How Soon Could We See a Single Andean Power Market?

May 9, 2014

Energy sector officials from Chile and Andean Community (Comunidad Andina (CAN)) member countries Bolivia, Peru, Colombia and Ecuador met in Lima in late-April 2014 to analyze and take stock of progress in the context of the Andean Electrical Interconnection System (Sistema de Interconexión Eléctrica Andina (SINEA)) initiative.  During the meeting, the officials signed the Lima Declaration for Andean Electrical Interconnection and Integration (Declaración de Lima para la Interconexión e Integración Eléctrica Andina), in which the parties agreed to continue working toward regional electrical integration, and to craft and adopt a regulatory harmonization pact to allow for the gradual creation of a regional power market, while maintaining coordination with and linkages to CAN as a regional integration body.  Nexant explores below what lies ahead for these countries seeking Andean electrical interconnection and power market integration.

SINEA and the Roadmap

The parties established SINEA in April 2011 to create (i) a so-called “Andean Power Corridor” by building the infrastructure necessary for regional electrical interconnection, and (ii) a regulatory framework to govern cross-border power sector exchanges and transactions.  The April 2014 Lima Declaration establishes a so-called “roadmap,” which reportedly aims to achieve (i) and (ii) by 2020-21.  The parties have yet to make public this roadmap, but they have released statements that shed some light on its contents:

  • In regard to next steps, the Colombian Ministry of Mines and Energy asserts that parties must now begin (i) planning and building bi-national and regional transmission infrastructure, and (ii) crafting regulatory and operational agreements necessary for the establishment and functioning of an eventual regional power market; and
  • In regard to timeframe, the Peruvian Ministry of Energy and Mines suggests that the roadmap’s first phase, set to end in 2014-15, contemplates (i) the completion of infrastructure for the interconnection of Colombia, Ecuador and Peru, and (ii) the signing of a broad power market cooperation agreement between these three countries.  In a second phase, set to end in 2020-21, such power market integration could extend south to encompass Chile and possibly Bolivia.
     

Outlook

The parties argue that cross-border power transmission through a unified Andean power market will translate into lower electricity rates, which is certainly a reasonable claim.  However, parties must overcome many hurdles in order to achieve the economic benefits of cheaper electricity.  Among these hurdles is the harmonization of relevant national-level regulation, which the Ecuadorian Ministry of Electricity and Renewable Energy notes is the “most sensitive” of issues pending.  The Colombian Ministry of Mines and Energy further asserts that this regulatory harmonization must occur without any diminishment to parties’ sovereign rule-making authority.  Such demonstrations of sovereignty-related concerns suggest that the execution of this regulatory harmonization will not be an expeditious matter, which could cause the parties to miss roadmap deadlines.  Such other regional interconnection initiatives as SIEPAC in Central America have encountered precisely this challenge.

The parties will meet by November 2014 to again take stock of progress toward milestones contemplated under the roadmap.