Last February, the Reliability Charge (RC) Auction was held. In this short article, I will address in detail the most relevant aspects of this mechanism and why it is so important for the country’s energy reliability.

1. Why was the RC created?

The Reliability Charge originated in 1992, when Colombia faced a blackout that lasted for more than eleven months as a consequence of the El Niño phenomenon. This critical period, characterized by prolonged droughts, led to widespread power outages. For example, in cities like Bogotá, rationing lasted for nine hours a day, and in municipalities like San Andrés, for more than 18. This contingency arose due to the high vulnerability of our electricity grid, which, at that time, was composed of more than 80% hydroelectric power.

We should also add that in 1992 the sector was entirely public. There were the infamous state-run electricity companies that, year after year, racked up millions in losses. These entities lacked financial stability and, consequently, couldn’t cope with periods of scarcity or droughts.

Once the El Niño phenomenon subsided, the Gaviria administration took significant measures to prevent future system collapses. The most important was allowing private sector participation and, among other things, creating the Capacity Charge, now known as the Reliability Charge (CxC).

2. What is the CxC?

Imagine you’re working from home but know that your company might call you in at any moment. As a precaution, you make the following arrangement with a taxi driver: you pay a daily fee simply for being available when needed. You pay the driver $5,000 COP daily because he told you that’s what he needs to keep the car in good working order for when you have to go to the office. They also agree that, on the day you call, the fare can’t exceed $10,000.

Two years go by without you needing to go to the office. For two years, the taxi driver has received his payment without doing anything, simply for being available. But then the day arrives when your company tells you they’ll need you in person for the next 60 days. You’re at ease because you know that, no matter what happens, you’ll always have someone to take you. Furthermore, you’re delighted because at the times you need to be there, the normal fare would be $50,000. But thanks to the agreement you made, you’ll only pay $10,000.

The day you have to go to the office, you open the news and realize that there will be a gasoline shortage that month and taxi drivers are marching because there are no spare parts for taxis in the country. But that doesn’t matter to you; you’ve already (as the young people say) taken care of it.

Let’s draw an analogy with the sector. In this case, the power generation plant assigned to the CxC (Contract for Credit) is like our taxi driver, as it commits to generating energy in exchange for availability payments, regardless of the country’s contingencies. And just like the taxi driver, the generator cannot make excuses, as the application of sanctions and fines would make it impossible for them to continue operating.

3. What is the function of the CxC?

The function of the CxC is to facilitate investments in power generation in Colombia. It guarantees that generators receive compensation for being available, thus incentivizing investment in energy infrastructure. Furthermore, it ensures that even in critical conditions of scarcity, energy demand can always be met.

4. How is the CxC awarded?

The CxC award process is carried out through a two-sided reverse auction, with simultaneous sealed bids and voluntary participation. Both generators and distributors submit their bids for specific time slots, established by the Ministry of Mines and Energy. These “packages” of generated energy are traded under the strict requirements set by the regulator.

5. Results of the latest auction (February 15):

In the recent auction, the CxC (Cost-for-Consumption) contract closed at around $18 USD per megawatt. In our example, “Termo Taxi” would receive $18 USD per hour for each available taxi. This amount is partially reflected in the rate we, as consumers, pay on our electricity bills.

The auction awarded contracts to 80 plants, including 30 solar, 24 hydroelectric, and 26 thermal.

6. Does the CxC work or not?

Ultimately, the CxC mechanism has proven its effectiveness, contributing to Colombia maintaining a 98% reliability rate in its electricity supply. Throughout periods of scarcity more severe than that of ’92, such as the El Niño Phenomenon of 2014, the country has avoided rationing, consolidating itself as a world leader in reliability.