New regulation of capacity payments among power generation companies
On March 1st, 2016, Supreme Decree N° 62 of the Ministry of Economy, introduced in 2006 (hereinafter, the “Decree 62”), that regulates capacity transfers among power generation companies entered into force, modifying the methodology used to calculate transfers.
The Chilean electric system remunerates power generation companies for two products: energy and capacity.
In general terms, when a power generation company injects electricity into the grid, they receive credits for energy and credits for capacity1. Likewise, each withdrawal made by a company results in a charge for energy and a charge for capacity.
Each power generation company with a surplus of capacity and/or energy injections has the right to be remunerated by the relevant power generation company with a deficit of capacity and/or energy (i.e. those making withdrawals in excess of the injections).
In connection with capacity payments, the Economic Load and Dispatch Center (hereinafter the “CDEC”) is the regulatory entity in charge of the calculation of the amounts payable between surplus and shortage generators, depending on:
- The contribution or availability of the relevant generator; and
- The demand of the relevant generator (which is given by its withdrawals to serve contracts with its costumers),
during periods of peak demand of the relevant system or subsystem.
Effectiveness of the new regulation
On June 16, 2006, Decree 62 was published in the Official Gazette; however, its effectiveness was suspended until March 1, 2016 due to the following reasons:
- Article transitory one of the Decree 62 stated that the application of its dispositions was subject to the implementation of the ancillary services regulation2.
- The Ancillary Services Regulation was introduced by Supreme Decree N° 130 of the Ministry of Energy, corresponding to year 2012 (hereinafter, “Decree 130”). However, its article transitory two established that the Ancillary Services Regulation would be implemented within 30 business days following the date on which the National Energy Commission (hereinafter the “CNE”) approves the “Report on Definition and Program of the Ancillary Services” (hereinafter, the “IDPSC”)
- On January 19, 2016, through exempt resolutions N° 28 and N° 29, the CNE approved the IDPSC for the CDEC-SIC and CDEC- SING.
1 As it will be explained below, the mere availability of a power plant may entitle the power company to receive a credit for capacity, even when such power plant is not dispatched and no energy injections are recorded.
2 Ancillary services are regulated in the Decree 130 and are defined as the technical resources featured in the generation, transmission and distribution facilities, and the facilities of customers not subject to price regulation, which are required for the coordination of the system in order to: maintain the security of the service; guarantee the most economic operation; and guarantee the open access to the trunk and sub-transmission systems, pursuant to the applicable law.
If you have any questions regarding the matters discussed in this news alert, please contact the following attorneys or call your regular Carey contact.
+56 2 2928 2210
This news alert is provided by Carey y Cía. Ltda. for educational and informational purposes only and is not intended and should not be construed as legal advice.
Carey y Cía. Ltda.
Isidora Goyenechea 2800, 43rd Floor
Las Condes, Santiago, Chile.