Application of the Power Exchange-Independent System Operator model in Chile

In September of 2000, the Chilean Energy Commission published a draft of a new electricity services law. One of the main changes was the replacement of the Chilean electricity pool by two new organizations, the Power Exchange and the Independent System Operator. Based on the experience of the electricity markets of California, England/Wales, Scandinavia, Colombia and Spain, and considering the characteristics of the Chilean market, an analysis is done in this paper on the consequences of such change and the effect on prices and dispatch. Topics such as market power, horizontal concentration, transmission constraints, and the withdrawal of the capacity payment, must be carefully analyzed in a market design, considering the effects these issues may have in the competitiveness of the sector and the search for efficiency.