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1
Argentine Power Sector Market operation - facing stress situations
CAMMESA
Compañía Administradora del Mercado Mayorista Eléctrico
APEX Conference
October 2006Seoul, Korea
WEM – Basic Rules - Global Figures – Key Indicators
Macroeconomic changes - Impacts
Fuel SupplyPre financing MaintenanceExpectations - Concerns
Outline
Market established in 1992 Spot Market (80%)
• SHORT-TERM MARGINAL-COST BASED• STABILISED SEASONAL PRICES FOR
DISTRIBUTORS (regulated)• HOURLY PRICES IN SPOT MARKET (capped to
gas prices)• ADDITIONAL PAYMENT FOR CAPACITY (12
$/Mwh; 90 hours per week)• REMUNERATION FOR ANCILLIARY SERVICES
Contract Market (20%)• CONDITIONS AGREED BETWEEN PARTIES
Basic Market Operating Basic Market Operating RulesRules
Installed Capacity 24 GWPeak LOAD 18 GWGeneration 2005 98 TWh500 kV 9.100 km220/132 kV 12.000 km
WEM - ParticipantsGenerators 53Distributors 63Large Consumers Ma 302Large Consumers Mi 2006Transmission COs 10Traders 4
Wholesale Electrical Market -Wholesale Electrical Market - 2005 2005
CUYO
COMAHUE
CENTRO
NOANEA
LITORAL
BUENOS AIRES
GBA
PATAGONICO
Hydro52%
Thermal41%
Nuclear7%
79%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Spot Contract
Dic 2001 => political crisis with deep recession in economy led to the fall of the government; social instability
Austral summer 2002 New transition governmentDebt default; end of the fixed
exchange rate (1$=1u$S) and devaluationeconomic emergency law => pesification of economyProfound economic crisis; inflation
Macroeconomic Changes
Since July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economy
May 2003 => new elected government
Macroeconomic Changes
0
0.5
1
1.5
2
2.5
3
3.5
4
Dic
-00
Ab
r-0
1
Ag
o-0
1
Dic
-01
Ab
r-0
2
Ag
o-0
2
Dic
-02
Ab
r-0
3
Ag
o-0
3
Dic
-03
Ab
r-0
4
Ag
o-0
4
Dic
-04
Ab
r-0
5
Ag
o-0
5
Dic
-05
Ab
r-0
6
Ag
o-0
6
u$s/
MW
h
$/u$s
Evolution of exchange rate=>
Increase of industrial demand due to greater competitiveness to export and import substitution Exchange rate => 200%Inflation => about 80%
Tariffs to end consumers => 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
Electricity Sector Scenario - Transition
% GDP vs DemandAnnual Variation GDP vs Electricity Demand
-15%
-10%
-5%
0%
5%
10%
15%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
GDP Demand
exchange rate 1$/u$sexchange rate 1$/u$sabout 3 $/u$sabout 3 $/u$s
% GDP vs DemandAnnual Variation GDP vs Electricity Demand
-15%
-10%
-5%
0%
5%
10%
15%
-12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%
% annual GDP
% A
nn
ua
l De
ma
nd
2002 vs 2001 => -2% Dem var with
-11 % GDP var
2003 20041997
2005
Estimated 2006 vs 2005
Strong recovery – four years in a row (03/06) with GDP rates above 8%
Fiscal Surplus due to the increase of economic activity and a high exchange rate
Meaningful decrease of unemployment rate (from 20% to 11%)
Gain of political power and support
Economics
Political => less confidence in markets; energy as an strategic sector => more state participation
WEM Energy Prices => Maintain short term marginal cost system, with a cap price related with gas cost (less than 100 $/MWh (30 u$s/MWh). Differences recovered through uplift costs.
WEM tariffs => average below cost; residential and small consumers subsidised; industrial consumers adjusted partially
Electricity Sector – Scenario - Decisions
0
20
40
60
80
100
120
Ago
-91
Feb-
92
Ago
-92
Feb-
93
Ago
-93
Feb-
94
Ago
-94
Feb-
95
Ago
-95
Feb-
96
Ago
-96
Feb-
97
Ago
-97
Feb-
98
Ago
-98
Feb-
99
Ago
-99
Feb-
00
Ago
-00
Feb-
01
Ago
-01
Feb-
02
Ago
-02
Feb-
03
Ago
-03
Feb-
04
Ago
-04
Feb-
05
Ago
-05
Feb-
06
Ago
-06
u$s
/MW
h
0
0.5
1
1.5
2
2.5
3
3.5
4
Monomial $
Monomial u$s
$ / u$s
Distributors
Spot Price Evolution
Definanciation Definanciation of stabilization of stabilization
fundfund
GDP - Strong recovery => demand increase
Focus => security of supply
Usage of thermal reserves => fuel supply (liquid) and maintenance (older plants)
Short term => cover the increasing demand => extensive use of thermal plants – increase of liquid fuel consumption
Additional problem => dramatic change in oil cost (from 30 to 60 U$S/bbl) and uncertainty
Electricity Sector – Situation
Annual Liquid Fuel Consumption (Mton) vs $WTI (U$S/bbl)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2003 2004 2005 2006
Mill
on
es
Fuel (Mton)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0$WTI U$S/bbl
Liq Fuel WTI
Annual Fuel Consumption - NGas Mm3/d - Gas & Alternative Fuel
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2003 2004 2005 2006
GAS Alt Fuel
Fuel Consumption
Thermal Dispatch – older plants
GENERATION OF OLDER THERMAL POWER PLANTS - STEAM TURBINES - avg MW/month
0
500
1000
1500
2000
2500
Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04 Ene-05 Ene-06
After three years without dispatch, need to use older plants extensively => increase of maintenance requirements and fuel supply
Marginal signals smoothed & uncertainty related with evolution of oil price
Main problem => financing => fuel supply & maintenance
Mechanisms adopted – Fuel Supply direct fuel oil supply (agreement with
Venezuela +contracts) through CAMMESA. Centralised coordination of fuel supply
anticipation of money to the generators Total consumption Fuel Oil =>
2003 => 0,1 M ton; 2006 => 1,6 Mton => more than 60 shipment
Electricity Sector Scenario
Annual - Fuel Oil Consumption - Mton
00.20.40.60.8
11.21.41.61.8
1999
2000
2001
2002
2003
2004
2005
2006
FO Mton
Mechanisms adopted – Maintenance Anticipation of money to the generators to
finance major maintenances Generators require the amount of money
related with the maintenance cost CAMMESA evaluates the cost – benefit relation
(impact in operation costs of losing the group during a year) and informs to the Energy Secretariat
In case the amount required is authorised, CAMMESA anticipates the money to Genco
Genco gives it back in 12/24 months, beginning 1 year after the finishing of the maintenance
Electricity Sector Scenario
Short term => cover the increasing demand => ensure availability of thermal capacity and fuel; optimise the use of hydro plants to minimise the risk of supply
new generation => an agreement was reached where the Treasure ensures payments of variable costs (including capacity) and 35 % of marginal rent; rest of it => derived to a Fund (FONINVEMEM) created to finance the installation of new generation. Recent tender=> Siemens will provide 2 x 800 MW CC plants (2008). Gencos will own shares of them.
diversification => increase of fossil fuels costs make hydro/alternative generation more competitive, but require a kick off from national government. The completion of Atucha II (750 MW nuclear) and of the level of Yacyretá reservoir (+700 MW hydro) to be available by 2009/11
Demand side management, energy savings and emergency imports as resources to diminish supply risks.
Expectations – Concerns
¡Thanks for your attention!
Seoul, November 2006
Doubts => [email protected] More info => www.cammesa.com.ar
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