Colombia Firm Energy Market

A firm energy market for Colombia is presented. Firm energy—the ability to provideenergy in a dry period—is the product needed for reliability in Colombia’s hydrodominatedelectricity market. The firm energy market coordinates investment in newresources to assure that sufficient firm energy is available in dry periods. Load procuresin an annual auction enough firm energy to cover its needs. The firm energy productincludes 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 thespot market during scarcity. The market provides strong performance incentivesthrough the spot energy price. Market power is addressed directly: existing resourcescannot impact the firm energy price. Since load is hedged from high spot prices, themarket can rely on high prices to balance supply and demand during dry periods, ratherthan rationing.