Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

As outlined in question 3, generators require either a concession, a licence or a registration before or issued by ASEP, to build and operate a generation facility.

Generators with a concession or licence, can participate in the wholesale market in Panama by selling their output through:

  • PPAs. PPAs must be awarded through auctions summoned and presided over by ETESA. ETESA establishes reference prices for each auction and generators compete for the long-term or short-term contract on the basis of capacity and prices. ETESA awards the PPA to the bidders offering the lowest monomic price. Monomic price is defined as the combination of the prices for energy and capacity, expressed in terms of dollars per MW. Once ETESA selects the winning bid, ASEP must approve the selection. The auction process is completed with the subscription of a PPA between the disco and the generator that submits the lowest conforming bid. As indicated in question 5, ETESA can organise special auctions based on the type of technology;
  • PPAs freely negotiated with other generators;
  • PPAS freely negotiated with LUCs. According to rules issued in 2012, generators may also sell capacity and energy to LUCs using the LCB. The LCB is an auction system that promotes a basket of energy from generators to LUCs managed by ETESA; or
  • the spot market, on an hourly basis. The spot market allows generators to sell to discos, LUCs, other generators and foreign markets. Rules issued in 2012 allow generators to sell into the spot market only if the generators have complied with their obligations to participate in all auctions called by ASEP to purchase and sell power or energy, with their available capacity. The price of energy in the spot market will be calculated based on the last generator called to dispatch energy, without considering the fuel source or any security restrictions.

Self-generators and co-generators can participate in the wholesale market in Panama by selling the energy that they do not consume in the spot market. Moreover, self-generators can also negotiate PPAs with other generators and LUCs.

As discussed in question 2, discos require a concession issued by ASEP to operate and to sell power to consumers. Additionally, discos must subscribe long-term PPAs to cover 100 per cent of the capacity and energy requirements of regulated consumers.

Power sales tariffs

Is there any tariff or other regulation regarding power sales?

In Panama, ASEP has the authority to enact and amend the rules that govern power sales from generators to the wholesale market. The CND is responsible for implementing these rules. Said rules set the market criteria for the exchange and sale of power, including the criteria for setting tariffs. These rules and tariff criteria are reviewed every four years.

Tariffs charged by discos to final consumers are classified according to consumption and voltage. Discos must set tariffs based on a formula fixed by ASEP that allows for a reasonable return on investment after distribution costs are covered. Accepted distribution costs are management, operation and maintenance expenses, as well as standard losses and the depreciation that an efficient disco would incur within the respective concession area.

Tariffs to final consumers at present include a fuel differential subsidy that is paid by the government to discos to compensate for higher fuel prices.

Other requirements regarding power sales are outlined in question 16.

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

Question 18 outlines the options that generators have to sell power. The applicable rates will be contingent on the particular option, as follows:

  • competitive PPAs - the rates in PPAs are the result of the auction. ETESA formulates reference prices for each auction and generators compete for the long-term or short-term PPAs on the basis of capacity and prices;
  • PPAs with other generators or LUCs - rates in these PPAs are freely negotiated between the parties;
  • the spot market - the CND calculates the price with the marginal cost of short-term generation; and
  • LCB - ETESA calculates power rates in the LCB from the average of all the power offered by generators and each generator’s price. The total average will be the power rate in the LCB. After ETESA calculates the price for the LCB, the LUC can decide if they will purchase electricity from the LCB or if they prefer to purchase directly from discos or generators.
Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

Electricity is considered a public service obligation in Panama. Extant legislation provides that power generation, transmission, distribution and commercialisation of electricity must satisfy basic collective needs on a permanent basis. However, Panama’s electricity regulatory system also considers financial viability and free competition as basic elements of the electricity market.