Hydrothermal Coordination and Capacity Payment Schemes in Chile

- Current Discussion and Future Challenges Ernesto R.

Huber J.

Rodrigo M.
Espinoza V.

Economic Load Dispatch Center (ISO)

CDEC-SIC
Teatinos # 280 -Piso 6 Santiago, Chile
ehuber@cdec-sic.cl / respinoza@cdec-sic.cl
Abstract: Once the Chilean Power sector was reformed at
the beginning of the 80s decade, the structure of the power
market design was based on a mandatory Pool with audited
costs and financial bilateral contracts. Based on the Peak
Load Pricing concept derived from the marginal cost
theory, capacity of a generator has been recognized as a
commodity paid by users. Nevertheless, the market design
has suffered relevant changes as a consequence of
modifications introduced to the regulatory framework since
the power sector reform was established. Two main aspects
covered on the recent modifications are the introduction of
the energy supply risk management and the development of
a new capacity payment methodology. In what follows, a
description of the energy supply risk management is
presented. A historical evolution of the capacity payment
methodologies is also presented, emphasizing on what was
established by the DS 327 (Regulation Framework) in 1997
(Phase 1, adequacy & security), and the current scheme
introduced by Ley Corta (Phase 2, adequacy plus ancillary
services). The current capacity methodology is described
using examples and actual system results, showing the
treatment of the adequacy concept, which is related to the
uncertainty of the energy source. Finally, conclusions and
future works are presented.

I. INTRODUCTION
the competitive electricity market in Chile was
Asestablished
in 1981 [1], an experience of more than
two decades is now available for tracking the effects of
the pool type market based on Peak Load Pricing,
derived from the marginal cost theory, and the energy
supply risk management. The market design has suffered
changes as a consequence of modifications introduced to
the regulatory framework since the establishment of the
power sector reform. Two main aspects covered by the
recent modifications are the introduction of the energy
supply risk management and the development of a new
capacity payment methodology introduced by the Ley
Corta (Law Change in years 2004 and 2005) [4].
In particular, the obligation to maintain the energy
security supply of the power system was assigned to the
Economic Load Dispatch Center (CDEC), the

Rodrigo
Palma-Behnke
Department of Electrical Engineering
Universidad de Chile
Av. Tupper 2007, Santiago, Chile
rodpalma@cec.uchile.cl
independent market/system operator in Chile. Thus, the
CDEC had the responsibility to dispatch power plants in
an economical and reliable way to satisfy the demand of
the system.
Although the importance of maintaining system energy
security supply was one of the main goals of the CDEC,
it also had to be accompanied by economical
considerations, there being a well known trade-off
between security and operation costs.
As a consequence, the regulatory framework was recently
amended (2004-2005), which has had an impact on the
standards of the system energy security supply and
reliability, and the signals to allocate new power plants.
A special mention deserves the distributed generation,
which is now made explicit in the market design.
This document is organized as follows. In Section II, a
general description of the Chilean Central Interconnected
System (SIC) and its historical evolution is presented. In
Section III, a characterization of the energy supply risk
management in the Chilean system is discussed. Both
new and current capacity payment methodologies are
presented in Section IV. Finally, a brief summary of what
has been learned during this period is offered and futures
challenges are mentioned.
II.

THE CENTRAL INTERCONNECTED SYSTEM

A. General Description
The generation mix of the electricity market is presented
in Figure 1. The installed capacity in the Central
Interconnected System in Chile (SIC) is 43% thermal and
57% hydro.

mainly due to new combined cycle units using natural

gas.

ELECTRICITY GENERATION MIX

42000

As shown in Figure 3, the SIC covers an area of 2000 km

in length, and supplies a peak load of nearly 6100 MW.
The system load is concentrated in Santiago, Chiles
capital, located in the core of the system. The annual load
increase rate, during the last eight years, has been
approximately 7%/year in average. Among the hydro
plants there are few with a large reservoir, which enables
them to deliver full capacity (1000 MW) for 8 months
approximately.

36000

(GWh)

30000

24000

18000

12000

6000

0
1994

1995

1996

1997

1998

1999

Hydro

2000

2001

2002

2003

Others Thermal

2004

2005

2006

Gas

Figure 1. Electricity generation mix at SIC

As shown in Figure 1, one of the main features of the SIC
system is the high importance of hydrology. In fact,
statistics show that hydrology conditions have a huge
variance from dry to wet seasons. For instance, figure 2
shows the difference between a normal water year and
dry years, where the difference exceeds the hundred
percentage. As a matter of fact, during an extreme
drought such as those of water years 68-69 or 98-99,
hydro generation could not supply more than 40% of
annual consumption. In Figure 1 it can be seen that
extreme dry seasons in 1998 and 1999 leaded to an
interchange of the predominant hydro technology to
thermal units. During 1999 thermal production reached
52,4% and hydro power was 47,6%. On the other hand,
in 1994 an extreme wet season was experienced and
nearly 85% of the demand was supplied by hydro units.
Hydro Energy
35000
30000

[GWh]

25000
20000
15000
10000

Figure 3. Diagram of the SIC

5000

04-05

01-02

98-99

95-96

92-93

89-90

86-87

83-84

80-81

77-78

74-75

71-72

68-69

65-66

Figure 2. Annual hydro energy from water year 65-66 to

04-05
It is also important to highlight that in 1997 natural gas
arrived to Chile, which is supplied by Argentina through
a pipeline in the central part of the country. This can be
seen in Figure 1, and it roughly represents one fourth of
the electricity generation. In Figure 1 it is also clear that
thermal units have increased during the years, which is

B. Evolution of the regulatory framework 1981-2006

In a broad sense, the experience of nearly 25 years of
deregulation in the Chilean system may be grouped in
four steps, which are related to the establish of the Law,
the by-laws and finally the amendment in 2004-2005.

1) Establish of Electric Law (DFL N1/1982 [1])

2) D.S. N6. The first way to determine the firm
power of each generator (D.S N6/1985 [2])
3) D.S. N327. The second way to determine the
firm power of each generator (D.S N327/97
[3])
4) DFL N1/1982 was amended and broadened by
Law N 19940/2004 and N20018/2005[4].
5) DS N244 Distributed Generations.
6) DS N62 Third way to determine the firm power.

DFL N1, Act N19.940 and DS N327 define the basic

purposes of each CDEC:

To preserve the service security in the electric grid;

To guarantee the most economic operation for all the
facilities of the electric grid;
To guarantee open access to the main transmission
and sub-transmission systems.

Act N19.940 redefines the CDEC in more detail:

To determine and value the electricity transferences

(energy and capacity) among generators.
To define the minimum technical requirements to be
met by the facilities interconnecting to the grid.
To define, operate, value and administer the ancillary
services necessary to guarantee the systems
operation.
To guarantee open access to the main transmission
and sub-transmission systems.
To calculate transmission tolls in main, subtransmission and additional systems.
To bid the new transmission facilities defined by the
main transmission periodic studies.
To review systematically the expansion study of the
main transmission system that is elaborated every 4
years by the National Energy Commission (CNE).
To elaborate the necessary procedures to meet the
quality service requirements and include them in the
Internal Regulation.

Each CDEC must have a similar structure:

Centro de Despacho Econmico de Carga (CDEC or load

economic dispatch center - ISO):
It is the entity responsible for determining the operation
of the group of facilities of an electric grid, including the
power plants, the transmission lines of the main and
additional systems, sub-transmission and additional lines;
electric substations, including the primary distribution
substations and consumption bars of users that are not
submitted to price regulation and supplied directly from
facilities of a transmission system; fully interconnected,
which allows to generate, transport and distribute electric
energy so that the electric supply cost is kept to a
minimum and compatible with a pre-established
reliability.

Direction of
Operations

Direction of
Transmission Tolls

Dispatch and
Control
Center

Structure of the CDEC-SIC:

DS N327 and act 19.940 allocate responsibilities to each

CDEC:

Their main responsibilities are:

To plan the operation of the electric grid and
communicate it to those interconnected.
To coordinate the preventive overhaul of the units.
To verify the enforcement of the operation and
maintenance schedules.
To establish, coordinate and verify the capacity
reserve of the grid to instantly regulate frequency.
To coordinate the load disconnection in consumption
bars to preserve the service security.
To calculate the instant marginal costs of electric
energy.

Panel of
Experts

Board

Panel of
Experts

Board

Direction of
Operation and Tolls

Sub-Direction of
Operations

Dispatch and
Control
Center

Planning
Operation
Department

Sub-Direction of
Tolls and Transferences

Operations
Department

Administration
Department

Main functionalities of the Board defined by DS N327

(by-laws):
To supervise the responsibilities of the CDEC.
To approve and modify unanimously the internal
regulation of the CDEC.
To resolve unanimously the disputes among member
companies and the Direction of Operations or the
Direction of Tolls.
Issue reports required by the CNE or the Supervisory
Division for Electricity and Fuels (SEC) with respect
to the operation of the CDEC.
To inform the CNE about the interconnection and
extraction of new generation or transport facilities.
To approve the annual expense budget of the CDEC.

Main tasks of the Direction of Operation defined by DS

N327 [3] and act N19.940 [4].
Short, medium and long term operation planning.
To coordinate the operation, control the enforcement
of the operation schedules and correct the deviations.
To calculate the firm capacity of each power plant.
To calculate the instant marginal costs of electric
energy.
To calculate the money transferences between
generators.
To define, administrate, value and operate the
ancillary services.
To define the technical requirements of the
interconnected facilities.
To propose the procedures of the internal regulation
that are related to the functionalities of this Direction
to the Board.
Calculation of Firm capacity (Firm Power or capacity
payment):

The concept behind the calculus is based an article

from DS 327.
The calculation has 2 components:
o Adequacy
o Security
The Adequacy calculation deals with the probability
distribution of the Complete Power System (LOLP)
and the individual contribution of each unit
according with its Forced Outage Rate (FOR) and
install capacity.
The Security calculation incorporates the units
response to demand increase: Start up Time and
Load Rate.

As it was said before, within the Generation Sector, there

are capacity and energy transactions at marginal cost:

Energy Marginal Cost:

o Cost, including the rationing and some restrictions

to the facilities, incurred by the electric grid to
supply an additional energy unit in the
corresponding bar, considering the optimum
operation determined by the CDEC.
Capacity Marginal Cost:
o Marginal cost to increase the installed capacity of
the electric grid during the hours of maximum
demand.

III.

ENERGY SUPPLY RISK MANAGEMENT

One of the consequences of the 98-99 supply crisis was a

discussion and revision of the electricity law. What is
meant by securing the supply of energy? According to
some international regulators, it is to guarantee a stable
supply of energy at an affordable price, no matter what
the circumstances are. From an economic point of view,
however, the concept of security of supply is not unique.
In general economic terms, energy security refers to the
loss of welfare that may occur as the result of a change in
price or availability of energy [5].
In the current market scheme there was contemplated the
payment to consumers, when the contracted supply is not
available. Those generators that do not have the enough
energy to supply their contracts would have to pay
compensation at much higher prices than the average
production cost (cost of non-served energy, defined by
the regulator). The underlying idea in this point is that, in
a supply crisis, those deficit generators will look for
supply alternatives, in order to avoid compensation cost.
Nevertheless, the regulation, before 98-99 supply crisis,
also defined exceptional conditions where those
compensation were exempted. A drought that was not in
the 40-year statistic record used by the regulator to
calculate regulated prices would be a force majeure
condition (defined by old regulation article 99 bis).
After the 98-99 electrical supply crisis, which produced
severe supply disruption with scheduled load curtailment,
for example, energy in Santiago was curtailed three hours
a day in working days, the regulator introduced then a
change in the article 99 bis, eliminating drought from the
force majeure condition. Thus, any generator,
contracting at nodal prices with a distribution company,
has the obligation of supply no matter the severity of an
eventual drought. In this act, the regulator holds the total
risk responsibility on the generators, if they make a
contract with distribution companies [6].

This modification to the regulatory framework would

have triggered a contract problem to the distribution
companies, because of the generatorss lack of interest in
taking a risky contract with them.
A. Regulatory Changes to ensure energy supply
At that moment there was no mechanism that ensures the
energy supply if the system faces a extreme dry water
year, and any measure that promotes the un-economic
dispatch of thermal units, in order to accumulate energy
reserves in the systems main reservoir, has to be
achieved by an agreement among the agents, known as
security plan. The question that arises is who has to
pay for the security plan and how this cost has to be
recoverd by the supply side of the market. The authority
has taken notes of this element and has introduced some
modifications to the current electric law, in order to face
the problem in both, long and short term.
As it was mentioned in the introduction, the Chilean
regulatory framework establishes three segments:
generation, transmission and distribution, and
competition is only allowed at the generation level
through a system of centralized Pools. This scheme has
proven, to some extent, to be efficient during the last two
decades, but, considering the necessity to generate a
scenario that ensures investments for the long term
electric supply and the protection of consumers against
potential energy crises, Law 20,108 was issued in 2005
[4]. This new law introduced a bidding system for longterm power sales and a saving incentive in residential
consumption.
This new element in the regulatory framework will
correct two flaws in the current electricity market design,
in which demand exhibits no price responsiveness and,
on the opposite side of the market, the supply faces strict
production constraints. These elements would lead to a
period of shortage and surplus, which will be
accompanied by a great volatility in prices and profits.
This result can be modified, by encouraging priceresponsive demand and long-term wholesale contract for
electricity, allowing an electricity market that will
function more smoothly [7].
Bids create a long-term market that promotes higher
investments on the systems capacity and lead to the
establishment of fixed prices, which expected benefit is
to decrease the markets volatility. The risk of possible
contingencies (droughts, lack of fuels) is transferred to
prices.
The new legislation allows the generators to offer
monetary premiums to the regulated customers in
exchange for savings in electricity consumption in order

to decrease the demand in case of contingencies without

leaving the supply stipulated in the contracts unfulfilled.
The major problem in offering incentives is no other than
the way to implement them. Generators belong to a
wholesale level segment; only with a negotiating
experience with large size customers (unregulated
customers and distributors); therefore they do not have
the tools to effectively reach the regulated customers who
wish to save energy. The only channel to reach them are
the distribution companies, but it is not clear the way that
they would collaborate [8]. The last point is one of our
future challenges.
On the other hand, as a short-term measure, the regulator
has introduced a modification in order to guarantee the
generators recovery of the costs of a security plan
(article 102 bis, Ley Corta II), by means of a charge to be
included in the nodal price calculated by the authority
every six months.
The set of rules that defines the way in which the CDEC
will apply the article 102, are still in a revision process,
but in a broad sense they put in the CDEC both the
responsibility of monitoring the state of the system, from
the supply point of view, and in case of detecting a
possible supply problem, it must give an alert and
establish a rationale security plan in order to
accumulate energy reserves in the appropriated systems
reservoir.
The SIC power system is dispatched in a least-cost
centralized basis by the CDEC-SIC with the aid of
optimization models that compute opportunity costs for
hydro plants, which are key points for dispatch decision.
One important output of the procedure are short-run
marginal costs for the system, all energy transaction at
the wholesale energy market has to be value at this price.
The long-term system operation simulation in a two year
planning horizon, is obtained by the PLP (Spanish
acronyms for Long-term Programming) model based on
the stochastic dual dynamic programming methodology
[14, Pereira]
Based on the same information used to establish the
opportunity cost of the hydro plants, the CDEC has to
elaborate new simulations of different scenarios of
inflows to the main basin in the system and fuel
availability for thermal units (mainly natural Gas).
According to the projection, if the simulations reveal
supply problems in some percentage of the hydrologic
scenarios, it will be triggered a security plan and the
CDEC-SIC has to design a re-scheduled operation in

order to accumulate, in a rational and distributed form,

energy in the main systems reservoir.
IV.

CAPACITY PAYMENT METHODOLOGY

Traditionally, it has been considered that the service

given by an electrical generating unit can be split in the
concepts of energy and power. Nowadays, it is
possible to group a series of services behind the concept
of power. In fact, there exist some consensus about the
idea that a unit can contribute to the system as far as the
adequacy, security and service quality is concerned. The
recognition of these facts has had some effects in the
design of the system of prices that remunerates a
generation park. In this context, market designs have
been modified to incorporate ancillary services explicitly,
related to contributions of power of a given generation
unit.
The definition of an efficient system of prices that
reflects the production costs, and give the right signal to
the supply side of the market in order to ensure capacity
that allows satisfying a fluctuating demand, is an
objective of the authority. In this sense, it is necessary to
find out how the cost of this capacity has to be assigned
among the different users. This problem is known in
Literature as Peak Load Pricing, which corresponds to an
application of the marginal cost theory to the cases in that
is necessary to assign the cost of capacity between
different users. This theory, in its extreme version,
establishes that the whole marginal cost of capacity has
to be assigned to those users who consume in the peak
periods, under the premise that they are responsible for
an additional requirement. On the other hand, the price to
the off-peak consumers is given by the marginal cost of
operation. Actually, this scheme of prices implements
through a charge by concept of energy (to all the
consumers) and an additional payment - usually called
power charge, charged only to peak period users.
When the structure of the generating park is adapted to
the demand, The Peak Load Pricing assures that the
income by sale of energy to marginal cost of the energy,
plus the income by sale of power to cost of development
of a unit of power, exactly cover the capital costs plus the
costs of operation of the considered producers as a whole.
The Chilean regulatory model is based on the previous
concept, i.e. a scheme of prices of energy and power that
must be paid by the consumers to the producers. On the
design of a market of obligatory Pool type and a
wholesale market of Spot type (hour), restricted to the
generators, the sales of energy and power are perceived
as an income of the generation units. In the spot market,
according to the commitments of each generator, the
transferences of energy and payments of power among

the generators are made. The criteria of allocation of

costs and recognition of power of each unit have been a
source of diverse discrepancies in the sector during the
last 20 years.
At world-wide level, the creation of mechanisms of
allocation of capacity payment is a subject in debate even
in those systems with bilateral structures and energy
auctions, based only on payments by energy and ancillary
services [10, 11, 13]. During the last years, product of
observed situations of rationing in dry years (1998-1999),
began a process of conceptual and methodological
revision of the system of allocation of payments by
power. The discussion has been centered in the way in
which the income product of the payment by power are
prorated among the different generating units,
considering their characteristics. Regarding the former,
the future perspective of massive integration of units of
Distributed Generation is other challenge for our system.
A. Concepts & Definitions
The reliability concept distinguishes two attributes:
security of service and sufficiency or adequacy [9]. The
model of Chilean market, defined in 1982 [1] and
modified conceptually and legally in 2004-2005 [4], uses
explicitly the concepts of adequacy and security. The
legal modification introduces a scheme of prices of
energy, power and ancillary service that must be paid by
consumers to producers, according to the use of each
service. In this new scheme, the power payment is
directly tied to the payment by adequacy concept,
whereas the security is captured through different
ancillary services.
The security concept, in the new regulatory framework,
refers to the capacity of the electrical system to surpass
disturbances of very short term, disturbances to which the
system is permanently exposed, and which they are
caused mainly by external effects (for example,
atmospheric discharge on the transmission systems that
produces short circuits) or internal (for example, abrupt
changes of load or faults of generating units). These
disturbances affect the stability of the system and can
lead to partial or total blackout or to new conditions of
balance. The security of the system is typically provided
by means of control and protection equipment, operation
procedures and uneconomical dispatch of generating
units, as well as ancillary services (for example to obtain
voltage regulation, frequency regulation, spinning
reserves, blackstart of generation unit, and others). The
last concept is consistent with the definition of NERC
(North American Electric Reliability Council) of security
as the "ability of the electrical system to support
unexpected disturbances such as electrical short circuits

or unexpected loss of components of the system or

suddenly disconnection" [12].

exceedance probability in conditions of Maximum

demand.

On the other hand, the adequacy refers to the capacity of

the electrical system at any moment to supply totally the
demand under expected conditions. Adequacy represents
a long term characteristic that tried to supply an
increasing demand in the long term, taking into account
the variability and uncertainty of this demand, generation
ability and the times involved in increasing this capacity.

The power contribution to adequacy of a generating unit

can be measured in probabilistic terms, under conditions
of excess and deficit in the system. At this point is
important to indicate that the adequacy, under the
assumption of a reasonable handling of the hydraulic
resources with adequacy criteria, is a permanent quality,
independent of the dispatch of the generation units and
therefore, necessarily reaches its minimum value at the
moment of Maximum demand. According to the last
analysis, the definition of a method of assignment of
power payments in the system requires the development
of a method of recognition of the contribution to the
adequacy that makes each generating unit.

Traditionally, adequacy has been measured through the

existing or planned reserves in the electrical system and
the corresponding index of loss of load probability, that
serves as a criterion for planning decisions and
investment. The NERC defines adequacy as the "ability
of the system, at any time, to supply totally the demand
of the electrical system and the requirements of energy of
the consumers, considering programmed outages of
components and nonprogrammed outages, but reasonably
expected" [ 12 ]. The last definition introduces a term that
differentiates both concepts. The security is based on a
set of predefined determisnistic contingencies, against to
the system has to respond with actions, controls and
ancillary services. The adequacy is a characteristic
associated to conditions expected in a probabilistic way,
it identifies the possibility of supplying energy with a
hydroelectric power plant in a drought condition, the
possibility of contributing power with a thermal power
plant faces with an unavailability of fuel or the outages of
a power plant.
Although the security concept represents conditions of
short term and the adequacy concept long term
conditions, both concepts are related and can lean one to
the other. In fact, an electrical system with great
adequacy, for example, by a high level of reserves, will
have a greater degree of flexibility to overcome
contingencies of short term. Nevertheless, the opposite
situation can be given, in which a system with a high
degree of facilities can operate in uncertain form and a
system with limited reserve operates in safe form. In
addition to the technical dimension that distinguishes the
concepts of security and adequacy, a different economic
dimension can be identified.
According to some authors, the security concept has a
public character eminently and the adequacy one has a
private character, although not necessarily is treated in
this sense in the Chilean regulation. The adequacy of a
system can be understood as the ability of a system to
supply with its generation units the demand of the
system. Particularly, under the assumption that the
situation of greater exigency of the system corresponds to
the scene of Maximum demand (the highest value in the
annual load curve), is possible to represent it like the

B. The Current Adequacy Model

The process begins with the calculus of the probability
function of the system power offer, i.e. a curve obtained
combined all the feasible states for each generation unit.
The DS 327/97 in its article 261 establishes:
"...The preliminary firm power of a generation unit will
be obtained taking into account the expected power that
the unit will deliver for a security level of the system
equal to the exceedance probability of the firm power
The exceedance probability of the firm power will be
calculated with the following expression:
PEPP = 1 - LOLPhp

where:

- PEPP is the exceedance probability of firm power.

- LOLPhp is the loss of load probability at peak demand
hour
The article was interpreted in the following sense: to
apply a calculus methodology; it was defined a density
probability function g, in order to calculate the
expected value of the random variable firm power for
the ith generation unit, according to the following
expression:
g(P = p i ) = Pb(P = p i / PSIS > Dm ) =
g(P = pi ) =

Pb(P = p i PSIS > Dm )

Pb(PSIS > Dm )

> Dm pi ) Pb(P = pi ) Pb(PSIS

> Dm pi )
Pb(P = pi ) Pb(PSIS
=
Pb(PSIS > Dm )
1 LOLPhp

Where :
PSIS =

P ;

random variable that describes the firm

k =1

power offer of the system.

=
PSIS

; random variable that describes the firm

Thermal

Hydro

k i

6000

power offer of the system without the ith generation unit.

5000

Dm ;

System Demand.
4000

Finally the expression to calculate the firm power of the

ith generation unit is:
PFP(des)i =

Ni

g(p j ) =

j =1

3000

2000

Ni
1
> Dm p j )
p j Pb(P = p j ) Pb(PSIS
1 LOLPhp j =1

1000

0
2000

Where:
PFP(des)i ;

Preliminar Firm power of the ith

2001

2002

2003

2004

2005

2006

Figure 5. Firm Power distribution (2000-2006)

generation unit

C. The New Capacity Assignment Methodology

g(p j ) ;

Under the conceptual scheme established within the

Chilean regulatory framework of year 2004-2005, it is
recognized the necessity to design an integrating
mechanism for the different types of generating units
based on indicators related to the adequacy concept, such
as LOLP or others. A model for recognition of power of
the generation units can be divided in the three indicated
sequential stages in the following figure:

Probability density function of the jth generation

unit for the state pj

Ni ;

Number of states of the ith generation unit.

The power plants states pj in practice are two, 0 and

initial power plant Pini. The initial power plant is a
quantity lower equal to the installed capacity of the plant
and is in relation to the availability of hydro generation
for the worst hydrological condition registered and used
in the planning operation process.
Thermal

Initial
Power

Definitive
Adequacy
Power

Hydro

The new procedure could be reduce to the following

steps:

8000
7000
6000

1.

5000
[MW]

Preliminary
Adequacy
Power

4000

2.

3000
2000

3.
4.

1000
0
2000

2001

2002

2003

2004

2005

2006

Figure 4. Initial Power system distribution (2000-2006)

The following figure shows the evolution of the
distribution of firm power between thermal ad hydro
units, from year 2000 to 2006.

5.

To define probabilities and factors of deterioration

for each state of each generating unit, according to a
predefined statistical treatment.
To consider the Maxima expected demand of the
system for the year of study.
Definition of Initial Power
Making use of a model of evaluation of the
probability distribution of the power offer of the
system (LOLP), to calculate the contribution to the
system adequacy of each generating unit. This value
receives the name of preliminary adequacy power.
To scale uniformly the preliminary adequacy powers
so that its sum will be equivalent to the expected
Maximum demand. The powers of adequacy thus
calculated correspond to the definitive powers of
adequacy of each generating unit.

A special attention deserves the definition of initial

powers of generation units, In this stage a criteria settles
down on the power availability of the primary type of
source of a generating unit. The Initial Power
characterizes the power that each unit can contribute to

the system, based on the uncertainty associated to the

availability of primary source of generation. This value is
smaller or equal to the Maximum power of the generating
unit and had to be evaluated for a pessimistic scenario
(criterion type "worst case"). For each type of technology
it is required a specific methodology of definition of
initial powers. The procedure involves the following substages:
General performances of thermal power stations:
maximum powers, own consumptions.
Data of thermal power plants with power constraints.
To define pipelines and other primary power elements
of provision susceptible to fail and their relation with
generating units.
To define rates of forced outaged for these elements,
statistical information of constraints associated to power
primary, the alternative ones of fuel change based on the
number of operation states, alternatives of stock
handling, detail of types of contract and commitments of
suppliers.
General performances of hydraulic power stations:
information of historical inflows, hydraulic connectivity
of the river basin.
Data of hydraulic power stations with regulation pools
or dams: maximum and minimum statistic of trajectory
of levels, volumes, filtrations, ecological or irrigation
constraints.
Data of wind driven power plants: statistics of speeds
of wind, generation curves.
Representation of the demand: Curve of annual
demand.

V. CONCLUSION
At word-wide level the evolution of the electric power
system has faced new features that had not been consider
in the original market design. As far as the system has
been evolving, the regulatory framework has to be
adapted to those changes in order to ensure a coherent
scheme of interchange between demand and supply side
of the market.
Some aspect, recently modify in the Chilean regulatory
framework, has been described in the present document
with special attention to both the energy risk supply
management and capacity payment. The former has been
described in the short and long term issues and the later
has been analyses from the current perspective to the new
methodology, which split the concept of adequacy and
security. It is shown that most of the changes were
boosted by system supply crises and the special
characteristics of the hydro dependency of the system.
Finally, new challenges have appeared in order to adapt
the new aspect of the regulatory framework to the current
market/payment schemes, it could be mentioned the
following:

To offer incentives to regulated costumers in order to

manage its demand.
To find out the cost of a security plan.
To define a procedure that describes the new way of
assign firm power capacity among the different
generation unit in the system.
To adapt the methodology of capacity calculations to
include Distributed Generation.

VI. REFERENCES
[1]
[2]
[3]
[4]

Chilean Electricity Law (DFL N1/1982)

First Regulatory Framework (DS 6/1985)
Second Regulatory Framework (DS N327/1997)
Chilean Electricity Law Changes (Ley 19940/2004
and 20018/2005)
[5] Bohi, D. R., Toman M.A.., "The Economics of
Energy Security", Kluwer Academic Publisher, Norwell,
MA, USA.
[6]Rudnick H., "Risk Responsibility for Supply in
Deregulated Electricity Markets- The Chilean Case",
IEEE Power Engineering Meeting, Toronto, July 2003.
[7]Borenstein S., "The Trouble with Electricity Markets
(and some solutions)", University of California Energy
Institute. POWER Working Paper PWP-081, January
2001.
[8] Lemus C., Rudnick H., Paredes R., "The marketer as
a competition agent in the Chilean electric market",
submitted to Energy Economics, 2006

[9] Billinton R., Allan R.:Reliability Evaluation of

Power Systems, Plenum Press, 2da Edicin, ISBN: 0306-45259-6, 1996.
[10] Vazquez Carlos, Michel River and Ignacio Perez
Arriaga, A market approach to long-term security of
supply, IEEE Transactions on Power Systems, Vol 17,
No 2. pp 349-357, May 2002.
[11] Meseguer, Claudia, Valoracin econmica
marginalista de servicios de generacin en mercados
elctricos, Tesis Doctoral, Universidad Pontificia
Comillas, Madrid, 1998.
[12] North American Electric Reliability Council,
NERC Planning Standards, September 1997.
[13] Shuti Fu; Xiaomin Bai; Haining Wang;
Transmission and Distribution Conference and
Exhibition: Asia and Pacific, 2005 IEEE/PESAug. 2005.
[14] M. V. F. Pereira, Optimal Stochastic Operations
Scheduling of Large Hydroelectric Systems, Electrical
Power & Energy Systems, Vol. 11, No. 3, July 1989.

VII. BIOGRAPHIES
Ernesto R. Huber J. was born in Santiago, Chile. He
received his Electrical Engineer diploma from the
Universidad de Chile, Santiago, Chile. He obtained his
M.B.A. degree from Universidad Adolfo Ibez, Chile in
1999. From 1990 he has worked in the main companies
of the generation and transmission sector in Chile.
Currently he is Operation Deputy Director at the
Economic Load Dispatch Center of the Central
Interconnected System (Chilean ISO).
Rodrigo M. Espinoza V. was born in Santiago, Chile.
He obtained his Electrical Engineer diploma from the
Universidad de Chile in 1995 and he is a candidate to a
M.Sc. in Atmospheric Sciences at Universidad de Chile.
He is currently chief of the Planning Operation
Department at the Economic Load Dispatch Center of the
Central Interconnected System (Chilean ISO).

Rodrigo Palma-Behnke (IEEE Senior Member) was

born in Antofagasta, Chile. He received his B.Sc. and
M.Sc. on Electrical Engineering from the Pontificia
Universidad Catlica de Chile and a Dr. Ing. from the
University of Dortmund, Germany. He is currently a
professor in the Electrical Engineering Department at the
University of Chile. His research field is the planning and
operation of electrical systems in competitive power
markets and new technologies. He is Senior Member of
the IEEE since year 2004.