Simulating power integration in Latin America to assess challenges, opportunities, and threats

Integration of electricity markets started to spread under the world-wide trend to economic liberalization. While some regions are managing better than others, lessons, both political and technical, highlight challenges ahead that need to be overcome. Since the early 2000s, Panama, Colombia, Ecuador, and Peru have decided to integrate their electricity markets, eventually creating an enormous Latin American electricity exchange, ranging from Mexico to Chile. This poses opportunities and threats to the region as it involves cooperation, trust, and the will to overcome difficulties that may arise. In this direction, we developed a system dynamics model, linked to an iterative algorithm, to assess the likely effects of integration on both system expansion and security of supply. The model helps us understand the logic of the long-term system behavior under different policies, assuming Market Coupling as the dispatch mechanism. Based on theoretical grounds and after analyzing simulation results under different scenarios, we conclude that the integration of electricity markets may render important opportunities regarding security of supply and efficiency; and consequently energy might be supplied at lower prices, using "cleaner" technologies. However, benefits largely depend on policy, regulation, and technical issues. - Highlights: • We model the likely long-term dynamics of regional integration in Latin America. • The approach includes a dispatch algorithm linked to a system dynamics model. • The model simulates the evolution of installed capacity and prices. • We conclude: electricity integration may provide security of supply and efficiency. • Benefits of integration largely depend on policy, regulation, and technical issues