New regulation of capacity payments among power generation companies
by Juan Francisco Mackenna, José Miguel Bustamante, José Tomás Hurley
Published: May, 2016
Submission: June, 2016
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:
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:
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.
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