It is popularly known that at the moment of structuring and evaluating a power generation project, the definition of the capacity of interconnection to the system it of the utmost importance. Every power generation project, for its development, needs total certainty regarding the feasibility of the energy that will be produced can be delivered for its transmission through the system to which it needs to be connected. Thus, the regulation of the procedure for allocating connection points is relevant for the success (or failure) of future generation projects in Colombia. As a result of the obstacles that the former procedure had, the Energy and Gas Regulatory Commission (CREG for its acronym in Spanish) repealed Resolution CREG 106 of 2006 and issued, in lieu, Resolution CREG 075 of 2021.
What was the problem with the previous regulation? Let’s see.
Anyone who was interested in connecting its generation facility to the National Transmission System (STN), to a Regional Transmission System (STR) or to a Local Distribution System (SDL) had to present to the national transmitter or the network operator (Transporter) the connection request, along with the technical and financial feasibility study, which had to comply with the Network Code or the Distribution Code. The Transporter had a maximum of 2 months since having received the request to issue the concept related to the technical viability of the connection. Immediately, the Transporter had to submit to the Mining and Energy Planning Unit (UPME for its acronym in Spanish) who had to review the connection analysis and issue a concept to be submitted to the Transporter. This concept, if positive, allowed the allocation of the connection point and the execution of the connection contract, which had to be signed in a term no less than 30 business days after the issuance of the UPME Concept. Moreover, the obligations of submitting the S Curve for the construction and the transportation capacity guarantee arise concurrently.
However, for different reasons the abovementioned legal terms were not accomplished. In several occasions, the network operator refrained from providing input regarding the request or took a longer time in submitting it. Additionally, the allocation of connection points was based on the principle “first in time, first in right”, meaning that the first person who filed the request had, for only said reason, priority over other projects that may be interested in the same connection point. Likewise, the negotiations of the connection contract could last 6 months or even more. And, aside, a rather worrying phenomenon was taking place, in which the beneficiary of the point of connection excessively delayed the commencement of the projects while seeking for interested investors in performing construction investments, or they simply speculated by enjoying the titularity of the right granted.
All the above led to a slowdown in the development of generation projects and the creation of uncertainty regarding the feasibility of several projects, particularly projects with non-conventional renewable energy (NCRE) sources. This situation forced the need for the CREG to intervene through the issuance of Resolution 075/2021. One of the most important innovations in the procedure for allocating connection points to the STN, STR or SDL is that the interested party may file its request through a platform (ventanilla única) to be administered by UPME. In this platform, the processing of the entire procedure will be centralized: the submission, study, approbation and follow-up of the requests for allocating the transportation capacity will be performed there.
For projects to be connected to the STN (class 1), the regulation provided as a requirement that the interested party submits a connection and availability of physical space study, in which several alternatives for the connection to the National Interconnection System (SIN for its acronym in Spanish) are analyzed. With this document, the regulator expects that the feasibility analysis for the connection is more expedite. In any case, once the connection concept is issued, the interested party will have a term of 2 months to inform the UPME that it accepts the transportation capacity allocated to the project in the terms established in the concept and commits to building the facility and placing it in operation phase at the latest in the date established.
However, with the purpose of ensuring the use of the transportation capacity allocated to class 1 projects, the interested party must issue a guarantee to reserve the capacity, to be calculated in Colombian pesos multiplying times USD$10 the number of kw of the transportation capacity that was allocated. With the procedure established in the former regulation, this guarantee was equivalent to USD$1 per kw, which facilitated the hoarding of connection points and the speculation.
On the other hand, the transporter responsible of the assets of the system where the project will be connected and the interested party must enter into a connection contract that fulfills the requirements provided in the Connection Code, which is part of the Network Code adopted through Resolución CREG 025 de 1995. This contract must be signed in a term no longer of 4 months since the issuance of the connection concept by UPME before December 31st of 2021 during the transition period, or 2 months since the issuance of the concept issued after the entry into force of this new procedure. The contract’s provisions must be standardized according to the draft minute issued by the CREG and to be available in the UPME’s platform (ventanilla única).
Another important modification is the abandonment of the criteria of “first in time, first in right” to introduce a scoring system through which requests will be evaluated taking into consideration several aspects of the project, including its progress and commitments with the market. The UPME has mentioned, for example, that the highest score will be obtained by projects that already have compromises with the system related to cargos de confiabilidad or long-term contracts that have arisen from bidding procedures, or projects that have significant progress in the environmental licensing procedure. They have also said that those NRCE projects will have a special score as part of the public policy traced for energy transition and achieving the decarbonization objectives.
As it is often the case with these scenarios, the new regulation has received critiques, specially from project sponsors that, after having waited for an answer under the former regime, received at the end of last year a negative connection concept from UPME. In their opinion, not having received preference due to being the first to have submitted the request, is now causing them to be in disadvantage over other competitors. All in all, it is important that this “cleaning” performed by UPME by putting up to date the connection request has clearly represented an opportunity for structuring of new projects. Although the term for appeals over negative concepts are still running, it is estimated that the free connection capacity will amount from 5.000 to 8.000 MW, which should result interesting for investors.
With these changes, the regulator intends that by having a platform for registering and publishing the characteristics and advance of the projects to be connected to the SIN, investors have confidence over the times the allocation of connection points will take for each project. In this way, investments may be performed within a clearer regulatory framework.
