Bidding conditions for the purchase of firm capacity and energy in Honduras

By: Fernando López and Janine Paz

The Electric Energy Regulatory Commission (CREE), within the scope of its powers, approved through Resolution CREE-47-2022 dated December 29^th, 2022, the modification of the Terms of Reference for the elaboration of the Bidding bases for the Purchase of Firm Capacity and Energy for the users of the National Electric Energy Company (ENEE) called LPI-100-010-2021 OF 450 MW under the BOT (Build-Operate-Transfer) modality. The most relevant elements of the Resolution are described below:

1. Background

The General Law of the Electricity Industry (LGIE), issued by Decree 404-2013, establishes that distribution companies must have covered with firm capacity and energy purchase contracts with generating companies, their maximum power demand plus the reserve margin established by regulation until the end of the following calendar year, as a minimum. In this sense, the National Enterprise of Electric Energy (ENEE, according to its Spanish initials) may make new capacity and energy purchases through national or international bids, as long as they are made under the BOT modality. These tenders are developed under the supervision of the Electric Energy Regulatory Commission.

Due to the fact that in 2017 it was not possible to contract all the firm capacity that was tendered in 2017, and that between 2020 and 2022 the term of contracts would be ending with a total capacity of 236.2 MW (of which around 170 MW are firm capacity), the requirements of firm capacity and energy have increased. Therefore, ENEE has made a 10-year projection that establishes the need to contract 450MW that must be in commercial operation within the first quarter of 2026 as a maximum date, being able to start supply from 2023, even partially.

2. Description of the Open Bidding Process.

The bidding will be called by ENEE and will be a national or international, competitive and transparent bidding, open to the participation of national and foreign companies that comply with the requirements established in the bidding conditions. The referred bidding will be governed by the provisions of the General Law of the Electricity Industry (LGIE), its regulations and applicable regulations in force.

3. Methodology of the Bidding

The bidding modality will be an auction of up to four rounds in closed envelopes, following the following methodology:

1. Bidders must initially submit an envelope A containing the technical offer and an envelope B with the economic offer.
2. The technical specifications of the bids submitted in the first round may not be changed in subsequent rounds. Bidders may only change the energy prices and/or power prices.
3. The first round will begin with the execution of an optimization model run using the economic offers included in envelope B. Once the run is completed, the results will be analyzed, and the bidders will be informed of the selection results of each bidder.
4. At the conclusion of the first round, each bidder will receive a “selected” or “not selected” notification.
   1. • For offerors designated as “not selected”, the Bidding Board will determine a mandatory minimum percentage price reduction. In the event that the bidder is not willing to improve the bid, the bidder will be considered to have abandoned the auction process and will be automatically and definitively disqualified.
      • For bidders designated as “selected”, the Bidding Board will determine a recommended minimum percentage price reduction for each bidder. The bidder may improve the bid, considering that in the next round it could be displaced by lower bids.
5. All bidders can make a new bid in which they must submit energy and/or power prices: equal to or lower than the previous round for “selected” bidders; or lower than those submitted to the previous round for “non-selected” bidders.
6. In the second round the results will be analyzed, and the “total cost improvement percentage” will be calculated from the comparison of the “total cost of the objective function”.
   • • If the “total cost improvement percentage” is greater than or equal to the “minimum improvement percentage” the bidders will be informed individually to make a new bid.
     • If the “percentage of total cost improvement” is less than the “percentage of minimum improvement” this round will be considered as the final round and will be awarded to the selected bidders.

*The amount of time between the issuance of the bidding conditions and the presentation of the economic and technical bids will be 6 months.

4. Bidding Stages

• Consultation stage.

   It begins with the call for bids by means of a publication of the approved bidding conditions.

• Bid submission stage.

  – Date established for the presentation of the technical and economic bids to the Bidding Board. Interested parties who have withdrawn the bidding documents may participate in this stage.

  – The bidders must indicate in their bid the type of technology and generation fuel with which they will supply firm capacity and electric energy to ENEE.

• Technical evaluation stage.

  It starts from the date of submission of the bids and is the amount of time in which the Bidding Board will evaluate whether the technical proposals submitted comply with the established requirements. Including legal capacity, technical experience, economic-financial capacity of the bidders and descriptive report of the generation project.

• Initial economic bid entry, economic evaluation and awarding stage.

  A four-round sealed-bid auction process for those bidders declared technically solvent in stage c. This stage ends when the Bidding Board, after receiving the decision of the EERC, notifies the award or not of each of the bids to each of the bidders.

• Contract signing stage.

  The award of the bids is notified and ends with the forwarding to the EERC of the full copy of the signed contracts and their duly authenticated annexes. Once notified of the award authorization by CREE, ENEE must sign the contracts for the purchase of firm capacity and energy within the following three months.

ENEE is currently preparing the bidding conditions for the Purchase of Firm Capacity and Energy for the Users of the National Enterprise of Electric Energy (ENEE, according to its Spanish initials) called LPI-100-010-2021 OF 450 MW under the BOT modality, which once available will be analyzed and published for the knowledge of the interested parties.