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Colombia Firm Energy Market

Peter Cramton () and Steven Stoft ()

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: A firm energy market for Colombia is presented. Firm energy—the ability to provide energy in a dry period—is the product needed for reliability in Colombia’s hydro-dominated electricity market. The firm energy market coordinates investment in new resources to assure that sufficient firm energy is available in dry periods. Load procures in an annual auction enough firm energy to cover its needs. The firm energy product includes both a financial call option and the physical capability to supply firm energy. The call option protects load from high spot prices and improves the performance of the spot market during scarcity. The market provides strong performance incentives through the spot energy price. Market power is addressed directly: existing resources cannot impact the firm energy price. Since load is hedged from high spot prices, the market can rely on high prices to balance supply and demand during dry periods, rather than rationing.

Keywords: Auctions (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007, Revised 2007
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Published in Proceedings of the Hawaii International Conference on System Sciences, January 2007

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