Congestion auctions as a solution to the electric constraints in the Colombian electricity market

This study proposes an auction mechanism for solving the constraints of the Colombian transmission system in a way that is compatible with the existing regulation of wholesale electricity market of the country. The transmission constraints in the Colombian system are generally caused by thermal overloads or insufficient voltage support and/or reactive power. These constraints are normally solved by re-dispatching higher cost generation. As a consequence system operation cost increases, and fair competition in the wholesale electricity market is distorted. The proposed auction of relief solutions is based on the current auction mechanism that is presently used for the transmission expansion in Colombia. The proposed mechanism considers using the current payment method for existing equipment called ldquoUnidades Constructivasrdquo (ldquounified construction and operation costsrdquo), and the expected savings in operating costs resulting from the proposed remedy, as parameters in evaluating bids. This way a rational, market based bid evaluation may be conducted even under limited competition. A test case is used to simulate the convenience and effectiveness of this methodology. The test case showed that these reference values are adequate to evaluate different bidders, and confirmed the implementation feasibility of the proposed auction mechanism. A more mature auction method called DFAR (Constraint-relief investment rights - Derecho Financiero por Alivio de Restricciones) is also proposed. This method would provide the migration from the proposed auction mechanism complemented by a mix of components including zonal charge, no compensation for generation displaced by market distortions, and restriction of spot market participation of generation which is dispatched only during transmission constraints. This study builds a reference for analyzing the constraints in the Colombian transmission system and suggests a novel alternative for the efficient expansion of the elect- - ric system from the constraints point of view.