Understanding the Effect of Adverse Weather Events on Retail Electricity Prices : Evidence from Colombia

We study the effect of severe climatic impacts on retail electricity prices by focusing on the Colombian market. We design a structural model to understand the formation of retail prices. Later, the model is used to study how prices behave both in normal and severe weather conditions. The results show that, under normal conditions, the pass-through tends to be complete for most markets, but during El Niño the majority present an incomplete pass-through. The presence of El Niño tends to increase spot prices, a component of the wholesale cost, but retail prices do not increase by the same amount, due to relative exposure to the spot market and the scarcity price mechanism