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Colombia Introduces First Market Auctions For Long-Term Power Purchase Agreements

  • United Kingdom
  • Energy and infrastructure

20-09-2018

Colombia’s Ministry of Mines and Energy (“MME”) has confirmed that it will commence auctions for long-term power purchase agreements to facilitate the construction of new power generation facilities. The MME has recently issued resolution 40791 which establishes the auction mechanism and resolution 40795 which convenes the first such auction.

The first auction is scheduled to be held in January 2019, and will allocate 10 year PPAs to projects with first delivery from 1 December 2022, up to 3.443TWh of average annual capacity (which equates to approximately 3GW of capacity and 4.35% of projected demand for 2022).

Whilst on its face the auction is technology-neutral, and the location is developer-driven, preference will be given to renewable energy sources, especially those which demonstrably complement existing generation sources and contribute to regional energy security. A key factor in the evaluation process will be the emission levels for each project. Projects also cannot be smaller than 10MW. With 70% of the country’s power coming from large-scale hydro, which lacks resilience in drought conditions, Colombia has an abundance of wind, solar and biomass potential which it is hoped will be realised in the upcoming auctions.

The auctions will entail matching generators with power buyers, and the matched bidders entering into a standard form bilateral power purchase agreement. The form of PPA is yet to be released, but it is anticipated that it will broadly follow the current market standard form. The market operator (XM) will monitor the parties’ compliance with the PPAs, which must be registered with XM. It is anticipated that the buyers will mostly be state-controlled utilities, some of which are also distributors.

The electricity price will be denominated in Colombian pesos and subject to monthly indexation based on the Producer Price Index (IPP). Sellers will be subject to average annual and average hourly output guarantees. Both buyers and sellers must be registered in the Wholesale Energy Market, and both must give requisite guarantees (ie, financial guarantees and, for sellers, performance guarantees).

In order to pre-qualify, developers must:

  • ensure the project is listed on the register of electric power generation projects;
  • obtain approval for the conceptual interconnection design;
  • be established in Colombia, with a promise to establish the SPV as a Public Utilities Company (ESP);
  • lodge a bid bond;
  • be the owner of the project (or be duly authorised by the owner); and
  • meet the other technical, legal and financial requirements set out in the terms of reference for the relevant auction.

The detailed terms of reference for the first auction and the draft power purchase agreement, both of which are still pending, will set out further details which will be of critical importance in assessing the viability and bankability of the arrangements.

The terms of reference for the first auction must be published by no later than 30 September 2018 (but it is currently anticipated that these will be released in October), and the first auction is to be held in January 2019.

If you wish to discus the above, please contact the team below.

For more information contact

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