Since 2022, Colombians have been grappling with rising prices for basic food items, along with increased gasoline prices and, ultimately, rising costs for all goods and services in our daily lives. Now, these headaches are compounded by the highest energy prices in the country’s history. This trend began last year, continued throughout 2023, and is set to escalate in early 2024. The government has attempted to address this situation with measures such as the Pact for Tariff Justice, unfortunately without real success.

In the last year, the increase in our energy bills stemmed from the high inflation that continues to affect the global economy due to the pandemic and the lockdowns of 2020 and 2021. However, another variable has arrived in our country that, while foreseeable, still impacts the electricity market every time it occurs: El Niño, a climatic event characterized by high temperatures, but above all by droughts. This is particularly problematic in a country whose energy reliability depends largely on hydroelectric power.

And with the phenomenon barely underway, we are already seeing how transactions on the Energy Exchange are beginning to signal what is coming in the next few months, a trend that will intensify by January 2024. This means that, for the first time in six years, the Exchange price will exceed the Scarcity Price. What does this mean? Our regulations have implemented a methodology that ensures energy retailers, those who provide us with the service, never pay exorbitant prices when they have to buy energy on the wholesale market. This limit (the Scarcity Price) is set at $1065 pesos, meaning that energy can never be purchased above that price, even if generating it costs more. As of September 11, it was just $9 pesos away from exceeding that ceiling, and the probability of it surpassing it this week is high.

If the wholesale energy price continues to rise, how unprotected are consumers left? The first thing to clarify is that energy retailers anticipated this situation and have secured most of the energy they supply us through long-term contracts, establishing fixed and unchangeable prices. This means that the agreed-upon prices will not fluctuate over time. Only a small portion of the energy these retailers purchase is traded on the wholesale market. This allows users to avoid constant exposure to the vulnerability generated by external factors, such as weather.

There are also other tools that were created several decades ago and are now perfectly integrated into our system. Among them is the Reliability Charge, which, simply put, consists of commitments made by generators to have energy available at any time of year and to sell it below the Scarcity Price in exchange for a payment they receive (whether they operate or not) simply for being available. This mechanism has allowed Colombia to avoid blackouts like the one in 1992 during other El Niño events. Thanks to these kinds of “safety nets,” our country has a level of reliability envied by developed nations, making the probability of rationing almost nil. This is a fact that few people know.

Therefore, measures such as the president’s intervention in the Regulatory Commission, or attempting to set prices by decree, are not the ideal solutions to address this situation, which will likely continue for some time and which we have managed successfully in previous years thanks to the strengthening of our system. The less government intervention there is in the components of the tariff, the more reassurance we, as consumers, will have regarding a constant energy supply and the prevention of exponential price increases.