Reliability Charge

Colombia, an investment oportunity

Paris, Octuber 15-16th, 2007

Content

3. How to participate

4. Rights and Obligations

5. Schedule

2. An investment oportunity in the Colombian power market

1. Colombian Electric Sector

Colombian Electric Sector

Plantas hidráulicas 8.532,0 Plantas térmicas 4352,66 Plantas menores 427,4Cogeneradores 19,5

Total 13.331,5 MW

EcuadorImportación 215,0 MWExportación 285,0 MWVenezuelaImportación 205,0 MWExportación 336,0 MW

Volumen máximo 16.339,5 GWh

110-115 kV 6.125,3 Millas138 kV 9,6 Millas220-230 kV 6.665,2 Millas500 kV 900,8 Millas

Demanda 50.815 GWhCrecimiento 4,07%Demanda máxima de potencia 8762 MW

Demanda de energía eléctrica, 2006

Capacidad instalada (MW)

Interconexiones internacionales

Embalses

Sistema de transmisión

Colombian Power Market data (2006)

Generation

36

Transmission

11

Distribution 32

Retailing

67

13.280 MW installed

(64% hydro 33% thermal)

Peak demand: 8762 MW

(Growth: 1.42%)

Energy demand: 50.815 GWh

(Growth: 4.07%)

Firm energy (declared by

suppliers): 60,6 TWh-year

12 years of operation

Generators and retailers

Centralized transactions

Spot and bilateral prices

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$ (

dic

, 20

06

) /k

Wh

Precio de Bolsa Precio de Contratos

Transactions in the wholesale energy market (2006)

$ 537.76 18.44%

$ 549.00 18.83%

$ 175.78 6.03%

$ 1 653.61 56.71%

$ 2 916.16 mlls

Delivery of energy in scarcity conditions

Building and operation of power assets

Constant payment ($/GWh) of Firm EnergyCommitment period: up

to 20 years

Firm Energy Auction to allocate FEO

What is the oportunity?

When? Supply-Demand Balance

ACTUAL

Dic.12-Nov.13

Dic.13-Nov.14Dic.14-Nov.15

52.000

54.000

56.000

58.000

60.000

62.000

64.000

66.000

68.000

70.000

72.000

74.000

76.000

78.000

80.000

52.000

54.000

56.000

58.000

60.000

62.000

64.000

66.000

68.000

70.000

72.000

74.000

76.000

78.000

80.000

Dic.06-Nov.07 Dic.07-Nov.08 Dic.08-Nov.09 Dic.09-Nov.10 Dic.10-Nov.11 Dic.11-Nov.12 Dic.12-Nov.13 Dic.13-Nov.14

GWh

GWh

BALANCE DEMANDA - OFERTA DE ENERGÍA FIRME

Oferta 95% PSS Esc. Bajo Esc . Medio Esc . Alto Oferta Base

Termo Yopal - 224 TermoMorro - 378 TermoCandelaria 2 - 1213 Urrá - 296TermoCandelaria 1 - 224Tebsa - 315 Cartagena 1 - 121SubTotal (GWh) 2771TermoEmcali - 154Barranquilla 4 - 33 Guajira 2 - 152 SubTotal (Gwh) 339

ACTUAL

TermoFlores3 - 135 Tebsa - 281 Barranquilla 4 - 93 Guajira 2 - 208 Total (GWh) - 717

TermoFloresCC - 1421 Amaime - 16Bugalagrande - 54SubTotal (GWh) 1491

Porce3 - 3547Miel I - 210

REPUBLICA DE COLOMBIA MINISTERIO DE MINAS Y ENERGIA

UNIDAD DE PLANEACION MINERO-ENERGETICA

How to participate?

1. To Inscribe a project of power generation in Colombia

Requirements for the Inscription

Feasibility studiesFinancial and management schemeApproval of Environmental Alternatives DiagnosisInformation about land acquisition optionsRequest of conection to the transport networkFuel acquisition schemeDesigns in execution Presentation of environmental alternatives Studies

Information about power generation projects in Colombiaupme.gov.co

www.upme.gov.co

How to participate?

3. To build and operate the generation asset

2. To bid in the Firm Energy Auction

P2

P3

Round 5

Round 4P4

P5

13.4 = P6

Round 3

Round 2

P1 Round 1excess supply

13.00 = P6’

Aggregated supply

Clearing price = CXCD

DUS$/MWh

26.8 = P0

MWh

Starting price

Energy to be auctioned and commitment period

2007 … 2011 2012 2013 2014 2015 2016 ........ 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038

GWh

Demand

Transition Period

Energy to be auctioned

years

Commitment up to 20 years

Generator: Obligations and Rights

1. To have a generation asset to back the FEO

2. To have the fuel to generate

3. Deliver the energy when Spot > Scarcity prices as dispatch required it

Obligations Rights

1. To receive the Reliability Charge, even if the FEO is not required, during the commitment period.

2. FEO protected by Colombian Laws and Regulation

Spot price

FEO is required

Demand: Obligations and Rights

Obligations Rights

To pay the reliability charge during the commitment period, even if the FEO is not required.

To buy the energy up to the Scarcity Price when Spot Price>Scarcity Price

Legal Stability of CXC

• Electricity Law inforce to evaluate reliability each plant gives to SIN

• This regime is part of code of Wholesale Energy Market (MEM).

• CXC is one of transactions of the MEM

• The Firm Energy Commitment (OEF) is a legal relation as a result of the acution with well defined rigths and obligations

• CREG has defined integrally the regime of the transaction: Assignation of OEF, duration, responsability, risks, guarantees, settlement, billing and payment.

• There is a legal stability clause

• Each agent will be certify by ASIC for a legal stability of the transaction.

Guarantees

1. Entrance before commissioning period

2. Fuel availability

3. Declaration of firm energy higher than Base Firm Energy

4. Declaration of higher firm energy due to IHF improvements

5. Payment of commission to remunerate a succesful auction promotion.

Reconfiguration Auctions

Security Rings

Secondary Market

Demand Response

Last resource generator

Incentives

• Fixed CXC incomes– Up to 20 years for new plants– Up to 10 years for Closing Ciclo and Under

cosntruction– Up to 5 for minor repowering in transition

• Alternatives for ensuring fuelContract or guaranties

• Legal stability.• Improvment of availability.

Schedule

• 2007

– Transition period assignment 2008, 2011, 2012

• 2008

– 2013 Firm Energy Auction– 2009 Firm Energy Assignment

Comisión de Regulación

de Energía y Gas

creg@creg.gov.co

www.creg.gov.co