Associations against the next renewables auctions

Electricity, Regulation & Policy, Renewables    Jan 18, 2021 7:46 PM

Business newspaper Portafolio says it obtained a confidential letter by a number of industry associations to the Minister of Energy saying the auction needs to be restructured, in particular it should be technologically neutral.

Portafolio reports that the letter comes from Acolgen (the electricity generators’ association), Andeg (another electricity generators’ association), Asocodis (the distributors association), Andesco (the regulated public utilities association) and Cámara de Grandes Consumidores de Energía y Gas de la Andi (a sub-association of large energy consumers within the National Businesspersons Association).

The generators are likely concerned about being closed out of a significant auction opportunity and the distributors, public utilities and large users are likely concerned about having to pay a premium for power because of the technology restriction. Economic theory says that if the supplier set is restricted then prices have to be no lower than they would be in an unrestricted auction. If prices were lower, then the restricted set would have won an unrestricted auction on merit. That the government believes it has to force buyers to choose among renewables providers suggests that these would not win ‘straight up’.

However, the government’s objective is not necessarily to achieve the lowest price but to achieve a certain percentage of the energy matrix in non-traditional renewables. It wants to build scale so that prices can someday be lower.

The associations argue that the government has no or limited experience with non-traditional renewable sources because the plants from the previous 2019 renewables auction have yet to come online. The Portafolio article does not mention it, but wind and solar both are considered to be less reliable than Colombia’s current energy mix because they can only produce optimally under certain weather conditions. As an example, solar does not generate power at night so it needs storage or complementary sources of power or both.

Without the experience of managing these characteristics, the associations argue that it is premature to be auctioning off more long-term demand.

Bottom-Line: MinEnergia finds itself in a considerable dilemma. The associations concerns are not frivolous even if self-serving.

And yet, unless it forces a tranche of the matrix to be non-traditional, the business case for new projects will always difficult to justify and if price is the only criterion, established, traditional sources will always be cheaper.

But then, this is what happened last time (albeit with different arguments) and the government went ahead anyway with the auction.

 

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