Jul. 31, 2019

The Ministry of Energy defines rules for the new renewable energy auction in Colombia

• The Ministry of Mines and Energy continues to promote the incorporation of nonconventional sources of renewable energy, promoting mechanisms which allow efficient prices and the energy matrix diversification. 

• The auction will be exclusive for generation projects of Non-Conventional Renewable Energy Sources -NCRE, with a capacity greater than or equal to 5 megawatts. 

• The product to be auctioned by the sellers will be energy in hourly blocks, ensuring certainty in the energy delivery. 

• The type of contract will be paid as contracted: the buyer undertakes to pay the seller the contracted energy, regardless of whether it is consumed or not, and the generator undertakes to provide a fixed energy to the buyer during the time block. 

• The generators assigned during the auction must begin to fulfill their energy supply obligations as of January 1, 2022. 

• The period of the long-term energy contracts that will be awarded in the auction will be 15 years. 

• The contracts will be signed in Colombian pesos (COP) and will be updated based on the Producer Price Index certified by DANE (National Administrative Department of Statistics). 

• The planning Department Unit of the Ministry of Energy - UPME will implement the award process for the long-term contract auction that will take place before the end of October 2019. 

The Ministry of Mines and Energy defined, through resolutions 4-0590 and 4-0591 of July 9, 2019, the rules of the new long-term renewable energy auction, a competitive and transparent mechanism that seeks to bring the offer closer (electric power generators) with demand (electricity distributors and suppliers) and encouraging efficient prices that will benefit users. 

In the auction, which will be held before the end of October, only new generation projects from Non-Conventional Renewable Energy Sources (NCRE) may participate, whose date of entry into commercial operation is later than the awarded date and have a greater or equal capacity to 5 megawatts. 

The contract will be financial, paid as contracted, which means the buyer is required to pay the seller the contracted energy, regardless of whether it is consumed or not, and that the generator undertakes to provide a fixed energy to the buyer during the Time block regardless of generation. 

In the definition of the new rules, the Ministry of Energy collected the observations and comments of the different interest groups and agents of the sector, to find the best balance of conditions for both sellers and buyers, and benefiting users. Among these conditions, we highlight greater certainty for electricity distributors and suppliers in the delivery of energy with a paid model, as well as longer contracting terms and the definition of time blocks that follow the characteristics of NCRE projects. 

The regulatory Commission of the Energy Sector- CREG will set the limit which determines the maximum value allowed to assign in each contracts awarded during the auction. Likewise, it will define the conditions under which the auction is guaranteed to have adequate participation and transactions are not concentrated in a limited number of agents. 

The amount of energy to be auctioned will be defined as a target demand by the Ministry of Energy and will be disclosed by the Energy Mining Planning Unit -UPME simultaneously with the maximum cap after receiving bids from buyers and sellers participating in the mechanism. 

The start date of the electricity supply obligations of the contracts awarded in the auction will be January 1, 2022 and the term of the contracts will be 15 years. 

The Ministry Energy published the contract minutes containing all the obligations that sellers and buyers must fulfill once they are assigned in the auction.

About the product to be auctioned 

To conform to the NCRE generation profile, the Ministry Energy defined three time blocks, allowing sellers to present their energy offers, as follows: 

• Block No. 1: From 00:00 hours and until 07:00 hours. 
• Block No. 2: From 07:00 hours and until 17:00 hours. 
• Block No. 3: From 5:00 p.m. and until 12:00 p.m. 

Therefore, each generator can make its energy and price offers, in one or several blocks, considering what best suits the generation profile of its plant. The demand will have to make its offers of quantity of energy and price for a period of 24 hours, with a single price. 

1 Colombian Law 1715 of 2014 defines Non-Conventional Renewable Energy (NCRE) as “resources of renewable energy available worldwide that are environmentally sustainable, but that in the country are not used or are used marginally and are not widely commercialized. NCRE include biomass, small hydroelectric, wind, geothermal, solar and sea power generation”.