New regulation of capacity payments among power generation companies

May 30, 2016

Modifications introduced by Decree 62

• The Decree 62 replaced the concept of “Firm Capacity” for “Sufficiency Capacity”. As a consequence, the current methodology of calculation of capacity payments considers the contribution of each power plant to the sufficiency of the whole system, excluding response features which are specifically regulated and remunerated under the Ancillary Services Regulation.
• The Decree 62 establishes that the capacity recognition of each power plant is determined by, “the generation capability compatible with the sufficiency capacity¹ and the peak demand commitments assigned to each generator².
• The concept of “peak hours”³ referred to in Decree 397 was replaced and superseded under Decree 62 by the concept of “peak demand” which considers the average demand of the top 52 values of the annual load curve of each system or subsystem⁴.
• In terms of capacity prices and payments, Decree 62 expressly states that surplus generators are entitled to sell the surpluses of capacity that result from the balances of injections and withdrawals prepared by the Operations Department (hereinafter the “DO”) of the relevant CDEC, at the short-term node price of capacity contained in the node price report issued twice a year by the CNE during the months of April and October⁵.

Preliminary and Definitive Balance

The transfers of capacity and the amounts due amongst power generators are contained in the balances of injections and withdrawals of capacity prepared by the DO of the relevant CDEC.
According to article 4 of the Decree 62, the balance is the result of a preliminary calculation which must be made within the last month (i.e. December) preceding the first month of the year of calculation and must

¹ The capacity of a power plant to contribute to the capacity of sufficiency of the system or subsystem.
² Article 1 of Decree 62.
³ Peak hours were the period comprehended from 18:00 to 23:00 during winter time and from 19:00 to 24:00 during summer time.
⁴ Article 1 of Decree 62.
⁵ Article 162 of the General Electric Services Law establishes the procedure for calculation of the short-term node prices. In general terms, for purposes of setting the node price of capacity, the node price report must consider the annual marginal cost of increasing the installed capacity of the relevant system which is given by the most economic power plants selected to supply additional capacity during periods of peak demand.