s works plan to move to the construction phase.
Impact
In another area, rising average costs will have a direct impact on the tenders that the government will launch this week, say experts. Faced with the increase in their generation costs, the companies will now go to the auctions trying to aim for higher prices, hopefully approaching the marginal price. And given the government’s desire to contain costs, “it would not be unusual to see tenders declared void,” says a senior market source.
That is, without considering the marginal prices that will be marked by diesel, i.e., those that will not go below US$ 200/MWh. This phenomenon could already be seen in the short term. According to Systep’s calculations, in its June report revealed yesterday, for the first months of 2014, in case of low LNG availability, the marginal price in the SIC could reach US$ 153/MWh. The situation, in any case, varies depending on the section of the SIC. Thus, costs would be higher in the northern part of the system.
