CENTRAL AND SOUTH AMERICAN MARKETS

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CENTRAL AND SOUTH AMERICAN MARKETS

• 2008 APEx Conference
• October 12th to 15th
• Sydney, Australia

Luis Alejandro Camargo S. Financial Operations
Manager XM S.A. E.S.P.
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Contents

• Central American and Mexican Power Systems
• South American Power Systems
• Market Characteristics
• Mexico and Central America
• CAN and Venezuela
• Mercosur and Chile

By default data correspond to 2006
3
Central American and Mexican Power Systems
MW
Mexico
33
Mexico
MercadoEléctricoRegional (MER)
32
32
31
28
32
31
39
4
South American Power Systems
GW
Venezuela
Colombia
Ecuador
Peru
38
Brazil
CAN
Bolivia
AndeanCommunityof Nations
40
122
197
Paraguay
Mercosur
90
149
Argentina
SouthernCommonMarket
Uruguay
33
Chile
32
48
5
South American Power SystemsVenezuela and the
Andean Community of Nations (CAN)
MW
28
34
33
46
50
6
South American Power SystemsChile and the
Southern Common Market (Mercosur)
MW
36
82
37
39
41
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Markets characteristics
Guatemala
Venezuela
Honduras
MERMercado Eléctrico Regional(Regional
Electricity Market)
SouthAmericasSouth Cone
Colombia
CANComunidad Andina de Naciones(Andean
Community of Nations)
Ecuador
Perú
Bolivia
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Markets characteristicsMexico
Population 107.5 million Area 1,984 thousand
km2 GDP USD 665.5 billion GDP growth 4.8 (2006)
Installed Capacity 49.9 GWHidroelectric
share 22Demand (2006) 224 TWhCoverage 97 End
User Tariffs (USDc/kWh) Residential 7.9
Industrial 10.1
The public service of electricity is, by Law,
exclusive competence of state owned Comisión
Federal de Electricidad (Federal Commission of
Electricity) -CFE- and Luz y Fuerza del Centro
(Center Light and Power) LFC. Limited private
participation in self procurement, cogeneration
and Independent Energy Production PIE-(to
attend large customers -2.5 MW- subject to permit
from the regulator). Cost of Service pricing in
generation, transmission and distribution.
Privatization Generation Transmission Distributio
n
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsMER
Installed Capacity 9.5 GWHidroelectric
share 44Demand (2006) 37 TWhCoverage 80
Population 40.8 million Area 502 thousand
km2 GDP USD 85.1 billion GDP growth 5.8 (average)
MER Regional Electricity MarketA seventh market
for international transactions. SIEPAC project
(230kV 300MW 1790km) for the interconnection of
six countries. One company owns the line
-EPR. Regional regulator CRIE- and Regional
System Operator EOR not yet in operation.
Costa El Guatemala Honduras Nicaragua Panama
Rica Salvador
SIEPAC agreement Signed Ratified Privatization Gen
eration Transmission Distribution Progress
Initial stage
Wholly Implemented
Source Endesa
back tomarketcharacteristics
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Markets characteristicsGuatemala
Population 13.0 million Area 109 thousand
km2 GDP USD 21.0 billion GDP growth 4.6 (2006)
Installed Capacity 2.1 GWHidroelectric share 36
Demand (2006) 8 TWhCoverage 85 End User
Tariffs (USDc/kWh) Residential 11.8
Industrial 11.2
Fully operational competitive wholesale
market AMM Private non-profit independent SO and
MO (Spot Market) Mandatory forward contracts for
100 of the next years capacity Variation of the
capacity markets used in the eastern USA
(Obligation to contract capacity). Transmission
open access, cost of service pricing Distribution
Efficiency Standards pricing (wires) Retail
competition accounts for 20 percent of the
market. Social tariffs for users below 300 kWh
per month
back tomarketcharacteristics
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Markets characteristicsEl Salvador
Population 7.0 million Area 21 thousand
km2 GDP USD 15.2 billion GDP growth 4.2 (2006)
Installed Capacity 1.3 GWHidroelectric share 39
Demand (2006) 6 TWhCoverage 87 End User
Tariffs (USDc/kWh) Residential 14.3
Industrial 14.0
Declaration of physical contracts and Spot Market
with price bids (El Salvadors pool resembles the
Nordic model) Price Cap for Transmission.
Efficiency standard pricing for distribution
(wires). No limits on vertical or horizontal
integration (only two generators in a very small
market). Market power and high consumer prices
forced the government to hastily intervene in the
market.
Privatization Generation Transmission Distributio
n
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsHonduras
Population 7.5 million Area 113 thousand
km2 GDP USD 7.6 billion GDP growth 6 (2006)
Installed Capacity 1.6 GWHidroelectric share 32
Demand (2006) 6 TWhCoverage 72 End User
Tariffs (USDc/kWh) Residential 7.8
Industrial 10.4
Privatization Generation Transmission Distributio
n
The Empresa Nacional de Energía Eléctrica
(National Electrical Energy Enterprise) ENEE- is
a vertically integrated state Monopoly and
Wholesale Monopsony. PPAs with private investors
in generation. Private energy sales to end users
amount to 3 of total demand. The ENEE tariff to
end users does not recover total costs. Cross
subsidies from the hydroelectric generation
activity balance the equation. Social tariffs for
users below 300 kWh per month
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsNicaragua
Population 5.6 million Area 129 thousand
km2 GDP USD 4.8 billion GDP growth 3.7 (2006)
Installed Capacity 0.8 GWHidroelectric share 10
Demand (2006) 3 TWhCoverage 50 End User
Tariffs (USDc/kWh) Residential 17.1
Industrial 16.6
Privatization Generation Transmission Distributio
n
10 generation companies In 2006, eight of which
were in private hands. 100 of the transmission
is handled by ENATREL, which is also in charge of
the systems dispatch. Oil price increases and
frozen tariffs since 2002 caused severe losses to
Dissur-Disnorte, owned by the Spanish Unión
Fenosa and controlling 95 of distribution. 2006
crisis with with 412-hour national blackouts.
Dissur-Disnorte was blamed and the concession was
temporarily cancelled by the government. In
August 2007, an agreement was reached between
Unión Fenosa and Nicaraguas new government.
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsCosta Rica
Population 4.4 million Area 51.1 thousand
km2 GDP USD 21 billion GDP growth 7.9 (2006)
Installed Capacity 2.2 GWHidroelectric share 67
Demand (2006) 9 TWhCoverage 98 End User
Tariffs (USDc/kWh) Residential 8.1
Industrial 8.4
The state owned Instituto Costarricense de
Electricidad (Costarrican Electricity Institute)
-ICE- provides 97 of the country's electricity,
is vertically integrated and is also in charge of
planning and operation. A subsidiary of ICE,
Compañía Nacional de Fuerza y Luz S.A. (National
Power and Light Company) -CNFL-, handles
distribution in San Jose (75 of the market) and
owns small generation plants as well. No
Wholesale market Cost of Service pricing for
generation, transmission and distribution.
Privatization Generation Transmission Distributio
n
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsPanama
Population 3.3 million Area 78.2 thousand
km2 GDP USD 15.5 billion GDP growth 8.5 (2007
est.)
Installed Capacity 1.5 GWHidroelectric share 58
Demand (2006) 6 TWhCoverage 64 End User
Tariffs (USDc/kWh) Residential 12.7
Industrial 10.4
Privatization Generation Transmission Distributio
n
Cost based Wholesale Market fully
operational. Transmission handled by state owned
ETESA which also includes the CND, in charge of
SO and MO. Mandatory forward contracts for 100
of the next years capacity. Variation of the
capacity markets used in the eastern USA
(Obligation to contract capacity). To ensure that
rules change efficiently, Panama set up a market
surveillance group made up of independent outside
experts the Committee for the Oversight of
Competition.
Initial stage
Implemented
back tomarketcharacteristics
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Markets characteristicsAndean Community of
Nations
Installed Capacity 25.5 GWHidroelectric
share 61Demand (2006) 102 TWhCoverage 81
Population 98.2 million Area 3,809 thousand
km2 GDP USD 207.7 billion GDP growth 5.7
(average)
The Andean Community of Nations (CAN) Decision
536 established a supranational regulation for
Short Term International Transactions TIEs-
(market splitting), today in operation between
Colombia and Ecuador(7 TWh since 2003). Bolivia
is studying adherence to CAN 536. Venezuela is
not a member of CAN since 2006.
back tomarketcharacteristics
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Markets characteristicsVenezuela
Privatization Generation Transmission Distributio
n
Population 27 million Area 882 thousand
km2 GDP USD 146.6 billion GDP growth 10.3 (2007
est)
Installed Capacity 22.2 GWHidroelectric share 66
Demand (2006) 110 TWhCoverage 94 End User
Tariffs (USDc/kWh) Residential 4.5
Industrial 3.2
Initial stage
Implemented
Expansion in infrastructure has been supported by
strong public investments backed up by the oil
exports. Cost of Service pricing in generation,
transmission and distribution. Presidential
Decree 5330 of July 31st 2007 concentrates all
activities of power and electrical energy
(currently in public and private hands) in one
state owned company named Corporación Eléctrica
Nacional S.A. (National Electric Corporation)
CORPOELEC- with a three-year schedule.
back tomarketcharacteristics
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Markets characteristicsColombia
Privatization Generation Transmission Distributio
n
Population 46.8 million Area 1,142 thousand
km2 GDP USD 105.6 billion GDP growth 6.8 (2006)
Installed Capacity 13.3 GWHidroelectric share 68
Demand (2006) 53 TWhCoverage 87 End User
Tariffs (USDc/kWh) Residential 9.1
Industrial 8.4
Initial stage
Implemented
Fully operational Wholesale Market since 1995
resembling that of England and Wales
(pre-reform), with price bids by generators in an
uninodal spot market and financial OTC contracts
to manage risk. Open Access and Price Cap for
Transmission (except for the competition in new
investments) and Distribution. Replacing the 1996
Capacity Charge, Firm energy obligation auctions
ensure supply in the middle and long term,
allowing investors to recover fixed costs. Public
and private ownership models co-exist however,
utilities created before 1994 are only required
to keep separate accounting, and limitations on
concentration have been challenged. Retail
competition accounts for 32 of the market.
back tomarketcharacteristics
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Markets characteristicsEcuador
Privatization Generation Transmission Distributio
n
Population 13.4 million Area 284 thousand
km2 GDP USD 21.3 billion GDP growth 3.9 (2006)
Installed Capacity 4 GWHidroelectric share 49
Demand (2006) 16 TWhCoverage 88 End User
Tariffs (USDc/kWh) Residential 12.5
Industrial 9.7
Initial stage
Implemented
Cost-bid spot market since 1999. Monopoly with
Cost of service pricing for transmission.
Efficiency Standard pricing for
distribution. Real costs not reflected in
end-user tariffs and no long term signals make it
difficult to achieve financial equilibrium. The
recent constitutional referendum vote has given a
clear signal for a return to the centralized
state scheme for the public service,
nevertheless, being respectful with private
investment in generation.
back tomarketcharacteristics
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Markets characteristicsPeru
Privatization Generation Transmission Distributio
n
Population 28.3 million Area 1,285 thousand
km2 GDP USD 70.7 billion GDP growth 9.1 (2007
est.)
Installed Capacity 6.7 GWHidroelectric share 61
Demand (2006) 27 TWhCoverage 70 End User
Tariffs (USDc/kWh) Residential 12.4
Industrial 7.3
Initial stage
Implemented
Fully operational cost-bid wholesale market
(based on the Chilean model). Only generators
participate in the Spot Market. Distributors
have the obligation to contract a 100 of their
demand for at least a whole year at regulated
prices. Efficiency standard pricing for
Transmission and Distribution (wires). A capacity
charge is paid to generators as a function of
firm power and real availability. Peru is
planning to promote generation investment and
competition for the market through
three-year-in-advance auctions to allocate energy
contracts, as in Brazil.
back tomarketcharacteristics
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Markets characteristicsBolivia
Privatization Generation Transmission Distributio
n
Population 9.6 million Area 1,099 thousand
km2 GDP USD 10.2 billion GDP growth 4.7 (2007
est.)
Installed Capacity 1.6 GWHidroelectric share 33
Demand (2006) 5 TWhCoverage 64 End User
Tariffs (USDc/kWh) Residential 6.7
Industrial 4.7
Initial stage
Implemented
Fully operational wholesale cost-bid market based
on the Chilean model. Price cap for transmission
and Efficiency Standard pricing for
distribution. The currently privatized sector is
changing into a state controlled one. The law is
being modified to allow participation of public
and mixed companies in the electricity market.
The state owned Empresa Nacional de Electricidad
ENDE- will be the only one that can be
vertically integrated.
back tomarketcharacteristics
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Markets characteristicsSouth AmericasSouth Cone
Brazil
MercosurmembersMercado Comúndel
Sur(SouthernCommon Market)
Paraguay
Argentina
Uruguay
Venezuela adhered to Mercosur in 2006. Its status
in the commercial block is not clear it does not
have the rights of a member country but it is not
a simply associated country. Bolivia, Chile,
Colombia, Ecuador Peru have the status of
associated countries.
Chile
back tomarketcharacteristics
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Markets characteristicsBrazil
Population 190.1 million Area 8,511 thousand
km2 GDP USD 764.6 billion GDP growth 4.5 (2007
est.)
Installed Capacity 96.3 GWHidroelectric share 83
Demand (2006) 461 TWhCoverage 96 End User
Tariffs (USDc/kWh) Residential 19.1
Industrial 12.4
Privatization Generation Transmission Distributio
n

• To attract new investment efficiently, the new
  model keeps two separated environments
• large loads can freely negotiate contracts and
  buy in the spot market
• distributors procure energy for regulated load
  through auctions of forward contracts for both
  existing and new energy.
• Cost-bid short term market for balances managed
  by the Cãmara de comercialização de Energia
  Elétrica (Electrical Energy Trade Chamber)
  -CCEE-, as well as the centralized auctions.

Initial stage
Implemented
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Markets characteristicsParaguay
Population 6.4 million Area 407 thousand
km2 GDP USD 8.4 billion GDP growth 4.0 (2006)
Privatization Generation Transmission Distributio
n
Installed Capacity 8.5 GWHidroelectric
share 99.5 Demand (2006) 8 TWhCoverage 94 End
User Tariffs (USDc/kWh) Residential 6.2
Industrial 4.1
Initial stage
Implemented
A country with an exporting vocation based on
three large hydroelectric plants Itaipú,
Yacyretá and Acaray. The Administración Nacional
de Electricidad (National Administration of
Energy) ANDE- is a vertically integrated state
Monopoly. Cost of Service pricing for all the
activities. Paraguay is nowadays looking forward
to renegotiate the export agreements with Brazil.
back tosouthcone
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Markets characteristicsArgentina
Population 39.0 million Area 2,792 thousand
km2 GDP USD 340.3 billion GDP growth 8.5 (2007
est)
Privatization Generation Transmission Distributio
n
Installed Capacity 28.4 GWHidroelectric share 41
Demand (2006) 119 TWhCoverage 96 End User
Tariffs (USDc/kWh) Residential 9.7
Industrial 6.4
Initial stage
Implemented
Fully operational Cost-bid Wholesale Market since
1992. Spot prices are used for trade between
generators but distributors (at a stabilized
seasonal price) and large users can also buy on
the wholesale market. Because of the gas cap in
the spot price, the Argentinean model adopted a
capacity charge to be collected from the
load. 2002 Pesification and frozen tariffs
inflation devaluation led to financial crisis
in the sector. Financial crisis growing demand
tight reserve margin. An important number of
projects are being financed by the government
through trust funds. Recent investment incentives
through jointventures, energy Plus contracts and
PPAs.
back tosouthcone
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Markets characteristicsUruguay
Population 3.5 million Area 176 thousand
km2 GDP USD 22.5 billion GDP growth 7.3 (2006)
Privatization Generation Transmission Distributio
n
Installed Capacity 2.2 GWHidroelectric share 69
Demand (2006) 8 TWhCoverage 96 End User
Tariffs (USDc/kWh) Residential 15.8
Industrial 6.5
Initial stage
Implemented
In 1997, Uruguay changed its electricity laws to
permit independent producers to generate power,
introducing competition to the sector. However,
the Administración Nacional de Usinas y
Transmisiones Electricas (National Administrator
of plants and lines) UTE- has the option of
taking 40 percent stakes in any new power plants
built by private developers Cost based economic
dispatch. Financial OTC contracts with firm power
ballast. Supply insurance obligation to cover a
percentage ofdemand.
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Markets characteristicsChile
Population 16.4 million Area 757 thousand
km2 GDP USD 96.5 billion GDP growth 5.1 (2007
est.)
Privatization Generation Transmission Distributio
n
Installed Capacity 13.5 GWHidroelectric share 40
Demand (2006) 58 TWhCoverage 97 End User
Tariffs (USDc/kWh) Residential 13.1
Industrial 8.5
Initial stage
Implemented
Fully operational Cost-based wholesale market
with private participants. Blackouts in 1998-99
when regulated (dampened) consumer prices and
reservoir levels were falling at the same
time. The new regulatory model incorporates a
real market signal in consumer prices by means of
auction mechanisms. Distributors must be 100
contracted all the time, at least for the next 3
years, and manage their own auctions, aggregating
the demand of interested parties (the first
auction was held in 2006). Generators can use a
mix of existing plants and new onesto justify
their capacity to supply.
back tosouthcone
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Conclusions

• Political confrontation on energy policies
• Low or no progress in markets development and
  integration
• High demand growth and short resource adequacy
• Some countries using forward or investment
  auctions

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