The Energy and Gas Regulatory Commission (CREG) published last December 30th, through Resolution CREG 233, a draft resolution with the proposal of modifications to the procedure for connection of different types of projects to the National Interconnected System (SIN). This regulation has been an expected by the market since the promotion of renewable energies in Colombia, which begun in 2015, has caused a drastic increase in the conection requests to the system. Several of these requests have been made for areas that require expansion of transportation capacity, especially in the Caribbean region, which has congested the procedure for allocating transportation capacity and has caused an increase in analysis and dispatch times for connection concepts by the transporters and the Mining and Energy Planning Unit (UPME).
In this context, the Ministry of Mines and Energy issued Resolution 40311 of 2020, which established the public policy guidelines to be followed by CREG for the new connection procedure to the SIN. Based on this resolution, CREG had already published a draft resolution through CREG Resolution 208 of 2020 (of which there is no definitive version yet) for the temporary connection of generation projects. However, the draft resolution of CREG 233 of 2020 is the one that proposes the general regulatory framework in development of Resolution 40311.
As it is of great interest to several of our clients, this document presents an overview of nine main changes contained within this draft resolution:
1. Project classes: the draft resolution divides projects into class 1 and 2. Class 1 projects are for the connection of generation and cogeneration of any capacity, self-generation projects with a capacity higher than 5 MW and projects for the connection of end users to the SIN with an electrical load higher than 5 MW. On the other hand, class 2 projects are those connection projects, or modifications of connection conditions, of end users to the Regional Transmission Systems or Local Distribution Systems. The main consequence of this division is that the UPME will be responsible for the allocation of transport capacity for class 1 projects, whereas transporters will be responsible for the allocation of transport capacity for class 2 projects in the systems for which each is responsible. The centralization of the allocation of transport capacity for class 1 projects in the UPME requires that the system's transporters provide UPME with the necessary information for this work and for the completion of connection studies by the interested parties. For this reason, it is proposed as an obligation for the transporters to deliver the required information, through the one-stop shop information system. This division into classes also has impacts on the type of procedure to be followed, the information that projects must present, the type of guarantees that must be granted, among others.
2. Assignment of transportation capacity: transportation capacity may be assigned (i) when the project is already in operation or (ii) when there is assignment of capacity from one project to another, provided that the two projects connect to the same connection point, are owned by the same interested agent, and use the same primary generation resource, or one that causes a lower variable cost to the system.
3. Causes for modification of the Commercial operation Date (COD): the COD is defined by the UPME. The draft resolution raises four causes for any change of the COD: (i) force majeure; (ii) reasons of public order accredited by the competent authority; (iii) delays in obtaining licenses, permits or procedures, for reasons beyond the due diligence of the interested agent; and (iv) when the expansion works of the SIN present delays that do not allow the project to start up. In any case, it is the UPME that must approve such changes.
4. Guarantees: the main change with respect to guarantees is an increase in value to 10 USD per each kW of transmission capacity assigned for class 1 projects, as opposed to 1 USD as indicated in CREG Resolution 106 of 2006. This amount must be converted into pesos with the market rate of the date of the constitution of the guarantee. In addition, the draft resolution states that these guarantees must be granted by the representatives of class 1 projects and does not establish any guarantee requirement for class 2 projects. On the other hand, if the agents demonstrate that the guarantees they have granted to the system to cover their projects exceed the amount of the guarantee in the draft resolution, they should not update the guarantee. All of the above is without prejudice to the fact that the transportation agent may require other types of guarantees in the connection contract.
5. Monitoring of class 1 projects: one of the aspects in which major changes are proposed is that related to the verification of compliance with the commitments made by the stakeholders in order to ensure that all projects are connected and that this is done within the deadlines. Non-compliance with project schedule milestones would lead to penalties ranging from an increase in the amount of the capacity reserve guarantee to the loss of the connection point. To this end, the representative of the assigned capacity must submit periodic reports to the UPME.
6. Connection contract: for the connection contract, the provisions of the Network Code regarding the content of the contract are maintained. In addition, two clauses must be included: the first, establishing the way in which the effects of the connection of the new project on the system's loss rates will be measured, and the procedure for crossing money, either by increasing or decreasing losses; and the second, related to the termination of the contract if, in accordance with the provisions of the draft resolution, the assigned capacity is released. The term to sign the connection contract would be increased from 30 days to 3 months. If this term is not met, the parties must inform the Superintendence of Public Utilities of this situation so that it may analyze the possibility of imposing sanctions.
7. Release of assigned capacity: the agents interested in the connection of projects to the SIN accept that the assigned transport capacity is maintained if the conditions established in the proposed resolution are met and the project is developed in accordance with the S curve. In accordance with the above, the assigned capacity is released when any of the following causes are occur: (i) When it is concluded that the project cannot be executed; (ii) The agent does not obtain the ratification of the capacity allocation: (iii) The agent does not extend the guarantee or update the value of the coverage; (iv) A third failure to comply with the milestones of the S curve is reached. Only one of the above causes will be sufficient and, for information purposes, the UPME will send a communication to the interested agent. However, to allow the completion and connection of projects that show significant progress in their construction process, the possibility will be given to maintain the assigned capacity if the project is more than 60% advanced. To this end, the draft resolution proposes a partial execution of the current guarantee, an adjustment of the remaining value and a commitment to deliver the project before the FPO.
8. Information platform: for the UPME and the SIN agents in general to have centralized procedures and centralized project information, the UPME must create a unified information platform.
9. Transition regime: the draft resolution gives projects with expired COD’s a period of one month to request their respective modification based on the rules of the resolution. On the other hand, the projects whose FPO has not expired will have two months, from the effective date of the resolution, to deliver the additional information required by the resolution.