Paraguay's Electricity Market Not Liberalized, Operates as Regulated Monopoly: Expert
Translated from Spanish, summarized and contextualized by DistantNews.
At a glance
Analysis
Named sources
Context piece
- Consultant engineer Guillermo López Flores refutes analysis by Javier Villate, stating Paraguay's electricity market is a regulated state monopoly, not a liberalized market.
- López Flores clarifies that Paraguay's National Electricity Administration (ANDE) operates under a "cost of service" model, with tariffs calculated based on energy acquisition costs, operational expenses, and a guaranteed profit margin.
- He emphasizes that ANDE purchases energy through fixed long-term contracts, not daily price auctions, making marginalist pricing logic inapplicable to its tariffs.
Paraguay's electricity sector operates as a regulated state monopoly, not a liberalized market driven by free competition, according to consultant engineer Guillermo López Flores. He is responding to an analysis by engineer Javier Villate that questioned a subsidized tariff for the green hydrogen multinational Atome and the role of the Yacyretá dam.
López Flores, a former technical advisor to Itaipú dam negotiators, argues that Villate's analysis makes a "severe conceptual error" by applying the principles of a deregulated, marginalist wholesale market to Paraguay's system. Instead, Paraguay's electricity sector is legally and technically structured as a state monopoly operating under a "cost of service" principle.
the article by Ing. Javier Villate incurs in 'a severe conceptual error' by extrapolating the functioning of a deregulated and marginalist wholesale market to the reality of the Paraguayan electrical sector.
The National Electricity Administration (ANDE) functions according to its Organic Charter, Law No. 966/64. This law explicitly establishes a tariff system based on the cost of service. Under this framework, user tariffs are calculated by summing three components: the actual costs of acquiring energy through long-term contracts with Itaipú, Yacyretá, and Acaray's own generation; ANDE's operational costs for transmission, distribution, and administration; and a legally guaranteed annual profitability between 8% and 10% of its investments.
In Paraguay, the electricity market is not liberalized nor does it respond to free competition.
López Flores stresses that ANDE does not procure energy through daily variable-price auctions. Instead, it relies on fixed, long-term binational contracts. He points out that the original analysis incorrectly suggested that in competitive electricity markets, the reference price is set by the most expensive, last-needed generator, not the cheapest. This marginalist logic, he explains, applies to liberalized markets like those in Chile, Colombia, or parts of Europe, where private generators compete hourly, and the system operator dispatches plants based on merit. In such systems, the last plant brought online sets the "spot" price for the entire market, even if other generators produced energy at a lower cost.
"Since Paraguay does not have an open competitive market of this type, the marginalist logic does not apply to its tariffs," López Flores stated. ANDE pays Itaipú and Yacyretá their agreed-upon prices for energy. The generation cost reflected in ANDE's balance sheet is a weighted average of its actual purchases, not the price of the last unit dispatched.
Since Paraguay does not have an open competitive market of this type, the marginalist logic does not apply to its tariffs.
DistantNews Editorial
Originally published by ABC Color in Spanish. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.
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