The mechanism for the long-term electricity contracting has the following features:
- Is applicable to the agents of the Wholesale Energy Market ("MEM"), as well as to individuals and legal entities that own or that commercially represent generation projects.
- The mechanism leaves the possibility open to be applied to all generation technologies, both conventional and renewable. Also, the mechanism is applicable to existing projects (namely in commercial operation at the time of awarding) and to new projects (namely pending to commence construction or under construction at the time of awarding). However, the generators participating in the auction must have a capacity greater than or equal to 10MW.
- The auction will be conducted under the closed envelope scheme and will have two branches which means that the contracts will be awarded to both power buyers (MEM traders) and power sellers (MEM generation agents or owners or commercial representatives of generation projects).
- The MME will order the announcement of the auction, defining the date of the process, objective demand, qualification criteria, minimum qualification score, period of validity of the contracts to be auctioned, start date of the obligations of the generation projects. However, UPME will administer the auction.
Considerations regarding the implementation of the contracting mechanism:
- UPME will publish the specifications for the award of the contracts.
- The auction schedule will be made by the MME.
- The Energy and Gas Regulatory Commission (“CREG”) must update the network code, establish an intraday or real time market scheme and a complementary services market. However, while this is happening, CREG will define a transition scheme to guarantee the integration into the National Interconnected System ("SIN") of the projects with renewable sources in relation to their technical, operational and market requirements, as well as to guarantee their participation in the MEM.
- XM, in its role as the market administrator, will monitor compliance with the obligations arising from the long-term contracting mechanism.
Regarding the minimum content and the characteristics of the long-term contract, these do not differ from the conditions applicable to the common practice in the Colombian market and to which the market agents are accustomed. The foregoing, without prejudice to the inclusion of additional or specific aspects in the structuring of the bidding conditions issued by the UPME and / or the contract minutes that the MME will define prior to the publication of the auction documents (the request for proposal). The contracts must include at least the following conditions:
- Type of contract: Take-or-pay contract that will be associated to a percentage of real generation of the project and to a quantity of minimum energy dispatched (corresponding to 10% of the hourly average generation equivalent of the annual energy).
- The contract is executed between generators and traders.
- The contract will be liquidated in the energy exchange managed by XM based on Resolution 024 of 1995, as amended from time to time.
- The awarded generation project must be indicated.
- Annual volume of energy to be contracted. This volume will be the average annual energy in megawatt hours per year, as may be awarded.
- Term of the contract, which will be 10, 15 or 20 years, counted as from the start date of the obligations of the generation projects.
- Clear rules or procedures to determine the amount of energy to be allocated hour by hour.
- Price of the contract, which will correspond to the value offered in the auction by the seller, in Colombian pesos per kilowatt hour. The price will be updated taking into account the producer price index ("IPP") of the month in which it is updated, with respect to the IPP of the month of awarding.
- The contracted energy may come from a generation project associated with the long-term contracting mechanism, or through a coverage mechanism available in the MEM. Under this understanding, it is possible to understand that it would be possible to contract power support agreements.
- The contract may be assigned by the generator/seller, to another generator registered in the MEM, in case it is not able to comply with the obligation subject to assignment. For this purpose, the seller must keep in force the guarantees associated with the awarded contract and remain liable until the guarantees of the assignee is accepted. Likewise, the assignee of the contract must obtain a score greater than or equal to the minimum score in the auction in which the contract was awarded to the seller assigning the contract.
- The awarded generators must grant liquid guarantees (ensuring compliance) in favor of XM, which will have preference to obtain the payment derived from said guarantees. On the other hand, the traders/buyers must constitute liquid guarantees of payment in favor of their generator counterpart.
- Contracts must be executed and registered with XM, under the terms and deadlines required in the auction documents.