The Colombian Energy Sector has been relying in hydrogeneration and this doctrine has created a critical situation where whenever there is a dry season (EL NINO), the hydrogenators “dry up” and the impact of this drought triggers energy prices to spike and this creates a scarcity price period with extremely high energy prices. (Scarcity pricing is the principle of pricing electricity at a value above the marginal cost of the marginal unit during conditions of high system stress (El Nino Drought) according to the incremental value that flexible capacity offers to the system in terms of keeping the loss of load probability in check).
To mitigate this “scarcity periods” in 2006 the Government has instituted periodical Firm Energy Auctions (FEA), and the first Firm Energy Auction took place in 2008. the FEA auctions seem be recurrent every 4-5 years. The FEA award Firm Energy Obligations (FEO) resembling a hybrid of “firm energy fuel supply operational guarantees.”
The FEA Awards a 20-year Firm Energy Obligation (FEO) contract (US$ dollar based) and pays guaranteed dollar-based FEO payment to the party awarded under the FEO. Under the terms of the FEO, the awarded party is obligated to post a series of performance guarantees to ensure building the power plant on time, securing the fuel supply to comply with the FEO and have the plant operational 100% the time when the scarcity event takes place.
Zeuzcorp among others has secure the following value elements for the project:
2. Environmental Licenses/EDA Exemptions
3. NDA’s/MOUs with EPC, O&M and Fuel Supplier
4. Presentation of Interconnection Studies to UPME
5. Registration of the NENCOL Projects in Phase 2, (Required to participate in the FEA).