Market Mechanisms and Supply Adequacy in Power Sector Reforms in Latin America

The process of transformation in government and operations in the power sector leads to interaction between increasing integrated markets and public agencies in charge of policy making, regulation and control. This is examined for Latin America. First, state reform and state policies in Latin America are considered, where present concerns, state-market relationship (the position of regulation, globalization, internationalization), and state market in the energy sector (correction and adjustments) are reviewed. Here, case studies for Argentina and Brazil are briefly reviewed. The paper then examines solutions that are being explored to face supply problems over recent years in the Chilean electricity market, given the unexpected restrictions in natural gas transfers from Argentina. The final part of the paper discusses auctions of contracts and energy call options to ensure supply adequacy in the Brazilian power sector reform. Then, reform being proposed to the electric regulatory framework for wholesale transactions in Peru is reviewed. It represents an effort to solve some problems with the electricity market, particularly the perception that investment in new generation resources is, or may be in the future, inadequate