The Effect of Spot Price Control on the Future Electricity Supply

Abstract

This paper examines the effects of regulating spot price (energy generation prices) in the Colombian electricity market on the future supply and the expansion of the energy matrix. The analysis is conducted considering the recent draft resolutions from the energy and gas regulatory commission (CREG), which aim to intervene in the spot price given the increase in generation prices attributed to persistent extreme weather events such as the El Niño or La Niña Phenomenon, as well as the ongoing complaints from end users, particularly in the regulated market. The study employs econometric methods (autoregressive distributed lag models -ARDL-) and the construction of an investment function based on the concept of levelized cost of generation (LCOE). The findings suggest that a price restriction (either through regulation or presidential decree) would imply an excess of demand over supply and a reduction in investment in new projects. This would inevitably lead to the deterioration of the National Interconnected System (SIN), thereby compromising the country’s energy self-sufficiency and sovereignty.