Pricing evolution in the Colombian electricity market: Does regulation matter?

Abstract

Electricity pricing ($/kWh) is a topic of widespread discussion, both for developing and developed countries, because it has begun a worrying upward trend that impacts the well-being of the entire population. Initially, it is expected to reflect the marginal costs of generation and to be affected mainly by the availability of primary resources for electricity generation and the interaction of agents in the market. However, regulations may lead to changes in this expected behavior, for Colombian case, several studies have highlighted the significant impact of the reliability charge (current capacity market in Colombia) on spot price formation, although this capacity market features remuneration independent of the energy market, and these revenues must reflect the costs associated with reliability. The present study conducts an impact evaluation on the time series of the electricity spot price in Colombia to establish whether the resolution that established the reliability charge (CREG071/06) significantly affected the formation of the spot market price. The results suggest that the resolution under study increased the bid of generators in the short and long term, which was accompanied by an average increase of approximately 12% in the spot price of electricity in Colombia.