1. Argentine Power Sector
Wholesale Electric Market Management Company
Argentine Power Sector
APEX 2003 Conference Cartagena, Colombia
CAMMESA

2. Outline Global figures Changes in the demand and supply
Macroeconomic changes
Impact of these changes in the market and the operation
Expectations - Concerns

3. Wholesale Electrical Market - 2002
CUYO
COMAHUE
CENTRO
NOA
NEA
LITORAL
BUENOS AIRES
GBA
PATAGONICO
Installed Capacity 24 GW
Generation TWh
500 kV km
220/132 kV km
WEM - Participants
Generators 53
Distributors 63
Large Consumers Ma 302
Large Consumers Mi
Transmission COs 10
Traders 4

4. Outstanding Variables - Generation
Capacity WEM: 1992 = MW
2001 = MW  ~70%; MW increase in Generation Capacity

5. Outstanding Variables – Peak Demand
EXPGrowth = 2200 MW
LocalGrowth = 5000 MW

6. Industrial consumers =>
Annual Demand Growth
Industrial consumers =>

7. Traded Energy
High exposure to spot volatility

8. SPOT PRICE EVOLUTION

9. Outstanding Variables
Competitiveness of the market and efficiency of generation units provoked a fall in spot prices of about 40%  48.8 $/MWh1992 to 28.5$/MWh2002

10. Macroeconomic Changes
Dic 2001 => political crisis with deep recession in economy led to the fall of the government; social instability
Austral summer 2002
New transition government
Debt default; end of the fixed exchange rate (1$=1u$S) and devaluation
economic emergency law => pesification of economy
Profound economic crisis; inflation

11. Macroeconomic Changes
Since July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economy
May 2003 => new elected government
Evolution of exchange rate=>
Increase of industrial demand due to greater competitiveness to export and import substitution
Jan02-oct03
Exchange rate => 200%
Inflation => about 50%

12. Electricity Sector Scenario
Tariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishment
Pesification of natural gas, energy and capacity prices on the WEM
Increase of imported fuel and maintenance costs
Uncertainty related with exchange rate evolution and expected performance of the generation units

13. Electricity Sector – Regulatory Decisions
Keep tariffs at the initial level, absorbing the difference with the stabilization fund
Cover variable costs (fuel, operation and maintenance) of each generator, permitting costs declarations each fortnight
Maintain short term marginal cost system, with a cap price of 120 $/MWh
Modify capacity payments, turning them independent of actual dispatch and include base payment for almost every thermal plant available, and increasing it from 10 to 12 $/MWh
Remunerate new reserves (competitive bids) against commitment to fulfill them, to ensure fuel (gas or liquid) and MW availability
Create a spot market in advance, similar to a contract, through competitive bids, to diminish volatility and risks. Decision based on minimum cost (+risk) criteria

14. Results – Prices & Fund

15. Regulatory Decisions - Results
Transition was managed, allowing to operate the system in good supply conditions
Higher marginal spot prices due to increase of maintenance and liquid fuel costs, with a cap price of 120 $/MWh. Differences between variable costs and maximum charged as uplift costs
Spot market in advance, allowing to hedge, from mar to oct-03, about 40% of the spot market to an energy price of 24,4 $/MWh. The average real price resulted 3 $/MWh higher => savings => about 60M$.
Generation availability performance similar as historical and new reserves fulfilled adequately
Stabilization fund exhausted since jul-03. Debt of the fund with generators of abut 280 M$ (1-2 months of payment). Priority of payment to cover variable costs (thermal units receive more money than hydro plants)

16. Expectations - Concerns
Increase of tariffs required to gradually normalize situation. Gas increase pending, when adopted it will imply an additional increase to the WEM
The whole situation seems very difficult to handle politically
Demand increase and exports to Brasil, along with default of the stabilization fund may lead to a significant increase of the deficit of supply risk
Medium and long term viability and the lack of new investments in generation is then one of the major concerns, until the regulatory framework may be adapted and political solutions adopted.

17. Next steps From CAMMESA’s point of view
Be flexible enough to implement changes on rules and keep on running the system and the Market, in a delicate environment.
Study and analyse scenarios to identify and anticipate risks, in order to help in the search of solutions.

18. For an Electrical Market without frontiers
Quality, Technology & Transparency
For an Electrical Market without frontiers
¡Thanks for your attention! Colombia, October 2003
Doubts => More info =>