Ensuring Generation Adequacy With Firm Energy Call Options - A Case Study for the Hydro-Dependent Colombian System

18 Pages Posted: 21 Nov 2006

See all articles by Julio E. Villarreal

Julio E. Villarreal

Universidad de los Andes, Colombia

Carlos H. Soto

Universidad de los Andes, Colombia

Date Written: November 2006

Abstract

Ensuring generation adequacy has been an issue for regulators all over the world. Guaranteeing the necessary quantities at an efficient price is not an easy feat in the electricity field. In Colombia, the situation is further aggravated by a generating sector mostly made out of hydraulic plants, representing close to 70% of the total capacity. These are highly susceptible to climatic shocks typical of the region, particularly the El NiƱo Southern Oscillation, which has, in the past, been the culprit of severe blackouts that have lasted for well over a year. The following paper evaluates the proposal made by the Colombian regulator which introduces a reliability call option with firm energy as the underlying asset as a means of ensuring generation adequacy.

Keywords: Capacity Charge, Reliability Call Option, Generation Adequacy, Energy Derivatives

JEL Classification: G13, G18, L13, L51, L94

Suggested Citation

Villarreal, Julio E. and Soto, Carlos H., Ensuring Generation Adequacy With Firm Energy Call Options - A Case Study for the Hydro-Dependent Colombian System (November 2006). Available at SSRN: https://ssrn.com/abstract=946114 or http://dx.doi.org/10.2139/ssrn.946114

Julio E. Villarreal

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Carlos H. Soto (Contact Author)

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

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