The Colombian Energy and Gas Regulatory Commission (CREG) recently introduced Resolution 101 066 of 2024,bringing significant changes to how the scarcity price is set in the country’s electricity market. This adjustment aims to protect consumers, enhance system efficiency, and better align incentives for energy producers. However, the resolution has sparked a divided response: while the government highlights its potential benefits, industry groups warn of risks to energy security and market stability.
The scarcity price is a key mechanism in Colombia’s electricity market. It serves as a threshold value triggered when spot market prices exceed a critical level, compelling generators to operate and ensure supply. This mechanism is linked to the Reliability Charge, an insurance-like system that ensures plants are available during critical periods. When the scarcity price is activated, generators receive this rate as compensation, safeguarding consumers from excessive price hikes.
Under the new resolution, the system shifts from a single scarcity price to two distinct values:
- High Scarcity Price (HSP): Applicable to high-cost generators, such as gas or diesel-fired plants.
- Low Scarcity Price (LSP): Designed for lower-cost technologies, including renewables and coal-fired plants.
This dual-price structure seeks to better reflect the operational costs of different technologies, addressing inefficiencies in the previous system that often led to overpayments for low-cost plants. However, industry groups have raised concerns that the HSP may fall short of covering the operational costs of thermal plants, which are crucial during critical periods. They also argue that the uncertainty caused by the changes could discourage long-term investments, potentially jeopardizing the system’s reliability.
On the other hand, the government asserts that the new framework will reduce costs for consumers by curbing unnecessary payments while encouraging clearer signals to support investment in clean technologies. It maintains that, if properly implemented, the changes will not compromise energy security.
The ultimate impact of this measure will hinge on careful execution and periodic adjustments to address market dynamics. Striking a balance between economic efficiency and energy security will be essential to ensuring the sustainability of Colombia’s electricity sector in the long term.
See Resolution CREG 101 066 de 2024 here:
https://gestornormativo.creg.gov.co/gestor/entorno/docs/originales/Resolución_CREG_101_066_2024/