How Soon Could We See a Single Andean Power Market?, Part II

Jul 31, 2014

In the context of the 5th Chile-Ecuador Inter-Ministerial Meeting on July 21, 2014, Chilean Energy Minister Máximo Pacheco and Ecuadorean Electricity and Renewable Energy Minister Esteban Albornoz signed a Joint Declaration on power cooperation and commercialization.  According to the Chilean Ministry of Energy, this Joint Declaration will underlie a future bilateral agreement to allow cross-border power trading among private Chilean and Ecuadorean power market actors.  Nexant explores below the general contours of the Joint Declaration and discusses the larger context of Andean power market integration.

Minister Albornoz asserted the Ecuadorean government’s firm intention to facilitate the sale of Ecuadorean power to the Chilean market, given Ecuador’s power surplus projected for 2017 through 2020.  According to the Ecuadorean Ministry of Electricity and Renewable Energy, such exportable power surplus will result from the completion of eight hydroelectric projects currently under construction in Ecuador with a total investment value of USD 5 billion.

Under the Joint Declaration, the parties will now empanel several working groups to design a regulatory framework to achieve operational power transmission lines between Ecuador and Chile by 2020 and allow for cross-border power sales thereafter.  These working groups will address, inter alia (i) technical differences between the parties’ power systems, (ii) each party’s power supply and demand projections, (iii) the portfolio of current and future Chilean and Ecuadorean power projects, (iv) the parties’ respective models for power system operation, and (v) any existing applicable laws and regulations, and present their first regulatory framework report at the November 2014 Andean Electrical Interconnection System (Sistema de Interconexión Eléctrica Andina (SINEA)) meeting.  The Joint Declaration also instructs the parties to identify synergies and opportunities to collaborate on energy efficiency and renewable energy, so that future agreements on technical assistance, technology transfer, training and the drafting of joint studies may reference such synergies and opportunities.

Ecuador-Chile power interconnection is consistent with the objectives on regional power integration contemplated under the SINEA Initiative’s April 2014 Lima Declaration for Andean Electrical Interconnection and Integration (Declaración de Lima para la Interconexión e Integración Eléctrica Andina), to which Chile, Ecuador, Peru, Colombia and Bolivia are party and about which Nexant blogged in May 2014.  In regard to infrastructure, the backbone of this seemingly forthcoming Andean power interconnection is a series of existent or soon-to-become-operational cross-border transmission lines in addition to that which will connect Ecuador with Chile, e.g., Peru-Ecuador, Colombia-Ecuador and Peru-Chile; however, the challenge facing the realization of this Andean power market remains differences among the parties in regard to power transmission regulatory schemes and pricing mechanisms.  The purpose of the November 2014 SINEA meeting is for parties take stock of progress toward milestones contemplated under the April 2014 Lima Declaration, including regulatory and pricing issues.